ALPINE 4 TECHNOLOGIES LTD.
FINANCIAL STATEMENTS
DECEMBER 31, 2016 (SUCCESSOR) AND 2015 (PREDECESSOR)
Table of Contents
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Page
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Reports of Independent Registered Public Accounting Firms
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Report of MaloneBailey, LLP
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F-2
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Financial Statements:
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Consolidated Balance Sheets
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F-3
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Consolidated Statements of Operations
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F-4
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Consolidated Statements of Stockholders' Equity (Deficit)
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F-5
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Consolidated Statements of Cash Flows
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F-6
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Notes to Consolidated Financial Statements
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F-7
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
Alpine 4 Technologies, Ltd.
Phoenix, Arizona
We have audited the accompanying consolidated balance sheet of Alpine 4 Technologies Ltd. and its subsidiaries (collectively, the "Company", or "Successor") as of December 31, 2016, and the related consolidated statements of operations, stockholders' deficit, and cash flows for the period from April 1, 2016 through December 31, 2016. We have also audited the accompanying balance sheet of Quality Circuit Assembly, Inc. (the "Predecessor") as of December 31, 2015 and the related statements of operations, stockholders' equity, and cash flows for the year then ended and for the period from January 1, 2016 through March 31, 2016. These consolidated financial statements are the responsibility of the entity's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform an audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of
Alpine 4 Technologies Ltd.
and its subsidiaries
as of December 31, 2016, and the
consolidated
results of their operations and their cash flows for the period from April 1, 2016 through December 31, 2016, in conformity with accounting principles generally accepted in the United States of America. Further, in our opinion, the Predecessor financial statements referred to above present fairly, in all material respects, the financial position of Quality Circuit Assembly, Inc. as of December 31, 2015 and the results of its operations and its cash flows for the year ended December 31, 2015 and for the period from January 1, 2016 through March 31, 2016.
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 3 to the
consolidated
financial statements, the Company has suffered recurring losses from operations and has a net capital deficiency that raises substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 3. The
consolidated
financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ MaloneBailey, LLP
www.malonebailey.com
Houston, Texas
April 14, 2017
ALPINE 4 TECHNOLOGIES, LTD. and SUBSIDIARIES
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CONSOLIDATED BALANCE SHEETS
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(Audited)
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Successor
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Predecessor
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December 31,
2016
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December 31,
2015
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ASSETS
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CURRENT ASSETS:
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Cash
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$
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209,494
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$
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365,221
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Accounts receivable
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1,346,585
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1,091,953
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Inventory
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930,114
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949,362
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Prepaid expenses and other current assets
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39,734
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12,193
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Total current assets
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2,525,927
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2,418,729
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Property and equipment, net
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5,202,133
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166,263
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Intangible asset, net
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757,528
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|
-
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Goodwill
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1,963,761
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-
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Other non-current assets
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688,204
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-
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Total non-current assets
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8,611,626
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166,263
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TOTAL ASSETS
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$
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11,137,553
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$
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2,584,992
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LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
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CURRENT LIABILITIES:
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Accounts payable
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$
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1,434,170
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$
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655,942
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Accrued expenses
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299,043
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116,984
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Deferred Revenue
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12,536
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202,049
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Deposits
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12,509
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-
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Notes payable
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1,332,031
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19,940
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Notes payable, related parties
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205,000
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10,000
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Convertible notes payable, net of discount of $7,421 and $0
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247,359
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Financing Lease Obligation
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13,814
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Income Tax Payable
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20,123
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45,410
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Total current liabilities
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3,576,585
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1,050,325
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NON-CURRENT LIABILITIES:
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Long-term debt
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147,079
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39,522
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Convertible notes payable
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1,760,198
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Financing Lease Obligation
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6,572,579
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-
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Deferred tax liability
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287,153
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21,560
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Total non-current liabilities
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8,767,009
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61,082
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TOTAL LIABILITIES
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12,343,594
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1,111,407
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STOCKHOLDERS' EQUITY (DEFICIT):
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Preferred stock, $0.0001 par value, 5,000,000 shares authorized, none issued and outstanding
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-
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Class A Common stock, $0.0001 par value, 500,000,000 shares authorized, 21,474,481 shares issued and outstanding
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2,148
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Class B Common stock, $0.0001 par value, 100,000,000 shares authorized, 1,600,000 and 0 shares issued and outstanding
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160
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Predecessor Common stock
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240,000
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Additional paid-in capital
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16,228,106
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-
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Dividends
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-
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(129,253
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)
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Accumulated earnings/(deficit)
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(17,436,455
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)
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1,362,838
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Total stockholders' equity/(deficit)
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(1,206,041
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)
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1,473,585
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
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$
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11,137,553
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$
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2,584,992
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The accompanying notes are an integral part of these audited consolidated financial statements.
ALPINE 4 TECHNOLOGIES, LTD. and SUBSIDIARIES
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CONSOLIDATED STATEMENTS OF OPERATIONS
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(Audited)
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Twelve month period
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Successor
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Predecessor
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Period from
April, 1,
2016
to December 31,
2016
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Period from
January, 1,
2016
to March 31,
2016
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Twelve
Months Ended
December 31,
2015
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Revenue
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$
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6,072,384
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$
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1,788,654
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$
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7,513,844
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Cost of revenue (exclusive of depreciation)
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4,239,850
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1,383,031
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5,736,354
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Gross Profit
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1,832,534
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405,623
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1,777,490
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Operating expenses:
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General and administrative expenses
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3,847,876
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533,894
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1,404,526
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Depreciation
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175,853
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33,492
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100,280
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Amortization
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56,626
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|
-
|
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|
-
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|
Total operating expenses
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|
4,080,355
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|
567,386
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|
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1,504,806
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Gain (Loss) from operations
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|
(2,247,821
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)
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|
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(161,763
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)
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|
|
272,684
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
959,308
|
|
|
|
456
|
|
|
|
2,064
|
|
Other expenses/(income)
|
|
|
(17,429
|
)
|
|
|
|
|
|
|
-
|
|
(Gain) on disposal of fixed assets
|
|
|
|
|
|
|
|
|
|
|
(34,062
|
)
|
Total other expenses
|
|
|
941,879
|
|
|
|
456
|
|
|
|
(31,998
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain (Loss) before income tax
|
|
|
(3,189,700
|
)
|
|
|
(162,219
|
)
|
|
|
304,682
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense (benefit)
|
|
|
(52,694
|
)
|
|
|
(31,770
|
)
|
|
|
197,386
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net gain/(loss)
|
|
$
|
(3,137,006
|
)
|
|
$
|
(130,449
|
)
|
|
$
|
107,296
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding :
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
21,294,890
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
21,294,890
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss per share
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.15
|
)
|
|
$
|
|
|
|
$
|
|
|
Diluted
|
|
$
|
(0.15
|
)
|
|
$
|
|
|
|
$
|
|
|
The accompanying notes are an integral part of these audited consolidated financial statements.
ALPINE 4 TECHNOLOGIES, LTD. and SUBSIDIARIES
|
|
CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
Accumulated
|
|
|
|
|
|
|
Class A Common Stock
|
|
|
Class B Common Stock
|
|
|
Paid-in
|
|
|
Earnings/
|
|
|
Earnings/
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
(Deficit)
|
|
|
(Deficit)
|
|
Dividends
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(129,253
|
)
|
|
|
|
|
|
(129,253
|
)
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
107,296
|
|
|
|
107,296
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2015 (Predecessor)
|
|
|
240,000
|
|
|
|
240,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(129,253
|
)
|
|
|
1,362,838
|
|
|
|
1,473,585
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(130,449
|
)
|
|
|
(130,449
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, March 31,2016 (Predecessor)
|
|
|
240,000
|
|
|
$
|
240,000
|
|
|
|
-
|
|
|
$
|
-
|
|
|
$
|
(129,253
|
)
|
|
$
|
1,232,389
|
|
|
$
|
1,343,136
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Alpine 4 Technologies, Ltd beginning balance
|
|
|
20,920,069
|
|
|
|
2,092
|
|
|
|
1,600,000
|
|
|
|
160
|
|
|
|
13,903,376
|
|
|
|
(14,299,449
|
)
|
|
|
(393,821
|
)
|
Issue shares of common stock for cash
|
|
|
670
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
6,000
|
|
|
|
|
|
|
|
6,000
|
|
Issue shares of common stock to consultants for services
|
|
|
66,784
|
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
591,032
|
|
|
|
|
|
|
|
591,039
|
|
Issue shares of common stock for convertible note payable and accrued interest
|
|
|
336,938
|
|
|
|
34
|
|
|
|
|
|
|
|
|
|
|
|
336,903
|
|
|
|
|
|
|
|
336,937
|
|
Issue shares of common stock to officers and directors for services
|
|
|
150,000
|
|
|
|
15
|
|
|
|
|
|
|
|
|
|
|
|
1,274,985
|
|
|
|
|
|
|
|
1,275,000
|
|
Beneficial converstion feature associated with convertible notes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
115,810
|
|
|
|
|
|
|
|
115,810
|
|
Adjustment for reverse stock split
|
|
|
20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,137,006
|
)
|
|
|
(3,137,006
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31,2016
|
|
|
21,474,481
|
|
|
$
|
2,148
|
|
|
|
1,600,000
|
|
|
$
|
160
|
|
|
$
|
16,228,106
|
|
|
$
|
(17,436,455
|
)
|
|
$
|
(1,206,041
|
)
|
The accompanying notes are an integral part of these audited consolidated financial statements.
ALPINE 4 TECHNOLOGIES, LTD. and SUBSIDIARIES
|
|
CONSOLIDATED STATEMENT OF CASH FLOWS
|
|
(Audited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve month period
|
|
|
|
Successor
|
|
|
Predecessor
|
|
|
|
Period from
April, 1,
2016 to
December 31,
2016
|
|
|
Period from
January, 1,
2016 to
March 31,
2016
|
|
|
Twelve Months
Ended
December 31,
2015
|
|
OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(3,137,006
|
)
|
|
$
|
(130,449
|
)
|
|
$
|
107,296
|
|
Adjustments to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
175,853
|
|
|
|
33,492
|
|
|
|
100,280
|
|
Amortization
|
|
|
56,626
|
|
|
|
-
|
|
|
|
-
|
|
(Gain) on distribution of fixed assets
|
|
|
-
|
|
|
|
-
|
|
|
|
(34,062
|
)
|
Employee stock compensation
|
|
|
1,275,000
|
|
|
|
-
|
|
|
|
-
|
|
Stock issued for services
|
|
|
591,039
|
|
|
|
-
|
|
|
|
-
|
|
Amortization of debt issuance
|
|
|
8,447
|
|
|
|
-
|
|
|
|
-
|
|
Amortization of debt discounts
|
|
|
274,615
|
|
|
|
-
|
|
|
|
-
|
|
Change in current assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(187,411
|
)
|
|
|
47,578
|
|
|
|
(53,761
|
)
|
Inventory
|
|
|
243,240
|
|
|
|
(14,062
|
)
|
|
|
(38,402
|
)
|
Prepaids
|
|
|
(33,699
|
)
|
|
|
(41,040
|
)
|
|
|
854
|
|
Accounts payable
|
|
|
256,937
|
|
|
|
16,468
|
|
|
|
149,982
|
|
Accrued expenses
|
|
|
203,246
|
|
|
|
56,723
|
|
|
|
(23,556
|
)
|
Deferred tax
|
|
|
(59,157
|
)
|
|
|
(41,645
|
)
|
|
|
(150,498
|
)
|
Deferred revenue
|
|
|
11,538
|
|
|
|
-
|
|
|
|
202,049
|
|
Net cash provided by (used in) operating activities
|
|
|
(320,732
|
)
|
|
|
(72,935
|
)
|
|
|
260,182
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
(267,401
|
)
|
|
|
-
|
|
|
|
(79,304
|
)
|
Acquisition, net of cash acquired
|
|
|
(2,800,000
|
)
|
|
|
-
|
|
|
|
-
|
|
Net cash used by investing activities
|
|
|
(3,067,401
|
)
|
|
|
-
|
|
|
|
(79,304
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuances of notes payable, related party
|
|
|
175,000
|
|
|
|
-
|
|
|
|
45,000
|
|
Proceeds from issuances of notes payable, non-related party
|
|
|
3,630,631
|
|
|
|
-
|
|
|
|
-
|
|
Repaymentsof notes payable, non-related party
|
|
|
(2,482,825
|
)
|
|
|
-
|
|
|
|
-
|
|
Repayments of notes payable, related party
|
|
|
(1,535
|
)
|
|
|
(10,000
|
)
|
|
|
(35,000
|
)
|
Repayments of convertible notes
|
|
|
(82,672
|
)
|
|
|
(59,461
|
)
|
|
|
(19,342
|
)
|
Proceeds from convertible notes payable
|
|
|
15,500
|
|
|
|
-
|
|
|
|
-
|
|
Proceeds from the sale of common stock
|
|
|
6,000
|
|
|
|
-
|
|
|
|
-
|
|
Net Proceeds from financing lease obligation, net of commissions and financing charges
|
|
|
2,704,260
|
|
|
|
-
|
|
|
|
-
|
|
Change in restricted cash
|
|
|
(641,537
|
)
|
|
|
-
|
|
|
|
-
|
|
Cash paid for rent deposit on lease of building
|
|
|
(46,667
|
)
|
|
|
-
|
|
|
|
-
|
|
Cash paid on financing lease obligation
|
|
|
(21,314
|
)
|
|
|
-
|
|
|
|
-
|
|
Dividends
|
|
|
-
|
|
|
|
-
|
|
|
|
(30,605
|
)
|
Net cash provided by (used in) financing activities
|
|
|
3,254,841
|
|
|
|
(69,461
|
)
|
|
|
(39,947
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCREASE (DECREASE) IN CASH
|
|
|
(133,292
|
)
|
|
|
(142,396
|
)
|
|
|
140,931
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH, BEGINNING BALANCE
|
|
|
342,786
|
|
|
|
365,221
|
|
|
|
224,290
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH, ENDING BALANCE
|
|
$
|
209,494
|
|
|
$
|
222,825
|
|
|
$
|
365,221
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH PAID FOR:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
217,791
|
|
|
$
|
456
|
|
|
$
|
2,362
|
|
Income taxes
|
|
$
|
-
|
|
|
$
|
47,500
|
|
|
$
|
350,952
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued for convertible note payable and accrued interest
|
|
$
|
336,937
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Issuance of note payable for acquisition of QCA
|
|
$
|
2,000,000
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Purchase of building from lease proceeds
|
|
$
|
3,895,000
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Debt discount from convertible note payable
|
|
$
|
115,810
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Proceeds for refinancing of line of credit and notes payable paid dirctly to former lender
|
|
$
|
1,319,122
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Distribution of fixed assets to owners
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
98,648
|
|
The accompanying notes are an integral part of these audited consolidated financial statements.
ALPINE 4 TECHNOLOGIES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016 (SUCCESSOR) AND 2015 (PREDECESSOR)
Note 1 – Description of Business
Alpine 4 Technologies Ltd. ("we" or the "Company") was incorporated under the laws of the State of Delaware on April 22, 2014. The Company was formed to serve as a vehicle to affect an asset acquisition, merger, exchange of capital stock, or other business combination with a domestic or foreign business. As of the date of this Report, the Company is a technology holding company owning three companies (ALTIA, LLC; Quality Circuit Assembly, Inc. ("QCA")_; and Horizon Well Testing, LLC). For 2016 QCA made up most of the revenue for the consolidated financials. Horizon Well Testing was not acquired until January 1, 2017, so it is not combined in our 2016 or 2015 financial statements.
Acquisition Reporting
As discussed in Note 9, the Company entered into a stock purchase transaction with QCA in which the Company purchased 100% of QCA's outstanding stock.
The consolidated financial statements herein are presented under predecessor entity reporting and because the acquiring entity had nominal operations as compared with the acquired company, QCA, prior historical information of the acquirer is not presented.
This new basis of accounting was created on April 1, 2016, the effective date for financial reporting purposes of the stock purchase agreement. In the following discussion, the results of the operations and cash flows for the periods ended on or prior to March 31, 2016, and the financial position of QCA as of balance sheet date on or prior to March 31, 2016 are referred to as "Predecessor" financial information, and the results of operations and cash flows of the Company for periods beginning April 1, 2016 and the financial position of the Company as of April 1, 2016 and subsequent balance sheet dates are referred to herein as "Successor" consolidated financial information.
Note 2 - Summary of Significant Accounting Policies
Principles of consolidation
The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries as of December 31, 2016 (Successor) and December 31, 2015 (Predecessor). Significant intercompany balances and transactions have been eliminated.
Basis of presentation
The accompanying financial statements present the balance sheets, statements of operations, stockholders' deficit and cash flows of the Company. The financial statements have been prepared in accordance with accounting principles generally accepted in the United States ("U.S. GAAP").
Use of estimates
The preparation of financial statements in conformity with U.S. GAAP requires the Company to make estimates and judgments that affect the reported amounts of assets and liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities. These estimates and judgments are based on historical information, information that is currently available to the Company and on various other assumptions that the Company believes to be reasonable under the circumstances. Actual results could differ from those estimates.
Advertising
Advertising costs are expensed when incurred. All advertising takes place at the time of expense. We have no long-term contracts for advertising. Advertising expense for all periods presented were under $10,000.
ALPINE 4 TECHNOLOGIES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016 (SUCCESSOR) AND 2015 (PREDECESSOR)
Cash
Cash and cash equivalents consist of cash and short-term investments with original maturities of less than 90 days. Cash equivalents are placed with high credit quality financial institutions and are primarily in money market funds. The carrying value of those investments approximates fair value. As of December 31, 2016 (Successor) and 2015 (Predecessor), the Company had no cash equivalents.
Major Customers
For all periods presented the Company had two customers that made up approximately 50% of total revenues. All other customers were less than 10% each of total revenues in each period.
For all periods presented the Company had two customers that made up approximately 50% of outstanding accounts receivable. All other customers were less than 10% each of total accounts receivable for each period presented.
Accounts Receivable
The Company maintains reserves for potential credit losses on accounts receivable. Management reviews the composition of accounts receivable and analyzes historical bad debts, customer concentrations, customer credit worthiness, current economic trends and changes in customer payment patterns to evaluate the adequacy of these reserves. Reserves are recorded primarily on a specific identification basis. As of December 31, 2016 and 2015, we had no allowance for bad debt.
Inventory
Inventory is valued at the lower of the inventory's cost (weighted average basis) or market. Management compares the cost of inventory with its market value and an allowance is made to write down inventory to market value, if lower. Inventory is segregated into four areas, raw materials, Work in Process (WIP), finished goods, and In-Transit. Below is a breakdown of how much inventory is in each area as of December 31, 2016 (Successor), and December 31, 2015 (Predecessor)
.
Inventory
|
|
|
|
|
|
|
|
|
Dec 31, 2016 (Successor)
|
|
|
Dec 31, 2015 (Predecessor)
|
|
|
|
|
|
|
|
|
|
|
Raw materials
|
|
|
527,599
|
|
|
|
391,845
|
|
WIP
|
|
|
193,525
|
|
|
|
351,697
|
|
Finished goods
|
|
|
195,990
|
|
|
|
192,820
|
|
In Transit
|
|
|
13,000
|
|
|
|
13,000
|
|
|
|
$
|
930,114
|
|
|
$
|
949,362
|
|
ALPINE 4 TECHNOLOGIES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016 (SUCCESSOR) AND 2015 (PREDECESSOR)
Property and Equipment
Property and equipment are carried at cost less depreciation. Depreciation and amortization are provided principally on the straight-line method over the estimated useful lives of the assets, which range from ten years to 39 years as follows:
Buildings
|
39 years
|
Leasehold Improvements
|
15 years or time remaining on lease (whichever is shorter)
|
Equipment
|
10 years
|
Maintenance and repair costs are charged against income as incurred. Significant improvements or betterments are capitalized and depreciated over the estimated life of the asset.
Below is a table of Property and Equipment:
Property and Equipment
|
|
|
|
|
|
|
|
|
Dec 31, 2016 (Successor)
|
|
|
Dec 31, 2015 (Predecessor)
|
|
|
|
|
|
|
|
|
|
|
Machinery & Equipment
|
|
$
|
1,263,941
|
|
|
$
|
1,191,843
|
|
Office furniture & fixtures
|
|
|
-
|
|
|
|
164,868
|
|
Building
|
|
|
3,895,000
|
|
|
|
-
|
|
Leasehold Improvements
|
|
|
219,045
|
|
|
|
-
|
|
Less: Accumulated Depreciation
|
|
|
(175,853
|
)
|
|
|
(1,190,448
|
)
|
|
|
$
|
5,202,133
|
|
|
$
|
166,263
|
|
Purchased Intangibles and Other Long-Lived Assets
The Company amortizes intangible assets with finite lives over their estimated useful lives, which range between five and fifteen years as follows:
Customer List
|
15 years
|
Non-compete agreements
|
5 years
|
Software development
|
5 years
|
Below are tables for Intangibles and Other Long-Lived Assets:
Intangibles
|
|
|
|
|
|
|
|
|
Dec 31, 2016 (Successor)
|
|
|
Dec 31, 2015 (Predecessor)
|
|
|
|
|
|
|
|
|
Software
|
|
|
191,300
|
|
|
|
-
|
|
Non-compete
|
|
|
100,000
|
|
|
|
-
|
|
Customer List
|
|
|
531,187
|
|
|
|
-
|
|
Less: Accumulated Amortization
|
|
|
(64,959
|
)
|
|
|
-
|
|
|
|
$
|
757,528
|
|
|
$
|
-
|
|
ALPINE 4 TECHNOLOGIES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016 (SUCCESSOR) AND 2015 (PREDECESSOR)
Other Long-Lived Assets
|
|
|
|
|
|
|
|
|
Dec 31, 2016 (Successor)
|
|
|
Dec 31, 2015 (Predecessor)
|
|
|
|
|
|
|
|
|
Restricted Cash
|
|
$
|
630,270
|
|
|
$
|
-
|
|
Deposits
|
|
|
57,934
|
|
|
|
-
|
|
|
|
$
|
688,204
|
|
|
$
|
-
|
|
Restricted cash consists of deposit account collateralizing letters of credit in favor of the counterparty in our lease financing obligation. Changes in restricted cash are reflected as financing activities because the cash is being used in conjunction with financing activities.
Impairment of Intangibles
The Company evaluates intangible assets for impairment on a yearly basis or as needed.
During the nine months ended December 31, 2016 (Successor), the period from January 1, 2016 through March 31, 2016 (Predecessor) and the twelve months ended December 31, 2015 (Predecessor), there have been no impairment losses
.
Gross Intangible Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
Average
Amortization
Period
(Years)
|
|
|
December 31,
2015
(Predecessor)
|
|
|
Acquisitions
|
|
|
Impairment
Charges
|
|
|
December 31,
2016
(Successor)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Software
|
|
|
5
|
|
|
|
-
|
|
|
|
191,300
|
|
|
|
-
|
|
|
|
191,300
|
|
Non-compete
|
|
|
5
|
|
|
|
-
|
|
|
|
100,000
|
|
|
|
-
|
|
|
|
100,000
|
|
Customer List
|
|
|
15
|
|
|
|
-
|
|
|
|
531,187
|
|
|
|
-
|
|
|
|
531,187
|
|
|
|
|
|
|
|
|
-
|
|
|
|
822,487
|
|
|
|
-
|
|
|
|
822,487
|
|
Accumulated Amortization on Intangible Assets
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
2015
(Predecessor)
|
|
|
Amortization
|
|
|
December 31,
2016
(Successor)
|
|
|
|
|
|
|
|
|
|
|
|
Software
|
|
|
-
|
|
|
|
(33,332
|
)
|
|
|
(33,332
|
)
|
Non-compete
|
|
|
-
|
|
|
|
(5,000
|
)
|
|
|
(5,000
|
)
|
Customer List
|
|
|
-
|
|
|
|
(26,627
|
)
|
|
|
(26,627
|
)
|
Total Accumulated Amortization
|
|
|
-
|
|
|
|
(64,959
|
)
|
|
|
(64,959
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible Assets, net of Amortization
|
|
|
-
|
|
|
|
|
|
|
|
757,528
|
|
ALPINE 4 TECHNOLOGIES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016 (SUCCESSOR) AND 2015 (PREDECESSOR)
5 Year Expected Amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
2018
|
|
2019
|
|
2020
|
|
2021
|
|
Thereafter
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Software
|
|
|
33,332
|
|
|
|
33,332
|
|
|
|
33,332
|
|
|
|
33,332
|
|
|
|
24,640
|
|
|
|
-
|
|
Non-compete
|
|
|
35,000
|
|
|
|
20,000
|
|
|
|
20,000
|
|
|
|
20,000
|
|
|
|
-
|
|
|
|
-
|
|
Customer List
|
|
|
26,627
|
|
|
|
26,627
|
|
|
|
26,627
|
|
|
|
26,627
|
|
|
|
26,627
|
|
|
|
371,425
|
|
Total Accumulated Amortization
|
|
|
94,959
|
|
|
|
79,959
|
|
|
|
79,959
|
|
|
|
79,959
|
|
|
|
51,267
|
|
|
|
371,425
|
|
Impairment of Long-Lived Assets
The Company accounts for long-lived assets in accordance with the provisions of the Financial Accounting Standards Board ("FASB") Topic 360, "Accounting for the Impairment of Long-Lived Assets". This statement requires that long-lived assets and certain identifiable intangibles be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. An impairment loss would be recognized when the estimated future cash flows from the use of the asset are less than the carrying amount of that asset. During the nine months ended December 31, 2016 (Successor), the period from January 1, 2016 through March 31, 2016 (Predecessor) and the twelve months ended December 31, 2015 (Predecessor), there have been no impairment losses
.
Goodwill
In financial reporting
,
goodwill is not amortized, but is tested for impairment annually in the fourth quarter of the fiscal year or whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Events that result in an impairment review include significant changes in the business climate, declines in our operating results, or an expectation that the carrying amount may not be recoverable. We assess potential impairment by considering present economic conditions as well as future expectations. All assessments of goodwill impairment are conducted at the individual reporting unit level. As of December 31, 2016, the only reporting unit with goodwill was QCA.
The Company used qualitative factors according to Accounting Standards Codification ("ASC") 350-20-35-3 to determine whether it is more likely than not that the fair value of goodwill is less than its carrying amount. Based on the qualitative criteria the company believes there not to be any triggers for potential impairment of goodwill and therefore the Company has recorded no impairment of goodwill in any period presented
.
Fair Value Measurement
The Company's financial instruments
consist of cash and cash equivalents, accounts receivable, accounts payable, accrued expenses, convertible notes, notes and line of credit. The carrying amount of these financial instruments approximates fair value due either to length of maturity or interest rates that approximate prevailing market rates unless otherwise disclosed in these financial statements.
Revenue Recognition
ALTIA
The Company accounts for its revenue per the guidance in ASC 605-25-25 by allocating the total contract amount between the product and service elements. When a vehicle is sold to the driving consumer who purchases the 6
th
Sense Auto service, the cost of the service is added to the price of the car and the amount collected by the dealership for this service is remitted to the Company. At the time the vehicle is purchased, the Company recognizes the service portion of the contract over the service period of generally 12 to 36 months.
ALPINE 4 TECHNOLOGIES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016 (SUCCESSOR) AND 2015 (PREDECESSOR)
Quality Circuit Assembly
The Company accounts for its revenue per the guidance in ASC 605-25-25 by allocating the total contract amount between the product and service elements. Revenue is recognized when either the product has completely been built and shipped or the service has been completed. If a deposit for product or service is received prior to completion the payment is recorded to deferred revenue until such point the product or services meets our revenue recognition policy. Management assesses the materiality and likelihood of warranty work and returns and records reserves as needed. For all periods presented management determined that the warranty and returns would be immaterial.
Leases
Leases are reviewed by management and examined to see if they are required to be categorized as an operating lease, a capital lease or a financing transaction.
Earnings (loss) per share
Basic earnings (loss) per common share is computed by dividing net income (loss) available to common shareholders by the weighted-average number of shares of common stock outstanding during the period. Diluted earnings per common share is computed by dividing income available to common shareholders by the weighted-average number of shares of common stock outstanding during the period increased to include the number of additional shares of common stock that would have been outstanding if potentially dilutive securities had been issued. The only potentially dilutive securities outstanding during the periods presented were the convertible debentures, but they are anti-dilutive due to the net loss incurred. All earnings (loss) per common share have been adjusted retroactively for periods presented to reflect changes in number of shares as a result of the reverse stock split amount.
Stock-based compensation
The Company accounts for equity instruments issued in exchange for the receipt of goods or services from other than employees in accordance with FASB ASC 718-10, Compensation – Stock Compensation, and the conclusions reached by FASB ASC 505-50, Equity – Equity-Based Payments to Non-Employees. Costs are measured at the estimated fair market value of the consideration received or the estimated fair value of the equity instruments issued, whichever is more reliably measurable. The value of equity instruments issued for consideration other than employee services is determined on the earliest of a performance commitment is reached or completion of performance by the provider of goods or services as defined by FASB ASC 505-50.
Income taxes
The Company records income taxes under the asset and liability method, whereby deferred tax assets and liabilities are recognized based on the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, and attributable to operating loss and tax credit carry forwards. Accounting standards regarding income taxes requires a reduction of the carrying amounts of deferred tax assets by a valuation allowance, if based on the available evidence, it is more likely than not that such assets will not be realized. Accordingly, the need to establish valuation allowances for deferred tax assets is assessed at each reporting period based on a more-likely-than-not realization threshold. This assessment considers, among other matters, the nature, frequency and severity of current and cumulative losses, forecasts of future profitability, the duration of statutory carry forward periods, the Company's experience with operating loss and tax credit carry forwards not expiring unused, and tax planning alternatives.
The Company recorded valuation allowances on the net deferred tax assets. Management will reassess the realization of deferred tax assets based on the accounting standards for income taxes each reporting period. To the extent that the financial results of operations improve and it becomes more likely than not that the deferred tax assets are realizable, the Company will be able to reduce the valuation allowance.
ALPINE 4 TECHNOLOGIES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016 (SUCCESSOR) AND 2015 (PREDECESSOR)
Significant judgment is required in evaluating the Company's tax positions and determining its provision for income taxes. During the ordinary course of business, there are many transactions and calculations for which the ultimate tax determination is uncertain. Accounting standards regarding uncertainty in income taxes provides a two-step approach to recognizing and measuring uncertain tax positions. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount which is more than 50% likely, based solely on the technical merits, of being sustained on examinations. The Company considers many factors when evaluating and estimating its tax positions and tax benefits, which may require periodic adjustments and which may not accurately anticipate actual outcomes.
Embedded Conversion Features
The Company evaluates embedded conversion features within convertible debt under ASC 815 "Derivatives and Hedging" to determine whether the embedded conversion feature(s) should be bifurcated from the host instrument and accounted for as a derivative at fair value with changes in fair value recorded in earnings. If the conversion feature does not require derivative treatment under ASC 815, the instrument is evaluated under ASC 470-20 "Debt with Conversion and Other Options" for consideration of any beneficial conversion features.
Related Party Disclosure
FASB ASC 850, "Related Party Disclosures" requires companies to include in their financial statements disclosures of material related party transactions. The Company discloses all material related party transactions. Related parties are defined to include any principal owner, director or executive officer of the Company and any immediate family members of a principal owner, director or executive officer.
Recent Accounting Pronouncements
In May 2014, the FASB issued Accounting Standards Update ("ASU") No. 2014-09 (ASU 2014-09),
Revenue from Contracts with Customers
. ASU 2014-09 will eliminate transaction- and industry-specific revenue recognition guidance under current U.S. GAAP and replace it with a principle based approach for determining revenue recognition. ASU 2014-09 will require that companies recognize revenue based on the value of transferred goods or services as they occur in the contract. The ASU also will require additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. ASU 2014-09 is effective for reporting periods beginning after December 15, 2016, and early adoption is not permitted. Entities can transition to the standard either retrospectively or as a cumulative-effect adjustment as of the date of adoption. Management is currently assessing the impact the adoption of ASU 2014-09 and has not determined the effect of the standard on our ongoing financial reporting.
In April 2015, the FASB issued ASU No. 2015-03,
Simplifying the Presentation of Debt Issuance Costs
. Public business entities should apply the guidance in ASU 2015-03 to annual reporting periods beginning December 15, 2015. ASU 2015-03 was adopted and had no impact.
In August 2015, the FASB issued ASU No. 2015-14,
Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date.
The amendment in this ASU defers the effective date of ASU No. 2014-09 for all entities for one year. Public business entities, certain not-for-profit entities, and certain employee benefit plans should apply the guidance in ASU 2014-09 to annual reporting periods beginning December 15, 2017, including interim reporting periods within that reporting period. Earlier application is permitted only as of annual reporting periods beginning after December 31, 2016, including interim reporting periods with that reporting period.
In February 2015, the FASB issued ASU No. 2015-02,
Consolidation (Topic 810): Amendments to the Consolidation Analysis.
ASU 2015-02 provides guidance on the consolidation evaluation for reporting organizations that are required to evaluate whether they should consolidate certain legal entities such as limited partnerships, limited liability corporations, and securitization structures (collateralized debt obligations, collateralized loan obligations, and mortgage-backed security transactions). ASU 2015-02 is effective for periods beginning after December 15, 2015. The adoption of ASU 2015-02 is not expected to have a material effect on the Company's financial statements. Early adoption is permitted.
ALPINE 4 TECHNOLOGIES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016 (SUCCESSOR) AND 2015 (PREDECESSOR)
In September, 2015, the FASB issued ASU No. 2015-16,
Business Combinations (Topic 805).
Topic 805 requires that an acquirer retrospectively adjust provisional amounts recognized in a business combination, during the measurement period. To simplify the accounting for adjustments made to provisional amounts, the amendments in the update require that the acquirer recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amount is determined. The acquirer is required to also record, in the same period's financial statements, the effect on earnings of changes in depreciation, amortization, or other income effects, if any, as a result of the change to the provisional amounts, calculated as if the accounting had been completed at the acquisition date. In addition an entity is required to present separately on the face of the income statement or disclose in the notes to the financial statements the portion of the amount recorded in current-period earnings by line item that would have been recorded in previous reporting periods if the adjustment to the provisional amounts had been recognized as of the acquisition date. The adoption of ASU 2015-016 is not expected to have a material effect on the Company's financial statements.
In November
2015, the FASB issued ASU No. 2015-17,
Balance Sheet Classification of Deferred Taxes
. The new guidance requires that all deferred tax assets and liabilities, along with any related valuation allowance, be classified as noncurrent on the balance sheet. This update is effective for annual periods beginning after December 15, 2016 and interim periods within those annual periods.
The Company does not anticipate the adoption of this ASU will have a significant impact on its financial position, results of operations, or cash flows.
In February 2016, the FASB issued ASU No. 2016-02,
Leases (Topic 842)
. The guidance in ASU No. 2016-02 supersedes the lease recognition requirements in ASC Topic 840,
Leases (FAS 13)
. ASU 2016-02 requires an entity to recognize assets and liabilities arising from a lease for both financing and operating leases, along with additional qualitative and quantitative disclosures. ASU 2016-02 is effective for fiscal years beginning after December 15,
2018, with early adoption permitted. The Company is currently evaluating the effect this standard will have on its financial statements.
Other recent accounting pronouncements issued by the FASB, including its Emerging Issues Task Force, the American Institute of Certified Public Accountants, and the Securities and Exchange Commission did not or are not believed by management to have a material impact on the Company's present or future financial statements.
Note 3 – Going Concern
The accompanying financial statements have been prepared on a going concern basis. The working capital of the Company is currently negative and causes doubt of the ability for the Company to continue. The Company requires capital for its operational and marketing activities. The Company's ability to raise additional capital through the future issuances of common stock is unknown. The obtainment of additional financing, the successful development of the Company's plan of operations, and its transition, ultimately, to the attainment of profitable operations are necessary for the Company to continue operations. The ability to successfully resolve these factors raise substantial doubt about the Company's ability to continue as a going concern. The financial statements of the Company do not include any adjustments that may result from the outcome of these aforementioned uncertainties.
In order to mitigate the risk related with this uncertainty, the Company has a three-fold plan to resolve these risks. First the acquisition of QCA has allowed for an increased level of cash flow to the Company as demonstrated in the sales for the second and third quarters of 2016. Second, the Company has acquired Horizon Well Testing and is considering other potential acquisition targets that, like QCA, will increase income and cash flow to the Company. Third, the Company plans to issue additional shares of common stock for cash and services during the next 12 months and has engaged MCAP, LLC to provide advisory services in connection with that capital raise.
ALPINE 4 TECHNOLOGIES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016 (SUCCESSOR) AND 2015 (PREDECESSOR)
Note 4 – Leases
During the nine months ending December 31, 2016 (Successor) the Company entered into a financing transaction for a building. The Company bought the property for $3,895,000 and subsequently sold the property for $7,000,000 to an unrelated third-party real estate company and simultaneously entered into an arrangement with the third-party real estate company to lease back the property. Because the leaseback was not a typical leaseback
,
this transaction is recorded as a financing transaction with the asset and related financing obligation recorded on the balance sheet. The lease has a 15-year term expiring in 2031 and certain default provisions requiring the Company to perform repairs and maintenance, make timely rent payments and insure the building. The Company also issued a letter of credit for $630,270 in favor of the landlord; the letter of credit is collateralized by a savings account which is classified as restricted cash under non-current assets. The remaining payments under the financing transaction as of December 31, 2016 (Successor)
,
totals $9,762,396. Imputed interest of $3,176,003 is being amortized over the lease term with an effective interest rate of 7.80%. The Company paid costs of $54,898 and a commission of $350,000 in conjunction with the transaction, which is characterized as debt issuance costs and will be amortized over the lease term. The current unamortized balance of the debt issuance costs is $348,542 and in accordance with ASU 2015-03 debt issuance costs are reflected as a contra-liability reducing the related financing lease obligation.
As of December 31, 2016 (Successor)
,
the future minimum capital lease and financing transaction payments, net of amortization of debt issuance costs, are as follows:
Fiscal Year
|
|
|
|
|
|
|
|
2017
|
|
$
|
571,499
|
|
2018
|
|
|
584,763
|
|
2019
|
|
|
599,382
|
|
2020
|
|
|
614,366
|
|
2021
|
|
|
629,725
|
|
Thereafter
|
|
|
6,762,661
|
|
Total
|
|
|
9,762,396
|
|
Less: Current capital leases and financing transaction
|
|
|
(13,814
|
)
|
Less: imputed interest
|
|
|
(3,176,003
|
)
|
Noncurrent capital leases and financing transaction
|
|
$
|
6,572,579
|
|
The Company also has a commitment to pay $276,000 towards Leasehold Improvements, of which $207,000 has been satisfied and reflected on the balance sheet as of December 31, 2016 (Successor).
The money received from the sale of the building was used to purchase Quality Circuit Assembly. Since this is a financing transaction the sale is recorded under financing obligation lease on the Balance Sheet and amortized over the 15-year term of the lease.
Operating Leases
The company also had two operating leases as of December 31, 2016 (Successor), for its location in San Jose, CA (QCA), and Phoenix, AZ (Alpine). Approximate monthly rent obligations are $27,500 and $3,600 respectively.
ALPINE 4 TECHNOLOGIES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016 (SUCCESSOR) AND 2015 (PREDECESSOR)
The five-year minimum rent payments for each location are as follows
Fiscal Year
|
|
San Jose, CA
|
|
|
Phoenix, AZ
|
|
|
|
|
|
|
|
|
2017
|
|
$
|
236,851
|
|
|
$
|
18,000
|
|
2018
|
|
|
266,134
|
|
|
|
-
|
|
2019
|
|
|
274,118
|
|
|
|
-
|
|
2020
|
|
|
282,342
|
|
|
|
-
|
|
2021
|
|
|
290,812
|
|
|
|
-
|
|
Thereafter
|
|
|
-
|
|
|
|
-
|
|
Total
|
|
|
1,350,257
|
|
|
|
18,000
|
|
The San Jose, CA, rent agreement expires at the end of 2021 and the Phoenix, AZ rent agreement expires at the end of May 2017 and then goes to a monthly rent agreement.
Rent expense for the twelve months ended December 31, 2015 (Predecessor), three months ended March 31, 2016 (Predecessor) and nine months ended December 31, 2016 (Successor) were $234,174, $58,459 and $185,157, respectively.
Note 5 – Notes Payable
During the 3 months ended March 31, 2016 (Predecessor) QCA paid off $10,000 of related party notes and $59,461 of unrelated party notes that were collateralized by vehicles prior to the purchase of QCA by Alpine 4. There was no monthly payment on the related party notes. The aggregate monthly payments on the unrelated party notes were $1,808.
During the nine months ended December 31, 2016 (Successor), the Company secured a line of credit with a third-party lender, of which $327,500 was received in the first quarter of 2016. This line of credit and equipment note with Celtic Capital were paid off ($1,319,122) with the proceeds from another line of credit and equipment note with Crestmark. The line of credit is collateralized by QCA's outstanding accounts receivable, up to 90%, and inventory, up to 30% with maximum draws of $2,500,000 and $300,000, respectively, and a variable interest rate. The Company also secured a five-year fixed rate (10.14%) term loan with Crestmark which is collateralized by QCA's equipment. As of December 31, 2016 (Successor) the outstanding balances for the loans were as follows:
|
|
December 31,
2016
(Successor)
|
|
|
|
|
|
LOC current
|
|
$
|
1,302,915
|
|
Equipment current
|
|
|
29,116
|
|
Total Current
|
|
$
|
1,332,031
|
|
Equipment noncurrent
|
|
|
147,079
|
|
Total Notes
|
|
$
|
1,479,110
|
|
ALPINE 4 TECHNOLOGIES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016 (SUCCESSOR) AND 2015 (PREDECESSOR)
Note 6 – Notes Payable, Related Parties
At December 31, 2016 (Successor), and December 31, 2015 (Predecessor), notes payable consisted of the following:
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2016
(Successor)
|
|
|
2015
(Predecessor)
|
|
|
|
|
|
|
|
|
Note payable; non-interest bearing; due upon demand; unsecured
|
|
|
-
|
|
|
|
10,000
|
|
Note payable; non-interest bearing; due upon demand; unsecured
|
|
|
15,000
|
|
|
|
-
|
|
Note payable; non-interest bearing; due upon demand; unsecured
|
|
|
15,000
|
|
|
|
-
|
|
Note payable; interest bearing; due May 31, 2017; unsecured
|
|
|
5,000
|
|
|
|
-
|
|
Note payable; interest bearing; due June 30, 2017; unsecured
|
|
|
10,000
|
|
|
|
-
|
|
Note payable; interest bearing; due January 10, 2017; unsecured
|
|
|
60,000
|
|
|
|
-
|
|
Note payable; interest bearing; due May 31, 2017; secured
|
|
|
100,000
|
|
|
|
-
|
|
|
|
$
|
205,000
|
|
|
$
|
10,000
|
|
During the nine months ended December 31, 2016 (Successor), a note with a related party was amended with a conversion option (see Note 7 for convertible notes description). The amendment resulted in extinguishment of the original note because a conversion feature was added. Management has evaluated the conversion option for derivative accounting consideration under ASC Topic 815-40, Derivatives and Hedging – Contracts in Entity's Own Stock and concluded that the conversion option meets the criteria for classification in stockholders' equity. Therefore, derivative accounting is not applicable for the conversion option. Management also evaluated the conversion feature for whether it was beneficial as described in ASC Topic 470-30 and concluded it was beneficial because the conversion price at commitment date was less than the fair value of the Company's common stock. The note converted during the twelve months ended December 31, 2016 (Successor) and thus the BCF discount was expensed to interest expense in its entirety.
The secured note for $100,000 is secured by real estate in the Horizon purchase agreement.
Note 7 – Convertible Notes Payable
During the nine months ended December 31, 2016 (Successor), and year ended December 31, 2015 (Predecessor), the Company entered into convertible note agreements with investors and as consideration for an acquisition. The convertible notes are unsecured; bear interest at 5-20% annually, and are due from April 27, 2016, to July 1, 2019. All of the convertible notes payable contain a provision that allows the note holder to convert the outstanding balance into shares of the Company's common stock. Notes are convertible at $1.00 per share, except for those issued for a business acquisition, which are convertible at $10.00 per share
.
The debt discount, which arises from a beneficial conversion feature ("BCF") on the $1 per share investor notes, is being amortized over the terms of the convertible notes payable. Total BCF discount recognized is $115,810 for the nine months ended December 31, 2016 (Successor). For the nine months ended December 31, 2016 (Successor), the Company recognized interest expense of $274
,
615 related to the amortization of the debt discount. The unamortized balance was $7,421 as of December 31, 2016.
Convertible notes payable at December 31, 2016 (Successor), and December 31, 2015 (Predecessor), consisted of the following:
|
|
Dec 31, 2016 (Successor)
|
|
|
Dec 31, 2015 (Predecessor)
|
|
|
|
|
|
|
|
|
Convertible Note - current
|
|
$
|
254,780
|
|
|
$
|
-
|
|
Debt discount
|
|
|
(7,421
|
)
|
|
|
-
|
|
Net current
|
|
$
|
247,359
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
Convertible Note - noncurrent
|
|
|
1,760,198
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Total Convertible Note
|
|
$
|
2,007,557
|
|
|
$
|
-
|
|
See Note 9 "Business Combination" for details on $2,000,000 convertible note.
ALPINE 4 TECHNOLOGIES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016 (SUCCESSOR) AND 2015 (PREDECESSOR)
A roll forward of the convertible notes payable is provided below:
Balance outstanding, April 1, 2016 (Successor)
|
|
$
|
131,928
|
|
Issuance of convertible notes payable for acquisition
|
|
|
2,000,000
|
|
Issuance of convertible notes payable for cash
|
|
|
15,500
|
|
Notes paid
|
|
|
(82,672
|
)
|
Conversion of notes payable to common stock
|
|
|
(216,004
|
)
|
Discount from beneficial conversion feature
|
|
|
(115,810
|
)
|
Amortization of debt discount
|
|
|
274,615
|
|
Balance outstanding, December 31, 2016 (Successor)
|
|
$
|
2,007,557
|
|
Our significant principal debt obligations with due dates as of December 31, 2016, are as follows
|
|
Payments due by Period
|
|
|
|
Less than
One Year
|
|
|
One to
Three Years
|
|
|
Three to
Five Years
|
|
|
More Than
Five Years
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes payable, related parties
|
|
$
|
205,000
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
205,000
|
|
Notes payable, non-related parties
|
|
|
1,332,031
|
|
|
|
107,270
|
|
|
|
39,809
|
|
|
|
|
|
|
|
1,479,110
|
|
Convertible notes payable
|
|
|
254,780
|
|
|
|
1,760,198
|
|
|
|
|
|
|
|
|
|
|
|
2,014,978
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,791,811
|
|
|
$
|
1,867,468
|
|
|
$
|
39,809
|
|
|
$
|
-
|
|
|
$
|
3,699,088
|
|
Minimum payments on Notes payable, non-related parties is $3,805 per month. Other loans have no monthly payments.
Note 8 – Stockholders' Equity
Preferred Stock
The Company is authorized to issue 5,000,000 shares of $.0001 par value preferred stock. As of April 14, 2017, no shares of preferred stock were outstanding.
Common Stock
Pursuant to the Second Amended and Restated Certificate of Incorporation, the Company is authorized to issue two classes of common stock: Class A common stock, which have one vote per share, and Class B common stock, which have ten votes per share. Any holder of Class B common stock may convert his or her shares at any time into shares of Class A common stock on a share-for-share basis. Otherwise the rights of the two classes of common stock are identical.
ALPINE 4 TECHNOLOGIES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016 (SUCCESSOR) AND 2015 (PREDECESSOR)
The Company had the following transactions in its common stock during the nine months ended December 31, 2016 (Successor):
·
|
issued 218,784 (150,000 to related parties) shares of its Class A common stock for services, of which the related party shares all are fully vested. Total expense for shares issue was $1,866,039 ($1,275,000 to related parties).
|
|
|
·
|
issued 336,937 (101,310 to a related party on conversion of principal of $92,100 and accrued interest of $9,210) shares of its Class A common stock in connection with the conversion of convertible notes payable and accrued interest;
|
|
|
·
|
issued 670 shares of the Company's restricted Class A common stock in private placement transactions to investors, in exchange for capital raised of $6,000.
|
As of December 31, 2015 (Predecessor), there was a dividend of $129,253.
Reverse Stock Split
On July 29, 2016 the Company adopted a resolution approved by the shareholders to effect a reverse stock split at a ratio of one (1) new share for each ten (10) old shares of the Company's common stock (the "Reverse Split"). By its terms, the Reverse Split would only reduce the number of outstanding shares of Class A and Class B common stock, and would not correspondingly reduce the number of Class A and Class B common shares authorized for issuance, which remained at 500,000,000 and 100,000,000, respectively. The reverse split took effect November 1, 2016.
The financial statements have been retrospectively restated to reflect the reverse split.
Note 9 – Business Combination
Quality Circuit Assembly
Effective April 1, 2016 the Company Purchased 100% of the outstanding stock (the "QCA Shares") of Quality Circuit Assembly, Inc., a California company ("QCA").
The purchase price paid by the Company for the QCA Shares consisted of cash and a convertible promissory note. The "Cash Consideration" paid was the aggregate amount of $3,000,000 ($2,800,00 form the financing lease obligation and $200,000 from the LOC). The "Promissory Note Consideration" consisted of a secured promissory note (the "Quality Circuit Assembly Note") in the amount of $2,000,000 ($160,126 current, $1,801,551 noncurrent), secured by a subordinated security interest in the assets of QCA. Additionally, the Sellers have the opportunity to convert the Quality Circuit Assembly Note into shares of the Company's Class A common stock at a conversion price of $10 per share after 12 months. The Quality Circuit Assembly Note will bear interest at 5% with first payment due July 1, 2016, and will be payable in full in 36-months (namely, July 1, 2019).
A summary of the final purchase price allocation at fair value is below.
Purchase Allocation
|
|
|
|
|
|
|
|
Cash
|
|
$
|
200,000
|
|
Accounts Receivable
|
|
|
1,158,995
|
|
Inventory
|
|
|
950,424
|
|
Property, Plant & Equipment
|
|
|
1,256,885
|
|
Prepaid
|
|
|
6,035
|
|
Intangibles
|
|
|
631,187
|
|
Goodwill
|
|
|
1,963,761
|
|
Accounts Payable
|
|
|
(672,410
|
)
|
Accrued Expenses
|
|
|
(128,444
|
)
|
Income Tax Payable
|
|
|
(20,123
|
)
|
Deferred Tax Liability
|
|
|
(346,310
|
)
|
|
|
$
|
5,000,000
|
|
ALPINE 4 TECHNOLOGIES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016 (SUCCESSOR) AND 2015 (PREDECESSOR)
During nine months ended December 31, 2016 (Successor), an adjustment was made to the purchase price allocation based on additional information. Accounts receivable increased by $63,576, Inventory increased by $19,641, Prepaid decreased by $47,500, Intangibles increased by $481,187, Accounts Payable increased by $19,782, Income Tax Payable increased by $20,123 and Goodwill decreased by $476,999. Goodwill of $1,963,761 will not be amortized for tax purposes.
Unaudited pro forma result of operations for the three months ended March 31, 2016, and the twelve months ended December 31, 2015 (Predecessor), as if the Companies had been combined as of January 1, 2015, follow. The pro forma results include estimates and assumptions which management believes are reasonable. However, pro forma results do not include any anticipated cost savings or other effects of the planned integration of these entities, and are not necessarily indicative of the results that would have occurred if the business combination had been in effect on the dates indicated or which may result in the future. For period ending December 31, 2016, pro forma information is not provided because the results after March 31, 2016 are post-acquisition.
|
|
Pro Forma Combined Financials
|
|
|
|
Three Months
Ended
March 31,
2016
|
|
|
Twelve Months
Ended
December 31,
2015
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
1,795,769
|
|
|
$
|
7,535,684
|
|
|
|
|
|
|
|
|
|
|
Net (Loss) Income
|
|
$
|
(330,933
|
)
|
|
$
|
(13,330,746
|
)
|
|
|
|
|
|
|
|
|
|
Net (Loss) Income per Common Share - Basic and Diluted
|
|
$
|
(0.02
|
)
|
|
$
|
(1.71
|
)
|
For the nine months ending December 31, 2016, QCA has contributed $6,032,215 of revenue and $147,217 of net loss.
AutoTek
On December 21, 2015, the shareholders of AutoTek voted to approve a transaction whereby the Company would purchase the software source code from AutoTek. The transaction took the form of a Share Exchange wherein AutoTek stockholders could tender shares of AutoTek stock in exchange for Class A common stock in the Company. The Share Exchange closed on February 4, 2016. In conjunction with the Share Exchange, AutoTek shareholders had tendered an aggregate of 25,000,000 shares of AutoTek common stock, and the Company issued 15,000,000 shares of Class A Common Stock to the former AutoTek shareholders. In connection with the closing of the Share Exchange, on February 4, 2016, the Company and AutoTek finalized and closed the asset purchase transaction for the purchase of the source code asset.
ALPINE 4 TECHNOLOGIES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016 (SUCCESSOR) AND 2015 (PREDECESSOR)
Note 10 – Income Taxes
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. A full valuation allowance is established against all net deferred tax assets as of December 31, 2016 (Predecessor), based on estimates of recoverability. The Company determined that such a valuation allowance was necessary given the current and expected near term losses and the uncertainty with respect to its ability to generate sufficient profits from its new business model. For the year ended December 31, 2015 (Predecessor) income tax expense was $197,386. Because of book-tax differences related to the company's long-lived assets were creditable against current year losses, there was a small adjustment of the valuation allowance, there was an income tax benefit for the year ended December 31, 2016 (Successor), of $52,694.
The following is a reconciliation of the difference between the effective and statutory income tax rates for years ended December 31:
|
|
December 31, 2016
(Successor)
|
|
|
December 31, 2015
(Predecessor)
|
|
|
|
Amount
|
|
|
Percent
|
|
|
Amount
|
|
|
Percent
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal statutory rates
|
|
$
|
(1,084,498
|
)
|
|
|
34.0
|
%
|
|
$
|
103,592
|
|
|
|
34.0
|
%
|
State income taxes
|
|
|
(281,970
|
)
|
|
|
8.8
|
%
|
|
|
26,934
|
|
|
|
8.8
|
%
|
Permanent differences
|
|
|
839,208
|
|
|
|
-26.3
|
%
|
|
|
76,097
|
|
|
|
25.0
|
%
|
Temporary differences (Deferred tax liability)
|
|
|
(25,343
|
)
|
|
|
0.8
|
%
|
|
|
(9,236
|
)
|
|
|
-3.0
|
%
|
Valuation allowance against net deferred tax assets
|
|
|
499,909
|
|
|
|
-17.3
|
%
|
|
|
|
|
|
|
0.0
|
%
|
Effective rate
|
|
$
|
(52,694
|
)
|
|
|
0.0
|
%
|
|
$
|
197,386
|
|
|
|
64.8
|
%
|
At December 31, 2016 (Successor), and December 31, 2015 (Predecessor), the significant components of the deferred tax assets are summarized below:
|
|
December 31, 2016
(Successor)
|
|
|
December 31, 2015
(Predecessor)
|
|
|
|
|
|
|
|
|
Deferred income tax assets:
|
|
|
|
|
|
|
Net operation loss carryforwards
|
|
|
742,242
|
|
|
|
0
|
|
Book to tax differences for allowance for uncollectible accounts
|
|
|
0
|
|
|
|
0
|
|
Total deferred income tax assets
|
|
|
742,242
|
|
|
|
0
|
|
Less: valuation allowance
|
|
|
(742,242
|
)
|
|
|
0
|
|
Total deferred income tax asset
|
|
$
|
0
|
|
|
$
|
0
|
|
The valuation allowance increased by $742
,
242 in 2016 as a result of the Company's generating net operating losses.
ALPINE 4 TECHNOLOGIES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016 (SUCCESSOR) AND 2015 (PREDECESSOR)
At December 31, 2016 (Successor) and December 31, 2015 (Predecessor), the significant components of the deferred tax liabilities are summarized below:
|
|
December 31, 2016
(Successor)
|
|
|
December 31, 2015
(Predecessor)
|
|
|
|
|
|
|
|
|
Deferred income tax liabilities:
|
|
|
|
|
|
|
Book to tax differences for tangible and intangible assets
|
|
|
287,153
|
|
|
|
21,560
|
|
Total deferred income tax liabilities
|
|
$
|
287,153
|
|
|
$
|
21,560
|
|
The deferred tax liability is mostly made up of the difference between book and tax values for tangible and intangible fixed assets.
The Company has recorded as of December 31, 2016 a valuation allowance of $742,242 as management believes that it is more likely than not that the deferred tax assets will not be realized in future years. Management has based its assessment on the Company's lack of profitable operating history.
The Company annually conducts an analysis of its tax positions and has concluded that it had no uncertain tax positions as of December 31, 2016.
The Company has net operating loss carry-forwards of approximately $1,996,644. Such amounts are subject to IRS code section 382 limitations and begin to expire in 2029. The 2014, 2015 and 2016 tax years are still subject to audit.
Note 11 – Subsequent Events
Horizon Well Testing
On November 30, 2016, Alpine 4 entered into a Stock Purchase Agreement (the "HWT SPA") with Horizon Well Testing, L.L.C., an Oklahoma company ("HWT") and its sole shareholder, Alan Martin. Effective as of January 1, 2017, Alpine 4 acquired and took full control of HWT.
Alpine 4 purchased 100% of the outstanding stock of HWT for $2,200,000 cash, two notes payables ($1,500,000 & $300,000), 379,403 shares of Alpine 4's Class A common stock and 75,000 warrants to purchase 1 share each of Alpine 4 Class A common stock each. The $300,000 note bears interest at 1% and is payable in full by April 30, 2017. The $1,500,000 note is a convertible note with an option to convert at $8.50 into Alpine 4s Class A common stock. The note bears interest at 5% per annum and has a balloon payment due on the 18
th
month anniversary of the closing of the purchase.
In the HWT SPA, Mr. Martin acknowledged and agreed that his entry into consulting agreements with Alpine 4 was an integral part of the transaction contemplated by the HWT SPA. As such, Mr. Martin agreed to enter into consulting agreements with Alpine 4 and HWT, and continue to work with HWT for a period of time agreed upon by Alpine 4 and Mr. Martin.
HWT secured an equipment note for $1,872,392 from Crestmark Equipment Finance with a five-year term at a fixed interest rate of 10.14%. HWT also secured a line of credit from Crestmark Bank with an initial funding amount of $165,012. The line of credit is secured by HWT's accounts receivable and has a variable interest rate.
Equity
In addition to the shares issued for the purchase of HWT the following stock transactions have taken place from January 1, 2017, to the date of this report.
|
-
|
The Company sold an aggregate of 1,001 shares in private placements offerings for a total value of $7,500.
|
|
-
|
The Company had note conversions of principal and interest for total shares issued of 36,967.
|
ALPINE 4 TECHNOLOGIES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016 (SUCCESSOR) AND 2015 (PREDECESSOR)
Debt
|
-
|
The Company acquired additional notes payables in Q1 of 2017. Total amount of new debt is $75,000 with an average interest rate of 30% annually. The notes are all short-term and payable between May 2, 2017 and September 3, 2017.
|
|
-
|
The Company also issued $30,000 of convertible notes at a conversion rate of $1.00. Notes bear interest at 10% per annum and are payable in January of 2018.
|
Stock Options to Employees and Consultants
On April 7, 2017, the Company issued 741,500 options to purchase one share each of the Company's Class A common stock to employees and consultants of the Company. The options were issued pursuant to the Company's 2016 Stock Option and Stock Award Plan (the "Plan"). The options granted vest over the next four years and the exercise price of the options granted was $0.90, which was the last closing bid price of the Company's common stock as traded on the OTC QB Market.
15(a)(2). Financial Statement Schedules.
15(a)(3). Exhibits.