Innovative Food Holdings, Inc.

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.

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

5 0000312257 ALPHA SOLARCO INC. 1000 3-MOS MAY-31-1995 NOV-30-1995 1 0 569 0 0 570 3206 (1554) 2372 1052 0 14235 0 0 (12,597) 2372 949 995 464 766 0 0 1 410 0 0 0 0 0 410 0 0