SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended Commission File No. D-9376
August 31, 1995
ALPHA SOLARCO INC.
(Exact name of registrant as specified in its charter)
Colorado 31-0944136
(State or other jurisdiction (I.R.S. Employer
incorporation or organization) Identification No.)
510 East University Drive, 85004
Phoenix, Arizona (Zip Code)
(Address of principal
executive offices)
Registrant's telephone number, including area code: (602) 252-3055
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed in Section 13 or 15(d) of the Security
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such
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 issuer's
classes of common stock as of the close of the period covered by
this report.
Number of Shares
Class Outstanding as of 8/31/95
_____________ _________________________
No Par Value Common Stock 115,937,589
ALPHA SOLARCO INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(Unaudited)
August 31, 1995 and May 31, 1995
August 31,
1995 May 31,
(Unaudited) 1995 (A)
----------- ------------
ASSETS
Cash and Cash equivalents ($1,779) $2,002
Accounts receivable:
Trade 467,992 467,992
Employees 0 650
Prepaid expenses 369 104
---------- -----------
Total current assets 466,582 470,748
---------- -----------
Property and equipment, at cost:
Land 169,750 169,750
Machinery and equipment 2,472,092 2,492,050
Furniture and fixtures 94,098 94,098
Leasehold improvements 27,894 32,093
Buildings 420,398 420,398
Computer equipment 18,724 18,724
Construction in progress 1,828 1,828
--------- -----------
3,204,784 3,228,941
----------- -----------
Less accumulated depreciation (1,470,336) (1,399,183)
----------- -----------
1,734,448 1,829,758
----------- -----------
Note receivable - officer 40,000 40,000
Patent rights and organization
costs 414 414
Investment in Chinese
Joint Venture 89,670 89,670
Proprietary solar energy
technology, research and
development, and other
intangible assets 1 1
Other assets 12,921 12,159
----------- -----------
143,006 142,244
----------- -----------
$2,344,036 $2,442,750
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable $211,755 $698,823
Accounts payable 793,857 680,900
Accrued liabilities 24,500 24,500
Billings in excess of
contract revenue 240,560 473,560
----------- -----------
Total current liabilities 1,270,673 1,877,783
----------- -----------
Convertible notes 5,700 5,700
Stockholders' equity:
Common stock, without
par value 200,000,000
authorized 115,937,489
and 115,937,489 shares
and outstanding, respectively 14,074,710 13,384,710
Accumulated deficit (13,007,047) (12,825,443)
----------- -----------
Total stockholders' equity 1,067,663 559,267
----------- -----------
Total liabilities and
stockholders' equity $2,344,036 $2,442,750
----------- -----------
(A) The May 31, 1995 condensed amounts are from the Company's audited
financial statements.
See accompanying notes.
ALPHA SOLARCO INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
3 Months Ended August 31,
1995 1994
------------ ----------
Revenues:
Net Sales $288,133 $1,087,522
Interest 12 1,410
Other income 9,467 27,019
----------- -----------
297,612 1,115,951
----------- -----------
Costs and expenses:
Cost of Sales 193,671 359,122
General and administrative 284,108 322,806
Advertising and promotion 0 24,344
Interest 1,470 0
Consulting services 0 41,636
----------- -----------
479,249 747,908
----------- -----------
Net gain (loss) ($181,637) $368,043
----------- -----------
----------- -----------
Net gain (loss) per share ($0.00) $0.00
----------- -----------
See accompany notes.
ALPHA SOLARCO INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
3 Months Ended August 31,
1995 1994
------------- ------------
Cash flows from operating activities:
Net gain (loss) ($181,637) $368,043
Adjustments to reconcile net gain
(loss) to net cash used in operating
activities:
Depreciation and amortization 84,146 90,500
Decrease (increase) in:
Accounts receivable 650 38,631
Inventory 0 131,326
Prepaid expenses (265) (11,723)
Other assets (762) (20,265)
Increase (decrease) in:
Accounts payable 94,087 (425,779)
Accrued liabilities 0 (76,359)
Billings in excess of contract revenue 0 (352,287)
----------- -----------
Net cash used in operating activities (3,781) (257,913)
----------- -----------
Cash flows from investing activities:
Capital expenditures 0 96,172
----------- -----------
Net cash provided (used by) investing
activities 0 96,172
----------- -----------
Cash flow from financing activities:
Net proceeds from issuance of common stock,
stock options and warrants 0 0
----------- -----------
Net cash provided by financing activities 0 0
----------- -----------
Net change in cash and cash equivalents (3,781) (161,741)
Cash and cash equivalents:
Beginning of period 2,002 327,671
----------- -----------
End of period ($1,779) $165,930
----------- -----------
----------- -----------
During the three months ended August 31, 1995, the Company converted $690,000
of short-term notes payable for common stock.
See accompany notes.
<PAGE>
ALPHA SOLARCO INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Principles of consolidation
The consolidated financial statements include the accounts
of Alpha, its wholly-owned subsidiaries, Alpha Solarco Inc. of Ohio
("Alpha of Ohio"), Alpha Manufacturing Group, Inc. ("AMG"),
Solectric Corporation (Solectric"), and MSEPG Solar Power
Corporation ("Solar Corporation"). Intercompany accounts and
transactions have been eliminated.
2. Depreciation
The Company computes depreciation using the straight-line
and accelerated methods, based on the estimated useful lives of the
depreciable assets, as follows:
Buildings 40 years
Machinery and equipment 3 - 7 years
Furniture and fixture 5 - 10 years
Leasehold improvements Life of the improvement or the
lease term, whichever is
shorter
3. Research and Development
All research and development costs are charged to expense
when incurred. The costs of materials, equipment and facilities
that are constructed or acquired for development activities and
that have alternative future use are capitalized and depreciated
over their estimated useful lives.
4. Contract Revenue and Cost Recognition
The Company recognizes revenue form fixed-priced contracts
on the percentage-of-completion method, measured by the percentage
of cost incurred to date to estimated total cost for each contract.
That method is used because management considers total cost to be
the best available measure of progress on the contracts. Because
of inherent uncertainties in estimating costs, it is at least
reasonably possible that estimates used will change in the near
term.
Cost of sales includes all direct material and labor costs
and those related to contract performance, such as indirect costs
related to contract performance, such as indirect labor, supplies,
tools, etc. Provisions for estimated losses on uncompleted
contracts are made in the period in which such losses are
determined. Changes in job performance, job conditions, and
estimated profitability may result in revisions to cost and income,
which are recognized in the period in which revisions are
determined. Changes in estimated job profitability resulting from
job performance, job conditions and change orders are accounted for
as changes in estimates in the current period.
4. Cash and Cash Equivalents
For purposes of the statement of cash flows, cash
equivalents include all savings accounts with original maturities
of three months or less.
5. Joint Venture Agreement
On February 18, 1991, Alpha Solarco Inc. of Ohio entered
into a joint venture agreement with Sun Power Systems Ltd. ("Sun"),
a Hong Kong based trading company and Qinhuangdao Electronic
Transistor Manufacturing Plant ("QHD"), a business entity operating
in the Peoples Republic of China, for the formation of a Chinese
joint-venture company called Qinhuangdao Alpha Solar Power Co.,
Ltd. (the "Chinese Joint Venture Company").
Under the terms of the Joint Venture, QHD owns a 60% equity
interest in exchange for a cash capital contribution of $2,400,000;
Alpha Ohio owns a 35% equity interest in exchange for an in-kind
contribution of $650,000 in the form of equipment, and $750,000 in
the form of technology transfer, and Sun owns 5% equity interest in
exchange for a nominal in-kind contribution of $200,000.
Alpha Ohio's contribution involves two components. The
first component of Alpha Ohio's contribution relates to a separate
Technology Transfer Agreement (i.e., license) with the Chinese
Joint Venture Company. Under this agreement, a $1,000,000 lump sum
non-refundable advance royalty is established. Alpha Solarco,
however, has contractually agreed to accept only $250,000 of this
amount, with other $750,000 constituting a portion of Alpha Ohio's
$1,400,000 total contribution to the Chinese Joint Venture Company.
The Technology Transfer Agreement also provides for
continuing royalties payable over a 15-year term of $.05 per watt
of electrical generating capacity of products manufactured by the
Chinese Joint Venture during the first year, $.03 per watt in the
second year, $.02 per watt in the third year, and $.01 per watt
thereafter. Continuing revenues from the Chinese Joint Venture
Company are also expected to be generating through sales to it of
certain key components necessary for production, as well as
additional equipment and tooling for possible future expansion.
The second component is a separate Turnkey Manufacturing
Agreement under which Alpha Ohio will sell the necessary equipment
to the Chinese Joint Venture Company for an aggregate selling price
of $2,800,000; Alpha Ohio will accept $2,150,000 cash for this
equipment, and the remaining $650,000 of the price will constitute
the remaining portion of Alpha Ohio's in-kind capital contribution
to the Chinese Joint Venture Company. The $2,150,000 cash purchase
price is payable to Alpha Ohio (by confirmed letter of credit) as
equipment is delivered.
Under generally accepted accounting principles, the company
will not be able to recognize any investment attributable to its
in-kind capital contribution of $1.4 million, except for its
proportionate share (35%) of its basis in the tooling and equipment
transferred to the Chinese Joint Venture Company.
At August 31, 1995, the Chinese Joint Venture was still in
the construction phase. No operations have transpired and
management has no definite date as to when operations will
commence.
6. Notes Payable
Notes payable represent amounts due private investors of the
Company who lent funds primarily to provide working capital to keep
the companies operational and for the acquisition of AMG. The
notes, which are unsecured, are repayable at various times during
the next year and bear interest at rates upward to 10%.
7. Convertible Notes
During 1991, the Company issued fifteen-year convertible
debentures, to various stockholders, in the amount of $216,700. As
of August 31, 1995, these debentures, except for $5,700 has been
converted to common shares. Interest on the debentures is charged
at 8% and the debentures are convertible at the option of the
holder, at a conversion price of $.105 per share.
8. Uncompleted Contracts
In January, 1994, the Company entered into a manufacturing
and sales contract with "Al Fandi Establishment For Trade, Industry
and Contracting" ("Al Afandi"), a Saudi Arabia Corporation. The
contract calls for Alpha to provide Al Fandi a solar manufacturing
facility, in accordance with the terms of the contract, for a
revised purchase price of $4,273,097. Cost, estimated earnings,
and billings on the contract are summarized below:
Cost incurred $2,178,070
Estimated earnings 1,466,082
-----------
3,644,152
Billings to date 3,884,712
-----------
Billings in excess of contract revenues $ 240,560
9. Leases
Prior to the end of fiscal 1994, the Company moved its
operations to Phoenix, Arizona. In anticipation of the move, the
Company entered into a one-year lease agreement expiring May 15,
1995 (renewable to May 15, 1996) for its office and operations
facility. The lease, which contains an option to renew for four
successive one-year terms, requires monthly rental payments of
$8,437.
10. Net Loss Per Share
Net loss per share is based upon the weighted average shares
of the Company's common stock outstanding during each year.
Securities whose conversion, exercise or other contingent issuance
have the effect of decreasing the loss per share amount for the
periods have been excluded from the computation.
11. Stock Options and Warrants
Under Alpha's Stock Option Plan, options may be granted to
officers and key employees to purchase a maximum of 1,000,000
shares of Alpha's common stock. All option prices will be at no
less than fair market value at date of grant, and options will
become exercisable no earlier than one year from date of grant on
such terms and conditions as the Stock Options Committee determines
and will expire ten years from date of grant or earlier upon
determination of the committee. No option will be transferable
except on death and, except in the event of death or retirement,
options may be exercised only while the optionee is in the employ
of the Company. Shares subject to options which expire or are
terminated will become available for future option grants under the
Plan. Currently, options for 290,000 shares had been granted under
the Plan to two employees, none of whom was a director of the
Company, of which 190,000 remains outstanding and exercisable at
May 31, 1994. Of the original options granted, 100,000 have
lapsed. Shares subject to options, which expire or are terminated,
will become available for future options grants under the Plan. No
options have been exercised under the Plan since inception.
As of September 1993, the Company implemented a new long
stock incentive plan ("LTSIP") for key employees. The options
granted under the old plan were transferred to the LTSIP after May
31, 1993. At the time of the transfer, another 30,000 shares were
added to the LTSIP which were transferred from the board options
outside of the stock plan. Therefore, options for 220,000 shares
granted under the new plan to three employees, none of whom was a
director of the Company, remain outstanding and exercisable
subsequent to the balance sheet date.
Under the new Plan, there are three incentives awards. The
first is stock awards. These are only granted in payment of
incentives compensation that has been earned or as incentive
compensation to be earned. The second is stock options and/or
inventive options. Stock options will be granted to key employees
as a reward or an incentive, and incentive options are granted to
persons who, on the date of the grant, own 10% or more of the
common stock of the Company. The third incentive award is stock
appreciation rights ("SAR"). These rights allow the employee to
receive from the Company cash or stock with a value in excess of
the fair market value of the one share on the date of the grant of
SAR.
The value of all of the above will not be less than 100% of
the fair market value on the date the award is granted, except for
the incentive options which will be 110% of the fair market value.
Also, all the awards are exercisable in full or in part six months
after the date it is granted. Expiration dates are ten years after
grant date except for stock options which is eleven years.
In addition to the foregoing options, the Board of
Directors of Alpha has granted options, outside the Alpha stock
option plan, to purchase shares which expire through 1996. These
option transactions are summarized below:
1995 1994
Option Option
Number Price Number Price
of Shares Per Share of Shares Per Share
Outstanding at
beginning of year 1,280,000 $.01 - .29 1,280,000 $.01-.29
Granted -- -- -- --
Exercised -- -- -- --
Canceled -- -- -- --
--------- ---------- --------- --------
Outstanding and
exercisable at
end of year 1,280,000 $.01 - .29 1,280,000 $.01-.29
--------- ---------- --------- --------
As of August 31, 1995, the Company had outstanding
approximately 70 million warrants that have been issued in
connection with various notes payable. The warrants are
convertible at a price of $.105 per share and expire at various
times beginning in 1996.
12. Income Taxes
Alpha and its subsidiaries have net operating loss
carryforwards approximately 11,100,000 for financial reporting
purposes. Because of timing differences in reporting certain costs
and expenses, Alpha and subsidiaries have federal income tax
operating loss carryforwards of approximately $11,700,000 available
to reduce future federal income taxes, which, unless applied, begin
expiring in 1999.
At May 31, 1995, the deferred tax assets to be recorded on
the Company's financial statements as a result of the operating
loss carryforwards is approximately $3,900,000. Due to the
probable inability of the Company to utilize these net operating
losses before they expire, a reserve against this deferred tax
asset has been recorded of approximately $3,900,000.
The financial information included herein is Unaudited;
however, such information reflects all adjustments (consisting
solely of normal recurring adjustments) which are, in the opinion
of management, necessary for a fair statement of results for
interim periods.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
Quarter Ended August 31, 1995 as Compared to the Year ended May 31,
1995
On August 31, 1995, on a consolidated basis, Alpha Solarco
has cash and short term investments of $1,779) as compared to
$2,002 as of May 31, 1995. This change was a result of reduction
accounts payables during the current fiscal year. Also on August
31, 1995 Alpha Solarco has shareholders' equity of $1,067,663 and
total assets of $2,344,036 as compared to shareholders' equity of
$559,267 and total assets of $2,442,750 as of May 31, 1994. This
is attributable to conversion of $690,000 of short-term notes
payable to common stock and the loss on the Saudi contract for the
quarter ended August 1995.
Normal overhead expenses will continue to burden Alpha
Solarco and can be expected to decrease its liquidity.
Consequently, Alpha Solarco has been seeking additional capital
from various sources, including the exercise of stock options and
warrants, contributions to capital and arranging new debt
financing.
Capital expenditures was $0 and $96,172 for quarter ended
August 31, 1995 and year ended May 31, 1995, respectively. This
decrease was due to essentially all cost for setup of the U.S.
facility related to the Al Afandi contract.
Accounts payable were $793,857 and $680,900 as of August 31,
1995 and May 31, 1995 respectively. This increase was primarily
due equipment related to the Al Afandi contract.
Current notes payable were $211,755 and $698,823 as of
August 31, 1995 and May 31, 1995, respectively. This decrease was
primarily due conversion of $690,000 notes payable to common and
additional loans incurred during the quarter.
Results of Operations
Quarter Ended August 31, 1995 as Compared to the Quarter Ended
August 31, 1994
For the quarter ended August 31, 1995, Alpha Solarco
recognized revenue of $297,612 which is result of net sales and
other income. In the quarter the Al Afandi contract recognized
approximately $233,000. Alpha Solarco experienced a net loss of
($181,637) (or $.00 per share) compared to a net gain for the same
period one year earlier of $368,043 (or $.00 per share), due to
primarily as a result of work completed on the Saudi Contract.
The total consolidated costs and expenses for the quarter
ended August 31, 1995 were $479,294 compared to $747,908 for the
same period one year earlier. The change in cost and expenses is
due to cost of sales related to the Al Afandi contract and
consolidation of operations in Phoenix, Arizona.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Security Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned hereunto duly authorized.
ALPHA SOLARCO INC.
Date: 9/11/95 /s/ Edward C. Schmidt
Edward C. Schmidt, President
Date: 9/11/95 /s/ Edward C. Schmidt
Edward C. Schmidt, Treasurer
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<NAME> ALPHA SOLARCO INC.
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