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 28, 1997 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 Identification No.) incorporation or organization) 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 February 28, 1997 No Par Value Common Stock 4,676,719 ALPHA SOLARCO INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEET February 28, 1997 and May 31, 1996 (Unaudited) February 28 1997 May 31, (Unaudited) 1996 (A) ASSETS Current assets: Cash and Cash equivalents $ 5,129 $ 50 Subscription receivable 201,250 Accounts receivable: Trade 309,989 254,337 Employees 2,500 1,000 Prepaid expenses 1,515 1,536 --------- ---------- Total current assets 319,133 458,173 --------- ---------- Property and equipment, at cost: Land 97,500 25,000 Machinery and equipment 412,673 392,579 Furniture and fixtures 96,232 94,098 Leasehold improvements 45,634 27,894 Buildings 1,135,398 107,898 Computer equipment 20,056 20,056 --------- ---------- 1,807,493 667,525 --------- ----------- Less accumulated depreciation (533,564) (494,323) --------- ----------- 1,273,929 173,202 ---------- --------- Property and equipment held for sale 457,250 549,750 Note receivable - officer 52,133 47,699 Investment in Chinese Joint Venture 89,650 89,650 Investment in CyberAmerica, Inc. 45,000 372,000 Investment in TAC, Inc. 187,600 Investment in Cyber Solectric, Inc. Goodwill net of $124,920 amortization 1,124,194 Other assets 21,020 21,434 --------- ---------- 1,976,847 1,080,533 ---------- --------- $ 3,569,909 $ 1,711,908 ========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current portion of long-term debt $ 9,437 $ 8,553 Notes payable 3,179,569 227,149 Accounts payable 273,519 591,977 Accrued liabilities 78,797 18,500 --------- ---------- Total current liabilities 3,541,322 846,179 --------- ---------- Long-term debt, less current portion 47,082 52,627 Minority interest in Cyber Solectric 794,598 Stockholders' equity: Common stock, without par value: 200,000,000 shares authorized and 4,676,719 and 2,770,048 shares issued and outstanding, respectively 14,690,616 14,787,416 Accumulated deficit (14,583,109) (13,974,314) Accumulated loss in investments (920,600) ----------- ---------- (813,093) 813,102 ----------- ---------- Total liabilities and stockholders' equity $ 3,569,909 $ 1,711,908 =========== =========== (A) May 31, 1996 amounts are from the Company's audited financial statements. The accompanying notes are an integral part of these condensed financial statements. ALPHA SOLARCO INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (Unaudited) Nine Months Ended February 28, 1997 1996 Revenues: Net Sales $ 280,934 $ 1,082,901 Interest 12 Other income: 53,179 Rental income 25,195 Disposal of excess equipment 32,595 ---------- -------------- 338,724 1,136,092 ---------- -------------- Costs and expenses: Cost of Sales 230,477 603,175 General and administrative 736,312 476,555 Interest 21,593 5,287 ---------- -------------- 988,382 1,085,017 --------- -------------- Gain (Loss) before minority interest (649,658) 51,075 Minority share of loss in Cyber Solectri, Inc. 40,863 --------- -------------- Net income (loss) $ (608,795) $ 51,075 ========= ============== Net income (loss) per share ($0.13) $ 0.04 ========== ============== The accompanying notes are an integral part of these condensed financial statements.

ALPHA SOLARCO INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited) Nine Months Ended February 28, 1997 1996 Cash flows from operating activities: Net income (loss) $ (608,795) $ 51,075 Adjustments to reconcile net gain (loss) to net cash used in operating activities: Minority interest in net income (loss) (25,881) Depreciation and amortization 156,498 263,634 Elimination of convertible note 50,000 (5,700) Decrease (increase) in: Accounts receivable (57,152) (312,725) Prepaid expenses 21 (264) Other assets 414 (4,148) Increase (decrease) in: Accounts payable (318,458) (14,710) Accrued liabilities 60,297 18,795 Billings in excess of contract revenue 0 (327,983) --------- --------- Net cash used in operating activities (743,056) (332,026) --------- --------- Cash flows from investing activities: Capital expenditures (1,332) Net cash provided (used by) investing activities 0 (1,332) Cash flow from financing activities: Net proceeds from issuance of common stock, stock options and warrants 201,250 1,009,111 Purchase of stock from shareholders (376,235) Proceeds from notes payable and long term debt 67,663 Repayments of notes payable and long-term debt 546,885 (355,158) --------- ---------- Net cash provided by financing activities 748,135 345,381 --------- ----------- Net change in cash and cash equivalents 5,079 12,023 Cash and cash equivalents: Beginning of period 50 2,002 -------- ----------- End of period $ 5,129 $ 14,025 ========= =========== See Non Cash Table for Investments and Acquisitions not requiring cash The accompanying notes are an integral part of these condensed financial statements.

ALPHA SOLARCO INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (Unaudited) Quarter ended February 28 1997 1996 Revenues: Net Sales $ 69,433 $ 133,835 Other income: 7,342 Rental income 7,231 ------- -------- $ 76,664 $ 141,177 -------- -------- Costs and expenses: Cost of Sales $ 45,694 139,462 General and administrative 203,185 176,049 Advertising and promotion 179 Interest 2,985 -------- -------- $ 414,623 318,675 -------- -------- Gain (Loss) before minority interest $(337,959) $(177,498) -------- --------- Minority share of loss in Cyber Solectric, Inc. 40,863 -------- --------- Net income (loss) $(297,096) (177,498) ========= ========== Net income (loss) per share (.06) (0.10) The accompanying notes are an integral part of these condensed financial statements. ALPHA SOLARCO INC. AND SUBSIDIARIES NON CASH TABLE (Unaudited) The Company exchanged its stock for an investment in TAC, Inc. valued at $781,200. The Company recognized a loss in its investments of $920,600. The Company converted a note payable of $50,000 for stock. The Company exchanged its stock for an 80% ownership interest in Cyber Solectric. valued at $1,250,000. The Company signed a note payable for $2,500,000 for puts. The accompanying notes are an integral part of these condensed financial statements. 1. Summary of significant accounting policies 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"),Cyber Solectric (formerly Cyber Real Estate), and MSEPG Solar Power Corporation ("Solar Corporation"). Intercompany accounts and transactions have been eliminated. 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 Goodwill 10 years Furniture and fixture 5 - 10 years Leasehold improvements Life of the improvement or the lease term, whichever is shorter Investments The Company accounts for its investments quarterly and recognizes gains and losses on its portfolio based upon the market price on the last trading day of the quarter. 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. 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 thr current period. Basis of presentation The accompanying consolidated financial statements have been prepared on a going concern basis which contemplates the realization of assets and liquidation of liabilities in the ordinary course of business and do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should the company be unable to achieve its business plan and continue in existence. The Company's ability to continue its existence is currently dependent upon its ability to attract additional capital to booster cash flow and its ability to obtain additional technology transfer contracts. In addition, management is pursuing the acquisition of some operating companies in an attempt to establish stable revenues and cash flows. 2. 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 65% equity interest in exchange for a cash 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 a technology transfer, and Sun owns a 5% equity interest in exchange for a nominal in-kind contribution of $200,000. To date, no operations have transpired and management has no definitive date as to when operations will commence. 3. Marketable Securities In August, the Company completed the acquisition of Cyber Solectric (formerly Cyber Real Estate, Inc., a Nevada Corporation. To consummate the acquisition, the Company exchanged 625,000 shares of its common stock in exchange for 9,000,000 shares of common stock (approximately 83% interest) of Cyber Solectric. The combination was accounted for as a purchase and is included in the consolidated statements as of August 31, 1996. Cyber Solectric is a development stage real estate company whose sole operations consist of owning and operating a building in DeKalb, Illinois. In August, the Company also exchanged 500,001 shares of common stock for 200,000 shares of TAC, Inc. a Utah corporation. This represents approximately two percent of the shares of TAC. TAC owns a warehouse in Salt Lake City occupied by a NAPA franchise. 4. 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%. The acquisition of Cyber Solectric included a note payable of $275,000, this note is being re-negotiated. Notes totalling $2,500,000 were issued to various members of the Dennehy family on the call of puts. The Company will receive 208,333 shares of stock in the treasury. 5. Uncompleted Contracts On June 7, 1996 the Company entered into a $389,250 manufacturing and sales contract with the Skylight Corporation. The contract calls for Alpha to provide to Skylight a solar panel manufacturing facility. Cost, estimated earnings, and billings on the contract are summarized below: Cost incurred $133,543 Estimated earnings 131,416 -------- 206,701 Billings to date 230,000 -------- Contract revenue in excess of billing $ 34,959 ======== 6. 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 November 15, 2001) 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 $9,700. The Company entered into a sub-lease of the Phoenix building with Skylight Holding Co. with Skylight paying the lease payment of $9,700. The sub-lease is for five years ending November 15, 2001. 7. Net Income (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 quarter ended November 30, 1996 changes in the number of shares outstanding were as follows: Shares outstanding at May 31, 1996 2,770,048 Shares issued for the investment in 500,001 TAC, Inc. Shares issued for the purchase of Cyber Solectric 625,000 Shares issued though overseas private placement 960,003 Treasury shares to be returned (208,333) --------- Shares outstanding at February 28, 1997 4,676,719 11. NASDAQ Delisting The Company's stock was delisted November 12, 1996 by NASDAQ. Our asset base and stockholder's equity dropped below the $2,000,000 and $1,000,000 limits set by NASDAQ as of May 31, 1996. NASDAQ disallowed certain assets obtained by stock swap in the Quarter that ended August 31, 1996. ALPHA SOLARCO INC. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS LIQUIDITY AND CAPITAL RESOURCES Quarter Ended February 28, 1997 as Compared to the Year ended May 31, 1996. On November 30, 1996, on a consolidated basis, Alpha Solarco has cash and short term investments of $5,129 as compared to $50 as of May 31, 1996. This change was a result of selling assets and additional contribution of capital during the current fiscal year. Also on February 28, 1997 Alpha Solarco has shareholders' equity of $(813,093) and total assets of $3,569,909 as compared to shareholders' equity of $813,102 and total assets of $1,711,908 as of May 31, 1996. This is primarily attributable to the acquisition of Cyber Solectric, an investment in TAC, Inc., a note payable of $50,000 converted to stock, and additional equity capital raised during the six months ended November 30, 1996. Shareholders' equity decreased due to the Dennehy puts of $2,500.000. 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 additional contributions to capital and arranging new debt financing. Accounts payable were $273,519 and $591,977 as of February 28, 1997 and May 31, 1996, respectively. This change was not unusual in the ordinary course of business. Current notes payable were $3,179,569 and $227,149 as of February 28, 1997 and May 31, 1996, respectively. This increase was primarily due to the acquisition of Cyber Solectric and an accompanying note payable of $275,000 and the Dennehy puts of $2,500,000. RESULTS OF OPERATIONS Quarter Ended February 28, 1997 as Compared to the Quarter Ended February 29, 1996. For the quarter ended February 28, 1997, Alpha Solarco recognized revenue of $76,664 which is a result of net sales and other income. In the quarter the Skylight Corporation contract had income recognized of approximately $58,258. Alpha Solarco experienced a net loss of $297,096 or $.06 per share compared to a net loss for the same period one year earlier of $177,498 or $.10 per share, due primarily to a reduction in sales to $76,664 from $141,177. The per share decrease is due primarily to an increase in shares issued and outstanding and lack of new contracts. The total consolidated costs and expenses for the quarter ended February 28, 1997 were $414,623 compared to $318,675 for the same period one year earlier. The change in cost and expenses is an increase in overhead due to Cyber Solectric. Additional Capital Needs-Hindrance/Continued Operation. Alpha Solarco must raise additional capital in order to continue business. At present efforts to raise additional capital are hindered by the Demand Notes held by the families of two directors, Charles and Wilson Dennehy. The family has made claims that $2.5 million is owed to them and they have demanded the Company Technology as collateral. Under the terms of this agreement, the Dennehys may convert this debt into stock after January 14, 1998. This in effect would give the Dennehys at least 30% (possible 80%) control of the Company and they would have the same amount of stock as prior to the 100:1 reverse split in November of 1995 as well as cause a minimum 50% (possible 400%) dilution of the current shareholders value. Management does not agree with this claim by the Dennehy's which is under review by our auditors and legal counsel. There is a high probability that the president (key man) of the Company will resign if this problem is not resolved by the end of May, 1997. An offer for removing the Dennehy brothers from the Board of Directors and buying their claim of technology as collateral, and returning it to the Company, is being considered by a U.S. Company. Investors are being made aware of this problem since this would seriously effect the future value of the Company stock. Any investor should be prepared to lose his entire investment in the event that Alpha Solarco can no longer continue operations. AS INDICATED BY THE FOREGOING STATEMENT, INVESTMENT IN THE COMPANY STOCK SHOULD ONLY BE MADE BY THOSE PERSONS WHO CAN AFFORD TO LOSE THEIR ENTIRE INVESTMENT. THE PRICE AT WHICH THE COMPANY STOCK WILL BE TRADED IN THE OVER-THE-COUNTER MARKET IS NOT NECESSARY INDICATIVE OF THE ACTUAL OR UNDERLYING VALUE OF SUCH SHARES. THE COMPANY'S FUTURE PROSPECTS ARE EXTREMELY UNCERTAIN AND THERE CAN BE NO ASSURANCE THAT THE COMPANY WILL REMAIN A VIABLE BUSINESS ENTITY IN THE FUTURE. 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: 4/18/97 /s/ Edward C. Schmidt, President Edward C. Schmidt, President Date: 4/18/97 /s/ Edward C. Schmidt, Treasurer Edward C. Schmidt, Treasurer

5 3-MOS MAY-31-1997 FEB-28-1997 5,129 1,446,444 312,489 0 0 319,133 2,264,743 533,564 3,569,909 3,541,322 0 0 0 14,690,616 0 3,569,909 280,934 338,724 230,477 988,382 0 0 21,593 (608,795) 0 (608,795) 0 0 0 (608,795) (.13) (.13)