SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
_____________________
Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
____________________
For the Fiscal Year Ended May 31, 1996
Commission File No. 0-9376
____________________
ALPHA SOLARCO INC.
(Exact name of registrant as specified in its charter)
Colorado 31-0944136
(State of Incorporation) (I.R.S. Employer Identification No.)
510 East University Drive
Phoenix, Arizona 85004
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (602) 252-3055
____________________
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, without par value
____________________
Check whether the registrant (1) filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months, and (2) has been subject to such
filing requirements for the past 90 days:
Yes X No
Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B (Section 228.405 of this Chapter) is not
contained herein, and no disclosure will be contained, to the best
of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB [ X ].
The registrant's revenues as of May 31, 1996 were $1,035,242.
The aggregate market value of the voting stock of the registrant
held by non-affiliates of the registrant as of May 31, 1996 was
$12,019,079.00.
The outstanding voting securities of the registrant at the close of
business on May 31, 1996 were 2,550,048 shares of Common Stock
without par value. This amount does not include 150,000 shares
transferred to CyberAmerica Corporation on July 2, 1996 for a
transaction consummated May 15, 1996.
DOCUMENTS INCORPORATED BY REFERENCE
The following documents are hereby incorporated by reference herein
and the parts of this Form 10-KSB into which the document is
incorporated are shown beside the respective documents:
Document Part
A. Registration Statement on Form Part III, Item 13
S-4 (SEC File No. 33-37554),
filed October 31, 1990
B. Form 10-KSB for the year Part III, Item 13
ended May 31, 1995
C. Form 10-K for the year ended Part III, Item 13
May 31, 1994
D. Form 10-K for the year ended Part III, Item 13
May 31, 1993
E. Form 10-K for the year ended Part III, Item 13
May 31, 1992
F. Form 10-K for the year ended Part III, Item 13
May 31, 1991
G. Form 10-K for the year ended Part III, Item 13
May 31, 1990
PART I
Item 1. Business
General
Alpha Solarco Inc. ("Alpha Solarco" or the "Company") was originally
incorporated as an Ohio corporation in 1978 and was reincorporated
as a Colorado corporation in 1979. In 1980, Alpha Solarco
transferred substantially all of its assets to Alpha Solarco Inc. of
Ohio, an Ohio corporation, in exchange for 100% of the stock of such
corporation which now serves as Alpha Solarco's wholly-owned
operating subsidiary. Unless otherwise noted, references to Alpha
Solarco include Alpha Solarco Inc. of Ohio.
Alpha Solarco has historically been engaged in the development,
manufacture and sale of solar energy products and technology,
although to date sales of its products have been minimal. Solar
energy technologies can be divided into those based upon thermal
applications of solar energy ("solar thermal") and those based upon
photovoltaic applications of solar energy. Solar thermal
technologies involve the generation of heat through the exposure of
solar thermal devices to sunlight. Photovoltaic applications of
solar energy involve the generation of electricity through the
exposure of photovoltaic cells to sunlight. Alpha Solarco's present
business activity is directed at the development and
commercialization of a utility-scale photovoltaic electrical power
generator.
From its inception through the year ended May 31, 1984 Alpha Solarco
devoted limited resources to research and development related to
photovoltaic solar cell technology and related marketable products,
and in fact determined that the development of such technology and
products was beyond its financial capacity. For this reason, in
1984 Alpha Solarco activated Solectric Corporation ("Solectric"),
which until then had been a dormant subsidiary, to separately
develop photovoltaic technologies and related products. Following
the completion of the initial public offering of Solectric's Common
Stock in 1984, Alpha Solarco transferred its photovoltaic
technologies to Solectric. Solectric and Alpha Solarco then jointly
formed MSEPG Solar Power Corporation, a joint venture company
("Solar Corporation") to develop the solar electric generator, which
utilizes aspects of Alpha Solarco's solar concentrating and tracking
technologies and of Solectric's photovoltaic technologies. At the
time, it was expected that Alpha Solarco would continue to
separately pursue other solar thermal business opportunities, and
that Solectric would separately pursue other photovoltaic business
opportunities. However, from 1985 onward, the two companies began
to concentrate their efforts on production of the solar electric
generator with a consequent decline in Alpha Solarco's efforts to
produce and market its historical solar thermal products.
On October 8, 1990, the Board of Directors of Solectric approved a
Plan and Agreement of Merger (the "Merger Agreement"), whereby
Solectric would be merged into SOLACQ, Inc., a Colorado corporation
and a wholly-owned subsidiary of Alpha Solarco formed for the
purpose of consummating the merger. Pursuant to the terms of the
Merger Agreement each outstanding share of Solectric Common Stock
would be converted into one share of Alpha Solarco Common Stock.
The directors of Alpha Solarco and Solectric approved the merger as
being in the best interests of the shareholders of both companies
for several reasons. Namely, Alpha Solarco's entire business
efforts were directed to the commercialization of the solar electric
generator through Solar Corporation, as were Solectric's; Alpha
Solarco, which itself was in need of substantial additional capital,
had in recent years been Solectric's only source of capital; and the
costs of operating two separate, publicly traded corporations, as
well as Solar Corporation, was a significant drain of resources from
the pursuit of a single business opportunity, the development and
commercialization of the solar electric generator. The merger was
approved by the shareholders of Solectric on August 27, 1992 and
became effective on August 28, 1992. As a consequence of the
merger, Solar Corporation is no longer relevant as a separate
operating entity.
Business
Photovoltaic Applications. As indicated above, from its inception
Alpha Solarco devoted limited amounts of its resources to
photovoltaic solar energy research, but it was able to obtain
certain patents in this field and generally to accumulate a body of
technological data in this field. However, Alpha Solarco lacked the
financial resources necessary to develop both marketable
photovoltaic products and a line of solar thermal products. Because
of Alpha Solarco's orientation toward solar thermal products at that
time, management concluded that maximum benefits could be achieved
in the further development and commercial exploitation of its
photovoltaic technology through the formation of a separate firm
devoted solely to endeavors in the direct electric generating field.
Accordingly, Solectric was activated in 1984.
On May 30, 1984 Solectric completed the public offering of
11,058,778 of its shares of Common Stock resulting in net proceeds
of $2,303,490. Solectric then purchased Alpha Solarco's proprietary
photovoltaic technology for $724,500 cash and the assumption of
$50,000 of Alpha Solarco's $100,000 note payable to a bank and the
assumption of $225,500 of Alpha Solarco's $451,000 of notes payable
to unaffiliated private investors. The purchase price for such
technology was not objectively determined, but was set by management
of Alpha Solarco based upon its judgment as to the value of the
technology. It is impossible to determine whether or not the
purchase price was or was not on terms similar to those obtainable
in an unaffiliated third party transaction.
None of Alpha Solarco's historical product line was transferred to
Solectric. Although the technology transferred to Solectric did not
comprise a substantial portion of Alpha Solarco's assets, it did
have significant value in management's opinion. However, since the
technology consists of patents, trade secrets, proprietary
information, etc., as opposed to tangible assets, its book value
under generally accepted accounting principles, which specify that
all assets be carried at their original cost, was nominal (i.e.,
$1.00 plus the actual cost of obtaining patents).
Solectric originally intended to direct its activities to a number
of activities other than the solar electric generator, such as the
manufacture of photovoltaic receivers, the development of new
concentrator cells, the development of a ribbon method of production
of silicon photovoltaic cells, and the development of non-silicon
photovoltaic or thermionic cells. However, due to general economic
conditions in the overall energy industry and Solectric's lack of
capital resources, it was unable to pursue these plans and instead
concentrated on the solar electric generator, as did Alpha Solarco.
Solar Corporation. On July 27, 1984, Alpha Solarco and Solectric
organized Solar Corporation as a joint venture to develop a solar
electric energy system based upon the solar electric generator.
During fiscal 1985 both companies began to concentrate their
resources on the production, through Solar Corporation, of a
prototype solar electric generator, and such concentration continued
through fiscal 1995.
Products. The primary model utilizes refractive optics (lenses)
with a high concentration point-focus silicon cell for direct
conversion from sunlight to electricity. Twenty-four silicon cells,
coupled to three thin plastic sheets containing twenty-four fresnel
lenses (made by cutting concentric circles with varying angular
facets) form a module with a projected power output of approximately
150 watts. The solar electric generator unit is designed to contain
100 modules, and to be approximately 45 feet wide and 45 feet high,
with an active working area of 1,600 square feet. A production
equipment and assembly process program produced a Proof-of-Concept
Demonstration Unit of this size located in Pahrump, Nevada.
The solar electric generator Demonstration Unit is regulated by the
Federal Energy Regulatory Commission and by state electric utilities
laws. The Demonstration Unit has received the status of a
Qualifying Facility under the Public Utilities Regulatory Policies
Act of 1978 ("PURPA") and the regulations promulgated thereunder as
a Small Power Production Facility. Such qualification permits the
Demonstration Unit to be exempt from the Public Utility Holding
Company Act and certain state laws and regulations.
In general, the federal regulatory environment for qualifying
renewable energy facilities has been favorable. PURPA requires
public utilities to purchase electric power generated by Small Power
Production Facilities. However, even with the successful
implementation of PURPA, impediments exist to marketing efforts in
the form of resistance by public utilities to comply with this
requirement. In the area of state regulation, the restrictions
placed on the utility costs that can be passed on to consumers
inhibits development of solar electric power production.
Specifically, state regulations prohibit utilities from passing
capital costs for energy development to consumers, although fuel and
maintenance costs are routinely permitted to be passed directly
through to the consumer. Since solar energy systems require
significant capital investment and incur virtually no fuel or
maintenance costs, the nature of the state regulatory system works
against investment by public utilities in solar electric power
generators. Alpha Solarco's president is participating in an effort
to develop a national photovoltaic strategy for utilities; however,
there can be no assurance that the regulatory scheme will be changed
to make the state regulatory environment more favorable to producers
of solar electric power or that if the regulations are modified
Alpha Solarco will be able to qualify for favorable treatment under
the revised regulations.
The solar electric generator has been engineered as a modular unit
so as to permit installations of varying sizes and capabilities, as
well as ranges of application. In single unit use, the solar
electric generator may also serve as a solar energy device which is
capable of replacing small (around 50 kilowatt hours per day) diesel
generators. In addition, installations consisting of one or more
units may provide power to remote regions where other sources of
energy may not be available. Although the solar electric generator
has been engineered as a modular unit it is more economical to
install utility scale systems rather than single or small groups of
units. There can be no assurance that U. S. utilities will purchase
any large scale photovoltaic systems or that Alpha Solarco can
install systems at the required cost.
At present, the solar electric generator is available for sale,
although actual units will be produced only when a firm order is
received.
Patents. In 1979 Alpha Solarco filed eleven patent applications
relating to certain aspects of its proprietary solar energy
products. An additional application was filed in 1980. Based upon
these applications, a total of eleven patents were issued by the
United States Patent Office. Of such patents, two are related to
low cost photovoltaic solar cell manufacturing methods and the
design of a central receiver for photovoltaic cells and were
assigned to Solectric. The other nine patents related to certain
proprietary rights relative to solar energy receivers, collectors
and reflectors.
The solar electric generator incorporates one patent granted to
Alpha Solarco with respect to a solar tracking device. Alpha
Solarco considers only one of its patents, granted with respect to
a solar tracking device, to be crucial to its future success. The
duration of patents by law is seventeen years; however, because the
solar energy industry is one of rapidly expanding technology, Alpha
Solarco does not believe its solar tracking device patent will
necessarily remain materially important to Alpha Solarco's business
for the full term thereof.
Alpha Solarco plans to combine its solar tracking device technology
with a control system developed by Sandia National Laboratories.
Alpha Solarco has obtained a license of the system from Sandia
National Laboratories. In addition, the solar electric generator
utilizes a proprietary system to align the concentrator cell to the
center of the primary lens. This system has been evaluated for
patentability and a patent will be filed when sufficient funds are
available to proceed with the patent process. Finally, a new drive
mechanism will be considered for patentability after performance
tests are completed by the Electric Power Research Institute and/or
Sandia National Laboratories.
It is contemplated that certain other components of the solar
electric generator and its various configurations and applications
may be patentable and it is anticipated that the solar electric
generator will also incorporate proprietary trade secrets and
related know-how which Alpha Solarco may license, sell or otherwise
exploit in exchange for royalties. Alpha Solarco will do whatever
it deems necessary to assure the confidentiality and maintain the
secrecy of the design of the solar electric generator. Currently,
patent documentation safeguards are used by the engineering and
research staff; however the solar electric generator as a concept is
public knowledge and cannot be patented. Other equipment and
assembly techniques will remain trade secrets of Alpha Solarco.
While Alpha Solarco may apply for a patent for the MSEPG system,
there can be no assurance that a patent will be issued.
Furthermore, there can be no assurance that if challenged, the
validity of issued patents relating to components of the solar
electric generator will be upheld.
Seasonality. Alpha Solarco does not believe that its business is
seasonal in nature. However, operating efficiencies of all solar
energy products are affected by levels of sunshine, and therefore
the greatest efficiencies for the MSEPG would be achieved in the
southwestern part of the United States, as well as other areas of
the world which benefit from a high level of sunshine.
Government Contracts. On September 26, 1990, Alpha Solarco was
awarded a cost share contract from Sandia National Laboratories
("Sandia") as part of the Photovoltaic Concentrator Initiative of
the National Photovoltaic Program of the U.S. Department of Energy's
Photovoltaic Energy Technology Division. The purpose of the
initiative is to support the engineering development of
concentrating collector technologies. Sandia was given the
responsibility for the definition and administration of the
initiative and has a strong background in cells, cell assemblies,
optics, materials, reliability and quality assurance and control.
The agreement was amended by mutual agreement of the parties to end
on June 30, 1993, due to cutbacks in the Department of Energy
alternative energy programs. Alpha Solarco was awarded $13,600 to
submit a final report on the program to Sandia. The final report
for this contract was submitted and accepted by Sandia. The
equipment was returned in September, 1995 and the contract was
closed thus completing the project.
Competition. The power production industry generally and the solar
industry in particular are intensely competitive. Management
believes that the solar electric generator represents a material
advance in the production of solar electricity on a cost-effective
basis due to the fact that management is not aware of any competitor
that has been able to produce solar power at a cost less than
$10,000 - $12,000 per installed kilowatt. Management knowledge of
the cost experience of Alpha Solarco's competitors is based on
information received informally from industry publications,
conversations with officials of the U.S. Department of Energy and
statements made by competitors at technical meetings. Moreover, the
Demonstration Unit is able to produce electric power at a cost of
$.06 per kilowatt hour, an efficiency level which meets the goals
set by the U.S. Department of Energy for the mid-1990's. However,
no formal marketing or feasibility studies have been conducted, and
therefore there can be no assurance that solar energy devices or
systems comparable to the solar electric generator will not be
introduced into the market by other firms. There are a number of
firms which have been established for a longer period of time than
Solar Corporation and which possess greater financial, marketing,
personnel and other resources than those possessed by Solar
Corporation that have entered or are in the process of entering the
business of designing, manufacturing and selling the types of solar
energy systems which may compete with the solar electric generator,
including solar energy systems and conventional energy systems
utilizing oil, gas and electricity. Such firms include LaJet
Energy, which has developed a solar power plant utilizing parabolic
dishes; ARCO Solar, Inc. which has developed a solar facility
utilizing flat plate solar cells and a dual axis tracking system;
Acurex Solar Corporation and Hughes Research Laboratory (an
affiliate of Hughes Aircraft), which have each independently
developed a solar powered generation system utilizing parabolic
troughs and single axis tracking systems; and ESV, Inc. (a
subsidiary of McDonnell Douglas Corporation), in conjunction with
United Sterling AB of Sweden, which have jointly developed a solar-electric
generating plant utilizing large parabolic dishes and an
engine located at the focal point of each dish. There can be no
assurance that Alpha Solarco will be able to compete successfully
with such companies.
Marketing. Since the market for large solar systems demands even
lower costs than the current Alpha Solarco units, the Company has
developed another photovoltaic technology for its potential
customers, known as solar flat plate or single sun systems. Lack of
capital prevents the Company from directly competing with the
established manufacturers of these systems; management has decided,
therefore, to create sales with "technology transfer." Since U.S.
manufacturers sell over 90% of their product overseas, the Company
now sells technology and manufacturing equipment in those countries
that are looking for import independence by producing the product
within their country using local labor. All of the equipment sold
overseas is produced in the U.S. through subcontractors with testing
equipment produced by Alpha Solarco. Exceptions are made to U.S.
made equipment only when demanded by clients.
Alpha Solarco signed a technology transfer and manufacturing
equipment sale agreement with the Al Afandi Establishment for Trade,
Industry and Contracting of Saudi Arabia (Al Afandi"). The initial
contract was for $4,062,000. Marketing studies indicated to the
Company's management that this area of technology transfer of
photovoltaic solar energy flat plate systems has the least amount of
competition. The existing competitors were not multi-billion dollar
firms and a quality vendor could quickly establish a market share.
The Al Afandi contract has been expanded to include options and the
contract is now $4,262,000. Alpha Solarco currently has a $389,200
contract to produce a solar panel assembly line for Skylight Corp.,
which is a subsidiary of Al Afandi.
Alpha Solarco does not currently have a marketing or distribution
system or a salaried sales staff. Current marketing activities are
being conducted by management and are focused primarily toward
energy utilities, commercial and industrial firms, foreign
governmental entities, and universities and research facilities. At
the present time specialized marketing and sales personnel are not
employed by Alpha Solarco due to the large size and complexity of
the potential transactions. The nature of marketing activities
being conducted include sending informational literature to
electric power agencies world-wide. Officials at the World Bank and
the United Nations Services have also been informed about the
product. However, no feasibility studies have been conducted as to
market acceptance of the solar electric generator, and therefore
there can be no assurance that a market for the solar electric
generator will exist. Moreover, sales of the solar electric
generator are dependent on the successful operation of the
Demonstration Plant.
Alpha Solarco has received unsolicited indications of interest from
foreign companies desiring to license the technology developed by
Alpha Solarco in order to manufacture solar electric generating
equipment. Alpha Solarco plans to prepare additional proposals for
such transactions. As a result of one such indication of interest,
Alpha Solarco, Inc. of Ohio, a wholly-owned subsidiary of Alpha
Solarco ("Alpha Ohio") has entered into a joint venture agreement as
of February 18, 1991 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 Energy Power Company
Ltd. (the "Chinese Joint Venture Company"). The Joint Venture
Agreement provides that the products manufactured by the Chinese
Joint Venture Company will be marketed by Sun under an exclusive
Marketing Agreement. Under the term of the Marketing Agreement,
initially Sun must sell enough modules to produce two megawatts of
power in the first year, four megawatts in the second year and eight
megawatts in the third year. Although there can be no assurance
that Sun will be able to meet these performance goals, it has sold
solar flat plate products for QHD and has a sales representative
network in place to sell products manufactured by the Chinese Joint
Venture Company. If Sun fails to meet these performance goals, the
Chinese Joint Venture Company can appoint another marketing agent.
All fees and commissions paid by Sun must be approved by Alpha Ohio.
Licensing Activities. As discussed above, Alpha Solarco has
recently directed its efforts on the licensing of its technology and
on the manufacture and sale of key components for the construction
of photovoltaic electric generators to certain international
manufacturers. As a result of these efforts, Alpha Ohio has entered
into a joint venture agreement as of February 18, 1991 with Sun and
QHD for the formation of the Chinese Joint Venture Company. The
purpose of the Chinese Joint Venture Company is to (i) design,
manufacture and sell photovoltaic concentrator modules, tracking and
control systems; (ii) conduct research and development of solar
power system applications; and (iii) design, install and manage
photovoltaic concentrator power systems. The joint venture
agreement has been approved by the Foreign Trade Ministry of the
Peoples Republic of China.
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 a technology transfer, and Sun owns a 5% equity interest
in exchange for an in-kind contribution of $200,000 in the form of
services rendered.
As indicated above, QHD's contribution which was to be entirely
cash, with installments, was completed by the end of January, 1994.
Alpha Ohio's total contribution, $1,400,000, will be made in
connection with its separate agreements to sell the Chinese Joint
Venture Company the equipment and machinery, and to license to it
the technology necessary to construct and operate a facility to
manufacture photovoltaic generating plants.
Alpha Ohio's contribution involves two components. The first 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 will
constitute a 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 pursuant to a confirmed letter of
credit when and as equipment is delivered.
The second 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 nonrefundable advance fee is established. Alpha Solarco,
however, has contractually agreed to accept only $250,000 of this
amount, with the other $750,000 constituting the balance of Alpha
Ohio's $1,400,000 total capital contribution to the Chinese Joint
Venture Company. Management expects that, taken together, the sale
of the equipment to the Chinese Joint Venture Company and the lump
sum nonrefundable advance royalty will generate revenue of
$2,400,000.
In August, 1991, the Chinese Joint Venture Company established an
irrevocable letter of credit in the amount of $1,600,000 in favor of
Alpha Ohio, of which $225,000 (relating to the technology transfer
fee) was immediately drawn by Alpha Ohio. A second letter of credit
for $800,000 was established in November, 1992. A third letter of
credit in the amount of $177,000 was established in May, 1994.
Currently, $97,000 remains of this third letter of credit and the
remainder of the equipment covered by it will be shipped by December
31, 1994.
The Technology Transfer Agreement also provides for continuing
royalties payable over its 15 year term of $.05 per watt of
electrical generating capacity of products manufactured by the
Chinese Joint Venture Company 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 generated through sales to it of
certain key components necessary for productions, as well as
additional equipment and tooling for possible future plant
expansion. There is no assurance that the Chinese Joint Venture
Company will honor these obligations or that payment will be made in
currency convertible into U.S. Dollars.
Under the terms of the Technology Transfer Agreement, Alpha Ohio is
to supply to the Chinese Joint Venture Company the technology
developed by Alpha Solarco in connection with the design and
manufacture of photovoltaic electric power generators. In addition,
Alpha Ohio will train technical personnel to use the licensed
technology for the fabrication, assembly, operation, maintenance and
repair of the solar electric generator units manufactured by the
Chinese Joint Venture Company. The Chinese Joint Venture Company's
license is exclusive to China and nonexclusive to the rest of the
world except the United States, Mexico and Egypt, which are
specifically excluded from the licensed territory. However, Alpha
Ohio retains the right to exclude other areas of the world from the
licensed territory in future years.
Solar Corporation separately entered into a license agreement with
Alpha Ohio pursuant to which it agreed to license its technology to
Alpha Ohio to the extent necessary to facilitate its participation
in the Chinese Joint Venture Company, in exchange for a royalty
equal to the net financial benefit (total receipts less total
related expenses) incurred by Alpha Ohio. This arrangement became
moot upon the merger of Solectric and Alpha Solarco.
Research and Development. During the fiscal years ended May 31,
1996 and 1995, there were $6,832 and $0 expenditures respectively
for Alpha Solarco sponsored research and development. Such
expenditures for the fiscal year ended May 31, 1994 were $175,116.
To lower costs of the Alpha Solarco Solar Concentrating units, the
Company has targeted three areas for additional production
development: new material to lower module housing costs, co-operative effort
with current suppliers to reduce solar cell costs
and a new method of producing the primary lenses.
Employees. The total number of persons employed by Alpha Solarco
and its subsidiaries on a consolidated basis as of May 31, 1996 was
five.
Alpha Manufacturing Group, Inc. Alpha Manufacturing Group, Inc.
("AMG") was incorporated in February, 1992 in Kentucky as a wholly-owned
subsidiary of Alpha Solarco for the purpose of acquiring the
assets of State Machine Products, Inc., a manufacturing firm located
in Dry Ridge, Kentucky ("State Machine"). The acquisition was
completed on March 25, 1992 with a retroactive effective date of
February 29, 1992. The assets acquired from State Machine included
approximately 200 acres of real property in Dry Ridge, buildings,
machinery, equipment, raw materials and inventory used in State
Machine's manufacturing business. State Machine also assigned to
AMG its rights in certain U.S. Department of Defense contracts for
the manufacture of military gear and equipment such as backpacks,
lanterns and the like (the "DOD contracts").
Products: The equipment acquired by AMG can be used to fabricate
and assemble a wide variety of products. AMG expects to utilize its
machine shop capabilities to manufacture certain key components for
use in building solar energy power systems. Such components include
drive mechanisms, module housing, cell assembly parts and
connectors. These components will initially be distributed to the
Chinese Joint Venture Company pursuant to confirmed letters of
credit. Thereafter, products will be manufactured and produced as
firm orders are received from other entities developing solar energy
power systems and as identified from time to time by Alpha Solarco.
No retooling of equipment or alteration of the facility acquired
from State Machine was necessary in order for AMG to begin
production of components for use in building solar energy power
systems. Since the acquisition of such equipment and facilities,
AMG has manufactured cell assembly units, module housing and other
related components. In addition, AMG built prototype units to
assist Alpha Solarco in the performance of its contract with Sandia
National Laboratories.
Raw Materials: AMG uses steel, brass, aluminum and other basic
metals in the manufacture of military gear and equipment. All of
these raw materials are readily available from a large number of
vendors. The components of solar energy power systems which AMG
intends to manufacture use essentially the same raw materials, with
the addition of lucite for the manufacture of primary lenses. AMG
anticipates that these materials will also be available based on the
experience of and research conducted by Alpha Solarco.
Competition: AMG is a basic manufacturing, metalworking and
assembly based business. As such it has many actual and potential
competitors for its Defense Department contracting work as well as
in the commercial arena. At present, it is not possible to gauge
AMG's relative standing among other such firms. The principal
methods of competition include pricing and compliance with
specifications.
Financial information concerning Alpha Solarco's industry segments
for the year ended May 31, 1996, including the solar-electric
segment, which creates, develops and sells the technology and
equipment needed to manufacture solar-electric power generation
systems, is contained in Note 5 of Alpha Solarco's consolidated
financial statements for the year ended May 31, 1996. (See
"Financial Statements and Schedules.")
Item 2. Properties
Alpha Solarco's principal executive offices are located at 510 E.
University Drive, Phoenix, Arizona 85004 in approximately 30,000
square feet of space under an operating lease that expires November,
1996. Rent expense for this facility amounted to $117,819 and
$114,145 in 1996 and 1995, respectively.
The Demonstration Unit constructed by Alpha Solarco through Solar
Corporation is located in Pahrump, Nevada on four acres purchased by
Alpha Solarco. Located on the site are technical buildings, the
Demonstration Unit, monitoring and sales equipment, and power
inversion equipment valued at approximately $35,000. The buildings
and equipment at the site are owned by the Company free and clear.
The assets acquired by AMG from State Machine include approximately
200 acres of real property located in Dry Ridge, Kentucky, which
includes 170 acres of raw land, a production and assembly facility
building located on nine acres, containing 49,700 square feet of
space. The 170 acres of raw land are presently unencumbered. These
properties are suitable for AMG's current needs and include
sufficient raw land to permit expansion of plant facilities in the
future, if necessary and economically feasible. The assets of AMG
are currently being held for sale. The approximate fair market
value of the property is $549,750.
Item 3. Legal Proceedings
At the present time, the Company is not a party to any pending legal
proceedings which would have a material adverse impact on the
Company's financial condition or results of operations. The
Company, both directly and through AMG, however, has been subject to
numerous suits by creditors arising out of the late payment of
accounts payable. To date, these suits have been amicably resolved
through the use of mutually acceptable payment plans. There can be
no assurance that this will continue to be the case.
Item 4. Submission of Matters to a Vote of Security Holders.
Not Applicable.
**********
Executive Officers of the Company. The names, ages and positions of
the executive officers of the Company as of May 31, 1995 are as
follows:
Name Age Position
Edward C. Schmidt 63 President, Treasurer and Director
Wilson Dennehy 57 Director
Charles Dennehy 64 Director, Acting Secretary
MR. EDWARD C. SCHMIDT holds a B.S. degree in Industrial Design from
the University of Cincinnati. Since June 1979 Mr. Schmidt has been
a Director of the Company, and of its operating subsidiary, Alpha
Solarco Inc. of Ohio, since December 1980. He was appointed to the
position of President of the Company and Solectric Corporation in
January 1988 following the death of Mr. Miroslav Uroshevich, the
former President and founder of both companies. Previously, from
June 1979 to January 1988, Mr. Schmidt served as the Executive Vice
President of the Company. He has been associated with the Company
since its formation and prior thereto commencing in 1961 was
associated with Mr. Uroshevich as an officer and the other
shareholder of Alpha Designs, Inc.
MR. WILSON DENNEHY, was elected to the position of Director in 1992.
Prior to that time he was a director of Solectric Corporation from
1987 until its merger into Alpha Solarco. Mr. Dennehy has been
President of A.R.C., Inc. since 1971 in Denver, CO. Formerly, he
was Assistant General Manager with Gerald H. Phipps, Inc., General
Contractors in Denver, CO.
MR. CHARLES DENNEHY, was elected to the position of Director in
1992. Mr. Dennehy was President of Coachouse Inc. from 1963 through
1968. Since that time he has been an independent equine appraiser
and advisor.
PART II
Item 5. Market for the Company's Common Equity and Related
Stockholder Matters
The Company's common stock is held by approximately 7,000
shareholders of record as of May 31, 1996, and is traded over the
counter in the Nasdaq Smallcap Market. The range of price
quotations in each quarter of the two years ended May 31, 1996 are
shown below. These prices represent interdealer quotations, which
in general do not represent actual transactions, are subject to
negotiation and do not reflect retail markup, markdowns or
commissions.
High(1) Low(1)
Bid Ask Bid Ask
For Quarter Ended
May 31, 1996(2) $ 7.00 $ 7.75 $ 3.25 $ 3.75
February 29, 1996(2) 5.50 6.125 1.625 2.125
November 30, 1995(2) 3.125 6.25 1.75 2.375
August 31, 1995 .0625 .0938 .0313 .0625
May 31, 1995 $ .09 $ .13 $ .06 $ .09
February 28, 1995 .09 .13 .06 .09
November 30, 1994 .13 .16 .09 .13
August 31, 1994 .13 .16 .06 .09
(1) Based on quotations obtained from the Smallcap Market.
(2) Price quotations reflect a 1 for 100 reverse stock split which
was effected on November 15, 1995.
No dividends were declared or paid during the two years ended May
31, 1996 and May 31, 1995, and the Company does not anticipate
paying dividends in the foreseeable future.
Outstanding Common Stock Warrants and Options.
Through an integrated capital raising plan from October, 1990
through 1994, involving private placements and loans from board
directors and certain investors, Alpha Solarco issued a number of
five-year warrants to purchase common stock. All warrants had an
exercise price of $.105 per share and all remaining outstanding
warrants were exercised between September 1, 1995 and November 15,
1995. There are no remaining outstanding warrants of the Company.
The Company has options to purchase 1500 shares of common stock
outstanding as of May 31, 1996.
Item 6. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Liquidity and Financial Resources
On May 31, 1996, on a consolidated basis, Alpha Solarco had cash of
$50 as compared to $2,002 at May 31, 1995. This lack of liquidity
has presented problems for the Company and will continue to be a
problem for the Company unless it is able to raise additional funds.
Contract negotiations with several different groups involving solar
energy technology transfers are expected to be completed before the
end of the second quarter of fiscal 1997. In order to begin these
contracts, however, it may be essential for the Company to raise
additional funds for working capital purposes. Without working
capital, the Company would be unable to purchase the necessary
equipment and materials.
In addition, normal overhead expenses will continue with the
exception of the expenses relating to Alpha Manufacturing Group,
Inc. located in Kentucky. In late fiscal 1996, management made the
decision to sell this facility since the Company was never able to
achieve its business goals for competing for government contracts.
The Company has entered into a sales agreement for the sale of the
remaining equipment and expects to sell the real estate in the
second quarter of fiscal 1997. This disposal has been disclosed in
the accompanying financial statements as discontinued operations.
As shown, the Company incurred losses from operations and disposal
of approximately $894,000 and $644,000 in 1996 and 1995
respectively. By eliminating this subsidiary, the Company will have
a much better chance of profitability in the future. Management has
written the carrying value of these assets down to their expected
liquidation value.
As of May 31, 1996, the Company had trade and subscription
receivables of approximately $455,500 as compared to approximately
$467,000 at May 31, 1995. Of this amount, $201,250 subscription
receivable at May 31, 1996, was collected subsequent to year's end.
The trade receivable of approximately $254,000 represents a retainer
on the Al Afandi contract. This amount should be collected upon
final approval of that contract expected in the second quarter of
fiscal 1997.
Current liabilities decreased by $1,031,604 from 1995 to 1996. This
decrease is primarily attributable to the conversion of $715,000 of
debt into stock during 1996. This conversion, along with the sale
of stock and stock options of approximately $640,000 helped to
bolster stockholders' equity from $559,267 at May 31, 1995 to
$813,102 at May 31, 1996. Also adding to this increase was a stock
exchange valued at approximately $372,000 with CyberAmerica
Corporation on May 15, 1996.
Results of Operations
For the year ended May 31, 1996, Alpha Solarco had a consolidated
net loss of $1,148,871 or $.67 per share compared to a consolidated
net loss of $1,189,717 or $1.16 per share for the year ended May 31,
1995. Losses from continuing operations, however, were $255,138 or
$.15 per share for 1996 compared to a loss of $545,575 or $.53 a
share for 1995. The decrease in the loss was primarily due to a
decrease in general and administrative expenses of approximately
$660,000.
For the same period, revenues decreased from approximately
$3,589,000 for 1995 to approximately $1,035,000 for 1996. This
decrease was due to the completion of the Al Afandi contract which
began in 1995. Due to the decrease in revenues, cost of sales
decreased approximately $2,157,000. Subsequent to year end, the
Company signed an addition to the Al Afandi contract for
approximately $389,000 and as discussed earlier, the Company is in
negotiations with several different groups for new contracts.
The Company incurred costs of $6,832 for research and development
compared to no cost in fiscal 1995. The Company does not plan to
spend any significant funds on research and development in the
coming year.
The management plan for continued operations requires the raising of
additional funds and there can be no assurance that the raising of
these funds will be successful or that the Company can remain in
operation without these additional funds.
Item 7. Financial Statements and Supplementary Data
The response to this Item 7 is included in the response to Item 13
of this report.
Item 8. Changes and Disagreements with Accountants on Accounting
and Financial Disclosure
None.
PART III
Item 9. Directors, Executive Officers, Promoters and Control
Persons of the Registrant
Information with respect to each director and executive officer of
Alpha Solarco and all directors and executive officers as a group,
is as follows:
Shares of Alpha Solarco
Common Stock Beneficially
Owned on May 31, 1996
Name and Principal
Occupation During Director Percentage
Past Five Years Since Age Number of Class
EDWARD C. SCHMIDT, 1979 63 20,384(1) .80%(2)
President of Alpha Solarco
Inc. and Solectric Corporation
since January, 1988. Mr.
Schmidt was appointed
President of both companies
following the death of Mr.
Miroslav Uroshevich, the former
President and founder of both
companies. Prior to that time,
Mr. Schmidt served as the
Executive Vice President of
Alpha Solarco, and its
operating subsidiary,
Alpha Solarco Inc. of Ohio.
In addition, Mr. Schmidt has
served as a director of Alpha
Solarco Inc. and Alpha Solarco
Inc. of Ohio since 1979.
Also, in January 1988, Mr.
Schmidt was appointed to serve
as a director of Solectric
Corporation.
WILSON DENNEHY, 1992 57 417,946 16.38%(2)
was elected to the position
of Director in 1992. Prior
to that time he was a director
of Solectric Corporation from
1987 until its merger into
Alpha Solarco. Mr. Dennehy
has been President of A.R.C.,
Inc. since 1971 in Denver, CO.
Formerly, he was Assistant
General Manager with Gerald H.
Phipps, Inc., General
Contractors in Denver, CO.
CHARLES DENNEHY, 1992 63 291,508 11.42%(2)
was elected to the position
of Director in 1992. Mr.
Dennehy was President of
Coachouse Inc. from 1963
through 1968. Since that
time he has been an independent
equine appraiser and advisor.
All directors and executive 729,838(3) 28.60%(2)
officers as a group (3 persons)
__________________
(1) Includes currently exercisable options to purchase 1,500 shares
of Alpha Solarco Common Stock, which options have not in fact been
exercised and 300 which he owns outright and 18,584 shares pledged
to Alpha Solarco by State Machine for which shares he holds a proxy
to vote.
(2) These percentage amounts assume the exercise of currently
exercisable stock options, which options have not in fact been
exercised.
(3) Includes currently exercisable options and/or convertible
debentures to purchase 382,212 shares of Alpha Solarco Common Stock,
which options and/or debentures have not in fact been exercised
and/or converted and 18,584 shares pledged to Alpha Solarco which
may be voted by Edward C. Schmidt as proxy for State Machine.
None of the directors presently serve as directors of other
corporations that either have a class of securities registered under
the Securities Exchange Act of 1934 or are subject to the reporting
requirements of that Act.
Item 10. Executive Compensation
Cash Compensation. No executive officer or director of Alpha
Solarco received cash compensation from Alpha Solarco or
consolidated cash compensation in excess of $100,000 during the year
ended May 31, 1996. All executive officers of Alpha Solarco as a
group, 1 person, received consolidated cash compensation in the
amount of $102,000 during the year ended May 31, 1996. The amount
of cash compensation received by all executive officers as a group
represents payments to the officers by Alpha Solarco and/or
Solectric.
The following table is a summary of certain information concerning
the compensation awarded or paid to, or earned by, Alpha Solarco's
president. No executive officer of Alpha Solarco earned more than
$100,000 in salary and bonus in 1996.
<TABLE>
<CAPTION>
<PAGE>
SUMMARY COMPENSATION TABLE
Name and Principal Other Annual Long Term All other
Position Year Annual Compensation Compensation Compensation Compensation
___________________ ($) Awards ($)
____________________
Salary Bonus * Restricted Options/
($) ($) Stock SARS
($) (#)
__________________ _____ ______ ________ ___________ ___________ _______ _____________
<S> <C> <C> <C> <C> <C> <C> <C>
Edward C. Schmidt 1994 $52,000 * $4,200 * * *
President 1995 $88,667 $5,200
1996 $96,000 $6,000
</TABLE>
* As of May 31, 1996, Alpha Solarco did not have any bonus
or compensation plans for these columns.
<PAGE>
Item 11. Security Ownership of Certain Beneficial Owners and
Management
Under Rule 13(d) of the Securities Exchange Act of 1934, a
beneficial owner of a security is defined to include any person who
directly or indirectly has or shares voting power or investment
power over such security. Such beneficial owner under this
definition need not enjoy the economic benefit of such securities.
The following are the only shareholders deemed to be beneficial
owners of 5% or more of the Common Stock of the Company as of May
31, 1995.
Name & Address of Amount & Nature Percentage
Title of Class Beneficial Owner of Ownership of Class
- ------------- ------------------- ---------------- ---------
Common Stock Wilson Dennehy 417,946 shs.(2) 15.1%(1)
without par 5753 Southmoore Lane owned
value Englewood, CO 80111 beneficially
Common Stock Charles Dennehy 291,508 shs.(3) 10.5%(1)
without par 51 Alden owned
value Lake Forest, IL 60045 beneficially
(1) This percentage assumes the exercise of currently exercisable
stock options, which options have not in fact been exercised.
(2) Consists of 417,946 shares owned of record by Mr. Wilson
Dennehy and wife.
(3) Consists of 291,508 shares owned of record by Mr. Charles
Dennehy and wife.
The security ownership of each director and all directors and
officers as a group is set forth in "Item 9. Directors and Executive
Officers of the Registrant" above, which information is hereby
incorporated in this Item 11 by reference to Item 9.
Item 12. Certain Relationships and Related Transactions
Between December, 1986 and May, 1993 Mr. Gerald H. Phipps, a
director of Alpha Solarco, now deceased, loaned Alpha Solarco sums
of money pursuant to several promissory notes with varying rates of
interest. In November, 1994, the Company converted the entire
Phipps' indebtedness in the amount of $845,268, including principal
and interest, into equity of the Company by issuing 2,852,534 shares
of common stock each, totaling 8,557,602, to Sandra Dennehy, Karen
Sass, and Marta Talman, the daughters of Mr. Phipps.
In May, 1995, the Company borrowed from Karen Sass and Marta Talman,
children of Mr. Gerald H. Phipps, the principal sums of $1,000.00
each, payable pursuant to the terms of two promissory notes which
are repayable with interest at 9% per annum, payable on demand but
such demand can not be made sooner than August 31, 1996. In May,
1995, Charles Dennehy's wife, Daphne Dennehy, loaned $60,000.00 to
the Company, which by the terms of the promissory note was repayable
with interest at 9% per annum, payable on demand but such demand can
not be made sooner than August 31, 1996. In May, 1995, Wilson
Dennehy's wife, Sandra Dennehy, loaned $60,000.00 to the Company,
which by the terms of the promissory note was repayable with
interest at 9% per annum, payable on demand but such demand cannot
be made sooner than August 31, 1996. Further, in order to induce
Karen Sass, Marta Talman and Sandra Dennehy to enter into these
loans, the Company entered into several stock put and call
agreements, which provided that the Company repurchase shares of
common stock of the Company owned by these individuals upon demand
of these individuals over a period of two years for a purchase price
ranging from $.1155 to $.1270 per share.
In July, 1995, the Company entered into put agreements with Charles
and Wilson Dennehy whereby the Company agreed that it would
repurchase up to 65,000 (post reverse split) shares of common stock
from each individual upon demand of these individuals over a period
of two years for a purchase price of $12.70 to $13.97 (post reverse
split) per share.
During the years ended May 31, 1996 and 1995 a total of $0 and
$12,650 interest accrued on all notes payable to directors of Alpha
Solarco, respectively.
The transactions described above were entered into primarily because
of the relationships of the parties to such transactions. In the
absence of such relationships Alpha Solarco believes that certain or
all of such transactions may not have been effected, or may not have
been effected on the same terms. The terms of such transactions may
not be comparable to the terms which would have prevailed had such
transactions occurred between unrelated third parties.
Item 13. Exhibits, Financial Statements and Reports on Form 8-K
(a)(1) and (2). Financial Statements
The financial statements listed in the accompanying index to
financial statements are filed as part of this annual report.
(a)(3). Exhibits
Exhibit No. Description
2 Plan and Agreement of Merger*****
3(a) Certificate of Incorporation, as amended ***
3(b) By-Laws***
10(a) Joint Venture Agreement with
Solectric Corporation ****
10(b) Alpha Solarco Inc. Stock Option Plan
(As amended November 18, 1982)***
10(c) Purchase Agreement dated as of May 30, 1984
by and between Alpha Solarco Inc. and
Solectric Corporation**
10(d) Long Term Energy Purchase Agreement
between Alpha Solarco Inc. and Valley
Electric Association, Inc. dated
May 5, 1989*****
10(e) Contract of Joint Venture - Qinhuangdao
Alpha Solarco Power Ltd. dated
February 28, 1991*****
10(f) Contract No. 40-8941D between Alpha
Solarco Inc. and Sandia National Laboratories
dated September 26, 1990*****
10(g) Subcontract No. XC-1-10057-9 between
Midwest Research Institute Manager -
Operator of the Solar Energy Research
Institute and Alpha Solarco Inc. dated
January 3, 1991*****
10(h) Loan and Stock Pledge Agreement by and
between Robert M. Schoenman and Alpha
Solarco Inc. dated October 15, 1991*****
10(i) Promissory Note in the Principal
Amount of $500,000 from Robert M. Schoenman
dated October 15, 1991*****
10(j) Management Agreement by and between
State Machine Products Inc. and Alpha Solarco
Inc. dated October 15, 1991*****
10(k) Assets Purchase Agreement by and
among State Machine Products, Inc., Robert M.
Schoenman and Alpha Solarco Inc. dated
February 11, 1992*****
10(l) Assumption Agreement by and among Alpha
Manufacturing Group, Inc.; Alpha Solarco
Inc.; Alpha Solarco Inc. of Ohio; Liberty
National Bank and Trust Company of Louisville;
State Machine Products, Inc.; Schoenman
Land Company; Robert M. Schoenman;
Jon F. Schoenman; Kyung Sook Schoenman;
Robert A. Schoenman; and Sharon K. Schoenman
dated March 25, 1992*****
10(m) Agreement for Solar Cell Manufacturing
Facility between Alpha Solarco, Inc.
and Al Afandi Establishment for Trade,
Industry and Contracting made as
of January 26, 1994.*******
22 Subsidiaries of the Company******
____________________
* Such exhibits are filed by incorporation by reference to the
Company's Annual Report on Form 10-K for the year ended May 31,
1989.
** Such exhibits are filed by incorporation by reference to the
Company's Annual Report on Form 10-K for the year ended May 31,
1988.
*** Such exhibits are filed by incorporation by reference to the
Company's Annual Report on Form 10-K for the year ended May 31,
1987.
**** Such exhibits are filed by incorporation by reference to the
Company's current report on Form 10-K for the year ended May 31,
1986.
***** Such exhibits are filed by incorporation by reference to the
Registration Statement on Form S-4 (SEC File No. 33-37554) filed
October 31, 1990.
****** Such exhibits are filed by incorporation by reference to the
Company's Annual Report on Form 10-K for the year ended May 31,
1992.
******* Such exhibits are filed by incorporation by reference to the
Company's Annual Report on Form 10-K for the year ended May 31,
1995.
(b). Reports on Form 8-K
A Current Report on Form 8-K dated March 25, 1992 was filed by Alpha
Solarco on April 9, 1992 reporting the acquisition of State Machine
Products, Inc. The report was amended under cover of Form 8 on May
5, 1992 to file the financial statements of State Machine Products
Inc. and the required pro forma financial information.
INDEX TO EXHIBITS
Exhibit No. Description Page No.
2 Plan and Agreement of Merger *****
3(a) Certificate of Incorporation, as amended ***
3(b) By-Laws ***
10(a) Joint Venture Agreement with Solectric
Corporation ****
10(b) Alpha Solarco Inc. Stock Option Plan
(As amended November 18, 1982) ***
10(c) Purchase Agreement dated as of May 30,
1984 by and between Alpha Solarco Inc.
and Solectric Corporation **
10(d) Long Term Energy Purchase Agreement
between Alpha Solarco Inc. and Valley
Electric Association, Inc. dated May 5, 1989 *****
10(e) Contract of Joint Venture - Qinhuangdao
Alpha Solarco Power Ltd. dated
February 28, 1991 *****
10(f) Contract No. 40-8941D between Alpha
Solarco Inc. and Sandia National
Laboratories dated September 26, 1990 *****
10(g) Subcontract No. XC-1-10057-9 between
Midwest Research Institute Manager
- Operator of the Solar Energy Research
Institute and Alpha Solarco Inc. dated
January 3, 1991 *****
10(h) Loan and Stock Pledge Agreement by and
between Robert M. Schoenman and Alpha
Solarco Inc. dated October 15, 1991 *****
10(i) Promissory Note in the Principal Amount
of $500,000 from Robert M. Schoenman dated
October 15, 1991 *****
10(j) Management Agreement by and between
State Machine Products Inc. and Alpha
Solarco Inc. dated October 15, 1991 *****
10(k) Assets Purchase Agreement by and among
State Machine Products, Inc., Robert M.
Schoenman and Alpha Solarco Inc. dated
February 11, 1992 *****
10(l) Assumption Agreement by and among Alpha
Manufacturing Group, Inc.; Alpha Solarco
Inc,; Alpha Solarco Inc. of Ohio; Liberty
National Bank and Trust Company of Louisville;
State Machine Products, Inc.; Schoenman
Land Company; Robert M. Schoenman;
Jon F. Schoenman; Kyung Sook Schoenman;
Robert A. Schoenman; and Sharon K. Schoenman
dated March 25, 1992 *****
10(m) Agreement for Solar Cell Manufacturing
Facility between Alpha Solarco, Inc.
and Al Afandi Establishment for Trade,
Industry and Contracting made
as of January 26, 1994. *******
22 Subsidiaries of the Company ******
____________________
* Such exhibits are filed by incorporation by reference to the
Company's Annual Report on Form 10-K for the year ended May 31,
1989.
** Such exhibits are filed by incorporation by reference to the
Company's Annual Report on Form 10-K for the year ended May 31,
1988.
*** Such exhibits are filed by incorporation by reference to the
Company's Annual Report on Form 10-K for the year ended May 31,
1987.
**** Such exhibits are filed by incorporation by reference to the
Company's current report on Form 10-K for the year ended May 31,
1986.
***** Such exhibits are filed by incorporation by reference to the
Registration Statement on Form S-4 (SEC File No. 33-37554) filed
October 31, 1990.
****** Such exhibits are filed by incorporation by reference to the
Company's Annual Report on Form 10-K for the year ended May 31,
1992.
******* Such exhibits are filed by incorporation by reference to the
Company's Annual Report on Form 10-K for the year ended May 31,
1995.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Company has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized.
ALPHA SOLARCO, INC.
By: /s/ Edward C. Schmidt
Edward C. Schmidt, President
September 12, 1996
Pursuant to the requirements of the Securities and 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 dates
indicated.
PRINCIPAL EXECUTIVE OFFICER and
PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER:
/s/ Edward C. Schmidt September 12, 1996
Edward C. Schmidt (Date)
President, Treasurer & Director
DIRECTORS:
/s/ Edward C. Schmidt September 12, 1996
Edward C. Schmidt (Date)
President, Treasurer & Director
/s/ Charles D. Dennehy, Jr. September 12, 1996
Charles D. Dennehy, Jr., (Date)
Acting Secretary & Director
/s/ Wilson Dennehy September 12, 1996
Wilson Dennehy, Director (Date)
<PAGE>
ALPHA SOLARCO INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED MAY 31, 1996 AND 1995
and
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS<PAGE>
ALPHA SOLARCO INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
Years Ended May 31, 1996 and 1995
TABLE OF CONTENTS
Page
Report of Independent Certified Public Accountants 1
Financial Statements:
Consolidated Balance Sheet - May 31, 1996 2
Consolidated Statement of Operations -
Years Ended May 31, 1996 and 1995 3
Consolidated Statement of Stockholders' Equity -
Years Ended May 31, 1996 and 1995 4
Consolidated Statement of Cash Flows -
Years Ended May 31, 1996 and 1995 5
Notes to Consolidated Financial Statements 6 - 15<PAGE>
1
Report of Independent Certified Public Accountants
The Board of Directors and Stockholders
Alpha Solarco Inc.
We have audited the consolidated balance sheet of Alpha Solarco
Inc., and subsidiaries, as of May 31, 1996, and the related
consolidated statements of operations, stockholders' equity, and
cash flows for each of the years in the two-year period ended May
31, 1996. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion
on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. These standards require that we plan and
perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Alpha
Solarco Inc. and subsidiaries, as of May 31, 1996, and the results
of their operations and cash flows for each of the years in the two-year period
ended May 31, 1996, in conformity with generally
accepted accounting principles.
The accompanying consolidated financial statements have been
prepared on a going concern basis which contemplates the realization
of assets and liquidation of liabilities in the ordinary course of
business and do not include any adjustments relating to the
recoverability and classification of recorded asset amounts or the
amounts and classification of liabilities that might be necessary
should the Company be unable to achieve its business plan and
continue in existence. The Company's ability to recover the value
of its assets and continue in existence is discussed in Note 1.
This uncertainty as well as the Company's recurring significant
operating losses raise substantial doubt about its ability to
continue as a going concern. The financial statements do not
include any adjustments that might result from the outcome of these
uncertainties.
Spaeth & Batterberry, Ltd.
Cincinnati, Ohio
August 24, 1996
<PAGE>
2
ALPHA SOLARCO INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
May 31, 1996
ASSETS
Current assets:
Cash and cash equivalents $ 50.00
Subscription receivable 201,250.00
Accounts receivable:
Trade 254,337.00
Employees 1,000.00
Prepaid expenses 1,536.00
----------
Total current assets 458,173.00
----------
Property and equipment, at cost:
Land 25,000.00
Machinery and equipment 392,579.00
Furniture and fixtures 94,098.00
Leasehold improvements 27,894.00
Buildings 107,898.00
Computer equipment 20,056.00
----------
667,525.00
Less accumulated depreciation (494,323.00)
----------
173,202.00
Property and equipment held for sale 549,750.00
Note receivable - officer 47,699.00
Investment in Chinese Joint Venture
and other company 461,670.00
Other assets 21,414.00
----------
1,080,533.00
------------
$ 1,711,908.00
==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion long-term debt $ 8,553.00
Notes payable 227,149.00
Accounts payable 591,977.00
Accrued liabilities 18,500.00
----------
Total current liabilities 846,179.00
----------
Long-term debt, less current portion 52,627.00
----------
Stockholders' equity:
Common stock, without par value;
200,000,000 shares authorized
2,700,048 and shares issued and
outstanding 14,787,416.00
Accumulated deficit (13,974,314.00)
-------------
813,102.00
-------------
$ 1,711,908.00
==============
The accompanying notes are an integral part of these financial
statements
<PAGE>
3
ALPHA SOLARCO INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
Years Ended May 31,
1996 1995
Revenues:
Net sales $ 1,008,914 $ 3,456,360
Interest 13 1,877
Government contracts
and other income 26,315 106,880
--------- ----------
1,035,242 3,565,117
--------- ----------
Costs and expenses:
Cost of sales 314,187 2,471,816
General and administrative 902,253 1,562,820
Research and development 6,832 0
Depreciation 51,561 51,561
Interest 15,547 24,495
--------- ---------
1,290,380 4,110,692
--------- ---------
Loss from continuing operations (255,138) (545,575)
Discontinued operations:
Loss from operations of
discontinued Alpha Manufacturing
Group, Inc. (449,222) (644,142)
Loss on impairment and disposal
of Alpha Manufacturing
Group, Inc. (444,511) 0
---------- ----------
(893,733) (644,142)
---------- ----------
Net loss $(1,148,871) $(1,189,717)
========== ==========
Loss per share:
From continuing operations $ (0.15) $ (0.53)
========== ==========
Net loss $ (0.67) $ (1.16)
========== ==========
The accompanying notes are an integral part of these financial
statements
<PAGE>
4
<TABLE>
<CAPTION>
ALPHA SOLARCO INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Common Stock
-----------------------------------------------
Number Consideration Total
Of Shares -------------------------------- Accumulated Stockholders'
Issued Cash Noncash Total Deficit Equity
--------- -------- --------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at
June 1, 1994 100,588,458 $7,799,565 $4,739,877 $12,539,442 $(11,635,726) $ 903,716
Issuance of shares
in connection with
loan conversion
(.105 per share)
Cancellation of
Phipps note 8,557,602 845,268 -- 845,268 -- 845,268
Issuance of shares
in connection with
debenture conver-
sion (.105 per share)
Net loss -- -- -- -- (1,189,717) (1,189,717)
---------- ---------- --------- ---------- ------------- -----------
Balance at
May 31, 1995 109,146,060 $8,644,833 $4,739,877 $13,384,710 $(12,825,443) $ 559,267
=========== ========== ========= ========== ============= ===========
Balance after
reverse split
1:100 1,091,461 $8,644,833 $4,739,877 $13,384,710 $(12,825,443) $ 559,267
Issuance of shares
in connection with
exercise of warrants 13,570 135,706 0 135,706 0 135,706
Cancellation of
shareholder notes 845,017 0 715,000 715,000 0 715,000
Payment to shareholder
under Put Agreement 0 (375,000) 0 (375,000) 0 (375,000)
Issuance of new shares
($.75 to $1.25 per
share) 550,000 505,000(1) 0 505,000 0 505,000
Issuance of stock for
investment in
CyberAmerica
Corporation 150,000 0 372,000 372,000 0 372,000
Common stock awarded
to employees as part
of a bonus arrangement
($1.00 per share) 50,000 0 50,000 50,000 0 50,000
Net loss 0 0 0 0 (1,148,871) (1,148,871)
------- ---------- ---------- --------- ----------- -----------
Balance at
May 31, 1996 2,700,048(2) $8,910,539 $5,876,877 $14,787,416 $(13,974,314) $ 813,102
============ ========== ========= ========== ============ ===========
(1) Includes subscription agreement amounts of $201,250 at May
31, 1996, fully paid in June and July, 1996.
(2) Includes 150,000 shares transferred to CyberAmerica
Corporation on July 2, 1996, for transaction consummated May
15, 1996.
</TABLE>
The accompanying notes are an integral part of these financial
statements
5
ALPHA SOLARCO INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
Years Ended May 31,
1996 1995
Cash flows from operating activities:
Net loss $(1,148,871) $(1,189,717)
Adjustments to reconcile net
loss to net cash used in operating
activities:
Depreciation and amortization 357,482 361,622
Investment in China Joint Venture 0 53,729
Forgiveness of debentures (5,700) 0
Loss on impairment and abandonment
of equipment 444,511 308,730
Gain on sale of assets 4,169 0
Stock bonus expense 50,000 0
Financed contract costs 69,988 0
Decrease (increase) in:
Accounts receivable 213,305 (233,310)
Inventory 0 183,459
Prepaid expenses and other assets (10,272) 30,696
Increase (decrease) in:
Accounts payable 6,332 229,332
Accrued liabilities (6,000) (14,796)
Customer deposits 0 (894,541)
Billings in excess of contract
revenues (473,560) 473,560
---------- --------
Net cash used in operating
activities (498,616) (691,236)
---------- ---------
Cash flows from investing activities:
Purchase of fixed assets (1,332) (100,507)
Proceeds from sale of assets 206,721 0
Note receivable - officer (7,699) (40,000)
---------- ---------
Net cash used in investing
activities 197,690 (140,507)
---------- ----------
Cash flows from financing activities:
Proceeds from notes payable 351,900 894,000
Repayment of notes payable and
long-term debt (117,382) (387,926)
Proceeds from issuance of capital stock 439,456 0
Payment to shareholder under Put agreement (375,000) 0
---------- ---------
Net cash provided by financing
activities 298,974 506,074
-------- ---------
Net change in cash and cash
equivalents (1,952) (325,669)
Cash and cash equivalents:
Beginning of period 2,002 327,671
End of period $ 50 $ 2,002
========== ==========
Supplemental disclosures of cash
flow information
Cash paid for interest $ 15,547 $ 24,495
========== ==========
Supplemental schedule of non-cash financing activities:
The Company converted $715,000 and $845,268 of notes payable
and accrued interest for common stock in fiscal 1996 and 1995,
respectively.
The Company held $201,250 of common stock subscriptions at May
31, 1996.
The Company exchanged its stock for an investment in
CyberAmerica Corporation valued at $372,000.
The accompanying notes are an integral part of these financial
statements
<PAGE>
ALPHA SOLARCO INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1 - Summary of Significant Accounting Policies
Organization and Principles of Consolidation
The consolidated financial statements include the accounts of Alpha
Solarco Inc. ("Alpha"), its wholly-owned subsidiaries Alpha
Manufacturing Group, Inc. ("AMG"), Alpha Solarco Inc. of Ohio
("Alpha of Ohio"), Solectric Corporation ("Solectric"), and MSEPG
Solar Power Corporation ("Solar Corporation") collectively ("the
Company"). With the exception of AMG, the other subsidiaries are
essentially inactive. Intercompany accounts and transactions have
been eliminated.
During fiscal 1995, the Company operated in two business segments.
Alpha Solarco Inc., which operates in the solar-electric segment,
creates, develops and sells the technology and equipment needed to
manufacture solar-electric power generation systems. To date, the
Company has had two major contracts to clients in China and Saudi
Arabia.
The second segment, AMG, was acquired in 1992 to manufacture
military camping gear pursuant to contracts with the U.S. Department
of Defense. In addition, management pursued manufacturing
opportunities of camping gear with non-governmental entities,
however, sales have been insignificant. As a result, management
decided during fiscal 1996 to begin liquidating AMG. The remaining
assets at May 31, 1996, have been segregated on the accompanying
balance sheet as property and equipment held for sale and have been
written down (fourth quarter charge of approximately $444,000) to
their estimated disposal value. Management anticipates selling
these assets at auction during the second quarter of fiscal 1997.
Operating results for AMG have been reported in the statement of
operations as discontinued operations for both years ended May 31,
1996 and 1995. Revenues related to AMG were none in 1996 and
approximately $24,000 in 1995.
Basis of Presentation
The accompanying consolidated financial statements have been
prepared on a going concern basis which contemplates the realization
of assets and liquidation of liabilities in the ordinary course of
business and do not include any adjustments relating to the
recoverability and classification of recorded asset amounts or the
amounts and classification of liabilities that might be necessary
should the Company be unable to achieve its business plan and
continue in existence.
The Company's ability to continue its existence is currently
dependent upon its ability to attract additional capital to booster
cash flow and its ability to obtain additional technology transfer
contracts. In addition, management is pursuing the acquisition of
some operating companies in an attempt to establish stable revenues
and cash flows.<PAGE>
7
ALPHA SOLARCO INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
1 - Summary of Significant Accounting Policies (Continued)
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 fixtures 5 - 10 years
Computer equipment 3 - 5 years
Leasehold improvements Life of the improvement or the
lease term, whichever is shorter
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 uses are capitalized and depreciated over their
estimated useful lives.
Contract Revenue and Cost Recognition
The Company recognizes revenues from fixed-price 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 within the near
term.
Cost of sales include all direct material and labor costs and those
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 costs and income,
which are recognized in the period in which the 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.<PAGE>
8
ALPHA SOLARCO INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
1 - Summary of Significant Accounting Policies (Continued)
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.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results
could differ from those estimates.
2 - Investment in China Joint Venture and Other Company
On February 18, 1991, the Company 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 Solarco Power 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 a technology transfer, and Sun owns a 5% equity interest
in exchange for a nominal in-kind contribution of $200,000.
Under generally accepted accounting principles, the Company has not
recognized any investment attributable to its in-kind capital
contribution. It's investment of $89,670 at May 31, 1996,
represents its proportionate share (35%) of its basis in the tooling
and equipment transferred to the Chinese Joint Venture Company. As
of May 31, 1995, the Company had completed the sale of technology
and had also substantially completed the sale of equipment. To
date, no operations have transpired and management has no definitive
date as to when operations will commence.<PAGE>
9
ALPHA SOLARCO INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
2 - Investment in China Joint Venture and Other Company (Continued)
In a separate transaction on May 15, 1996, the Company acquired an
interest in CyberAmerica Corporation ("Cyber"), a publicly-held
company. Consideration given for the approximate 2.7% interest in
Cyber was 150,000 Alpha common shares. The investment has been
valued at $372,000, which approximates the value of the Cyber shares
at the time of the transaction and as of May 31, 1996. The Cyber
shares have been classified as available-for-sale securities. See
Note 9 regarding a subsequent transaction with Cyber.
3 - Notes Payable and Long-term Debt
Notes payable represent amounts due private investors of the Company
who lent funds primarily to provide necessary working capital. The
notes, which are unsecured, are repayable at various times during
the next year.
Long-term debt consists of two financing leases for equipment
procured as part of the Saudi Contract (see Note 4). The leases
require combined monthly payments of $1,619 including interest at
effective rates of 12.5% and 16.3%. Future minimum payments as of
May 31, 1996 are as follows:
1997 $19,432
1998 19,432
1999 19,432
2000 19,432
2001 5,957
-------
Total lease payments 83,685
Less amount representing interest (22,505)
-------
Present value of net minimum
payments $61,180
=======<PAGE>
10
ALPHA SOLARCO INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
4 - Long-term Contracts
In January, 1994, the Company entered into a manufacturing and sales
contract with "Al Afandi Establishment For Trade, Industry, and
Contracting" ("Al Afandi"), a Saudi Arabia Corporation. The
contract called for Alpha to provide to Al Afandi a solar
manufacturing facility, in accordance with the terms of the
contract, for a revised purchase price of $4,262,000. As of May 31,
1996, the contract has been substantially completed. A final
retainer of approximately $250,000 is expected to be collected in
fiscal 1997 upon completion and inspection of certain contract
terms. This contract accounted for substantially all of the
Company's revenues in 1996 and 1995.
Subsequent to May 31, 1996, the Company signed a second contract
with Al Afandi for $389,250. This contract is expected to be
completed during the first two quarters of fiscal 1997.
5 - Leases
During fiscal 1994, the Company moved its operations to Phoenix,
Arizona. The Company leases its office and operations facility
under a one-year lease agreement. The lease, which expired on May
15, 1996, has been extended to November 15, 1996. The renewed lease
agreement requires monthly rental payments of $9,438. In addition
to its facilities, the Company will, from time-to-time, lease
certain equipment to be used in its operations. Rental expense for
all operating leases amounted to approximately $117,820 and $113,200
for the years ended May 31, 1996 and 1995, respectively.
6 - Net Loss Per Share
During fiscal 1996, the Company executed a reverse stock split of 1
for 100 shares. Consequently, net loss per share is based upon the
weighted average shares of the Company's common shares outstanding
during each year giving retroactive recognition to an appropriate
equivalent change in common shares for 1996 and 1995. 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.
7 - Income Taxes
Alpha and its subsidiaries have tax net operating loss carryforwards
of approximately $12,016,000 available to reduce future federal
income taxes, which, unless applied, begin expiring in 1999.<PAGE>
11
ALPHA SOLARCO INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
7 - Income Taxes (Continued)
At May 31, 1996, the deferred tax asset to be recorded on the
Company's financial statements as a result of the net operating loss
carryforwards is approximately $3,965,000. Due to the probable
inability of the Company to utilize these net operating losses
before they expire, a reserve against this deferred tax asset of an
equal amount has been established at May 31, 1996. This represents
an increase in the reserve of $65,000 from the prior year.
8 - Stock Options and Warrants
All outstanding options and warrants were converted prior to the
reverse stock split in fiscal 1996.
In July, 1995, the Company entered into a stock repurchase agreement
with certain shareholders and board members. In exchange for their
lending monies to the Company and/or to forbear from demanding
repayment of previous loans, the Company agreed that, upon written
demand, it will repurchase their stock at prices set forth in the
agreement. Should the Company be unable to pay the amount due, it
has agreed to deliver a demand promissory note collateralized by the
Company's stock of Alpha Manufacturing Group, Inc. or other
collateral acceptable to the shareholders.
9 - Subsequent Events
In August, 1996, the Company completed the acquisition of Cyber Real
Estate, Inc., a Nevada Corporation. To consummate the acquisition,
the Company exchanged 625,000 shares of its common stock in exchange
for 9,000,000 shares of common stock (approximately 83% interest) of
Cyber Real Estate. The combination will be accounted for as a
purchase and, accordingly, the results of operations of the acquired
business will be included in the consolidated statements as of
August 31, 1996.
Cyber Real Estate, whose inception was on February 2, 1996, is a
development stage real estate company whose sole operations consist
of owning and operating a building in DeKalb, Illinois. Audited
financial statements as of and for the period ended March 31, 1996,
showed assets of $1,096,377, consisting of land and building,
stockholders' equity of $813,126, and a net loss of $12,874,
consisting of depreciation and other operating expenses. There were
no revenues for that period.
Pro forma data has not been prepared due to Cyber Real Estate's lack
of operations.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAY-31-1996
<PERIOD-END> MAY-31-1996
<CASH> 50
<SECURITIES> 0
<RECEIVABLES> 456587
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 458173
<PP&E> 667525
<DEPRECIATION> 494323
<TOTAL-ASSETS> 1711908
<CURRENT-LIABILITIES> 846179
<BONDS> 52627
0
0
<COMMON> 14787416
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 1711908
<SALES> 1035229
<TOTAL-REVENUES> 1035242
<CGS> 314187
<TOTAL-COSTS> 1274833
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 15547
<INCOME-PRETAX> (255138)
<INCOME-TAX> 0
<INCOME-CONTINUING> (255138)
<DISCONTINUED> 893733
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1148871)
<EPS-PRIMARY> (.67)
<EPS-DILUTED> 0
</TABLE>
