SECURITY 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 November 30, 1995 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 11/30/95
No Par Value Common Stock 1,910,788
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. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(Unaudited)
November 30, 1995 and May 31, 1995
November 30,
1995 May 31,
(Unaudited) 1995 (A)
ASSETS
Cash and Cash equivalents $266 $2,002
Accounts receivable:
Trade 566,812 467,992
Employees 2,600 650
Prepaid expenses 368 104
--------- ---------
Total current assets 570,046 470,748
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 1,554,473 1,399,183
--------- ---------
1,651,602 1,829,758
Note receivable - officer 40,000 40,000
Patent rights and
organization costs 414 414
Investment in Chinese
Joint Venture 89,670 89,670
Proprietary solar energy
technology, research and
development, and other
intangible assets 1 1
Other assets 20,020 12,159
-------- ---------
150,105 142,244
--------- ---------
$2,371,753 $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)
November 30, 1995 and May 31, 1995
(Continued)
November 30,
1995 May 31,
(Unaudited) 1995 (A)
LIABILITIES AND STOCKHOLDERS'
EQUITY
Current liabilities:
Notes payable $337,155 $698,823
Current maturity of
long-term debt 10,546
Accounts payable 638,852 680,900
Accrued liabilities 0 24,500
Billings in excess of revenue 65,767 473,560
--------- ---------
Total current liabilities 1,052,320 1,877,783
Long-term debt, less current
maturities 57,117 0
Convertible notes 5,700
Stockholders' equity:
Common stock, without par
value 200,000,000 authorized;
1,910,788 shares outstanding 14,235,421 13,384,710
Less shares held in treasury (376,235)
--------- -----------
13,859,186 13,384,710
Accumulated deficit (12,596,870) (12,825,443)
------------ ------------
Total stockholders' equity 1,262,316 559,267
------------ -------------
$2,371,753 $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)
Six Months ended
November 30
---------------------------
1995 1994
Revenues:
Net Sales $949,066 $1,918,778
Interest 12 1,820
Other 45,837 31,468
---------- ----------
994,915 1,952,066
Costs and expenses:
Cost of Sales 463,713 1,211,018
General and administrative 299,674 586,345
Advertising and promotion 653 87,958
Research and development 0 12,542
Interest 2,302
Consulting services 0 75,963
-------- --------
766,342 1,973,826
-------- ---------
Net gain (loss) $228,573 ($21,760)
======== =========
Net gain (loss) per share $0.12 ($0.02)
======== =========
See accompanying notes.
ALPHA SOLARCO INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
Quarter ended
November 30,
--------------------
1995 1994
Revenues:
Net Sales $660,933 $831,256
Interest 0 410
Other 36,370 4,449
--------- ----------
697,303 836,115
Costs and expenses:
Cost of Sales 170,042 851,896
General and administrative 115,566 276,081
Advertising and promotion 653 63,614
Research and development 0 0
Interest 832 0
Consulting services 0 34,327
-------- ----------
287,093 1,225,918
-------- ----------
Net gain (loss) $410,210 ($389,803)
======== ==========
Net gain (loss) per share $0.21 ($0.39)
======== ==========
See accompanying notes.
ALPHA SOLARCO INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
Six Months ended
November 30
---------------------------
1995 1994
Cash flows from operating
activities:
Net gain ( loss) $228,573 ($21,760)
Adjustments to reconcile net gain
(loss) to net cash used in
operating activities:
Depreciation and amortization 179,488 163,270
Loss on sale of equipment 0 0
Elimination of convertible notes (5,700)
Decrease (increase) in:
Accounts receivable (100,770) 212,147
Inventory 110,203
Prepaid expenses (264) (23,337)
Other assets (7,861) (51,549)
Increase (decrease) in:
Accounts payable (42,048) (360,096)
Accrued liabilities (24,500) 5,398
Billings in excess of revenues (407,793) (294,597)
--------- ---------
Net cash used in operating activities (180,875) (260,321)
Cash flows from investing activities:
Capital expenditures (1,332) 64,332
Proceeds from sale of equipment 0 1,500
--------- ---------
Net cash provided (used by
investing activities (1,332) 65,832
Cash flow from financing activities:
Net proceeds from issuance of common
stock, stock options and warrants 850,711 0
Purchase of stock from shareholders (376,235)
Proceeds from notes payable and
long-term debt 67,663 0
Repayment of notes payable and
long-term debt (361,668) 0
--------- --------
Net cash provided by financing
activities 180,471 0
--------- --------
Net change in cash and cash equivalents (1,736) (194,489)
Cash and cash equivalents:
Beginning of period 2,002 327,671
--------- --------
End of period $266 $133,182
========= ========
During the six months ended November 30, 1995, the Company
converted $690,000 of short-term notes payable for common stock.
See accompanying notes.
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.
At November 30, 1995, the Chinese Joint Venture had not yet
commenced operations, and management has no definite date as to
when operations will commence.
6. Notes Payable
Notes payable represent amounts due private investors of the
Company who lent funds primarily to provide working capital to keep
the companies operational and for the acquisition of AMG. The
notes, which are unsecured, are repayable at various times during
the next year and bear interest at rates upward to 10%.
7. 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 $2,440,172
Estimated earnings 1,864,913
__________
4,305,085
Billings to date 4,370,842
Billings in excess of
contract revenues $ 65,767
=========
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
(renewable to May 15,1996) for its office and operations facility.
The lease, which contains an option to renew for four successive
one-year terms, requires monthly rental payments of $8,437.
9. Net Income (Loss) Per Share
At its annual meeting on November 15, 1995, Alpha's shareholders
approved a 1:100 reverse stock split. Net 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. Warrants Exercised
During the quarter ended November 30, 1995, holders of warrants to purchase
837,588 shares (adjusted to reflect the reverse stock split
mentioned above) contracted to exercise such warrants.
The warrants will be exercised and the stock will be issued in January 1996.
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 )
-------------
Total shares outstanding 191,046,396
-------------
Shareholder approved stock reversal 1:100 1,910,464
Shares increased due to rounding 324
-------------
Shares outstanding at November 30, 1995 1,910,788
ALPHA SOLARCO INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
Quarter Ended November 30, 1995 as Compared to the Year ended May
31, 1995.
On November 30, 1995, on a consolidated basis, Alpha Solarco has
cash and short term investments of $266 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 November 30, 1995
Alpha Solarco has shareholders' equity of $1,262,316 and total
assets of $2,371,753 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 for the quarter ended during the six months ended November
30, 1995.
Normal overhead expenses will continue to burden Alpha Solarco and
can be expected to decrease its liquidity. Consequently, Alpha
Solarco has been seeking additional capital from various sources,
including the exercise of stock options and warrants, contributions
to capital and arranging new debt financing.
Accounts payable were $638,852 and $680,900 as of November 30, 1995
and May 31, 1995, respectively. This change was not unusual in the
ordinary course of business.
Current notes payable were $337,155 and $698,823 as of November 30,
1995 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 during the quarter.
RESULTS OF OPERATIONS
Quarter Ended November 30, 1995 as Compared to the Quarter Ended
November 30, 1994.
For the quarter ended November 30, 1995, Alpha Solarco recognized
revenue of $697,303 which is a result of net sales and other
income. In the quarter the Al Afandi contract recognized
approximately $661,000. Alpha Solarco experienced a net gain of
$410,210 or $.21 per share compared to a net loss for the same
period one year earlier of ($389,803) (or $.36 per share), due
primarily as a result of work completed on the Saudi Contract.
The total consolidated costs and expenses for the quarter ended
November 30, 1995 were $287,093 compared to $1,225,918 for the same
period one year earlier. The change in cost and expenses is due to
costs incurred on trips for the Chinese joint venture and costs
incurred at Alpha Manufacturing Group.
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: 1/15/95 /s/ Edward C. Schmidt
Edward C. Schmidt, President
Date: 1/15/95 /s/ Edward C. Schmidt
Edward C. Schmidt, Treasurer<PAGE>
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