SECURITIES AND EXCHANGE COMMISSION
Washington. D. C. 20549
FORM 10-Q SB
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended February 29, 1996 Commission File No. D-9376
ALPHA SOLARCO INC.
(Exact name of registrant as specified in its charter)
Colorado 31-0944136
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization 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
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 02/29/96
No Par Value Common Stock 2,549,584
<PAGE>
ALPHA SOLARCO INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(Unaudited)
February 29, 1996 and May 31, 1995
February 29,
1996 May 31,
(Unaudited) 1995 (A)
ASSETS
Cash and Cash equivalents $ 14,025 $ 2,002
Accounts receivable:
Trade 778,767 467,992
Employees 2,600 650
Prepaid expenses 368 104
-------------- --------------
Total current assets 795,760 470,748
Property and equipment, at cost:
Land 169,750 169,750
Machinery and equipment 2,472,050 2,492,050
Furniture and fixtures 94,098 94,098
Leasehold improvements 27,894 32,093
Buildings 420,398 420,398
Computer equipment 20,056 18,724
Construction in progress 1,829 1,828
-------------- --------------
3,206,075 3,228,941
Less accumulated depreciation 1,638,619 1,399,183
-------------- -------------
1,567,456 1,829,758
Note receivable - officer 36,000 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 20,307 12,159
-------------- --------------
146,392 142,244
-------------- --------------
$2,509,608 $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 BALANCE SHEET
(Unaudited)
February 29, 1996 and May 31, 1995
(Continued)
February 29,
1996 May 31,
(Unaudited) 1995 (A)
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable $ 348,155 $ 698,823
Current maturity of long-term debt 10,546
Accounts payable 666,190 680,900
Accrued liabilities 43,295 24,500
Billings in excess of revenue 145,577 473,560
-------------- --------------
Total current liabilities 1,213,763 1,877,783
Long-term debt, less current maturities 52,627
Convertible notes 5,700
Stockholders' equity:
Common stock, without par value 200,000,000
authorized; 2,549,584 and1,091,461
shares outstanding 14,017,586 13,384,710
Accumulated deficit (12,774,368) (12,825,443)
-------------- --------------
Total stockholders' equity 1,243,218 559,267
-------------- --------------
$ 2,509,608 $ 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)
Nine Months ended
February 29, February 28,
1996 1995
Revenues:
Net Sales $1,082,901 $2,194,170
Interest 12 1,820
Other 53,179 46,577
-------------- --------------
1,136,092 2,242,567
Costs and expenses:
Cost of Sales 603,175 1,577,727
General and administrative 475,723 939,063
Advertising and promotion 832 87,958
Research and development 12,542
Interest 5,287
Consulting services 98,107
-------------- --------------
1,085,017 2,715,397
-------------- --------------
Net gain (loss) $ 51,075 $ (472,830)
========== ==========
Net gain (loss) per share $ 0.04 $ (0.48)
========== ==========
See accompanying notes.
ALPHA SOLARCO INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
Nine Months ended
February 29, February 28,
1996 1995
Cash flows from operating activities:
Net gain ( loss) $ 51,075 ($472,830)
Adjustments to reconcile net gain (loss) to net
cash used in operating activities:
Depreciation and amortization 263,634 244,905
Loss on sale of equipment
Elimination of convertible notes (5,700)
Decrease (increase) in:
Accounts receivable (312,725) 212,147
Inventory (271,731)
Revenues in excess of billings 157,710
Prepaid expenses (264) (23,337)
Other assets (4,148) (230,854)
Increase (decrease) in:
Accounts payable (14,710) (365,364)
Accrued liabilities 18,795 (183,588)
Billings in excess of revenues (327,983)
-------------- --------------
Net cash used in operating activities (332,026) (932,942)
Cash flows from investing activities:
Capital expenditures (1,332) 81,889
Proceeds from sale of equipment 1,500
-------------- --------------
Net cash provided (used by) investing activitie (1,332) 83,389
Cash flow from financing activities:
Net proceeds from issuance of common stock, 1,009,111
Purchase of stock from shareholders (376,235)
Proceeds from notes payable and long-term debt 67,663 573,823
Repayment of notes payable and long-term debt (355,158)
-------------- --------------
Net cash provided by financing activities 345,381 573,823
-------------- -------------
Net change in cash and cash equivalents 12,023 (275,730)
Cash and cash equivalents:
Beginning of period 2,002 327,671
-------------- -------------
End of period $ 14,025 $ 51,941
========= =========
See accompanying notes.
ALPHA SOLARCO INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
Quarter ended
February 29, February 28,
1996 1995
Revenues:
Net Sales $ 133,835 $ 275,392
Interest
Other 7,342 15,109
-------------- -------------
141,177 290,501
Costs and expenses:
Cost of Sales 139,462 366,709
General and administrative 176,049 352,718
Advertising and promotion 179
Research and development
Interest 2,985
Consulting services 22,144
-------------- -------------
318,675 741,571
-------------- -------------
Net gain (loss) $(177,498) $(451,070)
========== =========
Net gain (loss) per share $ (0.10) $ (0.46)
========== ==========
See accompanying 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 from 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 nay 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.
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 on $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.
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. 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 to Al Fandi a solar
manufacturing facility, in accordance with the terms of the
contract, for a revised purchase price of $4,662,347. Cost,
estimated earnings, and billings on the contract are summarized
below:
Cost incurred $2,483,429
Estimated earnings 1,955,491
4,438,920
Billings to date 4,584,497
Billings in excess
of contract revenues $ 145,577
8. 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 (extended 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.
9. Net Gain (Loss) Per Share
At its annual meeting on November 15, 1995, Alpha's shareholders
approved a 1:100 reverse stock split. Net gain (loss) per share is
based upon the weighted average shares of the Company's common stock
outstanding during each year, after giving effect to the reverse
stock split. 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.
10. Common Stock
During the three quarters ended February 29, 1996 changes in the
number of shares outstanding were as follows:
Shares outstanding at May 31, 1995 109,146,060
Warrants exercised 86,701,510
Purchase of stock from shareholders (2,942,756)
Less shares retained upon the default
of pledged State Machine note (1,858,418)
-----------
Shares outstanding before reverse
stock split 191,046,396
===========
Shares outstanding after 1:100 reverse
stock spilt prior to rounding 1,910,464
Additional shares issued due to rounding 324
-----------
Shares outstanding after 1:100 reverse
stock split 1,910,788
Warrants exercised 88,796
Shares issued though overseas
private placement 550,000
---------
Shares outstanding at February 29, 1996 2,549,584
<PAGE>
ALPHA SOLARCO INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
Quarter Ended February 29, 1996 as Compared to the Year ended May
31, 1995.
On February 29, 1996, on a consolidated basis, Alpha Solarco has
cash and short term investments of $14,025 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 February 29, 1996
Alpha Solarco has shareholders' equity of $1,243,218 and total
assets of $2,509,608 as compared to shareholders' equity of $559,267
and total assets of $2,442,750 as of May 31, 1995. This is
primarily attributable to profits recognized on the Saudi contract
and additional equity capital raised during the nine months ended
February 29, 1996.
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.
Accounts payable were $666,190 and $680,900 as of February 29, 1996
and May 31, 1995, respectively. This change was not unusual in the
ordinary course of business.
Current notes payable were $348,155 and $698,823 as of February 29,
1996 and May 31, 1995, respectively. This decrease was primarily
due to conversion of $690,000 in notes payable to common stock,
partially offset by additional loans incurred.
RESULTS OF OPERATIONS
Quarter Ended February 29, 1996 as Compared to the Quarter Ended
February 28, 1995.
For the quarter ended February 29, 1996, Alpha Solarco recognized
revenue of $141,177 which is a result of net sales and other income.
In the quarter the Al Afandi contract recognized approximately
$134,000. Alpha Solarco experienced a net loss of $177,498 or $.10
per share compared to a net loss for the same period one year
earlier of $451,070 or $.05 per share, due primarily to work
completed on the Saudi contract and reduced overhead spending.
The total consolidated costs and expenses for the quarter ended
February 29, 1996 were $318,675 compared to $741,571 for the same
period one year earlier. The change in cost and expenses is due to
reduced overhead spending and reduced expenditures on the Saudi
contract as it nears completion.
<PAGE>
ALPHA SOLARCO, INC.
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.
<PAGE>
ALPHA SOLARCO, INC.
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: April 10, 1996 /s/ Edward C. Schmidt
Edward C. Schmidt, President
Date: April 10, 1996 /s/ Edward C. Schmidt
Edward C. Schmidt, Treasurer
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