U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

[X]           QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended March 31, 2020

 

[   ]           TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

Commission file number:  000-55205

PICTURE 24  

Alpine 4 Technologies Ltd.

(Exact name of registrant as specified in its charter)

 

Delaware

46-5482689

(State or Other Jurisdiction of Incorporation or Organization)

(I.R.S. Employer Identification No.)

2525 E Arizona Biltmore Circle, Suite 237

 

Phoenix, AZ

85016

(Address of Principal Executive Offices)

(Zip Code)

 

Registrant's telephone number, including area code: 480-702-2431

 

 

 (Former name, former address and former fiscal year, if changed since last report)

 

Indicate by check mark whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 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        No

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes     No

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company.

 

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

 

 

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes        No

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(1) of the Exchange Act. 

 

State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date:  As of July 6th 2020, the issuer had 110,677,860 shares of its Class A common stock issued and outstanding, 9,023,088 shares of its Class B common stock issued and outstanding and 11,572,267 shares of its Class C common stock issued and outstanding.


1



TABLE OF CONTENTS

 

PART I

 

Page

 

 

 

Item 1.

Financial Statements

3

 

 

 

Item 2.

Management's Discussion and Analysis of Financial Condition and Results of Operations

30

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

35

 

 

 

Item 4.

Controls and Procedures

35

 

 

 

PART II

 

 

 

 

 

Item 1.

Legal Proceedings

35

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

36

 

 

 

Item 3.

Defaults Upon Senior Securities

36

 

 

 

Item 5.

Other Information

36

 

 

 

Item 6.

Exhibits

37

 

 

 

 

Signatures

38

 


2



PART I - FINANCIAL INFORMATION

 

 

Item 1.  Financial Statements.

 

Alpine 4 Technologies Ltd.

Consolidated Balance Sheets

 

 

 

 

 

 

 

March 31,

 

December 31,

 

 

 

 

 

2020

 

2019

 

 

 

 

 

(unaudited)

 

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

 

CURRENT ASSETS:

 

 

 

 

 

Cash

$

257,900 

 

$         302,486 

 

Accounts receivable

 

8,724,234 

 

8,731,565 

 

Contract assets

 

1,033,694 

 

667,724 

 

Inventory, net

 

2,334,727 

 

2,401,242 

 

Prepaid expenses and other current assets

 

121,216 

 

269,289 

 

 

 

 

 

 

 

 

Total current assets

 

12,471,771 

 

12,372,306 

 

 

 

 

 

 

 

 

Property and equipment, net

 

19,778,126 

 

17,157,845 

Intangible asset, net

 

3,606,447 

 

2,774,618 

Right of use assets, net

 

596,816 

 

660,032 

Goodwill

 

2,617,082 

 

2,517,453 

Other non-current assets

 

326,744 

 

319,344 

 

 

 

 

 

 

 

 

 

TOTAL ASSETS

$

39,396,986 

 

$   35,801,598 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' DEFICIT  

 

 

 

 

 

 

 

 

 

 

 

 

CURRENT LIABILITIES:

 

 

 

 

 

Accounts payable  

$

5,728,045 

 

$     5,148,805 

 

Accrued expenses

 

2,233,680 

 

2,676,651 

 

Contract liabilities

 

194,279 

 

170,040 

 

Derivative liabilities

 

 

2,298,609 

 

Deposits

 

 

12,509 

 

Notes payable, current portion

 

9,225,062 

 

8,724,171 

 

Notes payable, related parties, current portion

 

350,998 

 

341,820 

 

Convertible notes payable, current portion, net of discount of $601,059 and $846,833

 

280,084 

 

1,110,118 

 

Financing lease obligation, current portion

 

453,233 

 

377,330 

 

Operating lease obligation, current portion

 

279,233 

 

266,623 

 

Contingent consideration

 

-  

 

500,000 

 

 

Total current liabilities

 

18,744,614 

 

21,626,676 

 

 

 

 

 

 

 

 

Notes payable, net of current portion

 

11,304,939 

 

9,850,184 

Convertible notes payable, net of current portion

 

2,145,043 

 

1,673,688 

Financing lease obligations, net of current portion

 

15,534,744 

 

13,696,011 

Operating lease obligations, net of current portion

 

328,566 

 

403,931 

Contingent consideration

 

592,000

 

-

Deferred tax liability

 

521,250 

 

521,250 

 

 

 

 

 

 

 

 

 

TOTAL LIABILITIES

 

49,171,156 

 

47,771,740 

 

 

 

 

 

 

 

 

STOCKHOLDERS' DEFICIT:

 

 

 

 

 

Preferred stock, $0.0001 par value, 5,000,000 shares authorized, none issued and outstanding at March 31, 2020 and December 31, 2019

 

 

 

Series B preferred stock; $1.00 stated value; 100 shares authorized, 5 and 0 shares issued and outstanding at March 31, 2020 and December 31,2019

 

 

 

Class A Common stock, $0.0001 par value, 125,000,000 shares authorized, 110,577,860 and 100,070,161 shares issued and outstanding at March 31, 2020 and December 31, 2019

 

11,057 

 

10,007 

 

Class B Common stock, $0.0001 par value, 10,000,000 shares authorized, 9,023,088 and 5,000,000 shares issued and outstanding at March 31, 2020 and December 31, 2019

 

902 

 

500 

 

Class C Common stock, $0.0001 par value, 15,000,000 shares authorized, 11,572,267 and 9,955,200 shares issued and outstanding at March 31, 2020 and December 31, 2019

 

1,158 

 

996 

 

Additional paid-in capital

 

21,707,848 

 

19,763,883 

 

Accumulated deficit

 

(31,495,140)

 

(31,745,528)

 

 

Total stockholders' deficit

 

(9,774,170)

 

(11,970,142)

 

TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT

$

39,396,986 

 

$    35,801,598 

 

 

 

 

 

 

 

 

The accompanying notes are an integral part of these unaudited consolidated financial statements.


3



Alpine 4 Technologies Ltd.

Consolidated Statements of Operations

(Unaudited)

 

 

 

 

 

 

Three Months Ended March 31,

 

 

 

 

 

2020

 

2019

 

 

 

 

 

 

 

 

Revenue

$

8,835,596  

 

$7,125,989  

Cost of revenue

 

7,075,852  

 

5,008,456  

Gross Profit

 

1,759,744  

 

2,117,533  

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

General and administrative expenses

 

2,863,389  

 

2,466,502  

 

 

 

 

 

 

 

 

 

    Total operating expenses

 

2,863,389  

 

2,466,502  

Loss from operations

 

 

(1,103,645) 

 

(348,969) 

 

 

 

 

 

 

 

 

Other income (expenses)

 

 

 

 

 

 

Interest expense

 

(1,649,227) 

 

(1,031,630) 

 

Change in value of derivative liability

 

2,298,609  

 

(107,871) 

 

Gain on extinguishment of debt

 

154,592  

 

- 

 

Change in fair value of contingent consideration

 

500,000  

 

- 

 

Other income (expense)

 

50,059  

 

58,132  

 

    Total other income (expenses)

 

1,354,033  

 

(1,081,369) 

 

 

 

 

 

 

 

 

Income (loss) before income tax

 

250,388  

 

(1,430,338) 

 

 

 

 

 

 

 

 

Income tax (benefit)

 

 

- 

 

 

 

 

 

 

 

 

 

 

Income (loss) from continuing operations

 

250,388  

 

(1,430,338) 

 

 

 

 

 

 

 

 

Discontinued operations:

 

 

 

 

 

 

Loss from operations of discontinued operations

 

 

 

(95,179) 

 

Gain on disposition of discontinued operations

 

 

 

2,515,028  

 

    Total discontinued operations

 

 

 

2,419,849  

 

 

 

 

 

 

 

 

Net income

 

 

$

250,388  

 

$    989,511  

 

 

 

 

 

 

 

 

Weighted average shares outstanding :

 

 

 

 

 

Basic

 

 

 

127,207,693  

 

30,782,076  

 

Diluted

 

 

 

138,036,023  

 

30,782,076  

 

 

 

 

 

 

 

 

Basic Income (loss) per share

 

 

 

 

 

Continuing operations

$

0.00  

 

$(0.05) 

 

Discontinued operations

 

 

 

0.08  

 

 

 

 

$

0.00  

 

$0.03  

 

 

 

 

 

 

 

 

Diluted income (loss) per share

 

 

 

 

 

Continuing operations

$

(0.01)  

 

$(0.05) 

 

Discontinued operations

 

 

 

0.08  

 

 

 

 

$

(0.01)  

 

$0.03  

 

 

 

 

 

 

 

 

The accompanying notes are an integral part of these unaudited consolidated financial statements.


4



Alpine 4 Technologies Ltd.

Consolidated Statements of Stockholders’ Deficit

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

Total

 

 

Series B Preferred Stock

 

Class A Common Stock

 

Class B Common Stock

 

Class C Common Stock

 

Paid-in

 

Accumulated

 

Stockholders'

 

 

Shares

 

Amount

 

Shares

 

Amount

 

Shares

 

Amount

 

Shares

 

Amount

 

Capital

 

Deficit

 

Deficit

Balance, December 31, 2019

 

 -

$

 -

 

100,070,161

$

10,007

 

5,000,000

$

 500

 

9,955,200

$

996

$

19,763,883

$

(31,745,528)

$

(11,970,142)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of shares of common stock for cash

 

 -

 

 -

 

3,941,753

 

394

 

-

 

 -

 

-

 

 

 

249,606

 

 

250,000 

Issuance of shares of common stock for convertible note payable and accrued interest

 

 -

 

 -

 

4,648,879

 

464

 

-

 

 -

 

-

 

 

 

696,868

 

 

697,332 

Issuance of shares of common stock for debt settlement

 

 -

 

 -

 

1,617,067

 

162

 

-

 

 -

 

1,617,067

 

162

 

330,204

 

 

330,528 

Issuance of shares of common stock for penalty interest

 

 -

 

 -

 

300,000

 

30

 

-

 

 -

 

-

 

-

 

44,670

 

 

44,700 

Issuance of shares of common stock for settlement of unpaid salaries

 

 -

 

 -

 

-

 

-

 

4,023,088

 

 402

 

-

 

-

 

603,061

 

 

603,463 

Issuance of shares of series B preferred stock for services

 

 5

 

 5

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Share-based compensation expense

 

 -

 

 -

 

-

 

-

 

-

 

 -

 

-

 

-

 

19,556

 

 

19,556 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

250,388 

 

250,388 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, March 31, 2020

 

 5

$

 5

 

110,577,860

$

11,057

 

9,023,088

$

 902

 

11,572,267

$

1,158

$

21,707,848

$

(31,495,140)

$

(9,774,170)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, December 31, 2018

 

 -

$

 -

 

26,567,410

$

2,657

 

5,000,000

$

 500

 

-

$

-

$

17,018,509

$

(28,520,094)

$

(11,498,428)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of shares of common stock for convertible note payable and accrued interest  

 

 -

 

 -

 

1,670,000

 

167

 

-

 

 -

 

-

 

-

 

26,421

 

 

26,588 

Derivative liability resolution

 

 -

 

 -

 

-

 

-

 

-

 

 -

 

-

 

-

 

10,993

 

 

10,993 

Share-based compensation expense

 

 -

 

 -

 

-

 

-

 

-

 

 -

 

-

 

-

 

19,341

 

 

19,341 

Net income

 

 -

 

 -

 

-

 

-

 

-

 

 -

 

-

 

-

 

-

 

989,511 

 

989,511 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, March 31, 2019

 

 -

$

 -

 

28,237,410

$

2,824

 

5,000,000

$

 500

 

-

$

-

$

17,075,264

$

(27,530,583)

$

(10,451,995)

 

The accompanying notes are an integral part of these unaudited consolidated financial statements.


5



Alpine 4 Technologies Ltd.

Consolidated Statements of Cash Flows

(Unaudited) 

 

 

 

 

 

 

 

Three Months Ended March 31,

 

 

 

 

 

 

2020

 

2019

 

 

 

 

 

 

 

 

 

OPERATING ACTIVITIES:

 

 

 

 

 

Net income

$

250,388  

 

$989,511  

 

Adjustments to reconcile net income to

 

 

 

 

 

  net cash provided by (used in) operating activities:

 

 

 

 

 

 

Depreciation

 

78,171  

 

234,444  

 

 

Amortization

 

406,091  

 

18,853  

 

 

Gain on extinguishment of debt

 

(154,592) 

 

 

 

 

Change in fair value of contingent consideration

 

(500,000) 

 

 

 

 

Change in value of derivative liabilities

 

(2,298,609) 

 

107,871  

 

 

Stock issued for penalty interest

 

44,700  

 

 

 

 

Employee stock compensation

 

19,561  

 

19,341  

 

 

Amortization of debt discounts

 

245,774  

 

397,550  

 

 

Gain on disposal of discontinued operations

 

 

 

(2,515,028) 

 

 

Noncash lease expense

 

63,216  

 

43,686  

 

 

Change in operating assets and liabilities:

 

 

 

 

 

 

 

Accounts receivable

 

1,950,811  

 

(815,437) 

 

 

 

Inventory

 

75,590  

 

(520,361) 

 

 

 

Contract assets

 

(365,970) 

 

 

 

 

 

Prepaid expenses and other assets

 

140,673  

 

160,834  

 

 

 

Accounts payable

 

239,089  

 

56,824  

 

 

 

Accrued expenses

 

64,767  

 

860,066  

 

 

 

Contract liabilities

 

24,239  

 

 

 

 

 

Operating lease liability

 

(62,755) 

 

(43,686) 

 

 

 

Deposits

 

(12,509) 

 

 

 

 

 

Deferred revenue

 

 

 

(20,367) 

 

Net cash provided by (used in) operating activities

 

208,635  

 

(1,025,899) 

 

 

 

 

 

 

 

 

 

INVESTING ACTIVITIES:

 

 

 

 

 

 

Capital expenditures

 

(68,182) 

 

(20,417) 

 

 

Cash paid for acquisitions, net of cash acquired

 

(2,033,355) 

 

(1,967,606) 

 

Net cash used in investing activities

 

(2,101,537) 

 

(1,988,023) 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

FINANCING ACTIVITIES:

 

 

 

 

 

 

Proceeds from the sale of common stock

 

250,000  

 

 

 

 

Proceeds from issuances of notes payable, related party

 

19,000  

 

 

 

 

Proceeds from issuances of notes payable, non-related party

 

748,710  

 

537,500  

 

 

Proceeds from issuances of convertible notes payable

 

 

 

103,000  

 

 

Proceeds from financing lease

 

2,000,000  

 

3,267,000  

 

 

Repayments of notes payable, related party

 

(9,822) 

 

 

 

 

Repayments of notes payable, non-related party

 

(545,646) 

 

(1,214,257) 

 

 

Repayments of convertible notes payable

 

(73,902) 

 

(441,699) 

 

 

Proceeds from (repayment of) line of credit, net

 

(454,660) 

 

931,224  

 

 

Cash paid on financing lease obligations

 

(85,364) 

 

(186,323) 

 

Net cash provided by financing activities

 

1,848,316  

 

2,996,445  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NET DECREASE IN CASH AND RESTRICTED CASH

 

(44,586) 

 

(17,477) 

 

 

 

 

 

 

 

 

 

CASH AND RESTRICTED CASH, BEGINNING BALANCE

 

302,486  

 

414,516  

 

 

 

 

 

 

 

 

 

CASH AND RESTRICTED CASH, ENDING BALANCE

$

257,900  

 

$397,039  

 

 

 

 

 

 

 

 

 

CASH PAID FOR:

 

 

 

 

 

 

Interest

$

1,114,034  

 

1,277,225  

 

Income taxes

$

 

 

 

 

 

 

 

 

 

 

 

 

SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING ACTIVITIES:

 

 

 

Common stock issued for convertible notes and accrued interest

$

697,332  

 

$26,588  

 

Common stock issued for debt settlement

$

330,528  

 

$ 

     

Common stock issued to settle unpaid salaries

$

603,463  

 

$ 

 

Issuance of note payable for acquisition

$

2,300,000  

 

$3,450,000  

 

Penalty interest added to debt

$

15,000  

 

$ 

 

Debt discount due to derivative liabilities

$

- 

 

$103,000  

 

Release of derivative liability

$

- 

 

$10,993  

 

ROU asset and operating lease obligation recognized upon adoption of Topic 842

$

- 

 

$676,944  

 

 

 

 

 

 

 

 

 

The accompanying notes are an integral part of these unaudited consolidated financial statements.


6



Alpine 4 Technologies Ltd.

Notes to Unaudited Consolidated Financial Statements

For the Three Months Ended March 31, 2020

(Unaudited)

 

Note 1 – Organization and Basis of Presentation

The unaudited financial statements were prepared by Alpine 4 Technologies Ltd. (‘we”, “our”, the "Company"), pursuant to the rules and regulations of the Securities Exchange Commission ("SEC"). The information furnished herein reflects all adjustments (consisting of normal recurring accruals and adjustments) which are, in the opinion of management, necessary to fairly present the operating results for the respective periods. Certain information and footnote disclosures normally present in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP") were omitted pursuant to such rules and regulations. These financial statements should be read in conjunction with the audited financial statements and footnotes included in the Company's Annual Report on Form 10-K filed with the SEC on June 1, 2020. The results for the three months ended March 31, 2020, are not necessarily indicative of the results to be expected for the year ending December 31, 2020.

 

Description of Business

 

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.  Effective January 1, 2019, the Company purchased Morris Sheet Metal Corp., an Indiana corporation, JTD Spiral, Inc. a wholly owned subsidiary of MSM, an Indiana corporation, Morris Enterprises LLC, an Indiana limited liability company and Morris Transportation LLC, an Indiana limited liability company (collectively “Morris”) (see Note 9).  Effective November 6, 2019, the Company purchased Deluxe Sheet Metal, Inc., an Indiana corporation, DSM Holding, LLC, an Indiana limited liability company, and Lonewolf Enterprises, LLC, an Indiana limited liability company (collectively “Deluxe”) (see Note 9).  Effective February 21, 2020, the Company purchased Excel Fabrication, LLC., an Idaho Limited Liability Company (“Excel”) (See Note 9).  The Company is a technology holding company owning seven companies (ALTIA, LLC; Quality Circuit Assembly, Inc. ("QCA"); American Precision Fabricators, Inc., an Arkansas corporation (“APF”), Morris, Deluxe and Excel.

 

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 March 31, 2020, and December 31, 2019.  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 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. The ultimate impact from COVID-19 on the Company’s operations and financial results during 2020 will depend on, among other things, the ultimate severity and scope of the pandemic, the pace at which governmental and private travel restrictions and public concerns about public gatherings will ease, the rate at which historically large increases in unemployment rates will decrease, if at all, and whether, and the speed with which the economy recovers. We are not able to fully quantify the impact that these


7



factors will have on our financial results during 2020 and beyond, but expect developments related to COVID-19 to materially affect the Company’s financial performance in 2020.

 

Reclassification

 

Certain prior year amounts have been reclassified to conform to the current period presentation.  These reclassifications had no impact on net earnings and financial position.

 

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 not significant.

 

Cash

 

Cash and cash equivalents consist of cash and short-term investments with original maturities of less than 90 days.   As of March 31, 2020, and December 31, 2019, the Company had no cash equivalents.

 

The following table provides a reconciliation of cash and restricted cash reported within the accompanying consolidated balance sheets that sum to the total of the same such amounts shown in the consolidated statements of cash flows.  

 

 

 

March 31,

 

 

March 31,

 

 

2020

 

 

2019

Cash  

$

257,900

 

$

189,728

Restricted cash included in other non-current assets

 

-

 

 

207,311

Total cash and restricted cash shown in statement of cash flows

$

257,900

 

$

397,039

 

 

 

 

 

 

 

Major Customers

 

The Company had two customers that made up 15% and 11%, respectively, of accounts receivable as of March 31, 2020.  The Company had one customer that made up 7%, respectively, of accounts receivable as of December 31, 2019. 

 

For the three months ended March 31, 2020, the Company had two customers that made up 14% and 11%, respectively, of total revenues.  For the three months ended March 31, 2019, the Company had two customers that made up 24% and 10%, respectively, of total revenues. 

 

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 March 31, 2020, and December 31, 2019, allowance for bad debt was $0 and $0, respectively.

 

Inventory

 

Inventory for all subsidiaries, except Deluxe, is valued at weighted average and first-in; first-out basis for Deluxe. Management compares the cost of inventory with its net realizable value and an allowance is made to write down


8



inventory to net realizable value, if lower.  Inventory is segregated into three areas, raw materials, work-in-process and finished goods.  Inventory, net at March 31, 2020 and December 31, 2019 consists of:

 

 

 

March 31,

 

 

December 31,

 

 

2020

 

 

2019

Raw materials

$

1,707,405

 

$

1,791,733

WIP

 

232,616

 

 

576,196

Finished goods

 

394,706

 

 

59,972

 

 

2,334,727

 

 

2,427,901

Reserve

 

-

 

 

(26,659)

Inventory, net

$

2,334,727

 

$

2,401,242

 

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 five years to 39 years as follows:

 

Automobiles & Trucks

5 to 7 years

Buildings and improvements

15 to 39 years

Leasehold Improvements

15 years or time remaining on lease (whichever is shorter)

Machinery and equipment

5 to 7 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.

 

Property and equipment consisted of the following as of March 31, 2020 and December 31, 2019:

 

 

 

March 31,

 

 

December 31,

 

 

2020

 

 

2019

Automobiles and trucks

$

911,114

 

$

563,614

Machinery and equipment

 

4,484,652

 

 

3,792,964

Office furniture and fixtures

 

119,526

 

 

119,526

Buildings and improvements

 

16,167,000

 

 

14,167,000

Leasehold improvements

 

-

 

 

12,816

Total Property and equipment

 

21,682,292

 

 

18,655,920

Less: Accumulated depreciation

 

(1,904,166)

 

 

(1,498,075)

Property and equipment, net

$

19,778,126

 

$

17,157,845

 

During the year ended December 31, 2019, the Company terminated its lease agreement for the building it leased in San Diego, California which removed $3,895,000 and $294,525 from building and leasehold improvements, respectively.  The lease of the San Diego building was accounted for as a capital lease.  In addition, as part of the termination, the Company issued the landlord a note payable in the amount of $2,740,000. (See Note 5)

 

Purchased Intangibles and Other Long-Lived Assets

 

The Company amortizes intangible assets with finite lives over their estimated useful lives, which range between three and fifteen years as follows:

 

Customer lists

3 to 15 years

Non-compete agreements

15 years

Software development

5 years


9



Intangible assets consisted of the following as of March 31, 2020 and December 31, 2019:

 

 

 

March 31,

 

 

December 31,

 

 

2020

 

 

2019

Software

$

278,474

 

$

278,474

Noncompete

 

100,000

 

 

100,000

Customer lists

 

3,771,187

 

 

2,861,187

Total Intangible assets

 

4,149,661

 

 

3,239,661

Less: Accumulated amortization

 

(543,214)

 

 

(465,043)

Intangibles, net

$

3,606,447

 

$

2,774,618

 

Expected amortization expense of intangible assets over the next 5 years and thereafter is as follows:

 

Twelve Months Ending March 31,

 

 

2021

$

589,960

2022

 

589,960

2023

 

548,473

2024

 

253,028

2025

 

253,028

Thereafter

 

1,371,998

Total

$

3,606,447

 

Other long-term assets consisted of the following as of March 31, 2020 and December 31, 2019:

 

 

 

March 31,

 

 

December 31,

 

 

2020

 

 

2019

Deposits

$

293,327

 

$

285,927

Other  

 

33,417

 

 

33,417

 

$

326,744

 

$

319,344

 

Impairment of Long-Lived Assets

 

The Company accounts for long-lived assets in accordance with the provisions of Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") 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 all periods presented, there have been no impairment losses.

 

Goodwill

 

In financial reporting, goodwill is not amortized, but is tested for impairment annually 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 March 31, 2020, and December 31, 2019, the reporting units with goodwill were QCA, APF, Morris and Excel.

 

The Company used qualitative factors according to 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


10



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.  For additional information, please see Note 11 – Derivative Liabilities and Fair Value Measurements.

 

Revenue Recognition

 

On January 1, 2018, the Company adopted ASC Topic 606, Revenue from Contracts with Customers using the modified retrospective method applied to those contracts which were not completed as of January 1, 2018.  Results for reporting periods beginning after January 1, 2018 are presented under ASC Topic 606.

 

 

The following is a summary of the revenue recognition policy for each of the Company’s subsidiaries.

 

Revenue is recognized under Topic 606 in a manner that reasonably reflects the delivery of its services and products to customers in return for expected consideration and includes the following elements:

 

·executed contracts with the Company’s customers that it believes are legally enforceable;  

·identification of performance obligations in the respective contract; 

·determination of the transaction price for each performance obligation in the respective contract; 

·allocation the transaction price to each performance obligation; and  

·recognition of revenue only when the Company satisfies each performance obligation.  

 

The following is a summary of the revenue recognition policy for each of the Company’s subsidiaries.

 

ALTIA

 

Revenues recorded by ALTIA relate primarily to the Company’s 6th Sense Auto service.  The Company accounts for its revenue by deferring the total contract amount and recognizing the amounts over the monthly subscription period, ranging from 12 to 36 months.  

 

QCA and Excel Fabrication

 

QCA and Excel Fabrication are contract manufacturers and recognize revenue when the products have been built and control has been transferred to the customer.  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.

 

APF

 

APF is a contract manufacturer and recognizes revenue when the products have been built and control has been transferred to the customer.  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.


11



Morris Sheet Metal and Deluxe Sheet Metal

 

For our construction contracts, revenue is generally recognized over time as our performance creates or enhances an asset that the customer controls as it is created or enhanced. Our fixed price construction projects generally use a cost-to-cost input method to measure our progress towards complete satisfaction of the performance obligation as we believe it best depicts the transfer of control to the customer which occurs as we incur costs on our contracts. Under the cost-to-cost measure of progress, the extent of progress towards completion is measured based on the ratio of costs incurred to date to the total estimated costs at completion of the performance obligation.  For certain of our revenue streams, that are performed under time and materials contracts, our progress towards complete satisfaction of such performance obligations is measured using an output method as the customer receives and consumes the benefits of our performance completed to date.  Due to uncertainties inherent in the estimation process, it is possible that estimates of costs to complete a performance obligation will be revised in the near-term. For those performance obligations for which revenue is recognized using a cost-to-cost input method, changes in total estimated costs, and related progress towards complete satisfaction of the performance obligation, are recognized on a cumulative catch-up basis in the period in which the revisions to the estimates are made. When the current estimate of total costs for a performance obligation indicate a loss, a provision for the entire estimated loss on the unsatisfied performance obligation is made in the period in which the loss becomes evident.

 

Contract Assets and Contract Liabilities

 

The timing of revenue recognition may differ from the timing of invoicing to customers. Contract assets include unbilled amounts from our construction projects when revenues recognized under the cost-to-cost measure of progress exceed the amounts invoiced to our customers, as the amounts cannot be billed under the terms of our contracts. Such amounts are recoverable from our customers based upon various measures of performance, including achievement of certain milestones, completion of specified units or completion of a contract. In addition, many of our time and materials arrangements, are billed pursuant to contract terms that are standard within the industry, resulting in contract assets being recorded, as revenue is recognized in advance of billings.  Our contract assets do not include capitalized costs to obtain and fulfill a contract. Contract assets are generally classified as current within the consolidated balance sheets.

 

Contract liabilities from our construction contracts arise when amounts invoiced to our customers exceed revenues recognized under the cost-to-cost measure of progress. Contract liabilities additionally include advanced payments from our customers on certain contracts. Contract liabilities decrease as we recognize revenue from the satisfaction of the related performance obligation.

 

Contract Retentions

 

As of March 31, 2020, and December 31, 2019, accounts receivable included retainage billed under terms of our contracts. These retainage amounts represent amounts which have been contractually invoiced to customers where payments have been partially withheld pending the achievement of certain milestones, satisfaction of other contractual conditions or completion of the project.

 


12



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 debt and options.  The following table illustrates the computation of basic and diluted EPS for the three months ended March 31, 2020 and 2019:

 

 

 

For the Three Months Ended March 31, 2020

 

For the Three Months Ended March 31, 2019

 

 

Net Income (Loss)

 

Shares

 

Per Share Amount

 

 

Net Income (Loss)

 

Shares

 

Per Share Amount

Basic EPS

 

 

 

 

 

 

 

 

 

 

 

 

 

Income (loss) available to stockholders

$

250,388

 

127,207,693

$

0.00

 

$

989,511

 

30,782,076

$

0.03

Effect of Dilutive Securities

 

 

 

 

 

 

 

 

 

 

 

 

 

Convertible debt and options

 

(1,974,908)

 

10,828,330

 

-

 

 

-

 

-

 

-

Dilute EPS

 

 

 

 

 

 

 

 

 

 

 

 

 

Income (loss) available to stockholders plus

 

 

 

 

 

 

 

 

 

 

 

 

 

assumed conversions

$

(1,724,520)

 

138,036,023

$

(0.01)

 

$

989,511

 

30,782,076

$

0.03

 

Stock-based compensation

 

The Company accounts for equity instruments issued in exchange for the receipt of goods or services in accordance with ASC 718-10, Compensation – Stock Compensation. 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.

 

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.

 

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


13



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

 

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 January 2017, the FASB issued ASU 2017-04, IntangiblesGoodwill and Other (Topic 350)Simplifying the Test for Goodwill Impairment. ASU 2017-04 simplifies the accounting for goodwill impairments by eliminating the requirement to compare the implied fair value of goodwill with its carrying amount as part of step two of the goodwill impairment test referenced in ASC 350, Intangibles - Goodwill and Other. As a result, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An impairment charge should be recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value. However, the impairment loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. ASU 2017-04 is effective for annual reporting periods beginning after December 15, 2019, including any interim impairment tests within those annual periods, with early application permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The Company does not expect the adoption of this ASU to have a material impact on the Company’s consolidated financial statements and related disclosures.

 

In December 2019, the FASB issued ASU 2019-12, Simplifying the Accounting for Income Taxes which amends ASC 740 Income Taxes (ASC 740). This update is intended to simplify accounting for income taxes by removing certain exceptions to the general principles in ASC 740 and amending existing guidance to improve consistent application of ASC 740. This update is effective for fiscal years beginning after December 15, 2021.  The guidance in this update has various elements, some of which are applied on a prospective basis and others on a retrospective basis with earlier application permitted.  The Company is currently evaluating the effect of this ASU on the Company’s consolidated financial statements and related disclosures.

 

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 as to the ability of 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 ultimate transition 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.


14



In order to mitigate the risk related with the going concern uncertainty, the Company has a three-fold plan to resolve these risks.  First, the acquisitions of QCA, APF, Morris, Deluxe and Excel have allowed for an increased level of cash flow to the Company.  Second, the Company is considering other potential acquisition targets that, like QCA, Morris, Deluxe and Excel should 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 professional service firms to provide advisory services in connection with that capital raise.

 

Note 4 – Leases

 

The Company determines whether a contract is or contains a lease at inception of the contract and whether that lease meets the classification criteria of a finance or operating lease. When available, the Company uses the rate implicit in the lease to discount lease payments to present value; however, most of the Company’s leases do not provide a readily determinable implicit rate. Therefore, the Company must discount lease payments based on an estimate of its incremental borrowing rate.

 

As of March 31, 2020, the future minimum financing and operating lease payments, net of amortization of debt issuance costs, were as follows:

 

 

 

Finance

 

Operating

Twelve Months Ending March 31,

 

Leases

 

Leases

2021

$

1,737,720

$

351,847

2022

 

1,763,064

 

286,847

2023

 

1,795,633

 

70,087

2024

 

1,797,556

 

5,850

2025

 

1,808,083

 

-

Thereafter

 

18,884,602

 

-

Total payments

 

27,786,658

 

714,631

Less: imputed interest

 

(11,798,681)

 

(106,832)

Total obligation

 

15,987,977

 

607,799

Less: current portion

 

(453,233)

 

(279,233)

Non-current capital leases obligations

$

15,534,744

$

328,566

 

Finance Leases

 

On April 5, 2018, the Company acquired APF.  In order to fund a portion of the acquisition price, the Company simultaneously entered into a sale leaseback transaction with a third-party lender whereby the building acquired from APF was sold for $1,900,000, and leased back to the company for a period of 15 years at a monthly rate of $15,833, subject to an annual increase of 2% throughout the term of the lease.  The Company had no gain or loss resulting from the sale of the property, and the resulting lease qualifies as a capital lease.  As a result, the Company has capitalized the cost of the building and the resulting capital lease obligation liability of $1,900,000.  The payments related to this lease are reflected in the table above.

 

On January 1, 2019, the Company acquired Morris.  In order to fund a portion of the acquisition price, the Company simultaneously entered into a sale leaseback transaction with a third-party lender whereby the building acquired from Morris was sold for $3,267,000, and leased back to the company for a period of 15 years at a monthly rate of $27,500, subject to an annual increase of 2% throughout the term of the lease.  The transaction did not qualify as a sale and leaseback transaction under Topic 842 and as such was accounted for as a financing lease.  The payments related to this lease are reflected in the table above.

 

On November 6, 2019, the Company acquired Deluxe.  In order to fund a portion of the acquisition price, the Company simultaneously entered into a sale leaseback transaction with a third-party lender whereby the building acquired from Deluxe was sold for $9,000,000, and leased back to the company for a period of 15 years at a monthly rate of $75,000, subject to an annual increase of 2.5% throughout the term of the lease.  The transaction did not qualify as a sale and


15



leaseback transaction under Topic 842 and as such was accounted for as a financing lease.  The payments related to this lease are reflected in the table above.

 

On February 21, 2020, the Company acquired Excel.  In order to fund a portion of the acquisition price, the Company simultaneously entered into a sale leaseback transaction with a third-party lender whereby the building acquired from Excel was sold for $2,000,000, and leased back to the Company for a period of 15 years at a monthly rate of $18,700 for the first five years, subject to annual increases throughout the term of the lease.  The transaction did not qualify as a sale and leaseback transaction under Topic 842 and as such was accounted for as a financing lease.  The payments related to this lease are reflected in the table above.

 

Operating Leases

 

The table below presents the lease related assets and liabilities recorded on the Company’s consolidated balance sheets as of March 31, 2020 and December 31, 2019:

 

 

 

 

 

March 31

 

December 31,

 

 

Classification on Balance Sheet

 

2020

 

2019

Assets

 

 

 

 

 

 

 Operating lease assets

Operating lease right of use assets

$

596,816

$

660,032

Total lease assets

 

$

596,816

$

660,032

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 Operating lease liability

Current operating lease liability

$

279,233

$

266,623

Noncurrent liabilities

 

 

 

 

 

 Operating lease liability

Long-term operating lease liability

 

328,566

 

403,931

Total lease liability

 

$

607,799

$

670,554

 

The lease expense for the three months ended March 31, 2020 was $87,584.  The cash paid under operating leases during the three months ended March 31, 2020 was $87,123.  At March 31, 2020, the weighted average remaining lease terms were 2.15 years and the weighted average discount rate was 15%.

 

Note 5 – Notes Payable

 

In May 2018, APF secured a line of credit with Crestmark, providing for borrowings up to $1,000,000 at a variable interest rate, collateralized by APF’s outstanding accounts receivable.  In February 2019 the Company moved the Crestmark line of credit to FSW with a variable interest and collateralized by APF’s accounts receivable.  In January 2020 the Company received a default notice from Crestmark regarding noncompliance with certain loan covenants, including but not limited to, QCA’s failure to maintain a tangible net worth as contained in the loan agreement. QCA’s credit line with Crestmark totaled $2,800,000 and was restructured from an ABL line of credit to a ledger line of credit.  In addition, a minimum interest of 7.75% interest was imposed; an exit fee of 1% through January 31, 2021 and the financial covenant replaced with a requirement for QCA to maintain a free cash flow of at least $1.00 beginning with QCA’s financial statements as of January 31, 2020. The CEO has also validity guaranteed the $2.8 million line of credit with Crestmark. In addition with the acquisitions of Morris, Deluxe and Excel, the Company secured four lines of credit with Advanced Energy Capital for borrowings up to $6,250,000 at variable interest rates, collateralized by their respective accounts receivable.

 

On February 22, 2018, the Company issued a $3,000,000 note payable under the Amended and Restated Secured Promissory Note with the seller of VWES.  The note is secured by the assets of VWES and bears interest at 7% per annum and is due in semi-annual payments of $150,000 commencing on June 1, 2018, through June 1, 2020. The remaining principal and accrued interest is due on the 3 year anniversary.  The Company is not current on its payments on the note.  The balance as of March 31, 2020 is $2,910,000.

 


16



On April 5, 2018, the Company issued two secured promissory notes in the aggregate principal amount of $1,950,000 (“Secured APF Notes”) as part of the consideration for the purchase of APF.  The Secured APF Notes are secured by the equipment, customer accounts and intellectual property of the Company, and all of the products and proceeds from any of the assets of APF.  The Secured APF Notes bear interest at 4.25% per annum and have aggregate monthly payments of $19,975 for the first 23 months, with a balloon payment due in April 2020 for the remaining principal and interest outstanding. The note with an outstanding balance as of March 31, 2020 of approximately $1.09 million was amended subsequent to March 31, 2020. (SeeNote 13).  The Company is currently negotiating the extension of the other note with an outstanding balance of approximately $562,000 with the lender.

 

On May 3, 2018, the Company entered into an equipment note with a lender for total borrowings of $630,750, which is secured by the equipment of APF.  The note bears interest at 10.25% per annum and is payable in weekly payments of $3,795 commencing on the loan date through May 4, 2022.

 

In connection with the Morris acquisition in January 2019, the Company issued three subordinated secured promissory notes for an aggregate of $3,100,000.  The notes bear interest at 4.25% per annum, require monthly payment for the first 35 months of  $31,755 with any remaining principal and accrued interest due on the 3 year-anniversary.  The Company also issued three supplemental notes payable for an aggregate of $350,000.  The notes bear interest at 4.25% per annum and are due on the 1-year anniversary. The supplemental notes were amended in May 2020. (See Note 13).

 

In connection with the Deluxe acquisition in November 2019, the Company issued two subordinated secured promissory notes to the seller.  The first note for $1,900,000 bears interest at 4.25% per annum, require monthly payment for the first 35 months of  $19,463 with any remaining principal and accrued interest due on the 3 year-anniversary.  The second note for $496,343 bears interest at 8.75% and is due in January 2020. In January 2020, the Company entered into a debt conversion agreement with the seller which fully settled the second note. (See Note 8)

 

In connection with the Excel acquisition in February 2020, the Company issued a subordinated secured promissory note to the seller.  The note for $2,300,000 bears interest at 4.25% per annum, requires monthly interest only payments for 48 months and is due February 2024.   There was unpaid cash consideration of $392,362 as of March 31, 2020, which is included in notes payable as of March 31, 2020.

 

In November 2019, in connection with the termination of the lease for the San Diego building, the Company issued the landlord a note payable.  The note is for $2,740,000, bears interest at 7% with monthly payments starting at $15,984 and is due in November 2034.

 

In October and November 2019 the Company entered into two merchant agreements which are secured by rights to customer receipts until the loans have been repaid in full and subject to interest rates ranging from 13% to 20%.  Under the terms of these agreements, the Company will receive the disclosed purchase price of $600,000 and $300,000, respectively and agreed to repay the disclosed purchased amount of $839,400 and $420,000, respectively.  The merchant lenders collect the purchase amounts at the disclosed weekly payment rates of $29,978 and $11,667 over a period of 28 weeks and 36 weeks, respectively.   These loans were personally guaranteed by the CEO and COO.

 

In January 2020, the Company entered into a $200,000 term note with Celtic Capital, Inc.  The note is subject to annual interest which is the greater of 13% or 11% plus the 3 month LIBOR rate and requires monthly payments of $3,333 over a period of 60 months.  The note is secured by certain equipment of Deluxe.  

 

In connection with the Excel acquisition, the Company entered into a $425,000 term note with Celtic Capital, Inc. The note is subject to annual interest which is the greater of 13% or 11% plus the 3 month LIBOR rate and requires monthly payments of $7,083 over a period of 60 months.  The note is secured by certain equipment of Excel.  

 

The Company issued a $48,000 note in January 2020 to a private investor with an interest rate of 15% with a due date of 1 year.

 

In October 2019 Morris entered into an equipment finance note for $107,997 with an interest rate of 9.4% for 48 monthly payments with Bryn Mawr Equipment Finance Inc.


17



The outstanding balances for the loans were as follows: 

 

 

 

March 31,

 

 

December 31,

 

 

2020

 

 

2019

Lines of credit, current portion

$

3,361,446

 

$

3,816,103

Equipment loans, current portion

 

310,921

 

 

368,011

Term notes, current portion

 

5,122,695

 

 

3,849,273

Merchant loans

 

430,000

 

 

690,784

Total current

 

9,225,062

 

 

8,724,171

Long-term portion

 

11,304,939

 

 

9,850,184

Total notes payable

$

20,530,001

 

$

18,574,355

 

$755,000 worth of term loans are past due and are currently being negotiated with the lenders.

 

Future scheduled maturities of outstanding notes payable are as follows:

 

Twelve Months Ending March 31,

 

2021

$

9,225,062

2022

 

1,276,038

2023

 

4,896,304

2024

 

2,537,129

2025

 

196,832

Thereafter

 

2,398,636

Total

$

20,530,001

 

Note 6 – Notes Payable, Related Parties

 

At March 31, 2020 and December 31, 2019, notes payable due to related parties consisted of the following:

 

 

 

March 31,

 

 

December 31,

 

 

2020

 

 

2019

Notes payable; non-interest bearing; due upon demand; unsecured

$

4,500

 

$

4,500

Note payable; bearing interest at 8% per annum; due June 30, 2017; unsecured

 

7,500

 

 

7,500

Series of notes payable, bearing interest at rates from 10% to 20% per annum, with maturity dates from April 2018 to July 2020, unsecured

 

338,998

 

 

329,820

Total notes payable - related parties

$

350,998

 

$

341,820

 

The above notes which are in default as of March 31, 2020, except for one note due in July 2020 with an outstanding balance of approximately $105,000, were due on demand by the lenders as of the date of this Report.

 


18



Note 7 – Convertible Notes Payable

 

At March 31, 2020 and December 31, 2019, convertible notes payable consisted of the following:

 

 

 

 

March 31,

 

 

December 31,

 

 

 

2020

 

 

2019

Series of convertible notes payable issued prior to December 31, 2016, bearing interest at rates of 8% - 20% per annum, with due dates ranging from April 2016 through October 2017.  The outstanding principal and interest balances are convertible into shares of Class A common stock at the option of the debt holder at exercise prices ranging from $0.10 to $1 per share.

 

$

25,000

 

$

25,000

 

 

 

 

 

 

 

Secured convertible notes payable issued to the sellers of QCA on April 1, 2016 for an aggregate of $2,000,000, bearing interest at 5% per annum, due in monthly payments starting on July 1, 2016 and due in full on July 1, 2019.  On August  6 and 11, 2019, the Company extended the due date of the two notes  to December 31, 2020 and December 31, 2022, respectively.  The outstanding principal and interest balances are convertible after 12 months into Class A common stock at the option of the debt holder at a conversion price of $1 per share.   

 

 

1,271,186

 

 

1,324,588

 

 

 

 

 

 

 

Convertible note payable issued in January 2017, bearing interest at rates of 10% per annum, and due in January 2018.  The outstanding principal and interest balances are convertible into shares of Class A common stock at the option of the debt holder at an exercise price of $1 per share.

 

 

10,000

 

 

10,000

 

 

 

 

 

 

 

On April 5, 2018, the Company entered into convertible promissory notes for an aggregate principal amount of $450,000 as part of the consideration for the acquisition of APF.  The convertible notes are due in full in 36 months and bear interest at 4.25% per annum, and are convertible into shares of Class A common stock after 6 months from the issuance date at a rate of $1 per share.  

 

 

450,000

 

 

450,000

 

 

 

 

 

 

 

On April 9, 2018, the Company entered into a variable convertible note for $124,199 with net proceeds of $115,000.  The note is due January 9, 2019 and bears interest at 12% per annum.  After 180 days, the note is convertible into shares of the Company's Class A common stock at a discount of 35% to the average of the three lowest trading closing prices of the stock for ten days prior to conversion.  In connection with this variable convertible note, the Company issued 76,670 shares of its Class A common stock, along with warrants to purchase 153,340 shares of Class A common stock at an exercise price of $1 per share which are immediately vested and have a 3 years contractual life.  The value of the common stock and warrants have been recorded as a discount.

 

 

-

 

 

500

 

 

 

 

 

 

 

On August 30, 2018, the Company entered into a variable convertible note for $337,500 with net proceeds of $303,750.  The note is due February 28, 2019 and bears interest at 10% per annum.  The note is immediately convertible into shares of the Company's Class A common stock at a discount of 42% to the average of the two lowest trading closing prices of the stock for ten days prior to conversion. This note was amended in November 2019 to affect a floor in the conversion price of $0.15 per share. The note was fully converted as of March 31, 2020.

 

 

-

 

 

187,681

 

 

 

 

 

 

 

On October 23, 2018, the Company entered into a variable convertible note for $220,000 with net proceeds of $198,000.  The note is due December 14, 2018 and bears interest at 10% per annum.  The note is immediately convertible into shares of the Company's Class A common stock at a discount of 42% to the average of the two lowest trading closing prices of the stock for ten days prior to conversion. This note was amended in November 2019 to affect a floor in the conversion price of $0.15 per share. The note was fully converted as of March 31, 2020.

 

 

-

 

 

115,000

 

 

 

 

 

 

 

On December 7, 2018, the Company entered into a variable convertible note for $130,000 with net proceeds of $122,200.  The note is due September 7, 2019 and bears interest at 12% per annum.  The note is immediately convertible into shares of the Company's Class A common stock at a discount of 40% to the lowest trading closing prices of the stock for 20 days prior to conversion. This note was amended in November 2019 to increase the principal amount by $180,000 due to penalty interest; increased the interest to 15% and affect a floor in the conversion price of $0.15 per share.

 

 

105,000

 

 

195,000

 

 

 

 

 

 

 

On November 6, 2019, the Company issued a convertible note for $600,000 with net proceeds of $570,000.  The note is due November 6, 2020 and bears interest at 15% per annum.  The note is immediately convertible into shares of the Company's Class A common stock at a fixed price of $0.15 per share.

 

 

580,000

 

 

600,000

 

 

 

 

 

 

 

On November 6, 2019, the Company issued a convertible note for $350,000.  The note is due November 6, 2020 and bears interest at 15% per annum.  The note is immediately convertible into shares of the Company's Class A common stock at a fixed price of $0.15 per share.

 

 

350,000

 

 

350,000

 

 

 

 

 

 

 

On November 14, 2019, the Company issued a convertible note for $137,870.  The note is due November 13, 2020 and bears interest at 15% per annum.  The note is immediately convertible into shares of the Company's Class A common stock at a fixed price of $0.15 per share. The note was fully converted as of March 31, 2020.

 

 

-

 

 

137,870

 

 

 

 

 

 

 

On November 14, 2019, the Company issued convertible note for $35,000.  The note is due November 13, 2020 and bears interest at 15% per annum.  The note is immediately convertible into shares of the Company's Class A common stock at a fixed price of $0.15 per share.

 

 

35,000

 

 

35,000

 

 

 

 

 

 

 

On November 14, 2019, the Company issued convertible note for $200,000.  The note is due November 13, 2020 and bears interest at 15% per annum.  The note is immediately convertible into shares of the Company's Class A common stock at a fixed price of $0.15 per share.

 

 

200,000

 

 

200,000

Total convertible notes payable

 

 

3,026,186

 

 

3,630,639

Less: discount on convertible notes payable

 

 

(601,059)

 

 

(846,833)

Total convertible notes payable, net of discount

 

 

2,425,127

 

 

2,783,806

Less: current portion of convertible notes payable

 

 

(280,084)

 

 

(1,110,118)

Long-term portion of convertible notes payable

 

$

2,145,043

 

$

1,673,688


19



The discounts on convertible notes payable arise from stock issued with notes payable, beneficial conversion features, as well as conversion features of certain convertible notes being treated as derivative liabilities (see Note 11).  The discounts are being amortized over the terms of the convertible notes payable.  Amortization of debt discounts during the three months ended March 31, 2020 and 2019 amounted to $245,774 and $397,550, respectively, and is recorded as interest expense in the accompanying consolidated statements of operations.  The unamortized discount balance for these notes was $601,059 as of March 31, 2020, which is expected to be amortized over the next 12 months.

 

A summary of the activity in the Company's convertible notes payable is provided below:

 

Balance outstanding, December 31, 2019

 

$

2,783,806

Repayment of notes

 

 

(73,902)

Conversion of notes payable to common stock

 

 

(545,551)

Penalty interest added to convertible note

 

 

15,000

Amortization of debt discounts

 

 

245,774

Balance outstanding, March 31, 2020

 

$

2,425,127

 

Note 8 – Stockholders' Equity

 

Preferred Stock

 

The Company is authorized to issue 5,000,000 shares of $.0001 par value preferred stock.

 

Series B Preferred Stock

 

The Company is authorized to issue 100 shares of Series B preferred stock.  The Series B Preferred Stock has a $1.00 stated value and does not accrue dividends.  The Series B has the following voting rights:

 

·If at least one share of Series B Preferred Stock is issued and outstanding, then the total aggregate issued shares of Series B Preferred Stock at any given time, regardless of their number, shall have that number of votes (identical in every other respect to the voting rights of the holders of all classes of Common Stock or series of preferred stock entitled to vote at any regular or special meeting of stockholders) equal to two hundred percent (200%) of the total voting power of all holders of the Company’s common and preferred stock then outstanding, but not including the Series B Preferred Stock. 

 

·If more than one share of Series B Preferred Stock is issued and outstanding at any time, then each individual share of Series B Preferred Stock shall have the voting rights equal to: Two hundred percent (200%) of the total voting power of all holders of the Company’s common and preferred stock then outstanding, but not including the Series B Preferred Stock divided by the number of shares of Series B Preferred Stock issued and outstanding at the time of voting. 

 

Upon any liquidation, dissolution or winding-up of the Company, whether voluntary or involuntary (a "Liquidation"), the Holders of the Series B Preferred Stock are entitled to receive out of the assets of the Company for each share of Series B Preferred Stock then held by the Holder an amount equal to the Stated Value, and all other amounts in respect thereof then due and payable before any distribution or payment shall be made to the holders of any Junior Securities.

 

The Series B Preferred Stock shall be convertible into shares of the Company's Class A Common Stock only as follows:

 

·In the event that the Holder of Series B Preferred Stock ceases to be a director of the Company, upon such director's resignation or removal from the board by any means, the shares of Series B  


20



Preferred Stock held by such resigning or removed director shall convert automatically into that same number of shares of Class A Common Stock (i.e. on a one-for-one share basis).

 

·Shares of Series B Preferred Stock converted into Class A Common Stock, canceled, or redeemed, shall be canceled and shall have the status of authorized but unissued shares of undesignated preferred stock. 

 

As of March 31, 2020 and December 31, 2019, 5 and 0 shares of preferred stock were outstanding.

 

Common Stock

 

Pursuant to the Amended and Restated Certificate of Incorporation, the Company is authorized to issue three classes of common stock: Class A common stock, which has one vote per share, Class B common stock, which has ten votes per share and Class C common stock, which has five 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 voting rights of the two classes of common stock will be identical.  Any holder of Class C common stock may convert 25% of his or her shares at any time after the 3rd to 6th anniversary into shares of Class A common stock on a share-for-share basis. Otherwise the voting rights of the two classes of common stock will be identical.

 

The Company had the following transactions in its common stock during the three months ended March 31, 2020:

 

·Issued 3,941,753 Class A common stock for cash for total proceeds of $250,000; 

 

·Issued 4,648,879 Class A common stock for the conversion of convertible debt and accrued interest of $697,332; 

 

·Issued 1,617,067 Class A common stock and 1,617,067 Class C common stock to the Seller of Deluxe for the settlement of debt of $485,120; the fair value of the stock was $330,528.  The Company recognized a gain on the settlement of debt of $154,592; 

 

·Issued 300,000 Class A common stock with a fair value of $44,700 to a noteholder as penalty interest; and 

 

·Issued 4,023,088 Class B common stock to settle unpaid salaries of $603,463. 

 

Stock Options

 

The Company has issued stock options to purchase shares of the Company’s Class A common stock issued pursuant to the Company's 2016 Stock Option and Stock Award Plan (the "Plan").  The Company uses the Black-Scholes option pricing model to estimate the fair value of stock-based awards on the date of grant and on each modification date.

 


21



The following summarizes the stock option activity for the three months ended March 31, 2020:

 

 

 

 

 

 

 

Weighted-

 

 

 

 

 

 

 

Weighted-

 

Average

 

 

 

 

 

 

 

Average

 

Remaining

 

 

Aggregate

 

 

 

 

Exercise

 

Contractual

 

 

Intrinsic

 

Options

 

 

Price

 

Life (Years)

 

 

Value

Outstanding at December 31, 2019

1,790,000

 

$

0.19

 

8.10

 

$

176,445

Granted

-

 

 

 

 

 

 

 

 

Forfeited

-

 

 

 

 

 

 

 

 

Exercised

-

 

 

 

 

 

 

 

 

Outstanding at March 31, 2020

1,790,000

 

$

0.19

 

7.85

 

$

-

 

 

 

 

 

 

 

 

 

 

Vested and expected to vest

 

 

 

 

 

 

 

 

 

 at March 31, 2020

1,790,000

 

$

0.19

 

7.85

 

$

-

 

 

 

 

 

 

 

 

 

 

Exercisable at March 31, 2020

951,344

 

$

0.24

 

7.67

 

$

-

 

The following table summarizes information about options outstanding and exercisable as of March 31, 2020:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Options Outstanding

 

Options Exercisable

 

 

 

 

 

Weighted

 

 

Weighted

 

 

 

 

Weighted

 

 

 

 

 

Average

 

 

Average

 

 

 

 

Average

 

Exercise

 

Number

 

Remaining

 

 

Exercise

 

Number

 

 

Exercise

 

Price

 

of Shares

 

Life (Years)

 

 

Price

 

of Shares

 

 

Price

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

0.05

 

979,000

 

8.13

 

$

0.05

 

393,938

 

$

0.05

 

0.10

 

85,000

 

8.03

 

 

0.10

 

37,188

 

 

0.10

 

0.13

 

388,500

 

7.34

 

 

0.13

 

267,094

 

 

0.13

 

0.26

 

114,000

 

7.09

 

 

0.26

 

85,500

 

 

0.26

 

0.90

 

223,500

 

7.02

 

 

0.90

 

167,624

 

 

0.90

 

 

 

1,790,000

 

 

 

 

 

 

951,344

 

 

 

 

During the three months ended March 31, 2020 and 2019, stock option expense amounted to $19,556 and $19,341, respectively.  Unrecognized stock option expense as of March 31, 2020 amounted to $101,819, which will be recognized over a period extending through December 2022. 

 

Warrants

  

As of March 31, 2020, the Company had 275,000 warrants outstanding with a weighted average exercise price of $1.01 and a weighted average remaining life of 0.98 years.

 

Note 9 – Business Combinations

 

Morris

 

On January 9, 2019, (with an effective date of January 1, 2019) the Company entered into a Securities Purchase Agreement (the "SPA") with Morris Sheet Metal Corp., an Indiana corporation, JTD Spiral, Inc. a wholly owned subsidiary of MSM, an Indiana corporation, Morris Enterprises LLC, an Indiana limited liability company and Morris


22



Transportation LLC, an Indiana limited liability company.  This acquisition was considered an acquisition of a business under ASC 805.

 

A summary of the purchase price allocation at fair value is below. 

 

 

 

Purchase Allocation

Cash

$

192,300

Accounts receivable

 

2,146,541

Inventory

 

453,841

Contract assets

 

210,506

Property and equipment

 

4,214,965

Customer list

 

490,000

Goodwill

 

113,592

Accounts payable

 

(234,236)

Accrued expenses

 

(351,865)

Contract liabilities

 

(92,043)

Notes payable

 

(1,033,695)

 

$

6,109,906

 

The purchase price was paid as follows:

 

Cash

$

2,159,906

Seller notes

 

3,450,000

Acquisition contingency

 

500,000

 

$

6,109,906

 

One year after the closing date, the sellers will calculate monthly the 85/25 requirement to meet the Construction Industry Exemption for the Withdraw Liability (WDL). If the calculations verify Morris Sheet Metal Corp. and/or JTD Spiral, Inc. met the Exemption requirement for six consecutive months the Company will pay the sellers a $500,000 success fee.  In January 2020, the Company determined that the conditions were not met; therefore the Company is no longer required to pay the additional $500,000.

 

Simultaneous with the purchase of Morris, a building, owned by Morris prior to the acquisition, was sold in a sale-leaseback transaction agreement, whereby the building was leased from the buyer for 15 years.  The proceeds from the sale-leaseback of $3,267,000 were used to fund the cash consideration to the sellers.  The building and the lease is being treated as a financing lease (see Note 4).

 

Deluxe

 

On November 6, 2019, the Company purchased Deluxe Sheet Metal, Inc., an Indiana corporation, DSM Holding, LLC, an Indiana limited liability company, and Lonewolf Enterprises, LLC, an Indiana limited liability company (collectively “Deluxe”) This acquisition was considered an acquisition of a business under ASC 805.

 


23



A summary of the purchase price allocation at fair value is below. 

 

 

 

Purchase Allocation

Cash

$

140,948

Accounts receivable

 

2,785,454

Inventory

 

736,312

Prepaid expenses and other current assets

 

61,320

Contract assets

 

350,138

Property and equipment

 

9,502,045

Customer list

 

1,050,000

Accounts payable

 

(1,122,317)

Accrued expenses and other current liabilities

(163,891)

Contract liabilities

 

(155,016)

Notes payable

 

(7,544,871)

Bargain purchase gain

 

(2,143,779)

 

$

3,496,343

The Company recognized a bargain purchase gain of $2,143,779 on the acquisition of Deluxe as a result the seller being motivated to sell in order to focus his time and effort on another business venture.

 

The purchase price was paid as follows:

 

Cash

$

1,100,000

Seller notes

 

2,396,343

 

$

3,496,343

 

Simultaneous with the purchase of Deluxe, a building, owned by Deluxe prior to the acquisition, was sold in a sale-leaseback transaction agreement, whereby the building was leased from the buyer for 15 years.  The proceeds from the sale-leaseback of $9,000,000 were used to fund the cash consideration to the sellers.  The building and the lease is being treated as a financing lease (see Note 4).

 

Excel

 

On February 21, 2020, the Company purchased Excel Fabrication, LLC., an Idaho Limited Liability Company (“Excel”).  This acquisition was considered an acquisition of a business under ASC 805.

 

A summary of the purchase price allocation at fair value is below. The business combination accounting is not yet complete and the amounts assigned to assets acquired and liabilities assumed are provisional.  Therefore, this may result in future adjustments to the provisional amounts as information is obtained about facts and circumstances that existed at the acquisition date.  

 

 

 

Purchase Allocation

Cash

$

174,283

Accounts receivable

 

1,943,481

Other current assets

 

9,074

Property and equipment

 

2,958,190

Customer list

 

910,000

Accounts payable

 

(340,151)

Accrued expenses and other current liabilities

(262,506)

Goodwill

 

99,629

 

$

5,492,000


24



The purchase price was paid as follows:

 

Cash

$

2,600,000

Contingent consideration

 

592,000

Seller notes

 

2,300,000

 

$

5,492,000

 

As part of the purchase price, the Company is also liable to the seller for royalty payments over a period of 5 years whenever revenues exceed certain thresholds as provided for in the purchase agreement at rates ranging from 2% to 7%.

 

Simultaneous with the purchase of Excel, a building, owned by Excel prior to the acquisition, was sold in a sale-leaseback transaction agreement, whereby the building was leased from the buyer for 15 years.  The proceeds from the sale-leaseback of $2,000,000 were used to fund the cash consideration to the seller.  The building and the lease is being treated as a financing lease (see Note 4).

 

The following are the unaudited pro forma results of operations for the three months ended March 31, 2020 and 2019, as if Morris, Deluxe and Excel had been acquired on January 1, 2019.  The pro forma results include estimates and assumptions which management believes are reasonable.  However, pro forma results do 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.

 

 

 

Pro Forma Combined Financials (unaudited)

 

 

Three Months Ended March 31,

 

 

2020

 

2019

Sales

$

9,821,341

$

10,435,563

Cost of goods sold

 

7,672,154

 

8,972,333

Gross profit

 

2,149,187

 

1,463,230

Operating expenses

 

3,059,891

 

3,522,172

Loss from operations

 

(910,704)

 

(2,058,942)

Net income (loss) from continuing operations

443,329

 

(3,187,476)

Income (loss) per share

 

0.00

 

(0.10)


25



 

Note 10 – Industry Segments

 

This summary presents the Company's segments, QCA, APF, Morris, Deluxe and Excel for the three months ended March 31, 2020 and 2019:

 

 

 

 

Three Months Ended March 31,

 

 

 

2020

 

2019

 

 

 

 

 

 

Revenue

 

 

 

 

 

QCA

$

2,030,126

$

2,477,542

 

APF

 

529,041

 

1,708,992

 

Morris

 

3,254,927

 

2,870,797

 

Deluxe

 

2,394,164

 

-

 

Excel

 

627,338

 

-

 

Unallocated and eliminations

 

-

 

68,658

 

 

$

8,835,596

$

7,125,989

 

 

 

 

 

 

Gross profit

 

 

 

 

 

QCA

$

505,782

$

658,394

 

APF

 

(29,642)

 

700,200

 

Morris

 

629,623

 

721,166

 

Deluxe

 

514,195

 

-

 

Excel

 

139,786

 

-

 

Unallocated and eliminations

 

-

 

37,773

 

 

$

1,759,744

$

2,117,533

 

 

 

 

 

 

Depreciation and amortization

 

 

 

 

 

QCA

$

53,981

$

84,397

 

APF

 

71,961

 

68,708

 

Morris

 

151,264

 

91,859

 

Deluxe

 

176,250

 

-

 

Excel

 

30,806

 

-

 

Unallocated and eliminations

 

-

 

8,333

 

 

$

484,262

$

253,297

 

 

 

 

 

 

Interest Expenses

 

 

 

 

 

QCA

$

120,445

$

180,582

 

APF

 

79,944

 

-

 

Morris

 

374,400

 

45,831

 

Deluxe

 

257,202

 

-

 

Excel

 

47,855

 

-

 

Unallocated and eliminations

 

769,381

 

805,217

 

 

$

1,649,227

$

1,031,630

 

 

 

 

 

 

Net income (loss)

 

 

 

 

 

QCA

$

(185,690)

$

(130,442)

 

APF

 

(365,115)

 

411,402

 

Morris

 

320,412

 

(17,413)

 

Deluxe

 

(79,306)

 

-

 

Excel

 

(268,815)

 

-

 

Unallocated and eliminations

 

828,902

 

(1,693,885)

 

 

$

250,388

$

(1,430,338)

 

 

 

 

 

 

 

 

 

As of

 

As of

 

 

 

March 31,

 

December 31,

 

 

 

2020

 

2019

Total Assets

 

 

 

 

 

QCA

$

6,439,268

$

6,359,711

 

APF

 

4,880,556

 

5,344,175

 

Morris

 

7,989,351

 

8,771,165

 

Deluxe

 

13,837,271

 

14,810,307

 

Excel

 

5,904,911

 

-

 

Unallocated and eliminations

 

345,629

 

516,240

 

 

$

39,396,986

$

35,801,598

 

 

 

 

 

 

Goodwill

 

 

 

 

 

QCA

$

1,963,761

$

1,963,761

 

APF

 

440,100

 

440,100

 

Morris

 

113,592

 

113,592

 

Deluxe

 

-

 

-

 

Excel

 

99,629

 

-

 

Unallocated and eliminations

 

-

 

-

 

 

$

2,617,082

$

2,517,453

 

 

 

 

 

 

Accounts receivable, net

 

 

 

 

 

QCA

$

1,311,406

$

1,234,898

 

APF

 

458,597

 

831,477

 

Morris

 

2,579,153

 

3,488,340

 

Deluxe

 

2,510,114

 

3,156,492

 

Excel

 

1,864,964

 

-

 

Unallocated and eliminations

 

-

 

20,358

 

 

$

8,724,234

$

8,731,565


26



Note 11 – Derivative Liabilities and Fair Value Measurements

 

Derivative liabilities

 

The Company has issued convertible notes payable that were evaluated under the guidance in ASC 815-40, Derivatives and Hedging, and were determined to have characteristics of derivative liabilities.  As a result of the characteristics of these notes, the conversion options relating to previously issued convertible debt and outstanding Class A common stock warrants were also required to be accounted for as derivative liabilities under ASC 815.  Under this guidance, this derivative liability is marked-to-market at each reporting period with the non-cash gain or loss recorded in the period as a gain or loss on derivatives. 

 

The valuation of our embedded derivatives is determined by using the Black-Scholes Option Pricing Model.  As such, our derivative liabilities have been classified as Level 3.

 

The Company estimated the fair value of the derivative liabilities using the Black-Scholes Option Pricing Model and the following key assumptions at December 31, 2019:

 

 

 

December 31,

 

 

2019

 

 

 

Risk free rate

 

1.60%

Volatility

 

287%-298%

Expected terms (years)

 

0.5 to 1.26

Dividend rate

 

0%

 

Fair value measurements

 

ASC 820, Fair Value Measurements and Disclosures , defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.  ASC 820 also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.  ASC 820 describes three levels of inputs that may be used to measure fair value:

 

Level 1 – Quoted prices in active markets for identical assets or liabilities.

 

Level 2 – Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

 

Level 3 – Unobservable inputs that are supported by little or no market activity and that are financial instruments whose values are determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant judgment or estimation.

 

If the inputs used to measure the financial assets and liabilities fall within more than one level described above, the categorization is based on the lowest level of input that is significant to the fair value measurement of the instrument.


27



The following table provides a summary of the fair value of the derivative liabilities as of March 31, 2020 and December 31, 2019.  There were no derivative liabilities at March 31, 2020 as the convertible notes with variable conversion prices were repaid during the three months ended March 31, 2020.

 

 

 

Fair Value

 

Fair Value Measurements at

 

 

As of

 

March 31, 2020

Description

 

March 31, 2020

 

Using Fair Value Hierarchy

 

 

 

 

Level 1

 

Level 2

 

Level 3

Conversion feature on convertible notes

$

-

$

-

$

-

$

-

 

 

 

 

 

 

 

 

 

 

 

Fair Value

 

Fair Value Measurements at

 

 

As of

 

December 31, 2019

Description

 

December 31, 2019

 

Using Fair Value Hierarchy

 

 

 

 

Level 1

 

Level 2

 

Level 3

Conversion feature on convertible notes

$

2,298,609

$

-

$

-

$

2,298,609

 

The below table presents the change in the fair value of the derivative liabilities during the three months ended March 31, 2020:

 

Derivative liability balance, December 31, 2019

$

2,298,609

Change in derivative liability during the period

 

(2,298,609)

Derivative liability balance, March 31, 2020

$

-

 

Note 12 – Discontinued Operations

 

In December 2018, the Company decided to shut down the operations of its VWES subsidiary.  In February 2019, VWES filed for Chapter 7 bankruptcy.

 

VWES has been presented as discontinued operations in the accompanying consolidated financial statements.

 

The operating results for VWES have been presented in the accompanying consolidated statement of operations for the nine months ended March 31, 2020 and 2019 as discontinued operations and are summarized below:

 

 

 

 

Three Months Ended March 31,

 

 

 

2020

 

2019

Revenue

$

-

$

-

Cost of revenue

 

-

 

-

Gross Profit

 

-

 

-

Operating expenses

 

-

 

95,179

Loss from operations

 

-

 

(95,179)

Other income (expenses)

 

-

 

-

Net loss

$

-

$

(95,179)

 

As of March 31, 2019, VWES’ bankruptcy was completed and the Company removed all the assets and liabilities of VWES resulting in a gain on the disposition of discontinued operations of $2,515,028.

 


28



Note 13 – Subsequent Events

 

In April and May 2020 the Company received five loans under the Paycheck Protection Program of the Coronavirus Aid, Relief and Economic Security (“CARES”) Act totaling $3,761,866.  The loans have terms of 24 months and accrue interest at 1% per annum.  The Company expects some or all of these loans to be forgiven as provided by in the CARES Act.

 

In May 2020, the Company amended three notes of $116,667 with the sellers of Morris totaling $350,000.  The notes were due January 1, 2020.  Each of the new notes as of the date of amendment had accrued interest of $2,703. This was added to the note resulting in the principal amount of each of the new notes equaling to $119,370.  The amendment required an initial payment of $30,000 for each note, which was made on May 23, 2020, and 8 monthly installments of $13,882 through January 2021.  The amended notes have an interest rate of 6%.

 

In May and June 2020 the Company amended the following seller notes:   The convertible note with Jeff Moss with a $798,800 balance as of May 4, 2020 was amended to extend the maturity date to May 4, 2027 at 5% interest with weekly payments of $2,605.   The convertible note with Dwight Hargreaves with a 623,464 balance as of June 5, 2020 was amended to extend the maturity date to June 5, 2026 at 6% interest with weekly payments of $2,316.  The convertible note with Andy Galbach with a balance of $301,500 due in 2021 was forgiven and another note (one of the Secured APF Notes) was amended to increase the principal amount to $1,239,000 at 0% interest with weekly payments of $2,644 and the balance to be paid on May 27, 2022.

 


29



Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

 

There are statements in this Report that are not historical facts. These "forward-looking statements" can be identified by use of terminology such as "believe," "hope," "may," "anticipate," "should," "intend," "plan," "will," "expect," "estimate," "project," "positioned," "strategy" and similar expressions. You should be aware that these forward-looking statements are subject to risks and uncertainties that are beyond our control. For a discussion of these risks, you should read this entire Report carefully, especially the risks discussed under "Risk Factors." Although management believes that the assumptions underlying the forward-looking statements included in this Report are reasonable, they do not guarantee our future performance, and actual results could differ from those contemplated by these forward looking statements. The assumptions used for purposes of the forward-looking statements specified in the following information represent estimates of future events and are subject to uncertainty as to possible changes in economic, legislative, industry, and other circumstances. As a result, the identification and interpretation of data and other information and their use in developing and selecting assumptions from and among reasonable alternatives require the exercise of judgment. To the extent that the assumed events do not occur, the outcome may vary substantially from anticipated or projected results, and, accordingly, no opinion is expressed on the achievability of those forward-looking statements. In the light of these risks and uncertainties, there can be no assurance that the results and events contemplated by the forward-looking statements contained in this Report will in fact transpire. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of their dates. We expressly disclaim any obligation to update or revise any forward-looking statements.

 

Overview and Highlights

 

Company Background

 

Alpine 4 Technologies Ltd. ("we", “our”, or the "Company") was incorporated under the laws of the State of Delaware on April 22, 2014.  We are a publicly traded conglomerate that is acquiring businesses that fit into its disruptive DSF business model of Drivers, Stabilizers, and Facilitators.   At Alpine 4, we understand the nature of how technology and innovation can accentuate a business.  Our focus is on how the adaptation of new technologies even in brick and mortar businesses can drive innovation.   We also believe that our holdings should benefit synergistically from each other and that the ability to have collaboration across varying industries can spawn new ideas and create fertile ground for competitive advantages.  This unique perspective has culminated in the development of our Blockchain-enabled Enterprise Business Operating System called SPECTRUMebos.    

 

As of the date this Report was filed, the Company was a holding company that owned seven operating subsidiaries: ALTIA, LLC; Quality Circuit Assembly, Inc.; American Precision Fabricators, Inc.; Morris Sheet Metal, Corp; and JTD Spiral, Inc.; Deluxe Sheet Metal, Inc,; and Excel Fabrication, LLC. As discussed in more detail below, we previously had an additional subsidiary, Venture West Energy Services (formerly Horizon Well Testing, LLC). However, as of December 31, 2018, we discontinued operations on this company.  In the first quarter of 2020, we also created three additional subsidiaries to act as silo holding companies, organized by industries.  These silo subsidiaries are A4 Construction Services, Inc. (“A4 Construction”), A4 Manufacturing, Inc. (“A4 Manufacturing”), and A4 Technologies, Inc. (“A4 Technologies”). All three are Delaware corporations. Each is authorized to issue 1,500 shares of common stock with a par value of $0.01 per share, and the Company is the sole shareholder of each of these three subsidiaries.  

 

Business Strategy

 

What We Do:

 

Alexander Hamilton in his “Federalist paper #11”, said that our adventurous spirit distinguishes the commercial character of America.  Hamilton knew that our freedom to be creative gave American businesses a competitive advantage over the rest of the world.  We believe that Alpine 4 also exemplifies this spirit in our subsidiaries and that our greatest competitive advantage is our highly diverse business structure combined with a culture of collaboration.    

 

It is our mandate to grow Alpine 4 into a leading, multi-faceted holding company with diverse subsidiary holdings with products and services that not only benefit from one another as a whole, but also have the benefit of independence.  This type of corporate structure is about having our subsidiaries prosper through strong onsite


30



leadership while working synergistically with other Alpine 4 holdings.  The essence of our business model is based around acquiring B2B companies in a broad spectrum of industries via our acquisition strategy of DSF (Drivers, Stabilizer, Facilitator).  Our DSF business model (which is discussed more below) offers our shareholders an opportunity to own small-cap businesses that hold defensible positions in their individual market space.  Further, Alpine 4’s greatest opportunity for growth exists in the smaller to middle-market operating companies with revenues between $5 to $150 million annually.  In this target-rich environment, businesses generally sell at more reasonable multiples, presenting greater opportunities for operational and strategic improvements that have greater potential to enhance profit.

 

Driver, Stabilizer, Facilitator (DSF) 

 

Driver:  A Driver is a company that is in an emerging market or technology, that has enormous upside potential for revenue and profits, with a significant market opportunity to access.  These types of acquisitions are typically small, brand new companies that need a structure to support their growth. 

 

Stabilizer:  Stabilizers are companies that have sticky customers, consistent revenue and provide solid net profit returns to Alpine 4. 

 

Facilitators:  Facilitators are our “secret sauce”.  Facilitators are companies that provide a product or service that an Alpine 4 sister company can use as leverage to create a competitive advantage. 

When you blend these categories into a longer-term view of the business landscape, you can then begin to see the value-driving force that makes this a truly purposeful and powerful business model.  As stated earlier, our greatest competitive advantage is our highly diversified business structure combined with a collaborative business culture, that helps drive out competition in our markets by bringing; resources, planning, technology and capacity that our competitors simply don’t have.  DSF reshapes the environment each subsidiary operates in by sharing and exploiting the resources each company has, thus giving them a competitive advantage that their peers don’t have.  

 

PICTURE 8  

 


31



How We Do It:

 

Optimization vs. Asset Producing 

 

The process to purchase a perspective company can be long and arduous.  During our due diligence period, we are validating and determining three major points, not just the historical record of the company we are buying.  Those three major points are what we call the “What is, What Should Be and What Will Be”.  

 

“The What Is” (TWI).  TWI is the defining point of where a company is holistically in a myriad of metrics; Sales, Finance, Ease of Operations, Ownership and Customer Relations to name a few. Subsequently, this is usually the point where most acquirers stop in their due diligence.  We look to define this position not just from a number’s standpoint, but also how does this perspective map out to a larger picture of culture and business environment.

 

 

“The What Should Be” (TWSB).  TWSB is the validation point of inflection where we use many data inputs to assess if TWI is out of the norm with competitors, and does that data show the potential for improvement.

 

 

“The What Will Be” (TWWB).  TWWB is how we seek to identify the net results or what we call Kinetic Profit (KP) between the TWI and TWSB.  The keywords are Kinetic Profit.  KP is the profit waiting to be achieved by some form of action or as we call it, the Optimization Phase of acquiring a new company.

 

Optimization:  During the Optimization Phase, we seek to root up employees with in-depth training on various topics.  Usually, these training sessions include; Profit and Expense Control, Production Planning, Breakeven Analysis and Profit Engineering to name a few.  But the end game is to guide these companies to: become net profitable with the new debt burden placed on them post-acquisition, mitigate the loss of sales due to acquisition attrition (we typically plan on 10% of our customers leaving simply due to old ownership not being involved in the company any longer), potential replacement of employees that no longer wish to be employed post-acquisition and other ancillary issues that may arise.  The Optimization Phase usually takes 12-18 months post-acquisition and a company can fall back into Optimization if it is stagnant or regresses in its training.  

 

Asset Producing:  Asset Producing is the ideal point where we want our subsidiaries to be.  To become Asset Producing, subsidiary management must have completed prescribed training formats, proven they understand the key performance indicators that run their respective departments and finally, the subsidiaries they manage must have posted a net profit for 3 consecutive months.

 

Going Concern

 

The accompanying financial statements have been prepared on a going-concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company has incurred losses since inception and had accumulated a deficit of $31,495,140 as of March 31, 2020 a large amount was from non-cash issuance of stock to executives in 2015-2017.  The Company requires capital for its contemplated 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 contemplated plan of operations, and its transition, ultimately, to the attainment of profitable operations are necessary for the Company to continue operations. The financial statements of the Company do not include any adjustments that may result from the outcome of these aforementioned uncertainties.  Our net operating losses increase the difficulty in meeting such goals and there can be no assurances that such methods will prove successful.  Our financial statements contain additional note disclosures describing the management's assessment of our ability to continue as a going concern.

 

The management of Alpine 4 understands basis for including a going concern in this filing.  However, the management points out that over the past 6 years, Alpine 4 has consistently been able to operate under the current working capital environment and the going concern is nothing new or a recent event.  It is also not something that is unique to Alpine 4 and various other companies carry a Going Concern on their financial statements.  In order to mitigate the risk


32



related with the going concern uncertainty, the Company has a three-fold plan to resolve these risks.  First, the acquisitions of QCA, APF, Morris, Deluxe and most recently Excel have allowed for an increased level of cash flow to the Company.  Second, the Company is considering other potential acquisition targets that, like QCA, Morris, Deluxe and Excel, should increase income and cash flow to the Company.  Third, the Company is exploring equity alternatives that can supplement ongoing cash needs.

 

Results of Operations

 

The following are the results of our operations for the three months ended March 31, 2020, as compared to the three months ended March 31, 2019.

 

 

 

 

 

 

Three Months Ended March 31, 2020

 

Three Months Ended March 31, 2019

 

$ Change

 

 

 

 

 

 

 

 

 

 

Revenue

 

 

$

8,835,596

$

7,125,989

$

1,709,607

Cost of revenue

 

 

 

7,075,852

 

5,008,456

 

2,067,396

Gross Profit

 

 

 

1,759,744

 

2,117,533

 

(357,789)

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

General and administrative expenses

 

2,863,389

 

2,466,502

 

396,887

 

    Total operating expenses

 

2,863,389

 

2,466,502

 

396,887

Loss from operations

 

 

(1,103,645)

 

(348,969)

 

(754,676)

 

 

 

 

 

 

 

 

 

 

Other income (expenses)

 

 

 

 

 

 

 

 

 

Interest expense

 

 

(1,649,227)

 

(1,031,630)

 

(617,597)

 

Change in value of derivative liabilities

2,298,609

 

(107,871)

 

2,406,480

 

Gain on extinguishment of debt

 

154,592

 

-

 

154,592

 

Change in fair value of contingent consideration

 

500,000

 

-

 

500,000

 

Other income

 

 

50,059

 

58,132

 

(8,073)

 

    Total other income (expenses)

 

1,354,033

 

(1,081,369)

 

2,435,402

 

 

 

 

 

 

 

 

 

 

Income (Loss) before income tax

 

 

250,388

 

(1,430,338)

 

1,680,726

 

 

 

 

 

 

 

 

 

 

Income tax expense

 

 

-

 

-

 

-

 

 

 

 

 

 

 

 

 

 

Income (Loss) from continuing operations

 

250,388

 

(1,430,338)

 

1,680,726

 

 

 

 

 

 

 

 

 

 

Discontinued operations

 

 

-

 

2,419,849

 

(2,419,849)

 

 

 

 

 

 

 

 

 

 

Net income

 

 

$

250,388

$

989,511

$

(739,123)

 

Revenue

 

Our revenues for the three months ended March 31, 2020, increased by $1,709,607 as compared to the three months ended March 31, 2019.  In 2020, the increase in revenue related to $2,394,164 for Deluxe (acquired in November 2019); $627,338 for Excel (acquired in February 2020); and $384,130 for Morris (acquired in January 2019), offset by a decrease of $1,179,951 for APF; $447,416 for QCA and $68,658 relating to the 6th Sense Auto and Brake Active


33



services of ALTIA.  The increase in revenue was driven by the acquisitions of Morris, Deluxe and Excel.  We expect our revenue to continue to grow over the remainder of 2020.

 

Cost of revenue

 

Our cost of revenue for the three months ended March 31, 2020, increased by $2,067,396 as compared to the three months ended March 31, 2019.  In 2019, the increase in our cost of revenue related to $1,879,969 for Deluxe; $487,552 for Excel; and $475,673 for Morris; offset by a decrease of $450,109 for APF; $294,804 for QCA and $30,885 relating to the 6th Sense Auto and Brake Active services of ALTIA. The increase in cost of revenue among all the different segments was the result of the increase in revenues as described above.  We expect our cost of revenue to increase over the next year as our revenue increases.

 

Operating expenses

 

Our operating expenses for the three months ended March 31, 2020, increased by $396,887 as compared to the three months ended March 31, 2019.  The increase consisted primarily due to the cost of operating the additional operations offset by a reduction in expenses due to cross sharing of resources between corporate and our subsidiaries.

 

Other expenses

 

Other expenses for the three months ended March 31, 2020, decreased by $2,435,402 as compared to the same period in 2019.  This decrease was primarily due to the change in derivative liability and the change in fair value of contingent consideration.

 

Discontinued operations

 

In December 2018, we decided to shut down the operations of our VWES subsidiary.  In February 2019, VWES filed for Chapter 7 bankruptcy.

 

VWES has been presented as discontinued operations in the accompanying consolidated financial statements.

 

As of March 31, 2019, VWES’ bankruptcy was completed, and the Company removed all the assets and liabilities of VWES, resulting in a gain on the disposition of discontinued operations of $2,515,028.

 

Liquidity and Capital Resources

 

We have financed our operations since inception from the sale of common stock, capital contributions from stockholders and from the issuance of notes payable and convertible notes payable.  We expect to continue to finance our operations from our current operating cash flow and by the selling shares of our common stock and or debt instruments.

 

Management expects to have sufficient working capital for continuing operations from either the sale of its products or through the raising of additional capital through private offerings of our securities. Additionally, the Company is monitoring additional businesses to acquire which management hopes will provide additional operating revenues to the Company.  There can be no guarantee that the planned acquisitions will close or that they will produce the anticipated revenues on the schedule anticipated by management.

 

The Company also may elect to seek bank financing or to engage in debt financing through a placement agent.  If the Company is unable to raise sufficient capital from operations or through sales of its securities or other means, we may need to delay implementation of our business plans.

 

Off-Balance Sheet Arrangements

 

The Company has not entered into any transactions with unconsolidated entities whereby the Company has financial guarantees, subordinated retained interests, derivative instruments, or other contingent arrangements that expose the


34



Company to material continuing risks, contingent liabilities, or any other obligation under a variable interest in an unconsolidated entity that provides financing, liquidity, market risk, or credit risk support to the Company.

 

Critical Accounting Policies and Estimates

 

Our financial statements have been prepared in accordance with accounting principles generally accepted in the United States, which require that we make certain assumptions and estimates that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of net revenue and expenses during each reporting period.  On an ongoing basis, management evaluates its estimates, including those related to collection of receivables, impairment of goodwill, contingencies, calculation of derivative liabilities and income taxes. Management bases its estimates and judgments on historical experiences and on various other factors believed to be reasonable under the circumstances. Actual results under circumstances and conditions different than those assumed could result in material differences from the estimated amounts in the financial statements. 

 

For a summary of our critical accounting policies, refer to Note 2 of our unaudited consolidated financial statements included under Item 1 – Financial Statements in this Form 10-Q.

 

Item 3. Qualitative and Qualitative Disclosures About Market Risk.

 

As a Smaller Reporting Company, the Company is not required to include the disclosure under this Item.

 

Item 4. Controls and Procedures.

 

Evaluation of Disclosure Controls and Procedures

 

As required by Rule 13a-15 under the Securities Exchange Act of 1934, we have carried out an evaluation of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this quarterly report, March 31, 2020. This evaluation was carried out under the supervision and with the participation of our management, including our Chief Executive Officer.

 

Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission's rules and forms. Disclosure controls and procedures include controls and procedures designed to ensure that information required to be disclosed in our company's reports filed under the Securities Exchange Act of 1934 is accumulated and communicated to management, including our Chief Executive Officer, to allow timely decisions regarding required disclosure.

 

Based upon that evaluation, we have concluded that our disclosure controls and procedures were ineffective as of the end of the period covered by this report due to the following material weaknesses in our internal control over financial reporting, many of which are indicative of many small companies with small staff: (i) inadequate segregation of duties and effective risk assessment; and  (ii) inadequate control activities and monitoring processes over financial reporting.

 

Changes in Internal Control over Financial Reporting

 

There were no changes in our internal control over financial reporting during the quarter ended March 31, 2020, that have materially affected or are reasonably likely to materially affect, our internal control over financial reporting.

 

PART II - OTHER INFORMATION

 

Item 1.   Legal Proceedings.

 

None

 


35



Item 2.   Unregistered Sales of Equity Securities and Use of Proceeds.

 

During the quarter ended March 31, 2020, the Company issued 4,648,879 shares of its restricted Class A common stock for note conversions.  

 

The shares of Class A and Class B common stock were issued without registration under the 1933 Act in reliance on Section 4(a)(2) of the 1933 Act and the rules and regulations promulgated thereunder.

 

Item 3.  Defaults Upon Senior Securities.

 

None

 

Item 5.  Other Information  

 

Not Applicable

 


36



Item 6.                      Exhibits.

 

3.1

Certificate of Incorporation (previously filed with the Commission as an exhibit to the Company's Form 10 and incorporated herein by reference)

 

 

3.2

Bylaws (previously filed with the Commission as an exhibit to the Company's Form 10 and incorporated herein by reference)

 

 

3.3

Certificate of Amendment to Certificate of Incorporation (previously filed with the Commission as an exhibit to the Company's Form 8-K on July 18, 2014, and incorporated herein by reference)

 

 

3.4

Certificate of Amendment to Certificate of Incorporation (previously filed with the Commission as an exhibit to the Company's Form 8-K on July 18, 2014, and incorporated herein by reference)

 

 

10.13

APF Securities Agreement (incorporated by reference to Alpine 4's Current Report on Form 8-K filed with the Commission on April 9, 2018)

 

 

10.14

Secured Promissory Notes (incorporated by reference to Alpine 4's Current Report on Form 8-K filed with the Commission on April 9, 2018)

 

 

10.15

Secured Convertible Notes (incorporated by reference to Alpine 4's Current Report on Form 8-K filed with the Commission on April 9, 2018)

 

 

10.16

Security Agreement (incorporated by reference to Alpine 4's Current Report on Form 8-K filed with the Commission on April 9, 2018)

 

 

10.17

Consulting Services Agreement (incorporated by reference to Alpine 4's Current Report on Form 8-K filed with the Commission on April 9, 2018)

 

 

31

Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

 

 

32

Certification of the Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

 

101.INS*

XBRL Instance Document

 

 

101.SCH*

XBRL Taxonomy Extension Schema Document

 

 

101.CAL*

XBRL Taxonomy Extension Calculation Linkbase Document

 

 

101.LAB*

XBRL Taxonomy Extension Label Linkbase Document

 

 

101.PRE*

XBRL Taxonomy Extension Presentation Linkbase Document

 

 

101.DEF*

XBRL Taxonomy Extension Definition Linkbase Definition


37



SIGNATURES

 

In accordance with the requirements of the Exchange Act, the Registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

 

Alpine 4 Technologies Ltd.

 

 

Dated: July 6, 2020

 

 

 

By: /s/ Kent B. Wilson

 

Kent B. Wilson

 

Chief Executive Officer, Chief Financial Officer, President and Director (Principal Executive Officer, Principal Accounting Officer)

 


38

 

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