SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q SB/A
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended Commission File No. D-9376
August 31, 1995
ALPHA SOLARCO INC.
(Exact name of registrant as specified in its charter)
Colorado 31-0944136
(State or other jurisdiction (I.R.S. Employer
incorporation or organization) Identification No.)
510 East University Drive, 85004
Phoenix, Arizona (Zip Code)
(Address of principal
executive offices)
Registrant's telephone number, including area code: (602) 252-3055
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed in Section 13 or 15(d) of the Security Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
Yes__X__ No____
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the close of the period covered by this report.
Number of Shares
Class Outstanding as of 8/31/95
_____________ _________________________
No Par Value Common Stock 109,146,060
ALPHA SOLARCO INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(Unaudited)
August 31, 1995 and May 31, 1995
August 31,
1995 May 31,
(Unaudited) 1995 (A)
----------- ------------
ASSETS
Cash and Cash equivalents ($1,779) $2,002
Accounts receivable:
Trade 467,992 467,992
Employees 0 650
Prepaid expenses 369 104
---------- -----------
Total current assets 466,582 470,748
---------- -----------
Property and equipment, at cost:
Land 169,750 169,750
Machinery and equipment 2,472,092 2,492,050
Furniture and fixtures 94,098 94,098
Leasehold improvements 27,894 32,093
Buildings 420,398 420,398
Computer equipment 18,724 18,724
Construction in progress 1,828 1,828
--------- -----------
3,204,784 3,228,941
----------- -----------
Less accumulated depreciation (1,470,336) (1,399,183)
----------- -----------
1,734,448 1,829,758
----------- -----------
Note receivable - officer 40,000 40,000
Patent rights and organization
costs 414 414
Investment in Chinese
Joint Venture 89,670 89,670
Proprietary solar energy
technology, research and
development, and other
intangible assets 1 1
Other assets 12,921 12,159
----------- -----------
143,006 142,244
----------- -----------
$2,344,036 $2,442,750
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable $211,755 $698,823
Accounts payable 793,857 680,900
Accrued liabilities 24,500 24,500
Billings in excess of
contract revenue 240,560 473,560
----------- -----------
Total current liabilities 1,270,673 1,877,783
----------- -----------
Convertible notes 5,700 5,700
Stockholders' equity:
Common stock, without
par value 200,000,000
authorized and
109,146,060 shares
outstanding, respectively 14,074,710 13,384,710
Accumulated deficit (13,007,047) (12,825,443)
----------- -----------
Total stockholders' equity 1,067,663 559,267
----------- -----------
Total liabilities and
stockholders' equity $2,344,036 $2,442,750
----------- -----------
(A) The May 31, 1995 condensed amounts are from the Company's
audited financial statements.
See accompany notes.
ALPHA SOLARCO INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
3 Months Ended August 31,
1995 1994
------------ ----------
Revenues:
Net Sales $288,133 $1,087,522
Interest 12 1,410
Other income 9,467 27,019
----------- -----------
297,612 1,115,951
----------- -----------
Costs and expenses:
Cost of Sales 193,671 359,122
General and administrative 284,108 322,806
Advertising and promotion 0 24,344
Interest 1,470 0
Consulting services 0 41,636
----------- -----------
479,249 747,908
----------- -----------
Net gain (loss) ($181,637) $368,043
----------- -----------
----------- -----------
Net gain (loss) per share ($0.00) $0.00
----------- -----------
See accompany notes.
ALPHA SOLARCO INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
3 Months Ended August 31,
1995 1994
------------- ------------
Cash flows from operating activities:
Net gain (loss) ($181,637) $368,043
Adjustments to reconcile net gain
(loss) to net cash used in operating
activities:
Depreciation and amortization 84,146 90,500
Decrease (increase) in:
Accounts receivable 650 38,631
Inventory 0 131,326
Prepaid expenses (265) (11,723)
Other assets (762) (20,265)
Increase (decrease) in:
Accounts payable 94,087 (425,779)
Accrued liabilities 0 (76,359)
Billings in excess of contract revenue 0 (352,287)
----------- -----------
Net cash used in operating activities (3,781) (257,913)
----------- -----------
Cash flows from investing activities:
Capital expenditures 0 96,172
----------- -----------
Net cash provided (used by) investing
activities 0 96,172
----------- -----------
Cash flow from financing activities:
Net proceeds from issuance of common stock,
stock options and warrants 0 0
----------- -----------
Net cash provided by financing activities 0 0
----------- -----------
Net change in cash and cash equivalents (3,781) (161,741)
Cash and cash equivalents:
Beginning of period 2,002 327,671
----------- -----------
End of period ($1,779) $165,930
----------- -----------
----------- -----------
During the three months ended August 31, 1995, the Company converted $690,000
of short-term notes payable for common stock.
See accompany notes.
ALPHA SOLARCO INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Principles of consolidation
The consolidated financial statements include the accounts of Alpha, its
wholly-owned subsidiaries, Alpha Solarco Inc. of Ohio ("Alpha of Ohio"), Alpha
Manufacturing Group, Inc. ("AMG"), Solectric Corporation (Solectric"), and MSEPG
Solar Power Corporation ("Solar Corporation"). Intercompany accounts and
transactions have been eliminated.
2. Depreciation
The Company computes depreciation using the straight-line and accelerated
methods, based on the estimated useful lives of the depreciable assets, as
follows:
Buildings 40 years
Machinery and equipment 3 - 7 years
Furniture and fixture 5 - 10 years
Leasehold improvements Life of the improvement or the
lease term, whichever is shorter
3. Research and Development
All research and development costs are charged to expense when incurred.
The costs of materials, equipment and facilities that are constructed or
acquired for development activities and that have alternative future use are
capitalized and depreciated over their estimated useful lives.
4. Contract Revenue and Cost Recognition
The Company recognizes revenue form fixed-priced contracts on the
percentage-of-completion method, measured by the percentage of cost incurred to
date to estimated total cost for each contract. That method is used because
management considers total cost to be the best available measure of progress on
the contracts. Because of inherent uncertainties in estimating costs, it is at
least reasonably possible that estimates used will change in the near term.
Cost of sales includes all direct material and labor costs and those
related to contract performance, such as indirect costs related to contract
performance, such as indirect labor, supplies, tools, etc. Provisions for
estimated losses on uncompleted contracts are made in the period in which such
losses are determined. Changes in job performance, job conditions, and
estimated profitability may result in revisions to cost and income,
which are recognized in the period in which revisions are determined.
Changes in estimated job profitability resulting from job performance,
job conditions and change orders are accounted for as changes in estimates
in the current period.
4. Cash and Cash Equivalents
For purposes of the statement of cash flows, cash equivalents include all
savings accounts with original maturities of three months or less.
5. Joint Venture Agreement
On February 18, 1991, Alpha Solarco Inc. of Ohio entered into a joint
venture agreement with Sun Power Systems Ltd. ("Sun"), a Hong Kong based trading
company and Qinhuangdao Electronic Transistor Manufacturing Plant ("QHD"), a
business entity operating in the Peoples Republic of China, for the formation of
a Chinese joint-venture company called Qinhuangdao Alpha Solar Power Co., Ltd.
(the "Chinese Joint Venture Company").
Under the terms of the Joint Venture, QHD owns a 60% equity interest in
exchange for a cash capital contribution of $2,400,000; Alpha Ohio owns a 35%
equity interest in exchange for an in-kind contribution of $650,000 in the form
of equipment, and $750,000 in the form of technology transfer, and Sun owns 5%
equity interest in exchange for a nominal in-kind contribution of $200,000.
Alpha Ohio's contribution involves two components. The first component
of Alpha Ohio's contribution relates to a separate Technology Transfer Agreement
(i.e., license) with the Chinese Joint Venture Company. Under this agreement,
a $1,000,000 lump sum non-refundable advance royalty is established. Alpha
Solarco, however, has contractually agreed to accept only $250,000 of this
amount, with other $750,000 constituting a portion of Alpha Ohio's $1,400,000
total contribution to the Chinese Joint Venture Company.
The Technology Transfer Agreement also provides for continuing royalties
payable over a 15-year term of $.05 per watt of electrical generating capacity
of products manufactured by the Chinese Joint Venture during the first year,
$.03 per watt in the second year, $.02 per watt in the third year, and $.01
per watt thereafter. Continuing revenues from the Chinese Joint Venture
Company are also expected to be generating through sales to it of certain
key components necessary for production, as well as additional equipment
and tooling for possible future expansion.
The second component is a separate Turnkey Manufacturing Agreement under
which Alpha Ohio will sell the necessary equipment to the Chinese Joint Venture
Company for an aggregate selling price of $2,800,000; Alpha Ohio will accept
$2,150,000 cash for this equipment, and the remaining $650,000 of the price will
constitute the remaining portion of Alpha Ohio's in-kind capital contribution to
the Chinese Joint Venture Company. The $2,150,000 cash purchase price is
payable to Alpha Ohio (by confirmed letter of credit) as equipment is
delivered.
Under generally accepted accounting principles, the company will not be
able to recognize any investment attributable to its in-kind capital
contribution of $1.4 million, except for its proportionate share (35%) of its
basis in the tooling and equipment transferred to the Chinese Joint Venture
Company.
At August 31, 1995, the Chinese Joint Venture was still in the
construction phase. No operations have transpired and management has no
definite date as to when operations will commence.
6. Notes Payable
Notes payable represent amounts due private investors of the Company who
lent funds primarily to provide working capital to keep the companies
operational and for the acquisition of AMG. The notes, which are unsecured,
are repayable at various times during the next year and bear interest at
rates upward to 10%.
7. Convertible Notes
During 1991, the Company issued fifteen-year convertible debentures, to
various stockholders, in the amount of $216,700. As of August 31, 1995, these
debentures, except for $5,700 has been converted to common shares. Interest on
the debentures is charged at 8% and the debentures are convertible at the option
of the holder, at a conversion price of $.105 per share.
8. Uncompleted Contracts
In January, 1994, the Company entered into a manufacturing and sales
contract with "Al Fandi Establishment For Trade, Industry and Contracting" ("Al
Afandi"), a Saudi Arabia Corporation. The contract calls for Alpha to provide
Al Fandi a solar manufacturing facility, in accordance with the terms of the
contract, for a revised purchase price of $4,273,097. Cost, estimated earnings,
and billings on the contract are summarized below:
Cost incurred $2,178,070
Estimated earnings 1,466,082
-----------
3,644,152
Billings to date 3,884,712
-----------
Billings in excess of contract revenues $ 240,560
9. Leases
Prior to the end of fiscal 1994, the Company moved its operations to
Phoenix, Arizona. In anticipation of the move, the Company entered into a
one-year lease agreement expiring May 15, 1995 (renewable to May 15, 1996)
for its office and operations facility. The lease, which contains an option
to renew for four successive one-year terms, requires monthly rental payments
of $8,437.
10. Net Loss Per Share
Net loss per share is based upon the weighted average shares of the
Company's common stock outstanding during each year. Securities whose
conversion, exercise or other contingent issuance have the effect of decreasing
the loss per share amount for the periods have been excluded from the
computation.
11. Stock Options and Warrants
Under Alpha's Stock Option Plan, options may be granted to officers and
key employees to purchase a maximum of 1,000,000 shares of Alpha's common
stock. All option prices will be at no less than fair market value at date
of grant, and options will become exercisable no earlier than one year from
date of grant on such terms and conditions as the Stock Options Committee
determines and will expire ten years from date of grant or earlier upon
determination of the committee. No option will be transferable except on
death and, except in the event of death or retirement, options may be
exercised only while the optionee is in the employ of the Company.
Shares subject to options which expire or are
terminated will become available for future option grants under the Plan.
Currently, options for 290,000 shares had been granted under the Plan to two
employees, none of whom was a director of the Company, of which 190,000 remains
outstanding and exercisable at May 31, 1994. Of the original options granted,
100,000 have lapsed. Shares subject to options, which expire or are terminated,
will become available for future options grants under the Plan. No options have
been exercised under the Plan since inception.
As of September 1993, the Company implemented a new long stock incentive
plan ("LTSIP") for key employees. The options granted under the old plan were
transferred to the LTSIP after May 31, 1993. At the time of the transfer,
another 30,000 shares were added to the LTSIP which were transferred from the
board options outside of the stock plan. Therefore, options for 220,000 shares
granted under the new plan to three employees, none of whom was a director of
the Company, remain outstanding and exercisable subsequent to the balance
sheet date.
Under the new Plan, there are three incentives awards. The first is
stock awards. These are only granted in payment of incentives compensation
that has been earned or as incentive compensation to be earned. The second
is stock options and/or inventive options. Stock options will be granted to
key employees as a reward or an incentive, and incentive options are granted
to persons who, on the date of the grant, own 10% or more of the common stock
of the Company. The third incentive award is stock appreciation rights
("SAR"). These rights allow the employee to receive from the Company cash or
stock with a value in excess of the fair market value of the one share on the
date of the grant of SAR.
The value of all of the above will not be less than 100% of the fair
market value on the date the award is granted, except for the incentive options
which will be 110% of the fair market value. Also, all the awards are
exercisable in full or in part six months after the date it is granted.
Expiration dates are ten years after grant date except for stock options which
is eleven years.
In addition to the foregoing options, the Board of Directors of Alpha
has granted options, outside the Alpha stock option plan, to purchase shares
which expire through 1996. These option transactions are summarized below:
1995 1994
Option Option
Number Price Number Price
of Shares Per Share of Shares Per Share
Outstanding at
beginning of year 1,280,000 $.01 - .29 1,280,000 $.01-.29
Granted -- -- -- --
Exercised -- -- -- --
Canceled -- -- -- --
--------- ---------- --------- --------
Outstanding and
exercisable at
end of year 1,280,000 $.01 - .29 1,280,000 $.01-.29
--------- ---------- --------- --------
As of August 31, 1995, the Company had outstanding approximately 70
million warrants that have been issued in connection with various notes
payable. The warrants are convertible at a price of $.105 per share and
expire at various times beginning in 1996.
12. Income Taxes
Alpha and its subsidiaries have net operating loss carryforwards
approximately 11,100,000 for financial reporting purposes. Because of timing
differences in reporting certain costs and expenses, Alpha and subsidiaries have
federal income tax operating loss carryforwards of approximately $11,700,000
available to reduce future federal income taxes, which, unless applied, begin
expiring in 1999.
At May 31, 1995, the deferred tax assets to be recorded on the Company's
financial statements as a result of the operating loss carryforwards is
approximately $3,900,000. Due to the probable inability of the Company to
utilize these net operating losses before they expire, a reserve against this
deferred tax asset has been recorded of approximately $3,900,000.
The financial information included herein is Unaudited; however, such
information reflects all adjustments (consisting solely of normal recurring
adjustments) which are, in the opinion of management, necessary for a fair
statement of results for interim periods.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Liquidity and Capital Resources
Quarter Ended August 31, 1995 as Compared to the Year ended May 31, 1995
On August 31, 1995, on a consolidated basis, Alpha Solarco has cash and
short term investments of $1,779) as compared to $2,002 as of May 31, 1995.
This change was a result of reduction accounts payables during the current
fiscal year. Also on August 31, 1995 Alpha Solarco has shareholders' equity of
$1,067,663 and total assets of $2,344,036 as compared to shareholders' equity of
$559,267 and total assets of $2,442,750 as of May 31, 1994. This is
attributable to conversion of $690,000 of short-term notes payable to common
stock and the loss on the Saudi contract for the quarter ended August 1995.
Normal overhead expenses will continue to burden Alpha Solarco and can be
expected to decrease its liquidity. Consequently, Alpha Solarco has been
seeking additional capital from various sources, including the exercise of
stock options and warrants, contributions to capital and arranging new debt
financing.
Capital expenditures was $0 and $96,172 for quarter ended August 31, 1995
and year ended May 31, 1995, respectively. This decrease was due to essentially
all cost for setup of the U.S. facility related to the Al Afandi contract.
Accounts payable were $793,857 and $680,900 as of August 31, 1995 and May
31, 1995 respectively. This increase was primarily due equipment related to the
Al Afandi contract.
Current notes payable were $211,755 and $698,823 as of August 31, 1995
and May 31, 1995, respectively. This decrease was primarily due conversion of
$690,000 notes payable to common and additional loans incurred during the
quarter.
Results of Operations
Quarter Ended August 31, 1995 as Compared to the Quarter Ended August 31, 1994
For the quarter ended August 31, 1995, Alpha Solarco recognized revenue
of $297,612 which is result of net sales and other income. In the quarter the
Al Afandi contract recognized approximately $233,000. Alpha Solarco experienced
a net loss of ($181,637) (or $.00 per share) compared to a net gain for the same
period one year earlier of $368,043 (or $.00 per share), due to primarily as a
result of work completed on the Saudi Contract.
The total consolidated costs and expenses for the quarter ended August
31, 1995 were $479,294 compared to $747,908 for the same period one year
earlier. The change in cost and expenses is due to cost of sales related to
the Al Afandi contract and consolidation of operations in Phoenix, Arizona.
ITEM 3. AMENDMENT TO NUMBER OF SHARES OUTSTANDING
The number of shares outstanding as of August 31,1995 is amended to
109,146,060
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: 3/11/96 /s/ Edward C. Schmidt
Edward C. Schmidt, President
Date: 3/11/96 /s/ Edward C. Schmidt
Edward C. Schmidt, Treasurer