10-K 1 tenk02a.txt ================================================================================ 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, 2002 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, 2001; $354,500. 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, 2002 ================================================================================ PART I. Item 1. Description of Business. (a) General development of business. The Company is a Development Stage Enterprise. Since inception in 1966, the Company has been engaged in the research and development of a commercial process(es) for the production of aluminum metal, 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-ACS Process") will be more economical, and consume less energy in the production of aluminum chloride, silicon tetrachloride, titanium tetrachloride, alumina and aluminum than conventional methods. The Company promotes it's technology through private and indvidual investors. To date, the Company has constructed two pilot plant facilities. From inception through August 31, 2002, the Company has derived no continuing revenues from the operations. The Company, which has devoted itself primarily to the research and development of the TAC Process, has incurred a net loss of approximately $83,783,871 from inception through August 31, 2002. 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. 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 Corp. and was changed to the Company's present name on August 20, 1973. The principal office of the Company is located at 2141 Toth St., 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. 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. 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 will 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. 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 oxides products from clay. One of the first steps in the commercialization process is the commercial production of metal chlorides. Among other things, 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 asses- sment 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. As of this writing, nothing material or consequential has materialized. Plan for Aluminum Metal The principal business goal of the Company is the commercialization of its Clay-to-Aluminum technology. This will involve the incor- poration 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. The TAC Process Currently, aluminum is produced from bauxite by the conventional Bayer-Hall processes. In the TAC Process, wet clay is heated in a dryer until the free moisture is evaporated. Then the dried clay is 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. It is management's belief that the TAC-ACS 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 metal is well-known. Aluminum chloride is commonly used as a catalyst to make detergents, dyes, pigments, plastics, pharmaceuticals, etc. Aluminum chloride can be further oxided to produce a high grade alumina for use in high grade ceramics. 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 non-drip paint, cosmetics and ice cream. Titanium tetrachloride is used in the production of titanium dioxide pigment for paper and paints. In addition, for the manufac- ture of titanium metal and alloys. The Armant Plant The Company is General Partner in a limited partnership (Armant) formed in 1982 to construct and operate a metal chlorides plant in Vacherie, Louisiana, which has been dormant since 1988. 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, and proven technologies. There can be no assurance that the plants will ultimately achieve such production, or if such production is achieved, it will be at competitive market pricing. 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 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. Research and Development Activities At the present time, Research and Development activites center around continued technical support for the commercialization of the Clay-to Aluminum Process. Fiscal Years Ended August 31, 2002 2001 2000 Research and development $6,850 $4,900 $16,600 Employees At September 30, 2002, the Company had 4 contracted employees. Item 2. Properties. The Company believes that its current offices are sufficient to house its existing operations. See "Investments--Armant" for a description of the properties utilized by the Armant Partnership. 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 NASDAQ Bulletin Board 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 ----- ------ 2002: First Quarter, 1/128 1/64 Second Quarter, 1/128 1/64 Third Quarter, 1/128 1/64 Fourth Quarter, 1/128 1/64 2001: First Quarter, 1/128 1/64 Second Quarter, 1/128 1/64 Third Quarter, 1/128 1/64 Fourth Quarter, 1/128 1/64 As of September 30, 2002, there were approximately 12,000 shareholders of record of the Company's common stock. It is estimated that an equal number of stockholders' shares are held in "nominee" or "street" name. 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 unaudited financial statements of the Company and notes related thereto appearing elsewhere herein. The financial statement of the Company has 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, 2002 of approximately $83,783,871. 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 hat the Company will be unable to continue in existence. The financial statements do not include any adjustments relating to the recover ability and classi- fication of recorded asset amounts or the amount and classifica- tion 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 suf- ficient 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 unaudited Financial Statements of the Company and Notes thereto. 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, 2002, total assets increased to $20,649 from $18,648 at August 31, 2001 and $34,566 at August 31, 2000. The primary asset of the Company is its proprietary technology, commonly referred to as the TAC-ACS Process, the Clay-to-Aluminum Process. 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 new Series "A-1" Convertible Promissory Notes increased from $33,308,623 at August 31, 1999 to $36,662,830 at August 31, 2000 to $40,648,052 at August 31, 2001 to 45,362,080 at August 31, 2002. Cash on hand decreased from $2,431 at August 31, 2001 to $430 at August 31, 2002. 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 and short term borrowings from individual sources and from creditors, with a commitment to continue into the foreseeable future. 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, 2002, to approximately $83,783,871. 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. 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. Some interest had been shown by prospective investors, but nothing significant and as of this writing, nothing material or consequential has materialized. 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 multiple steps. In the first step, which TAC has designated Phase 1, TAC proposes that a demonstration plant be built and operated. Operation of this plant will permit engineers to fine tune the design of the subsequent larger facility in Phase 2. Equally important, the Phase 1 plant will provide a hands-on training facility for plant staff. Phase 2 of the project will comprise the design and construction of a full scale commercial Clay-to- Aluminum chloride plant, including a 5,000 ton/year aluminum metal cell. 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 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. 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 small smelting facilities to produce 1,000 pounds of aluminum metal per day, and the selection of a suitable plant site. 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 chloride plant. In light of the Company's net operating loss carry-forwards of approximately $66,384,174 at August 31, 2002, 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 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. The Company had no operating revenues and reported net losses. The Company had been considered a development stage enterprise; start-up activities had commenced, but the Company has received no continued revenue therefrom. 2002 Compared to 2001 The net loss for the fiscal year ended August 31, 2002 was 4,711,597 compared to 4,001,140 in 2001. Total expenses increased from 3,985,270 in 2001 to 4,707,547 in 2002. During the same period, promotional,general and administrative expenses increased to$1,126,689. During the year ended August 31,2002, the company recognized 3,574,008 in interest expense compared to 3,146,500 in 2001. 2001 Compared to 2000 The net loss for the fiscal year ended August 31, 2001 was 4,001,140 compared to 3,357,799 in 2000. Total expenses increased from 3,325,933 in 2000 to 3,985,270 in 2001. During the same period, promotional,general and administrative expenses decreased to 833,820. During the year ended August 31,2001, the company recognized 3,146,500 in interest expense compared to 2,342,803 in 2000. Also, during fiscal year ended August 31, 2001, the company recognized 15,920 loss from Armant. Due to the prolong delays in attaining the necessary funding to restart the Armant Plant the company was forced to write off a major part of its investment in the Armant Partnership. Armant has had no operation during this year, except for routine maintnance and upkeep, and the company recognizes the related loss. 2000 Compared to 1999 The net loss for the fiscal year ended August 31, 2000 was $3,357,799 compared to $3,496,071 in 1999. Total expenses increased from $3,147,457 in 1999 to $3,325,935 in 2000. During the same period, promotional, general and administrative expenses increased to $966,530. During the year ended August 31, 2000, the company recognized $2,342,803 in interest expense compared to $1,288,405 in 1999. Also, during fiscal year ended August 31, 2000, the company recognized $31,866 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 70 Chairman of the Board of Directors and Chief Executive Officer Gervase M. Chaplin 65 Sr. Vice President Engineering and Technology Glenn A. Nesty 90 Director Calvin J. Laiche 71 Director Russell F. Haas 65 Director and Chief Financial Officer Simon Mexic 71 Director Charles Toth, the Company's Chairman of the Board, founded the Company in 1966. Mr. Toth served as President from 1966 to 1974, when he resigned as President and was elected Chairman of the Board of Directors. Gervase M. Chaplin was employed in 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, 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 7 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. Simon Mexic joined the company's board of directors in December of 1997. He is a retired New Orleans businessman who was involved in the local jewelry retail, real estate and insurance industries. Involvement in Legal Proceedings Under little known prior law, insiders of a corporation could not buy and sell any company's stock within a six month period of time. Such a transaction, at that time, was considered a violation of Rule 16 (b) of the Securities Exchange Act of 1934. This provision has since been re-enacted and this type of transaction is now completely in compliance with the new Rule 16 (b). Between 1983 and 1989, this Corporation has been unable to raise sufficient capital from any outside source to keep it in operation. Consequently, its CEO, while holding substantial amounts of stock at the time, sold his private stock, under the "Dribble Out Rules", shares that were released from Escrow after almost 12 years, where he could only sell small amounts of stock at a time, and loaned the proceeds to the Corporation and/or purchased equipment needed in the Corporation's operation. Several years later, a new minority stockholder purchased less than 50 shares of the Corporation's stock, and employed an attorney, who specialized in Rule 16 (b) violations, filed a suit in Federal Court, challenging this procedure. Our research indicated that the new and now current law was not made retroactive upon re-enactment, because this opposing attorney lobbied Congress and prevailed, keeping the old law in tact, for his existing cases. Today, there are legal provision in Rule 16 (b) for transactions of this nature, making them in total compliance of the law. Even under the old Rule 16 (b) law, various exceptions existed, such as the sale of Stock that was acquired in good faith in connection with a debt previously contracted, as was urged in the legal proceeding by the Corporation's CEO. While the transaction was very legal, only the recordation of the transaction on the Corporate books was not specific enough to comply with this complicated, archaic Rule 16 (b), which has since been modified. Because the specific language was not employed between the CEO and the Corporation, an oversight on the part of the Corporate Secretary, in other words, all officers in TAC's organziation had a total lack of knowledge over this quirk in the law. This allowed the minority stockholder to argue against the exception that the Corporation had relied upon in support of these transactions, after having expended considerable legal fees and having filed many legal proceedings prior to the trial. A Settlement Agreement was reached, whereby the Corporation's CEO agreed to reimburse the Corporation the amount of $1,700,000. For more details, see the appropriate section of the 10K, for the prior year. Item 9. Executive Compensation (a) Cash Compensation. The following table sets forth, as of the fiscal year ended August 31, 2002, 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) 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. (c) 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, 2002, 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) 1,610,750 5.0% *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. None. PART IV Item 12. Exhibits and financial statements. a) Exhibits: Exhibits numbered one through nine for Toth Aluminum Corporation are incorporated by reference to the Annual Report on 10-K of the Company filed for the fiscal years ended August 31, 1983 and 1985 respectively. 1. Amended and Restated Articles of Incorporation of the Registrant, dated January 31, 1972. 2. Amendment to Articles of Incorporation of Registrant dated April 24, 1973. 3. Amendment to Articles of Incorporation of Registrant dated August 20, 1973. 4. Amendment to Articles of Incorporation of Registrant date November 17, 1976. 5. By-Laws of Registrant dated November 22, 1976. 6. Specimen certificate of the Registrant's Common Stock, no par value. 7. Specimen certificate of the Registrant's 6% Convertible Participating Preferred Stock. 8. Promotion Agreement between Registrant and Indian Magsee Alloy, Inc. 9. Stock Option Waiver Agreement dated December 4, 1985. SIGNATURE Pursuant to the requirements of Section 13 of 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, hereunto duly authorized. TOTH ALUMINUM CORPORATION BY: Charles Toth November 29, 2002 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 November 29, 2002 Charles Toth Chairman of the Board of Directors and Chief Executive Officer Charles Ernest Toth Jr. November 29, 2002 Charles Ernest Toth Jr. Treasurer Glenn Nesty November 29, 2002 Glenn Nesty Director Calvin J. Laiche November 29, 2002 Calvin J. Laiche Director Russell F. Haas November 29, 2002 Russell F. Haas Director and CFO Simon Mexic November 29, 2002 Simon Mexic Director TOTH ALUMINUM CORPORATION FORM 10-K ITEMS 8, 14(a)(1) AND (2) INDEX OF FINANCIAL STATEMENTS AND SCHEDULES The following unaudited financial statements, of the Registrant, Required to be included in Item 8 and 14(a)(1),are listed below: Page Financial Statements: Balance Sheets...................... 17 Statements of Operations and 19 Deficit Accumulated During the Development Stage........... Statements of Stockholders' Equity. 20 Statements of Cash Flows........... 22 Notes To Financial Statements...... 24 The following financial statement schedule of the Registrant is included in Item 14(a)(2): IV - Indebtedness of and to Related 35 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 unaudited financial statements, including the notes thereto.

TOTH ALUMINUM CORPORATION COMBINED BALANCE SHEETS, AUGUST 31, ~~2001~~2002 AND ~~2000~~2001 (Unaudited) 2002 2001 ~~2000~~ ------ ------ ASSETS CURRENT ASSETS: Cash .................................... $ ~~2,431~~430 $ 12,~~538~~431 Accounts receivable: Officers and employees................ Other................................. 0 0 Total current assets..................... $ ~~2,431~~430 $ 12,~~538~~431 INVESTMENTS IN AND ADVANCES TO: TACMA India Limited................... Armant Partnership.................... 0 $ ~~5,788~~0 Total.................................... 0 $ ~~5,788~~0 PROPERTY, PLANT AND EQUIPMENT - Net....................... 0 $ ~~10,000~~0 PATENTS AND PATENT RIGHTS (net of accumulated amortization: ............ $ 1620,~~217~~949 $ 1716,~~240~~217 ========= ========== TOTAL................................... $ 1821,~~648~~649 $ 3418,~~566~~648 See notes to financial statement TOTH ALUMINUM CORPORATION COMBINED BALANCE SHEETS, AUGUST 31, 2002 AND 2001 (Unaudited) 2002 2001 LIABILITIES ------ ------ CURRENT LIABILITIES: Notes payable-related parties............ $ 23,100 $ 23,100 Notes payable-other ..................... 300,000 300,000 Accounts payable: Trade................................. 974,555 850,550 Officers and employees................ 934,826 616,510 Accrued salaries ........................ 2,797,660 2,323,018 Accrued expenses ........................ 863,920 640,863 Accrued interest payable................. 4,482,489 3,075,499 Total current liabilities................ 10,376,550 7,829,540 DEFERRED CREDIT ......................... 0 0 SERIES "A-1" Convertible Promissory Note (CPN)1 CPN Related Parties Principal........................... 12,080,096 12,080,096 Accrued interest payable............ 8,802,166 7,352,557 CPN Other Parties Principal........................... 5,978,421 5,978,421 Accrued interest payable............ 8,104,410 7,387,001 Total Series "A-1" Notes............$ 34,965,093 $ 32,798,075 CONVERTIBLE DEBENTURES PAYABLE (net of discounts, commissions, and offering costs of)...............$ 20,437 $ $20,437 STOCKHOLDERS' EQUITY: Common stock - no par value; Authorized 36,000,000 shares; issued and outstanding: 35,466,193 shares in 1998 and 35,466,193 shares in 1997.........$ 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.................. (83,783,871) (79,072,274) Total stockholders' equity............... (45,341,001) (40,629,404) =========== ========== TOTAL....................................$ 21,079 $ 18,648 *See section 11 of the "Notes to Financial Statements"

TOTH ALUMINUM CORPORATION ~~COMBINED~~STATEMENTS ~~BALANCE~~OF ~~SHEETS,~~OPERATIONS AND DEFICIT FOR THE YEARS ENDED AUGUST 31, 2002, 2001, AND 2000 AND CUMULATIVE FOR THE PERIOD FROM INCEPTION (AUGUST 1966) TO AUGUST 31, 2002 (Unaudited) FROM INCEPTION TO .......FOR THE YEARS ENDED AUGUST 31 ... AUGUST 31, 2002 2001 2000 ~~LIABILITIES~~2002 ---- ---- ---- ---- ~~CURRENT~~COSTS ~~LIABILITIES~~AND EXPENSES: ~~Notes~~Research ~~payable-related~~and ~~parties~~development......~~......~~ $ 236,~~100~~850 $ 234,~~100~~900 ~~Notes~~$ ~~payable-other ..................... 300~~16,~~000~~600 ~~300~~$7,~~000 Accounts payable: Trade................................. 850~~771,~~550~~590 ~~722~~Promotional,~~326~~ ~~Officers~~general and ~~employees~~administrative...~~.............~~ ~~616~~1,~~510~~126,689 ~~527~~833,~~577~~820 ~~Accrued~~966,530 ~~salaries~~19,461,415 Interest...........~~.............~~ 23,~~323~~574,~~018~~008 13,~~875~~146,~~018~~500 ~~Accrued expenses ........................ 640~~2,~~863~~342,803 ~~437~~26,~~338~~304,848 ~~Accrued~~--------- ~~interest~~--------- ~~payable~~--------- ---------- Total..............~~...~~ 34,~~075~~707,~~499~~547 23,~~096~~985,~~018~~270 ~~Total current liabilities................ 7~~3,~~829~~325,~~540~~933 553,~~981~~537,~~337~~853 ~~DEFERRED~~========== ~~CREDIT~~========== ~~.........................~~========== 0========== 0OTHER ~~SERIES~~(INCOME) ~~"A-1"~~EXPENSE: ~~Convertible~~Loss ~~Promissory~~in ~~Note~~Investment ~~(CPN)1~~and ~~CPN~~advances ~~Related~~to ~~Parties Principal~~Armant...........~~................~~(A) 124,~~080,096~~050 125,~~080,096~~788 ~~Accrued interest payable............ 7~~9,~~352,557~~466 517,~~902~~481,~~947~~673 ~~CPN~~Equity ~~Other~~in ~~Parties~~Loss ~~Principal~~in Armant........~~...................~~ 50 10,~~978~~132 22,~~421~~400 512,~~978~~764,~~421~~345 ~~Accrued~~-------- ~~interest~~---------- ~~payable~~---------- ----------- NET LOSS............ 74,~~387~~711,~~001~~597 64,~~669~~001,~~592~~140 ~~Total Series "A-1" Notes............$ 32~~3,~~798~~357,~~075~~799 ~~$ 30~~83,~~661~~783,~~056~~871 ~~CONVERTIBLE~~========= ~~DEBENTURES~~========== ~~PAYABLE~~========= ~~(net~~=========== ofDEFICIT ~~discounts,~~ACCUMULATED ~~commissions,~~DURING ~~and~~THE ~~offering~~DEVELOPMENT ~~costs~~STAGE, ~~of)~~BEGINNING OF PERIOD............~~...$~~ 20$79,~~437~~072,274 $75,071,134 $2071,~~437~~713,335 ~~STOCKHOLDERS'~~------------ ~~EQUITY:~~----------- ~~Common stock~~ ----------- noDEFICIT ~~par~~ACCUMULATED ~~value;~~DURING ~~Authorized~~THE ~~36,000,000~~DEVELOPMENT ~~shares; issued and outstanding: 35~~STAGE,~~466,193~~ ~~shares~~END inOF ~~1998 and 35,466,193 shares in 1997~~PERIOD.....~~....$~~ 38$83,~~258~~783,096*871 $ 3879,~~258~~072,096*274 ~~Common stock subscribed.................. 20~~$75,~~000 20~~071,~~000~~134 ~~Paid in capital.......................... 164~~$83,~~774 164~~783,~~774~~871 ~~Deficit~~=========== ~~accumulated~~=========== ~~during~~=========== ~~the~~=========== ~~development~~LOSS ~~stage..................~~PER ~~(79,072,274)~~COMMON ~~(75,071,134)~~SHARE ~~Total~~$.13 ~~stockholders'~~$.11 ~~equity~~$.~~..............~~09 ~~(40,629,404)~~=========== ~~(36,628,264)~~ =========== =========== ~~TOTAL....................................$~~(A) ~~18,648~~Due $to 34the prolonged delay in attaining the necessary funding,~~560~~ *Seethe ~~section~~company 11was forced to write down $17,419,163 of ~~the~~its ~~"Notes~~investment and advances in Armant. See notes to ~~Financial~~financial ~~Statements"~~statements.

TOTH ALUMINUM CORPORATION (A DEVELOPMENT STAGE ENTERPRISE) STATEMENTS OF ~~OPERATIONS~~STOCKHOLDER'S ~~AND~~EQUITY ~~DEFICIT~~ FOR THE YEARS ENDED AUGUST 31, ~~2001~~2002, ~~2000~~2001, AND ~~1999~~2000 AND CUMULATIVE FOR THE PERIOD FROM INCEPTION (AUGUST 1966) TO AUGUST 31,2002 ~~2001~~ (Unaudited) ~~FROM INCEPTION TO~~ ..............FOR THE YEARS ENDED AUGUST 31........................ FROM INCEPTION .......2002...................2001....................2000 ........ TO AUGUST 31, 2001 ~~2000~~SHARE ~~1999~~AMOUNT ~~2001~~SHARE AMOUNT SHARE AMOUNT SHARES AMOUNT PREFERRED STOCK: Balance beginning of period ............. -------- $ ------ ----- $ ----- ~~COSTS~~----- ~~AND~~$ ~~EXPENSES:~~----- ~~Research~~----- ~~and~~$ ~~development~~---- Issued for cash to Louisiana residents ($25 per share)........................ $10,656 4266,~~900~~400 $Issued 16to officers,~~600~~ $employees ~~13,700~~and ~~$7,764,740~~consultants ~~Promotional,~~for ~~general~~services ~~and~~(assigned ~~administrative~~value of $25 per share)................ ~~833~~1,~~820~~344 ~~966~~33,~~530~~600 ~~1,845,352~~Conversion ~~18,334,726~~of ~~Interest~~preferred stock to common stock.................. 3(11,~~146,500~~989) 2(299,~~342,803~~725) ~~1,288,405~~Redeemed ~~22,730,840~~for cash ....................... (11) (275) ------- ------ ------ ------ ----- ----- -------- --------- ~~Total~~Balance, end of period................... ~~3,985,270~~- ~~3,325,933~~0 ~~3,147,457~~- ~~48,830,306~~- 0 - - 0 - - 0 - - 0 - - 0 - - 0 - - 0 - ======= ====== ====== ====== ===== ===== ======== ========= ~~OTHER~~COMMON STOCK: Balance, beginning of period.............................. 35,446,193 38,428,176 35,446,193 38,428,176 35,446,19338,428,176 35,446,196 38,428,176 Issued at inception (~~INCOME~~August 1966) ~~EXPENSE:~~to ~~Loss~~the infounders ~~Investment~~for patent rights and ~~advances~~services......... 4,400,000 27,500 Issued for cash on initial offering to ~~Armant~~Louisiana residents...........(......... 80,000 4,875 Issued for cash pursuant to offering under Regulation A) 5of Securities Act of 1933.. 232,~~788~~740 9290,~~466~~925 43Issued for Cash........................... 11,~~206~~417,494 17,~~477~~538,~~623~~195 ~~Equity~~Issued into ~~Loss~~officers, inemployees, ~~Armant~~directors and consultants for services............................. 102,~~132~~462,576 222,~~400~~225,807 48Issued for merchant banking services...... 98,~~712~~800 12247,~~764~~000 Issued for underwriting commissions of common stock sale.................... 87,~~345~~860 ~~--------~~233,806 ~~----------~~Issued ~~----------~~for ~~-----------~~commission ~~NET~~on ~~LOSS~~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,~~001~~139,~~140~~731 4,936,561 Issued upon conversion of debenture....... 3,~~357~~222,~~799~~479 3,~~239~~946,~~375~~307 79Issued upon exercise of warrants and options. 6,~~072~~253,~~274~~950 ~~=========~~6,473,943 ~~==========~~Issued ~~=========~~for ~~===========~~prepaid ~~DEFICIT~~leases.................. ~~ACCUMULATED~~497,353 ~~DURING~~778,706 ~~THE~~Issued ~~DEVELOPMENT~~upon ~~STAGE~~conversion of preferred stock to common stock.................... 1,195,940 ~~BEGINNING~~299,725 OFIssued ~~PERIOD~~for the acquisition of assets........ 118,934 89,200 Issued in satisfaction of prepaid royalties. 200,000 172,760 Issued in settlement of litigation ......... ~~$75~~130,~~071~~000 157,~~134~~000 ~~$71~~Common stock subject to rescission.......... 1,~~713~~096,~~335~~900 ~~$68~~1,~~473~~371,~~960~~125 ---------- ---------- ---------- ---------- ---------- -------- ~~DEFICIT~~--------- ~~ACCUMULATED~~--------- ~~DURING~~Common ~~THE~~stock ~~DEVELOPMENT~~subscribed................... ~~STAGE~~---------- ---------- ---------- ---------- ---------- ---------- --------- --------- Balance, ~~END~~end OFof ~~PERIOD~~period....................35,466,193 ~~$79~~38,~~072~~428,~~274~~176 ~~$75~~35,~~071~~466,~~134~~193 ~~$71~~38,~~713~~428,~~335~~176 ~~$79~~35,~~072~~446,~~274~~193 ~~===========~~38,428,176 ~~===========~~35,466,193 ~~===========~~38,428,176 =========== ~~LOSS~~---------- ~~PER COMMON SHARE $.11 $.09 $.09~~ =========== ---------- =========== ---------- =========== ~~(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.

TOTH ALUMINUM CORPORATION (A DEVELOPMENT STAGE ENTERPRISE) STATEMENTS OF STOCKHOLDERS EQUITY (Continued) (Unaudited) .............FOR THE YEARS ENDED AUGUST 31............................. FROM INCEPTION .........2002.......................2001....................2000....... TO AUGUST 31, 2002 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................ (79,072,274) (71,713,335) (68,473,960) New Loss................... (4,711,597) (3,357,799) (3,239,375) (4,711,597) ------------ ------------ ------------ ------------ Balance, end of period..... (83,783,871) (79,072,274) (71,713,335) (83,783,871) TOTAL STOCKHOLDERS EQUITY.. (45,341,001) (40,629,404) (36,628,264) (45,341,001)

TOTH ALUMINUM CORPORATION (A DEVELOPMENT STAGE ENTERPRISE) STATEMENTS OF ~~STOCKHOLDERS~~CASH ~~EQUITY~~FLOWS FOR THE YEARS ENDED AUGUST 31, 2002, 2001,AND 2000 AND CUMULATIVE FOR THE PERIOD FROM INCEPTION (~~Continued~~AUGUST 1966) TO AUGUST 31, 2002 (Unaudited) FROM INCEPTION .......~~......~~FOR THE YEARS ENDED AUGUST 31.... TO AUGUST 31, 2002 2001 2000 2002 ------ ------ ------ ------ OPERATING ACTIVITIES NET LOSS................ $(4,711,597) $(4,001,140) $(3,357,335) $(83,783,871) ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES: Depreciation and amortization.......... ~~FROM~~0 ~~INCEPTION~~10,000 12,654 1,214,879 Amortization and write off of patents........ 1,024 1,023 620 442,755 Amortization of financing costs.~~2001~~...... 95,000 Loss on divestiture of subsidiaries....... 912,586 Amortization of prepaid leases..........~~2000~~...... 302,424 Losses from joint venture..........~~1999~~....~~.......~~ TO0 ~~AUGUST~~6,500 3114,600 ~~2001 SHARE AMOUNT SHARE AMOUNT SHARE AMOUNT SHARES AMOUNT COMMON STOCK WARRANTS: Balance~~11,130,435 ~~beginning of period~~Other.................. ~~---~~111,616 ~~---~~Proceeds ~~Warrants~~from ~~issued~~royalty ~~for cash~~prepayments........... 172,760 Prepayment of leases..... ~~727~~(16,~~966~~104) 72Disposition of property,~~718~~ ~~Warrants~~plant ~~exercised~~and equipment... 27,745 CHANGES IN OPERATING ASSETS AND LIABILITIES: Decrease (Increase) in accounts receivable. (10,787) Decrease (Increase)in prepaid expenses...... (2627,~~594~~371) Increase (~~3,577~~Decrease) ~~Warrants~~in ~~expired~~accounts payable...... 1,130,514 852,090 987,699 17,954,111 Increase (Decrease) in notes payable......... 3,574,008 3,116,500 2,311,614 30,916,096 --------- ----------- --------- ---------- $ (~~701~~6,~~372~~051) $(6915,~~141~~027) ~~_____~~$(30,768) ~~_____~~$(20,557,726) ~~_____~~TOTH ~~_____~~ALUMINUM ~~_____~~CORPORATION ~~_____~~(A ~~________~~DEVELOPMENT ~~_______~~STAGE ~~Balance,~~ENTERPRISE) ~~end~~STATEMENTS ofOF ~~period~~CASH FLOWS - (Continued (Unaudited) FROM INCEPTION ......FOR -THE 0YEARS -ENDED -AUGUST 031.... -TO -AUGUST 031, -2002 -2001 02000 -2002 ~~=====~~ ------ ~~=====~~ ------ ~~=====~~ ------ ~~========~~ ------- ~~PAID~~INVESTING ~~IN CAPITAL~~ACTIVITIES: ~~Balance~~Purchase of property, ~~beginning~~plant ofand ~~period~~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.... ~~164~~4,~~774~~050 ~~164~~5,~~774~~788 ~~164~~9,~~774~~466 In(20,762,286) ~~conjunction~~Write ~~with~~off ~~financing~~of Investments and Cash advances to Armant................ 950 10,~~000~~132 In22,400 ~~connection~~17,129,454 ~~with~~Redemption ~~acquisition~~of certif.- cates of ~~subsidiary~~deposit...... ~~140~~3,~~356~~995,000 InProceeds ~~connection~~from ~~with~~sale ~~divestiture~~ of ~~subsidiary~~net profit interest... 50,000 --------- ---------- ---------- ---------- 4,050 15,920 31,866 (~~140~~6,~~356~~261,948) ~~Common~~--------- ~~stock~~---------- ~~warrants~~---------- ~~expired~~---------- ~~and~~FINANCING ~~exercised~~ACTIVITIES: Stock issued for cash..... 6918,~~774~~481,076 ~~________~~Preferred ~~________~~stock ~~________~~issued ~~________~~for ~~Balance~~cash............... 266,400 ~~end~~Proceeds offrom ~~period~~long term obligations....... ~~164~~1,~~774 164~~430,~~774~~349 ~~164,774~~Proceeds ~~164,774~~from ~~________~~warrants ~~________~~issued ~~________~~for ~~________~~cash........ ~~DEFICIT~~6,236,507 ~~ACCUMULATED~~Common ~~DURING~~stock ~~THE~~issuance ~~DEVELOPMENT~~costs......... ~~STAGE: Balance~~(166,550) ~~beginning~~Issuance of ~~period~~convertible debentures.............~~...~~ ~~(71~~1,~~713~~913,~~335)~~963 ~~(68,473,960)~~Cash ~~(64,977,887)~~received ~~New~~upon ~~Loss~~conversion of debentures to common stock........ 112,999 Payment of long term obligations............. (31,~~357~~457,~~799) (3,239,375) (3,496,~~071) ~~(75,071,134)~~ --------- --------- ---------- ----------- 26,817,673 --------- --------- ---------- ----------- ~~Balance,~~INCREASE ~~end~~(DECREASE) ofIN ~~period.....~~CASH ~~(79,072,274)~~$ (712,~~713,335~~001) ~~(68~~893 1,~~473,960)~~098 (792,~~072,274~~001) ~~TOTAL~~CASH ~~STOCKHOLDERS~~BEGINNING ~~EQUITY..~~OF ~~(40~~PERIOD 2,~~629,404)~~431 ~~(36~~1,~~628,264)~~538 ~~(33~~440 --------- --------- ---------- ----------- CASH END OF PERIOD $ 430 $ 2,~~270,465)~~431 ~~(40~~$ 1,~~629,404)~~538 $ 430 ========= ========= ========== ===========

TOTH ALUMINUM CORPORATION (A DEVELOPMENT STAGE ENTERPRISE) NOTES TO FINANCIAL STATEMENTS FOR THE YEARS ENDED AUGUST 31, 2002, 2001 AND 2000 AND CUMULATIVE FOR THE PERIOD FROM INCEPTION (AUGUST 1966) TO AUGUST 31, 2002 (Unaudited) 1. ORGANIZATION AND ACCOUNTING POLICIES Going Concern Basis This being a Development Stage Enterprise, 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, 2002, and August 31, 2001, of $83,783,871 and $79,072,274, respectively. 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, 2002, of approximately $83,783,871. 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. This was further confirmed by a study in 1996 prepared by Fluor Daniel, Inc. 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 significate 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. TAC's technology is not suitable to retrofit existing facitilies. 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. In 1987, TAC management decided to purchase the ASP technology from Alcoa, and TAC and Alcoa reached agreement on the terms by which TAC would acquired both the ASP technology and the ASP Plant and site in Texas. Subsequently, when virtually all that remained was for Alcoa to provide a certificate of environmental release, Alcoa suddenly changed the terms and the deal fell through. It is significant to note that Alcoa's decision to cancel their Palestine smelting program was made just a few years before TAC was successful in producing high purity aluminum chloride from clay in its Vacherie pilot plant. Later, when TAC brought its achievements to the attention of Alcoa's President, he acknowledged that their decision to end process development might have been different if our breakthroughs had come earlier. However, he declared emphatically that Alcoa's new course was set firmly in a different direction; that basic research within Alcoa was being severely curtailed; and, finally, that he would not authorize reopening a project whose write-off had caused "blood to be spilled" in Alcoa. 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 several steps. 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 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 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 Chloride and a full scale 5,000 tons per year of aluminum metal smelting cell. TAC proposes that a modular design concept be adopted for Phase 2 smelting operation, such that the eventual full scale commercial plant will consist of parallel plant modules. In light of the Company's net operating loss carry-forwards of approxi- mately $66,384,174 at August 31, 2002, 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, 2002 and 2001 arising from transactions with related parties: August 31, 2002 2001 ------- ------- Advances to Armant (Note 2) $ 17,131,056 $17,131,056 Less write off due to the Prolonged delay in Obtaining funding (17,131,056 (17,131,056) Prepaid leases (Note 4) --- --- ---------- ----------- Total $ 0 $ 0 ========== =========== 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, but the Company has received only nominal 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, Trade Secrets and Intellectual Property 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. 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. 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, 2002, and 2001 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 and are reflected in financial position for 2002, 2001 and the statement from inception to August 31, 2002. 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, and advances to Armant and recoverability of the capitalized cost of Armant is doubtful. 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. 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. 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 former member of the Company's Board of Directors. Costs capitalized and deferred by Armant consisted of the following: (Unaudited) August 31, 2002 2001 ------ ------ Direct carbo-chlorination plant costs: Process equipment............. $ 770,000 $1,120,000 Other equipment............... 0 0 Leasehold improvements........ 0 8,000 ----------- ---------- 770,000 1,777,000 Self-construction and start-up costs: Salaries: Engineering .................. Plant construction and operations................ 55,000 147,000 Indirect labor and overhead................. ----------- ---------- 55,000 147,000 ----------- ---------- $ 825,000 $1,275,000 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, 2002 2001 ------ ------ (Unaudited) Assets: Plant and equipment........ $ 825,000 $ 1,275,000 Other...................... 14,000 ----------- ----------- Total.................. $ 825,000 $ 1,289,000 =========== =========== Liabilities and Equity: Notes payable - Toth Aluminum Corporation................. $ 3,240,000 $ 3,240,000 Payables - Toth Aluminum Corp......... 17,420,000 17,420,000 Other payables.......... 890,000 842,000 Equity - Toth Aluminum Corporation.......... (20,712,000) (20,200,000) - Other.............. (13,000) (13,000) (20,725,000) (20,213,000) ----------- ----------- Total.................... $ 825,000 $ 1,289,000 =========== =========== Year Ended August 31, 2002 2001 ------ ------ (Unaudited) Statement of Plant Expenses Direct plant costs........... $ 2,500 $ 2,000 Interest Expense.......... 16,000 271,000 General and administrative costs.... 17,000 8,000 ---------- ----------- Net Loss $ 35,500 $ 281,000 ========== =========== August 31, 2002 2001 ------ ------ (Unaudited) 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) 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...... (2,533,000) (2,553,000) ----------- ------------ Investment in and advances to Armant...................... $ 0 $ 0 =========== ============ 3. PROPERTY, PLANT AND EQUIPMENT At August 31, 2002 and 2001, the Company's property, plant and equipment consisted of the following: August 31, 2002 2001 ------ ------ (Unaudited) 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................... (509,888) (509,888) -------- -------- Property, plant and equipment - net............ $ 0 $ 0 ========= ========= 4. NOTES PAYABLE Notes payable consisted of the following: August 31, 2001 2000 ------ ------ (Unaudited) Demand notes, and payable to related parties, unsecured (A): At 12%.......................... $ 323,100 $ 323,100 ---------- ---------- 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................ 16,906,576 14,739,558 =========== =========== Total............................... $ 34,965,093 $32,798,075 5. 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, 2002, the amounts and expiration dates of the net operating loss carry-forwards were as follows: (Unaudited) Expires in Year Ending August 31, Amount ------------------ ---------- 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 2014 3,239,375 2015 3,357,799 2016 4,711,597 ------- ------------ Total $ 66,384,174 =========== 6. 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 2002 no options were exercised. The following information is furnished with respect to options and warrants outstanding. Number of Shares at August 31, August 31, 2002 2001 -------- --------- 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 ========== ========== 7. 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. The table below sets forth common stock issuances from inception of the Company to August 31, 2002, and together with the nature of the consideration received, the range of per share prices, and the average per share price. The number of shares issued and per share prices have been adjusted, where applicable, for stock splits. Number of Total Dollar Price Per Share Shares Issued Consideration Range Average ------------- ------------- ----- ------- (Unaudited) From September 1, 1992 to August 31, 2001: Beginning Balance.............. 35,466,193 $38,428,176 Issued for cash................ - - Issued to officers, employees, directors and consultants for services...................... - - Issued upon payment of common stock subscribed.............. - - Total ---------- ----------- Total at August 31, 2002 35,466,193 $38,428,176 ========== =========== 8. 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 $.10 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. This Series "A-1" Convertible Promissory Note had a maturity of 5 years, which has subsequently been extended for an additional 5 years by the Board of Directors. If, as intended, the holders of the Series "A-1" Convertible Promissory Note were to convert today, and all warrants exercised, this would enhance the Stockholder's Equity section by increasing the Common Stock by $41,958,111 thereby increasing the share of Common Stock to 139,860,372 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 Noteholder 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 the Note. TOTH ALUMINUM CORPORATION (A DEVELOPMENT STAGE ENTERPRISE) Schedule IV - Indebtedness of and to Related Parties - Not Current COL. A COL. B COL. C COL. D COL.E ----------------------Indebtedness of------------------------ Name of Balance at Balance Related Party Beginning Additions Deductions at End For the fiscal years ended August 31, 2002 Armant $ 0 $ - $ 0 $ 0 2001 Armant $ 5,788 $ - $ 5,788A $ 0 2000 Armant $ 551,000 $ - $ 545,212A $ 5,788 A -Due to the continued delay in obtaining the necessary funding the company wrote off this amount. TOTH ALUMINUM CORPORATION (A DEVELOPMENT STAGE ENTERPRISE) Schedule IV - Indebtedness of and to Related Parties - Not Current (Continued) Col. F Col. G Col.H Col. I ------------------------Indebtedness to--------------------------- Name of Balance at Balance Related Party Beginning Additions Deductions at End For the fiscal years ended August 31, 2002 Armant $ - - - - 2001 Armant $ - - - - 2000 Armant $ - - - -

TOTH ALUMINUM CORPORATION (A DEVELOPMENT STAGE ENTERPRISE) STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED AUGUST 31, 2001, 2000,AND 1999 AND CUMULATIVE FOR THE PERIOD FROM INCEPTION (AUGUST 1966) TO AUGUST 31, 2001 FROM INCEPTION .......FOR THE YEARS ENDED AUGUST 31.... TO AUGUST 31, 2001 2000 1999 2001 ------ ------ ------ ------ OPERATING ACTIVITIES NET LOSS................ $(4,001,140) $(3,357,335) $(3,239,375) $(79,072,274) ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES: Depreciation and amortization.......... 10,000 12,654 25,700 1,214,879 Amortization and write off of patents........ 1,023 620 210 441,731 Amortization of financing costs....... 95,000 Loss on divestiture of subsidiaries....... 912,586 Amortization of prepaid leases................ 302,424 Losses from joint venture.............. 6,500 14,600 48,712 11,130,435 Other.................. 111,616 Proceeds from royalty prepayments........... 172,760 Prepayment of leases... (16,104) Disposition of property, plant and equipment... 27,745 CHANGES IN OPERATING ASSETS AND LIABILITIES: Decrease (Increase) in accounts receivable. (10,787) Decrease (Increase)in prepaid expenses...... (27,371) Increase (Decrease) in accounts payable...... 852,090 987,699 1,506,129 16,824,490 Increase (Decrease) in notes payable......... 3,116,500 2,311,614 1,605,199 27,342,088 --------- ----------- --------- ---------- $(15,027) $(30,768) $(92,396) $(20,550,782) TOTH ALUMINUM CORPORATION (A DEVELOPMENT STAGE ENTERPRISE) STATEMENTS OF CASH FLOWS - (Continued FROM INCEPTION ......FOR THE YEARS ENDED AUGUST 31.... TO AUGUST 31, 2001 2000 1999 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 investments in and advances to TACMA..... (1,076,595) Cash investments in and advances to Armant.... 5,788 9,466 9,741 (20,766,336) Write off of Investments and Cash advances to Armant................ 10,132 22,400 43,206 17,129,454 Redemption of certif.- cates of deposit...... 3,995,000 Proceeds from sale of net profit interest... 50,000 --------- ---------- ---------- ---------- 15,920 31,866 52,947 (6,265,998) --------- ---------- ---------- ---------- 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 $ 893 (1,098) (478) 893 CASH BEGINNING OF PERIOD 1,538 440 918 --------- --------- ---------- ----------- CASH END OF PERIOD $ 2,431 $ 1,538 $ 440 $ 2,431 ========= ========= ========== ===========

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