Innovative Food Holdings, Inc.

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

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.

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

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.

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. 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

5 1000 9-MOS MAY-31-1996 FEB-29-1996 14 0 781 0 0 796 3206 (1639) 2510 1214 6 0 0 14235 (12774) 2510 1082 1136 603 1085 0 0 5 51 0 0 0 0 0 51 .04 0