PICTURE 20  

This prospectus relates to the resale or other disposition from time to time of up to 14,000,000 shares of common stock, par value $0.0001, of Alpine 4 Technologies, Ltd., by Lincoln Park Capital Fund, LLC (“Lincoln Park”).

 

The shares of common stock being offered by Lincoln Park, the selling stockholder, have been or may be issued pursuant to the purchase agreement dated January 16, 2020, that we entered into with Lincoln Park. See “The Lincoln Park Transaction” for a description of that agreement and “Selling Stockholder” for additional information regarding Lincoln Park. The prices at which Lincoln Park may sell the shares will be determined by the prevailing market price for the shares or in negotiated transactions.

 

We are not selling any securities under this prospectus and will not receive any of the proceeds from the sale of shares by the selling stockholder.

 

The selling stockholder may sell or otherwise dispose of the shares of common stock described in this prospectus in a number of different ways and at varying prices. See “Plan of Distribution” for more information about how the selling stockholder may sell or otherwise dispose of the shares of common stock being registered pursuant to this prospectus. The selling stockholder is an “underwriter” within the meaning of Section 2(a)(11) of the Securities Act of 1933, as amended.

 

The selling stockholder will pay all brokerage fees and commissions and similar expenses. We will pay the expenses (except brokerage fees and commissions and similar expenses) incurred in registering the shares, including legal and accounting fees. See “Plan of Distribution.”

 

Our common stock is quoted on the OTCQB Market under the symbol “ALPP.”  On August 4, 2020, the closing price of our common stock on the OTCQB Market was $0.0605 per share.

 

Investing in our common stock involves a high degree of Risk.

See "Risk Factors" beginning on page 9.

 

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed upon the accuracy or adequacy of this prospectus. Any representation to the contrary is a criminal offense.

 

We may amend or supplement this prospectus from time to time by filing amendments or supplements as required. You should read the entire prospectus and any amendments or supplements carefully before you make your investment decision.

 

The date of this prospectus is August 4, 2020.



 

 

TABLE OF CONTENTS

 

 

Page

 

 

Prospectus Summary

4

 

 

Risk Factors

9

 

 

Cautionary Note Regarding Forward Looking Statements

18

 

 

Determination of Market Price

19

 

 

Use of Proceeds

19

 

 

Dividend Policy

20

 

 

Lincoln Park Transaction

20

 

 

Dilution

24

 

 

Market Price of Common Equity and Related Stockholder Matters

25

 

 

Business

25

 

 

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

32

 

 

Management

40

 

 

Beneficial Ownership of Securities

43

 

 

Certain Relationships and Related Transactions

44

 

 

Description of Securities

45

 

 

Selling Stockholder

50

 

 

Plan of Distribution

51

 

 

Legal Matters

53

 

 

Experts

53

 

 

Where You Can Find More Information

53

 

 

Index to Financial Statements

F-1


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ABOUT THIS PROSPECTUS

 

The registration statement of which this prospectus forms a part that we have filed with the Securities and Exchange Commission, or SEC, includes exhibits that provide more detail of the matters discussed in this prospectus. You should read this prospectus and the related exhibits filed with the SEC, together with the additional information described under the heading “Where You Can Find More Information” before making your investment decision.

 

You should rely only on the information provided in this prospectus or in a prospectus supplement or any free writing prospectuses or amendments thereto. Neither we, nor the Selling Stockholder, have authorized anyone else to provide you with different information. If anyone provides you with different or inconsistent information, you should not rely on it. You should assume that the information in this prospectus is accurate only as of the date hereof. Our business, financial condition, results of operations and prospects may have changed since that date.

 

Neither we, nor the Selling Stockholder, are offering to sell or seeking offers to purchase these securities in any jurisdiction where the offer or sale is not permitted.  We have not done anything that would permit this offering or possession or distribution of this prospectus in any jurisdiction where action for that purpose is required, other than in the United States.  Persons outside the United States who come into possession of this prospectus must inform themselves about, and observe any restrictions relating to, the offering of the securities as to distribution of the prospectus outside of the United States.


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PROSPECTUS SUMMARY

 

The following summary highlights selected information contained in this prospectus. This summary does not contain all the information you should consider before investing in our common stock. You should read the entire prospectus carefully, including the "Risk Factors" beginning on page 9, and our financial statements and the notes to the financial statements included elsewhere in this prospectus. As used throughout this prospectus, the terms "Alpine 4," "Company," "we," "us," or "our" refer to Alpine 4 Technologies Ltd.

 

General

 

Company Background and History

 

We were 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 our 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 of this Prospectus, the Company was a holding company that owned eight operating subsidiaries: ALTIA, LLC; Quality Circuit Assembly, Inc.; American Precision Fabricators, Inc.; Morris Sheet Metal, Corp; and JTD Spiral, Inc.; Deluxe Sheet Metal, Inc,; Excel Fabrication, LLC; and SPECTRUMebos, Inc. (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.  

 

Alpine 4 maintains our corporate office located at 2525 E. Arizona Biltmore Circle, Suite C237, Phoenix, Arizona 85016. ALTIA works out of the headquarters offices.  QCA rents a location at 1709 Junction Court #380 San Jose, California 95112.  American Precision Fabricators rents a property 4401 Savannah St. Fort Smith, Arkansas 72903.  Deluxe Sheet Metal’s facilities are located at 6661 Lonewolf Dr, South Bend, Indiana 46628. Morris Sheet Metal and JTD Spiral are located at 6212 Highview Dr, Fort Wayne, Indiana 46818. Excel Fabrication’s office and fabrication space are located at 297 Wycoff Cir, Twin Falls, Idaho 83301.

 

Who We Are

 

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 leadership while working synergistically with other Alpine 4 holdings.  The essence of our business model is based around acquiring business-to-business (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


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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. 

 

Our DSF Strategy is discussed in more detail below in the section entitled “Business.”

 

Risk Factors

 

We face numerous risks that could materially affect our business, results of operations or financial condition. The most significant of these risks include the following:

 

-

Alpine 4 is an "emerging growth company," and the reduced disclosure requirements applicable to "emerging growth companies" could make our common stock less attractive to investors.

 

 

-

Growth and development of operations will depend on the acceptance of Alpine 4's proposed businesses.  If Alpine 4's products are not deemed desirable and suitable for purchase and it cannot establish a customer base, it may not be able to generate future revenues, which would result in a failure of the business and a loss of the value of your investment.

 

 

-

If demand for the products Alpine 4 plans to offer slows, then its business would be materially affected, which could result in the loss of your entire investment.

 

 

-

Our revenue growth rate depends primarily on our ability to satisfy relevant channels and end-customer demands, identify suppliers of our necessary ingredients and to coordinate those suppliers, all subject to many unpredictable factors.

 

 

-

If securities or industry analysts do not publish or cease publishing research or reports or publish misleading, inaccurate or unfavorable research about us, our business or our market, our stock price and trading volume could decline.

 

 

-

Alpine 4 stockholders may have difficulty in reselling their shares due to the limited public market or state Blue Sky laws.

 

 

-

We face risks related to Novel Coronavirus (COVID-19) which have significantly disrupted our manufacturing, research and development, operations, sales and financial results, and could continue to do so for the foreseeable future.

 

For further discussion of these and other risks, see “Risk Factors,” beginning on page 9.

 

The Offering

 

On January 16, 2020, we entered into a transaction (the “Lincoln Park Transaction”) consisting of a purchase agreement (the “Purchase Agreement”) and a registration rights agreement (the “Registration Rights Agreement”) with Lincoln Park, pursuant to which Lincoln Park has committed to purchase up to $10.0 million worth of our Class


5 


A common stock, $0.0001 par value per share (the “Common Stock”).  A.G.P./Alliance Global Partners acted as sole placement agent for the offering.

 

Under the terms and subject to the conditions of the Purchase Agreement, we have the right, but not the obligation, to sell to Lincoln Park, and Lincoln Park is obligated to purchase up to in the aggregate $10.0 million worth of shares of our Common Stock.  As an initial purchase on January 17, 2020, Lincoln Park purchased 1,666,666 shares of our Common Stock (the “Initial Purchase Shares”) at a price of $0.15 per share.

 

Additional sales of Common Stock by us to Lincoln Park, if any, will be subject to certain limitations, and may occur from time to time, at our sole discretion, over the 36-month period commencing on the date that the registration statement of which this Prospectus is a part is declared effective by the U.S. Securities and Exchange Commission (the “SEC”) and a final prospectus in connection therewith is filed and the other conditions set forth in the purchase agreement are satisfied, all of which are outside the control of Lincoln Park (the date on which all of such conditions are satisfied being the “Commencement Date”).

 

After the Commencement Date, under the Purchase Agreement, on any business day selected by us, we may direct Lincoln Park to purchase up to 1,000,000 shares of our Common Stock on that business day (each, a “Regular Purchase”), provided, however, that (i) the Regular Purchase may be increased to up to 1,250,000 shares, provided that the closing sale price of the Common Stock is not below $0.30 on the purchase date; (ii) the Regular Purchase may be increased to up to 1,500,000 shares, provided that the closing sale price of the Common Stock is not below $0.40 on the purchase date (subject to adjustment for any reorganization, recapitalization, non-cash dividend, stock split, reverse stock split or other similar transaction as provided in the Purchase Agreement); and (iii) the Regular Purchase may be increased to up to 1,750,000 shares, provided that the closing sale price of the Common Stock is not below $0.50 on the purchase date (each subject to adjustment for any reorganization, recapitalization, non-cash dividend, stock split, reverse stock split or other similar transaction as provided in the Purchase Agreement). In each case, Lincoln Park’s maximum commitment in any single Regular Purchase may not exceed $1,000,000. The purchase price per share for each such Regular Purchase will be based off of prevailing market prices of Common Stock immediately preceding the time of sale. The purchase price per share will be equitably adjusted for any reorganization, recapitalization, non-cash dividend, stock split, or other similar transaction occurring during the business days used to compute such price.

 

In addition to Regular Purchases, we may also direct Lincoln Park to purchase other amounts as accelerated purchases or as additional accelerated purchases if the closing sale price of the common stock exceeds certain threshold prices as set forth in the Purchase Agreement.

 

Lincoln Park has no right to require us to sell any shares of common stock to Lincoln Park, but Lincoln Park is obligated to make purchases as we direct, subject to certain conditions. In all instances, we may not sell shares of our Common Stock to Lincoln Park under the purchase agreement if it would result in Lincoln Park’s beneficially owning more than 4.99% of our Common Stock. There are no upper limits on the price per share that Lincoln Park must pay for shares of Common Stock. Lincoln Park may not assign or transfer its rights and obligations under the Purchase Agreement.

 

There are no restrictions on future financings, rights of first refusal, participation rights, penalties or liquidated damages in the Purchase Agreement or Registration Rights Agreement, other than a prohibition on our entering into certain types of transactions that are defined in the Purchase Agreement as “Variable Rate Transactions.”

 

We issued to Lincoln Park 2,275,086 shares of Common Stock (the “Commitment Shares”) as consideration for its commitment to purchase shares of Common Stock under the Purchase Agreement.

 

As of July 23, 2020, we had 110,677,860 shares of our Class A Common Stock outstanding (including the 2,275,086 Commitment Shares and the 1,666,666 Initial Purchase Shares issued to Lincoln Park), of which 106,326,000 shares were held by non-affiliates.

 

Although the Purchase Agreement provides that we may sell up to $10,000,000 of our common stock to Lincoln Park, only 14,000,000 shares of our common stock are being offered under this prospectus, which represents shares which have been or may be issued to Lincoln Park in the future under the Purchase Agreement.  Depending on the market


6 


prices of our common stock at the time we elect to issue and sell shares to Lincoln Park under the Purchase Agreement, we may need to register the resale of additional shares of our Common Stock under the Securities Act in order to receive aggregate gross proceeds equal to the $10,000,000 total commitment available to us under the Purchase Agreement.  If all of the 14,000,000 shares offered by Lincoln Park under this prospectus were issued and outstanding as of the date hereof, such shares would represent approximately 11.23% of the total number of shares of our common stock outstanding, and approximately 11.64% of the total number of outstanding shares excluding shares held by affiliates, in each case as of the date hereof.  If we elect to issue and sell more than the 14,000,000 shares offered under this prospectus to Lincoln Park, which we have the right but not the obligation to do, we must first register for the resale of any such additional shares under the Securities Act pursuant to one or more additional registration statements, which could cause additional substantial dilution to our stockholders.  The number of shares ultimately offered for resale by Lincoln Park is dependent upon the number of shares we sell to Lincoln Park under the Purchase Agreement.

 

The Purchase Agreement prohibits us from directing Lincoln Park to purchase any shares of common stock if those shares, when aggregated with all other shares of our common stock then beneficially owned by Lincoln Park and its affiliates, would result in Lincoln Park and its affiliates having beneficial ownership, at any single point in time, of more than 4.99% of the then total outstanding shares of our common stock, as calculated pursuant to Section 13(d) of the Securities Exchange Act of 1934, as amended, or the Exchange Act, and Rule 13d-3 thereunder, which limitation we refer to as the Beneficial Ownership Cap.

 

Issuances of our common stock in this offering will not affect the rights or privileges of our existing stockholders, except that the economic and voting interests of each of our existing stockholders will be diluted as a result of any such issuance. Although the number of shares of common stock that our existing stockholders own will not decrease, the shares owned by our existing stockholders will represent a smaller percentage of our total outstanding shares after any such issuance to Lincoln Park.


7 


 

Summary of the Offering

 

Common stock offered by the Selling Stockholder

 

14,000,000 shares consisting of 2,275,086 Commitment Shares issued to Lincoln Park upon execution of the Purchase Agreement; the 1,666,666 Initial Purchase Shares; and 10,058,248 shares we may sell to Lincoln Park under the Purchase Agreement from time to time after the date of this prospectus

 

 

 

Common stock outstanding immediately prior to this offering

 

110,677,860   shares.

 

 

 

Common stock to be outstanding immediately following this offering

 

120,736,108 shares.

 

 

 

Use of proceeds

 

We will receive no proceeds from the sale of shares of common stock by Lincoln Park in this offering. We may receive up to $10,000,000 in aggregate gross proceeds under the Purchase Agreement from any sales we make to Lincoln Park pursuant to the Purchase Agreement after the date of this prospectus. Any proceeds that we receive from sales to Lincoln Park under the Purchase Agreement will be used for working capital and general corporate purposes. See “Use of Proceeds.”

 

 

 

OTCQB Trading Symbol

 

“ALPP”

 

 

 

Risk factors

 

You should carefully consider the information set forth in this Prospectus and, in particular, the specific factors set forth in the “Risk Factors” section beginning on page 9 of this Prospectus before deciding whether or not to invest in our common stock.

 

The number of shares of common stock to be outstanding after this offering is based on 110,677,860 shares of common stock outstanding at July 23, 2020, (including the 2,275,086 Commitment Shares issued to Lincoln Park upon execution of the Purchase Agreement and the and the 1,666,666 Initial Purchase Shares purchased by Lincoln Park) and excludes the following:

 

-

951,344 shares of Class A common stock issuable upon exercise of stock options outstanding at a weighted-average exercise price of $0.24 per share;

 

 

-

275,000 shares of Class A common stock issuable upon exercise of warrants outstanding at a weighted-average exercise price of $1.02 per share; and

 

 

-

9,881,522 shares of Class A common stock issuable upon conversion of $2,795,852 of convertible debt outstanding at conversion prices ranging from $0.15 to $1.00 per share.

 

Unless otherwise indicated, all information in this prospectus reflects or assumes no issuance or exercise of stock options or warrants on or after March 31, 2020.


8 


 

 

RISK FACTORS

 

Investing in our securities involves a high degree of risk. You should carefully consider and evaluate all of the information included and incorporated by reference or deemed to be incorporated by reference in this prospectus. Our business, results of operations or financial condition could be adversely affected by any of these risks or by additional risks and uncertainties not currently known to us or that we currently consider immaterial.

 

Risks Associated with Our Business and Operations

 

Alpine 4 is an "emerging growth company," and the reduced disclosure requirements applicable to "emerging growth companies" could make our common stock less attractive to investors.

 

Alpine 4 is an "emerging growth company," as defined in the JOBS Act. For as long as we are an emerging growth company, we may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies, including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements and exemptions from the requirements of holding advisory "say-on-pay" votes on executive compensation and shareholder advisory votes on golden parachute compensation. We will remain an "emerging growth company" until the earliest of (i) the last day of the fiscal year during which we have total annual gross revenues of $1 billion or more; (ii) the last date of the fiscal year following the fifth anniversary of the date of the first sale of common stock under the Company's first filed registration statement; (iii) the date on which we have, during the previous three-year period, issued more than $1 billion in non-convertible debt; and (iv) the date on which we are deemed to be a "large accelerated filer" under the Exchange Act. We will be deemed a large accelerated filer on the first day of the fiscal year after the market value of our common equity held by non-affiliates exceeds $700 million, measured on October 31.

 

We cannot predict if investors will find our common stock less attractive to the extent we rely on the exemptions available to emerging growth companies. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may be more volatile.

 

In addition, Section 107 of the JOBS Act also provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. An emerging growth company can therefore delay the adoption of certain accounting standards until those standards would otherwise apply to private companies.

 

A Company that elects to be treated as an emerging growth company shall continue to be deemed an emerging growth company until the earliest of (i) the last day of the fiscal year during which it had total annual gross revenues of $1,000,000,000 (as indexed for inflation), (ii) the last day of the fiscal year following the fifth anniversary of the date of the first sale of common stock under the Company's first filed registration statement; (iii) the date on which it has, during the previous 3-year period, issued more than $1,000,000,000 in non-convertible debt; or (iv) the date on which is deemed to be a 'large accelerated filer' as defined by the SEC, which would generally occur upon it attaining a public float of at least $700 million.

 

However, we are choosing to "opt out" of such extended transition period, and as a result, we will comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for non-emerging growth companies. Section 107 of the JOBS Act provides that our decision to opt out of the extended transition period for complying with new or revised accounting standards is irrevocable.

 

Our independent auditors have expressed substantial doubt about our ability to continue as a going concern.

 

Alpine 4 has incurred net losses of $31,745,528 since inception through December 31, 2019.  This net loss was primarily driven in 2015 by stock issuance to employees and the ceasing of business operations for its subsidiary Venture West Energy Services, LLC.  Because we have yet to attain profitable operations, in their report on our financial statements for the period ended December 31, 2019, our independent auditors included an explanatory paragraph regarding their substantial doubt about our ability to continue as a going concern.   Our ability to continue


9 


as a going concern is subject to our ability to generate a profit and/or obtain necessary funding from outside sources, including obtaining additional funding from the sale of our securities, increasing sales or obtaining loan from various financial institutions where possible.  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.

 

Management of Alpine 4 cannot guarantee that Alpine 4 will continue to generate revenues which could result in a total loss of the value of your investment if it is unsuccessful in its business plans.

 

While Alpine 4 and its subsidiaries have long term Purchase Order arrangements with its large Contract Manufacturing customers and Master Service Agreements with its mechanical customers that can provide a level of dependable revenue, there can be no assurance that Alpine 4 will be able to continue to generate revenues or that revenues will be sufficient to maintain its business.  As a result, investors or shareholders could lose all of their investment if Alpine 4 is not successful in its proposed business plans.

 

Alpine 4's needs could exceed the amount of time or level of experience its officers and directors may have.  Alpine 4 will be dependent on key executives, and the loss of the services of the current officers and directors could severely impact Alpine 4's business operations.  

 

Alpine 4's business plan does not provide for the hiring of any additional employees other than outlined in its plan of operations until sales will support the expense.  Until that time, the responsibility of developing Alpine 4's business and fulfilling the reporting requirements of a public company will fall upon the officers and the directors.  In the event they are unable to fulfill any aspect of their duties to Alpine 4, it may experience a shortfall or complete lack of sales resulting in little or no profits and eventual closure of our business.

 

Additionally, the management of future growth will require, among other things, continued development of Alpine 4's financial and management controls and management information systems, stringent control of costs, increased marketing activities, and the ability to attract and retain qualified management, research, and marketing personnel.  The loss of key executives or the failure to hire qualified replacement personnel would compromise Alpine 4's ability to generate revenues or otherwise have a material adverse effect on Alpine 4.  There can be no assurance that Alpine 4 will be able to successfully attract and retain skilled and experienced personnel.

 

Significant time and management resources are required to ensure compliance with public company reporting and other obligations. Taking steps to comply with these requirements will increase our costs and require additional management resources and does not ensure that we will be able to satisfy them.

 

We are a publicly reporting company.  As a public company, we are required to comply with applicable provisions of the Sarbanes-Oxley Act of 2002, as well as other federal securities laws, and rules and regulations promulgated by the SEC and the various exchanges and trading facilities where our common stock may trade, which result in significant legal, accounting, administrative and other costs and expenses. These rules and requirements impose certain corporate governance requirements relating to director independence, distributing annual and interim reports, stockholder meetings, approvals and voting, soliciting proxies, conflicts of interest, and codes of conduct, depending on where our shares trade. Our management and other personnel will need to devote a substantial amount of time to ensure that we comply with all applicable requirements.

 

As we review our internal controls and procedures, we may determine that they are ineffective or have material weaknesses, which could impact the market's acceptance of our filings and financial statements.

 

In connection with the preparation of our Annual Report for the year ended December 31, 2019, we conducted a review of our internal control over financial reporting for the purpose of providing the management report required by these rules. During the course of our review and testing, we identified deficiencies and have been unable to remediate them before we were required to provide the required reports. Furthermore, because we have material weaknesses in our internal control over financial reporting, we may not detect errors on a timely basis and our financial statements may be materially misstated. Even if we are able to remediate the material weaknesses, we may not be able to conclude on an ongoing basis that we have effective internal controls over financial reporting, which could harm our operating results, cause investors to lose confidence in our reported financial information and cause the trading


10 


price of our stock to fall. In addition, as a public company we are required to file in a timely manner accurate quarterly and annual reports with the SEC under the Securities Exchange Act of 1934 (the "Exchange Act"), as amended.  Any failure to report our financial results on an accurate and timely basis could result in sanctions, lawsuits, delisting of our shares from the market or trading facility where our shares may trade, or other adverse consequences that would materially harm our business.

 

Because Alpine 4 has shown a net loss since inception, ownership of Alpine 4 shares is highly risky and could result in a complete loss of the value of your investment if Alpine 4 is unsuccessful in its business plans.

 

Based upon current plans, Alpine 4 expects to stop incurring operating losses in future periods as its subsidiaries move from their Optimization Phase to its Asset Producing Phase.   However new additional subsidiaries may incur significant expenses associated with the growth of those businesses.  Further, there is no guarantee that it will be successful in realizing future revenues or in achieving or sustaining positive cash flow at any time in the future.  Any such failure could result in the possible closure of its business or force Alpine 4 to seek additional capital through loans or additional sales of its equity securities to continue business operations, which would dilute the value of any shares you receive in connection with the Share Exchange.

 

Growth and development of operations will depend on the growth in the Alpine 4 acquisition model and from organic growth from its subsidiaries’ businesses.  If Alpine 4 cannot find desirable acquisition candidates, it may not be able to generate growth with future revenues.

 

Alpine 4 expects to continue its strategy of acquiring businesses, which management believes will result in significant growth in projected annualized revenue by the end of 2020.  However, there is no guarantee that it will be successful in realizing future revenue growth from its acquisition model.  As such, Alpine 4 is highly dependent on suitable candidates to acquire which the supply of those candidates cannot be guaranteed and is driven from the market for M&A.  If Alpine 4 is unable to locate or identify suitable acquisition candidates, or to enter into transactions with such candidates, or if Alpine 4 is unable to integrate the acquired businesses, Alpine 4 may not be able to grow its revenues to the extent anticipated, or at all.

 

Alpine 4 has limited management resources and will be dependent on key executives.  The loss of the services of the current officers and directors could severely impact Alpine 4's business operations and future development, which could result in a loss of revenues and adversely impact the ability to ever sell any Exchange Shares received through participation in the Share Exchange.

 

Alpine 4 is relying on a small number of key individuals to implement its business and operations and, in particular, the professional expertise and services of Kent B. Wilson, our President, Chief Executive Officer, and Secretary and Jeff Hail, our COO.  Mr. Wilson intends to serve full time in his capacities with Alpine 4 to work to develop and grow the Company. Nevertheless, Alpine 4 may not have sufficient managerial resources to successfully manage the increased business activity envisioned by its business strategy.  In addition, Alpine 4's future success depends in large part on the continued service of Mr. Wilson.  If he chooses not to serve as an officer or if he is unable to perform his duties, this could have an adverse effect on Company business operations, financial condition and operating results if we are unable to replace Mr. Wilson or Mr. Hail with other individuals qualified to develop and market our business.  The loss of their services could result in a loss of revenues, which could result in a reduction of the value of any ownership of Alpine 4.

 

Competition that Alpine 4 faces is varied and strong.

 

Alpine 4's subsidiaries’ products and industries as a whole are subject to competition.  There is no guarantee that we can sustain our market position or expand our business.  

 

We compete with a number of entities in providing products to our customers.  Such competitor entities include a variety of large nationwide corporations, including but not limited to public entities and companies that have established loyal customer bases over several decades.

 

Many of our current and potential competitors are well established and have significantly greater financial and operational resources, and name recognition than we have.  As a result, these competitors may have greater credibility


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with both existing and potential customers.  They also may be able to offer more competitive products and services and more aggressively promote and sell their products.  Our competitors may also be able to support more aggressive pricing than we will be able to, which could adversely affect sales, cause us to decrease our prices to remain competitive, or otherwise reduce the overall gross profit earned on our products.

 

Our success in business and operations will depend on general economic conditions.

 

The success of Alpine 4 and its subsidiaries depends, to a large extent, on certain economic factors that are beyond its control.  Factors such as general economic conditions, levels of unemployment, interest rates, tax rates at all levels of government, competition and other factors beyond Alpine 4's control may have an adverse effect on the ability of our subsidiaries to sell its products, to operate, and to collect sums due and owing to them.

 

Alpine 4 may not be able to successfully implement its business strategy, which could adversely affect its business, financial condition, results of operations and cash flows.  If Alpine 4 cannot successfully implement its business strategy, it could result in the loss of the value of your investment.

 

Successful implementation of our business strategy depends on our being able to acquire additional businesses and grow our existing subsidiaries, as well as on factors specific to the industries in which our subsidiaries operate, and the state of the financial industry and numerous other factors that may be beyond our control.  Adverse changes in the following factors could undermine our business strategy and have a material adverse effect on our business, our financial condition, and results of operations and cash flow:

 

The competitive environment in the industries in which our subsidiaries operate that may force us to reduce prices below the optimal pricing level or increase promotional spending;

 

 

Our ability to anticipate changes in consumer preferences and to meet customers' needs for our products in a timely cost-effective manner; and

 

 

Our ability to establish, maintain and eventually grow market share in these competitive environments.

 

Our revenue growth rate depends primarily on our ability to satisfy relevant channels and end-customer demands, identify suppliers of our necessary ingredients and to coordinate those suppliers, all subject to many unpredictable factors.

 

We may not be able to identify and maintain the necessary relationships with suppliers of product and services as planned.  Delays or failures in deliveries could materially and adversely affect our growth strategy and expected results.  As we supply more customers, our rate of expansion relative to the size of such customer base will decline. In addition, one of our biggest challenges is securing an adequate supply of suitable product.  Competition for product is intense, and commodities costs subject to price volatility.

 

Our ability to execute our business plan also depends on other factors, including:

 

ability to keep satisfied vendor relationships

 

 

hiring and training qualified personnel in local markets;

 

 

managing marketing and development costs at affordable levels;

 

 

cost and availability of labor;

 

 

the availability of, and our ability to obtain, adequate supplies of ingredients that meet our quality standards; and

 

 

securing required governmental approvals in a timely manner when necessary.


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We face risks related to Novel Coronavirus (COVID-19) which have significantly disrupted our manufacturing, research and development, operations, sales and financial results, and could continue to do so for the foreseeable future.

 

While we are still providing critical and emergency services, our business has been and will continue to be adversely impacted by the effects of the Novel Coronavirus (COVID-19). In addition to global macroeconomic effects, the Novel Coronavirus (COVID-19) outbreak and any other related adverse public health developments will cause disruption to our international operations and sales activities. Our third-party manufacturers, suppliers, third-party distributors, sub-contractors and customers have been and will be disrupted by worker absenteeism, quarantines and restrictions on our employees’ ability to work, office and factory closures, disruptions to ports and other shipping infrastructure, border closures, or other travel or health-related restrictions. Depending on the magnitude of such effects on our manufacturing, assembling, and testing activities or the operations of our suppliers, third-party distributors, or sub-contractors, our supply chain, manufacturing and product shipments will be delayed, which could adversely affect our business, operations and customer relationships. In addition, the Novel Coronavirus (COVID-19) or other disease outbreak will in the short-run and may over the longer term adversely affect the economies and financial markets of many countries, resulting in an economic downturn that will affect demand for our products and impact our operating results. There can be no assurance that any decrease in sales resulting from the Novel Coronavirus (COVID-19) will be offset by increased sales in subsequent periods. Although the magnitude of the impact of the Novel Coronavirus (COVID-19) outbreak on our business and operations remains uncertain, the continued spread of the Novel Coronavirus (COVID-19) or the occurrence of other epidemics and the imposition of related public health measures and travel and business restrictions will adversely impact our business, financial condition, operating results and cash flows. In addition, we have experienced and will experience disruptions to our business operations resulting from quarantines, self-isolations, or other movement and restrictions on the ability of our employees to perform their jobs that may impact our ability to develop and design our products in a timely manner or meet required milestones or customer commitments.

 

Unfavorable global economic conditions could adversely affect our business, financial condition, stock price and results of operations.

 

Our results of operations have been and could continue to be adversely affected by general conditions in the global economy and in the global financial markets. For example, the global financial crisis caused extreme volatility and disruptions in the capital and credit markets. A severe or prolonged economic downturn, such as the 2008 global financial crisis, could result in a variety of risks to our business, including, weakened demand for our product candidates and our ability to raise additional capital when needed on acceptable terms, if at all. As another example, our financial results may be negatively impacted by the recent Novel Coronavirus (COVID-19outbreak. The extent and duration of such impacts remain largely uncertain and dependent on future developments that cannot be accurately predicted at this time, such as the severity and transmission rate of Novel Coronavirus (COVID-19), the extent and effectiveness of containment actions taken and the impact of these and other factors on our operations and the global economy in general. A weak or declining economy could also strain our suppliers, possibly resulting in supply disruption, or cause our customers to delay making payments for our services. If the current equity and credit markets deteriorate, it may make any necessary debt or equity financing more difficult, more costly, and more dilutive. Failure to secure any necessary financing in a timely manner and on favorable terms could have a material adverse effect on our growth strategy, financial performance and stock price and could require us to delay or abandon clinical development plans. In addition, there is a risk that one or more of our current service providers, manufacturers and other partners may not survive such difficult economic times, which could directly affect our ability to attain our operating goals on schedule and on budget. Any of the foregoing could harm our business and we cannot anticipate all of the ways in which the current economic climate and financial market conditions could adversely impact our business. Furthermore, our stock price may decline due in part to the volatility of the stock market and any general economic downturn.

 

We, or our third-party service providers, face risks related to health epidemics and other outbreaks, which could significantly disrupt our operations.

 

Our business has been and could continue to be adversely impacted by the effects of Novel Coronavirus (COVID-19or other epidemics. A public health epidemic, including Novel Coronavirus (COVID-19), poses the risk that we


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or our employees, contractors, suppliers, and other partners may be prevented from conducting business activities for an indefinite period of time, including due to shutdowns that may be requested or mandated by governmental authorities. We currently rely, and may continue to rely, on third-party service providers that are located in locales significantly impacted by Novel Coronavirus (COVID-19and/or who source raw materials, samples, components, or other materials and reports from countries significantly impacted by Novel Coronavirus (COVID-19). We may also experience impacts to certain of our suppliers as a result of Novel Coronavirus (COVID-19or other health epidemic or outbreak occurring in one or more of these locations, which may materially and adversely affect our business, financial condition and results of operations. The extent to which Novel Coronavirus (COVID-19) impacts our results will depend on future developments that are highly uncertain and cannot be predicted, including new information that may emerge concerning the severity of the virus and the actions to contain its impact.

 

 

Risks Related to Our Common Stock

 

Alpine 4 stockholders, and others who choose to purchase shares of Alpine 4 common stock if and when offered, may have difficulty in reselling their shares due to the limited public market or state Blue Sky laws.

 

Our common stock is currently quoted on the OTCQB market.  Current Alpine 4 stockholders and persons who desire to purchase them in any trading market should be aware that there might be additional significant state law restrictions upon the ability of investors to resell our shares. Accordingly, investors should consider any secondary market for our securities to be a limited one.

 

Sales of our common stock under Rule 144 could reduce the price of our stock.

 

Under Rule 144 affiliates of Alpine 4 may not sell more than one percent of the total issued and outstanding shares in any 90-day period and must resell the shares in an unsolicited brokerage transaction at the market price. If substantial amounts of our common stock become available for resale under Rule 144 once a market has developed for our common stock, the then-prevailing market prices for our common stock may be reduced.

 

We may, in the future, issue additional securities, which would reduce our stockholders' percent of ownership and may dilute our share value.

 

Our Certificate of Incorporation, as amended to date, authorizes us to issue 125,000,000 shares of Class A common stock, and 10,000,000 shares of Class B common stock and 15,000,000 Class C stock. As of the date of this Prospectus, we had 110,677,860 shares of Class A common stock outstanding; 9,023,088 shares of Class B common stock issued and outstanding; and 11,572,267 shares of Class C common stock issued and outstanding. Accordingly, we may issue up to an additional 14,322,140 shares of Class A common stock; up to an additional 976,912 shares of Class B common stock; and up to an additional 3,427,733 shares of Class C common stock.  The future issuance of additional shares of Class A common stock will result in additional dilution in the percentage of our Class A common stock held by our then existing stockholders. We may value any Class A common stock issued in the future on an arbitrary basis including for services or acquisitions or other corporate actions that may have the effect of diluting the value of the shares held by our stockholders, and might have an adverse effect on any trading market for our Class A common stock.  Additionally, our board of directors may designate the rights terms and preferences of one or more series of preferred stock at its discretion including conversion and voting preferences without prior notice to our stockholders.  Any of these events could have a dilutive effect on the ownership of our shareholders, and the value of shares owned.

 

Raising additional capital or purchasing businesses through the issuance of common stock will cause dilution to our existing stockholders.

 

We may seek additional capital through a combination of private and public equity offerings, debt financings, collaborations, and strategic and licensing arrangements, as well as issuing stock to make additional business or asset acquisitions. To the extent that we raise additional capital through the sale of common stock or securities convertible or exchangeable into common stock or through the issuance of equity for purchases of businesses or assets, your ownership interest in Alpine 4 will be diluted.


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Raising additional capital may restrict our operations or require us to relinquish rights.

 

We may seek additional capital through a combination of private and public equity offerings, debt financings, collaborations, and strategic and licensing arrangements.  To the extent that we raise additional capital through the sale of common stock or securities convertible or exchangeable into common stock, the terms of any such securities may include liquidation or other preferences that materially adversely affect your rights as a stockholder.  Debt financing, if available, would increase our fixed payment obligations and may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends.  If we raise additional funds through collaboration, strategic partnerships and licensing arrangements with third parties, we may have to relinquish valuable rights to our intellectual property, future revenue streams or grant licenses on terms that are not favorable to us.

 

Market volatility may affect our stock price and the value of your shares.

 

The market price for our common stock is likely to be volatile, in part because the volume of trades of our common stock. In addition, the market price of our common stock may fluctuate significantly in response to a number of factors, most of which we cannot control, including, among others:

 

announcements of new products, brands, commercial relationships, acquisitions or other events by us or our competitors; 

 

 

regulatory or legal developments in the United States and other countries; 

 

 

fluctuations in stock market prices and trading volumes of similar companies;

 

 

general market conditions and overall fluctuations in U.S. equity markets;

 

 

social and economic impacts resulting from the global COVID-19 pandemic;

 

 

variations in our quarterly operating results;

 

 

changes in our financial guidance or securities analysts' estimates of our financial performance; 

 

 

changes in accounting principles;

 

 

our ability to raise additional capital and the terms on which we can raise it;

 

 

sales of large blocks of our common stock, including sales by our executive officers, directors and significant stockholders; 

 

 

additions or departures of key personnel;

 

 

discussion of us or our stock price by the press and by online investor communities; and 

 

 

other risks and uncertainties described in these risk factors.

 

If securities or industry analysts do not publish or cease publishing research or reports or publish misleading, inaccurate or unfavorable research about us, our business or our market, our stock price and trading volume could decline.

 

The trading market for our common stock will be influenced by the research and reports that securities or industry analysts may publish about us, our business, our market or our competitors. We currently have limited coverage and may never obtain increased research coverage by securities and industry analysts. If no or few securities or industry analysts cover our company, the trading price and volume of our stock would likely be negatively impacted. If we obtain securities or industry analyst coverage and if one or more of the analysts who covers us downgrades our stock or publishes inaccurate or unfavorable research about our business, or provides more favorable relative


15 


recommendations about our competitors, our stock price would likely decline. If one or more of these analysts ceases coverage of us or fails to publish reports on us regularly, demand for our stock could decrease, which could cause our stock price or trading volume to decline.

 

Future sales of our common stock may cause our stock price to decline.

 

Sales of a substantial number of shares of our common stock in the public market or the perception that these sales might occur could significantly reduce the market price of our common stock and impair our ability to raise adequate capital through the sale of additional equity securities.

 

Our compliance with the Sarbanes-Oxley Act and SEC rules concerning internal controls may be time consuming, difficult and costly.

 

Alpine 4's executive officers have limited experience being officers of a public company.  It may be time consuming, difficult and costly for us to continue to implement and update the internal controls and reporting procedures required by Sarbanes-Oxley.  We may need to hire additional financial reporting, internal controls and other finance staff in order to develop and implement appropriate internal controls and reporting procedures.  If we are unable to comply with Sarbanes-Oxley's internal controls requirements, we may not be able to obtain the independent accountant certifications that Sarbanes-Oxley Act requires publicly-traded companies to obtain.

 

Alpine 4 may issue Preferred Stock with voting and conversion rights that could adversely affect the voting power of the holders of Common Stock.

 

Pursuant to our Certificate of Incorporation, our Board of Directors may issue Preferred Stock with voting and conversion rights that could adversely affect the voting power of the holders of Common Stock.  In the fourth quarter of 2019, we issued shares of a newly designated Series B Preferred Stock to members of our Board of Directors. The outstanding shares of Series B Preferred Stock have voting rights in the aggregate equal to 200% of the total voting power of our other outstanding securities, giving our Board of Directors control over any matters submitted to the vote of the shareholders of Alpine 4. Any such provision may be deemed to have a potential anti-takeover effect, and the issuance of Preferred Stock in accordance with such provision may delay or prevent a change of control of Alpine 4.  The Board of Directors also may declare a dividend on any outstanding shares of Preferred Stock. 

 

 

Risks Related to the Offering

 

The sale or issuance of our common stock to Lincoln Park may cause dilution, and the sale of the shares of common stock acquired by Lincoln Park, or the perception that such sales may occur, could cause the price of our common stock to fall.

 

On January 16, 2020, we entered into the Purchase Agreement with Lincoln Park, pursuant to which Lincoln Park has committed to purchase up to $10,000,000 of our common stock. Upon the execution of the Purchase Agreement, we issued 2,275,086 Commitment Shares to Lincoln Park as a fee for its commitment to purchase shares of our common stock under the Purchase Agreement, and immediately following execution of the Purchase Agreement, Lincoln Park purchased 1,666,666 shares of our Common Stock (the “Initial Purchase Shares”).  The remaining shares of our common stock that may be issued under the Purchase Agreement may be sold by us to Lincoln Park at our discretion from time to time over a 36-month period commencing after the satisfaction of certain conditions set forth in the Purchase Agreement, including that the SEC has declared effective the registration statement that includes this prospectus. The purchase price for the shares that we may sell to Lincoln Park under the Purchase Agreement will fluctuate based on the price of our common stock. Depending on market liquidity at the time, sales of such shares may cause the trading price of our common stock to fall.

 

We generally have the right to control the timing and amount of any future sales of our shares to Lincoln Park.  Additional sales of our common stock, if any, to Lincoln Park will depend upon market conditions and other factors to be determined by us. We may ultimately decide to sell to Lincoln Park all, some or none of the additional shares of our common stock that may be available for us to sell pursuant to the Purchase Agreement.  If and when we do sell shares to Lincoln Park, after Lincoln Park has acquired the shares, Lincoln Park may resell all, some or none


16 


of those shares at any time or from time to time in its discretion. Therefore, sales to Lincoln Park by us could result in substantial dilution to the interests of other holders of our common stock. Additionally, the sale of a substantial number of shares of our common stock to Lincoln Park, or the anticipation of such sales, could make it more difficult for us to sell equity or equity-related securities in the future at a time and at a price that we might otherwise wish to effect sales.

 

If we sell shares of our common stock in future financings, stockholders may experience immediate dilution and, as a result, our stock price may decline.

 

We may from time to time issue additional shares of common stock at a discount from the current market price of our common stock. As a result, our stockholders would experience immediate dilution upon the purchase of any shares of our common stock sold at such discount. In addition, as opportunities present themselves, we may enter into financing or similar arrangements in the future, including the issuance of debt securities, preferred stock or common stock. If we issue common stock or securities convertible into common stock, our common stockholders would experience additional dilution and, as a result, our stock price may decline.

 

We will have broad discretion in how we use the net proceeds of this offering. We may not use these proceeds effectively, which could affect our results of operations and cause our stock price to decline.

 

We will have considerable discretion in the application of the net proceeds of this offering, including for any of the purposes described in the section entitled “Use of Proceeds.” We intend to use the net proceeds from this offering to fund development of our products and working capital and other general corporate purposes. As a result, investors will be relying upon management’s judgment with only limited information about our specific intentions for the use of the balance of the net proceeds of this offering. We may use the net proceeds for purposes that do not yield a significant return or any return at all for our stockholders. In addition, pending their use, we may invest the net proceeds from this offering in a manner that does not produce income or that loses value.

 

An active trading market for our common stock may not be sustained.

 

Although our common stock is listed on the OTCQB Market, the market for our shares has demonstrated varying levels of trading activity. Furthermore, the current level of trading may not be sustained in the future. The lack of an active market for our common stock may impair investors’ ability to sell their shares at the time they wish to sell them or at a price that they consider reasonable, may reduce the fair market value of their shares and may impair our ability to raise capital to continue to fund operations by selling shares and may impair our ability to acquire additional intellectual property assets by using our shares as consideration.

 

The market price for our common stock may be volatile, and an investment in our common stock could decline in value.

 

The stock market in general has experienced extreme price and volume fluctuations. The market prices of the securities of biotechnology and specialty pharmaceutical companies, particularly companies like ours without product revenues and earnings, have been highly volatile and may continue to be highly volatile in the future. This volatility has often been unrelated to the operating performance of particular companies. The following factors, in addition to other risk factors described in this section, may have a significant impact on the market price of our common stock:

 

-

announcements of technological innovations or new products by us or our competitors;

 

 

-

developments or disputes concerning patents or proprietary rights, including announcements of infringement, interference or other litigation against us or our potential licensees;

 

 

-

developments involving our efforts to commercialize our products, including developments impacting the timing of commercialization;

 

 

-

actual or anticipated fluctuations in our operating results;

 

 

-

changes in financial estimates or recommendations by securities analysts;


17 


 

 

-

developments involving corporate collaborators, if any;

 

 

-

changes in accounting principles; and

 

 

-

the loss of any of our key management personnel.

 

In the past, securities class action litigation has often been brought against companies that experience volatility in the market price of their securities. Whether or not meritorious, litigation brought against us could result in substantial costs and a diversion of management’s attention and resources, which could adversely affect our business, operating results and financial condition.

 

We do not anticipate paying dividends on our common stock and, accordingly, stockholders must rely on stock appreciation for any return on their investment.

 

We have never declared or paid cash dividends on our common stock and do not expect to do so in the foreseeable future. The declaration of dividends is subject to the discretion of our board of directors and limitations under applicable law, and will depend on various factors, including our operating results, financial condition, future prospects and any other factors deemed relevant by our board of directors. You should not rely on an investment in our company if you require dividend income from your investment in our company. The success of your investment will likely depend entirely upon any future appreciation of the market price of our common stock, which is uncertain and unpredictable. There is no guarantee that our common stock will appreciate in value.

 

We expect that our quarterly results of operations will fluctuate, and this fluctuation could cause our stock price to decline.

 

Our quarterly operating results are likely to fluctuate in the future. These fluctuations could cause our stock price to decline. The nature of our business involves variable factors, such as the timing of the research, development and regulatory pathways of our product candidates, which could cause our operating results to fluctuate.

 

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

This prospectus contains forward-looking statements. The forward-looking statements are contained principally in the sections entitled “Prospectus Summary,” “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business.” These statements relate to future events or to our future financial performance and involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. Forward-looking statements include, but are not limited to, statements about:

 

-

our lack of revenues, history of operating losses, bankruptcy, limited cash reserves and ability to draw on our Purchase Agreement with Lincoln Park or obtain other capital to develop and implement our business strategies and grow our business, and continue as a going concern;

 

 

-

our ability to execute our strategy and business plan regarding growth, acquisitions, and focusing on our strategy of Drivers, Stabilizers, and Facilitators;

 

 

-

the success, progress, timing and costs of our efforts to evaluate or consummate various strategic acquisitions, collaborations, and other alternatives if in the best interests of our stockholders;

 

 

-

our ability to timely source adequate supply of our development products from third-party manufacturers on which we depend;

 

 

-

the potential, if any, for future development of any of our present or future products;

 

 

-

our ability to identify and develop additional uses for our products;


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-

our ability to attain market exclusivity and/or to protect our intellectual property and to operate our business without infringing on the intellectual property rights of others;

 

 

-

the ability of our Board of Directors to influence control over all matters put to a vote of our stockholders, including elections of directors, amendments of our organizational documents, or approval of any merger, sale of assets, or other major corporate transaction; and

 

 

-

the accuracy of our estimates regarding expenses, future revenues, capital requirements and needs for additional financing.

 

In some cases, you can identify these statements by terms such as “anticipate,” “believe,” “could,” “estimate,” “expects,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “should,” “will,” “would” or the negative of those terms, and similar expressions that convey uncertainty of future events or outcomes. These forward-looking statements reflect our management’s beliefs and views with respect to future events and are based on estimates and assumptions as of the date of this prospectus and are subject to risks and uncertainties. In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this prospectus, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and investors are cautioned not to unduly rely upon these statements. We discuss many of the risks associated with the forward-looking statements in this prospectus in greater detail under the heading “Risk Factors.” Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. Given these uncertainties, you should not place undue reliance on these forward-looking statements.

 

You should carefully read this prospectus and the documents that we reference in this prospectus and have filed as exhibits to the registration statement of which this prospectus is a part, completely and with the understanding that our actual future results may be materially different from what we expect. We qualify all of the forward-looking statements in this prospectus by these cautionary statements.

 

Except as required by law, we expressly disclaim any obligation or intention to update these forward-looking statements publicly, or to update the reasons actual results could differ materially from those anticipated in any forward-looking statements, whether as a result of new information, future events or otherwise.

 

Any forward-looking statement made by us in this prospectus is based only on information currently available to us and speaks only as of the date on which it is made. We expressly disclaim any obligation or intention to publicly update any forward-looking statement, whether written or oral that may be made from time to time, whether as a result of new information, future developments or otherwise, except as required by applicable law.

 

DETERMINATION OF MARKET PRICE

 

The selling stockholder will determine at what price it may sell the offered shares, and such sales may be made at prevailing market prices or at privately negotiated prices. See “Plan of Distribution” for more information.

 

USE OF PROCEEDS

 

This prospectus relates to shares of our common stock that may be offered and sold from time to time by Lincoln Park. We will receive no proceeds from the sale of shares of common stock by Lincoln Park in this offering.

 

We may receive up to $10,000,000 in aggregate gross proceeds under the Purchase Agreement from any sales we make to Lincoln Park pursuant to the Purchase Agreement after the date of this prospectus. We estimate that the net proceeds to us from the sale of our common stock to Lincoln Park pursuant to the Purchase Agreement will be up to approximately $9,500,000 over an approximately 36-month period, assuming that we sell the full amount of our


19 


common stock that we have the right, but not the obligation, to sell to Lincoln Park under the Purchase Agreement, and after other estimated fees and expenses. See “Plan of Distribution” elsewhere in this prospectus for more information.

 

We currently intend to use the estimated net proceeds we receive under the Purchase Agreement in the following order of priority: (i) Paying off liabilities incurred in connection with business acquisitions through the date of this Prospectus; (ii) Paying off long-term liabilities; (iii) payment of other acquisition expenses; and (iv) for general working capital and general corporate purposes.

 

Our management will have significant discretion and flexibility in applying the net proceeds from the Purchase Agreement. Pending the application of the net proceeds, as described above, we intend to invest the net proceeds in high-quality, short-term, interest-bearing securities.

 

DIVIDEND POLICY

 

As of the date of this Prospectus, we had never declared or paid a cash dividend. Our Board of Directors may elect to declare and pay a cash dividend in the future.  As of the date of this Prospectus, we had declared and issued a dividend of shares of our Class C Common Stock to the holders of our Class A Common Stock.  Our Board of Directors may elect to declare and pay other similar dividends in the future.

 

LINCOLN PARK TRANSACTION

General

 

On January 16, 2020, we entered into the Purchase Agreement and the Registration Rights Agreement with Lincoln Park. Pursuant to the terms of the Purchase Agreement, Lincoln Park has agreed to purchase from us up to $10,000,000 of our Class A common stock (subject to certain limitations) from time to time during the term of the Purchase Agreement. Pursuant to the terms of the Registration Rights Agreement, we have filed with the SEC the registration statement that includes this prospectus to register for resale under the Securities Act the shares that have been or may be issued to Lincoln Park under the Purchase Agreement.

 

Pursuant to the terms of the Purchase Agreement, at the time we signed the Purchase Agreement and the Registration Rights Agreement, we issued 2,275,086 Commitment Shares to Lincoln Park as consideration for its commitment to purchase shares of our common stock under the Purchase Agreement.  Additionally, immediately following the execution of the Purchase Agreement and Registration Rights Agreement, Lincoln Park purchased 1,666,666 shares of our common stock (the “Initial Purchase Shares”) at a per share price of $0.15.

 

We do not have the right to commence any sales to Lincoln Park under the Purchase Agreement until certain conditions set forth in the Purchase Agreement, all of which are outside of Lincoln Park’s control, have been satisfied, including the registration statement that includes this prospectus being declared effective by the SEC, which we refer to as the Commencement. Thereafter, we have the right, but not the obligation, to direct Lincoln Park to purchase up to 1,000,000 Purchase Shares on any single business day from and after the Commencement, which amount may be increased up to 1,250,000 shares, 1,500,000 shares, or 1,750,000 shares, depending on the market price of our common stock at the time of sale, subject to a maximum of $1,000,000 per purchase.

 

In addition, upon notice to Lincoln Park, we may, from time to time and at our sole discretion, direct Lincoln Park to purchase additional shares of our common stock in “accelerated purchases,” “additional accelerated purchases” and/or “additional purchases” as set forth in the Purchase Agreement. The purchase price per share is based on the market price of our common stock at the time of sale as computed under the Purchase Agreement. Lincoln Park may not assign or transfer its rights and obligations under the Purchase Agreement.

 

The Purchase Agreement prohibits us from directing Lincoln Park to purchase any shares of common stock if those shares, when aggregated with all other shares of our common stock then beneficially owned by Lincoln Park, would result in Lincoln Park and its affiliates exceeding the Beneficial Ownership Cap.


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Purchase of Shares Under the Purchase Agreement

 

Regular Purchases

 

Under the Purchase Agreement, on any business day selected by us, we may direct Lincoln Park to purchase up to 1,000,000 shares of our Class A common stock, which we refer to as the Regular Purchase Share Limit, on such business day (the “Purchase Date”) in a regular purchase (a “Regular Purchase”), provided, however, that (i) the Regular Purchase Share Limit may be increased to up to 1,250,000 shares, provided that the closing sale price is not below $0.30 on the applicable Purchase Date, (ii) the Regular Purchase Share Limit may be increased to up to 1,500,000 shares, provided that the closing sale price is not below $0.40 on the applicable purchase date, and (iii) the Regular Purchase Share Limit may be increased to up to 1,750,000 shares, provided that the closing sale price is not below $0.50 on the applicable Purchase Date. In each case, the maximum amount of any single Regular Purchase may not exceed $1,000,000 per purchase. The Regular Purchase Share Limit is subject to proportionate adjustment in the event of a reorganization, recapitalization, non-cash dividend, stock split or other similar transaction; provided, that if after giving effect to such full proportionate adjustment, the adjusted Regular Purchase Share Limit would preclude us from requiring Lincoln Park to purchase common stock at an aggregate purchase price equal to or greater than $150,000 in any single Regular Purchase, then the Regular Purchase Share Limit will not be fully adjusted, but rather the Regular Purchase Share Limit for such Regular Purchase shall be adjusted as specified in the Purchase Agreement, such that, after giving effect to such adjustment, the Regular Purchase Share Limit will be equal to (or as close as can be derived from such adjustment without exceeding) $1,000,000.

 

The purchase price per share for each such Regular Purchase will be equal to 95% of the lower of:

 

-

the lowest sale price for our common stock on the purchase date of such shares; and

 

 

-

the arithmetic average of the three lowest closing sale prices for our common stock during the 12 consecutive business days ending on the business day immediately preceding the purchase date of such shares.

 

Accelerated Purchases

 

On any Purchase Date on which the last closing trade price of the Company’s common stock is not below $0.05 per share and the Company has directed Lincoln Park to purchase the full Regular Share Purchase Limit, the Company also has the right, in its sole discretion, to direct Lincoln Park to purchase an amount of stock (an “Accelerated Purchase”) equal to up to the lesser of (i) two times the number of shares purchased pursuant to such Regular Purchase; and (ii) 30% of the aggregate shares of the Company’s common stock traded during all or, if certain trading volume or market price thresholds specified in the Purchase Agreement are crossed on the business day immediately following the Purchase Date (the “Accelerated Purchase Date). The purchase price per share for each such Accelerated Purchase will be equal to 93% of the lesser of:

 

-

the volume weighted average price of the Company’s common stock during the applicable period on the applicable Accelerated Purchase Date; and

 

 

-

the closing sale price of the Company’s common stock on the applicable Accelerated Purchase Date.

 

In addition, the Company may also direct Lincoln Park on any business day on which an Accelerated Purchase has been completed and all of the shares to be purchased thereunder have been properly delivered to Lincoln Park in accordance with the Purchase Agreement, to purchase an amount of stock (the “Additional Accelerated Purchase”) equal to up to the lesser of (i) two times the number of shares purchased pursuant to the corresponding Regular Purchase; and (ii) 30% of the aggregate number of shares of the Company’s common stock traded during a certain portion of the normal trading hours on the applicable Accelerated Purchase date as determined in accordance with the Purchase Agreement (such period of time on the applicable Accelerated Purchase date, the “Additional Accelerated Purchase Measurement Period”). Additional Accelerated Purchases will be equal to 93% of the lesser of:


21 


 

 

-

the volume weighted average price of the Company’s common stock during the applicable Additional Accelerated Purchase Measurement Period on the applicable Accelerated Purchase date; and

 

 

-

the closing sale price of the Company’s common stock on the applicable Accelerated Purchase date.

 

In the case of the Accelerated and Additional Accelerated Purchases, the purchase price per share will be equitably adjusted for any reorganization, recapitalization, non-cash dividend, stock split, reverse stock split or other similar transaction occurring during the business days used to compute the purchase price.

 

Other than as described above, there are no trading volume requirements or restrictions under the Purchase Agreement, and we will control the timing and amount of any sales of our common stock to Lincoln Park.

 

Events of Default

 

Events of default under the Purchase Agreement include the following:

 

-

the effectiveness of the registration statement of which this prospectus forms a part lapses for any reason (including, without limitation, the issuance of a stop order), or any required prospectus supplement and accompanying prospectus are unavailable for the resale by Lincoln Park of our common stock offered hereby, and such lapse or unavailability continues for a period of 10 consecutive business days or for more than an aggregate of 30 business days in any 365-day period;

 

 

-

suspension by our principal market of our common stock from trading for a period of one business day;

 

 

-

the de-listing of our common stock from the OTCQB Exchange, our principal market, provided our common stock is not immediately thereafter trading on the New York Stock Exchange, the Nasdaq Global Select Market, the Nasdaq Global Market, the Nasdaq Capital Market, the NYSE American, the NYSE Arca, the OTC Bulletin Board or the OTCQX (or nationally recognized successor thereto);

 

 

-

the failure of our transfer agent to issue to Lincoln Park shares of our common stock within three business days after the applicable date on which Lincoln Park is entitled to receive such shares;

 

 

-

any breach of the representations or warranties or covenants contained in the Purchase Agreement or Registration Rights Agreement that has or could have a material adverse effect on us and, in the case of a breach of a covenant that is reasonably curable, that is not cured within five business days;

 

 

-

any voluntary or involuntary participation or threatened participation in insolvency or bankruptcy proceedings by or against us; or

 

 

-

if at any time we are not eligible to transfer our common stock electronically.

 

Lincoln Park does not have the right to terminate the Purchase Agreement upon any of the events of default set forth above. During an event of default, all of which are outside of Lincoln Park’s control, we may not direct Lincoln Park to purchase any shares of our common stock under the Purchase Agreement.

 

Our Termination Rights

 

We have the unconditional right, at any time, for any reason and without any payment or liability to us, to give notice to Lincoln Park to terminate the Purchase Agreement. In the event of bankruptcy proceedings by or against us, the Purchase Agreement will automatically terminate without action of any party.

 

No Short-Selling or Hedging by Lincoln Park

 

Lincoln Park has agreed that neither it nor any of its affiliates shall engage in any direct or indirect short-selling or hedging of our common stock during any time prior to the termination of the Purchase Agreement.


22 


Prohibitions on Variable Rate Transactions

 

There are no restrictions on future financings, rights of first refusal, participation rights, penalties or liquidated damages in the Purchase Agreement or Registration Rights Agreement other than a prohibition on entering into a “Variable Rate Transaction,” as defined in the Purchase Agreement.

 

Effect of Performance of the Purchase Agreement on Our Stockholders

 

All 14,000,000 shares registered in this offering which have been or may be issued or sold by us to Lincoln Park under the Purchase Agreement are expected to be freely tradable. It is anticipated that shares registered in this offering will be sold over a period of up to 36 months commencing on the date that the registration statement including this prospectus becomes effective and other conditions set forth in the Purchase Agreement are met. The sale by Lincoln Park of a significant amount of shares registered in this offering at any given time could cause the market price of our common stock to decline and to be highly volatile. Sales of our common stock to Lincoln Park, if any, will depend upon market conditions and other factors to be determined by us. We may ultimately decide to sell to Lincoln Park all, some or none of the additional shares of our common stock that may be available for us to sell pursuant to the Purchase Agreement. If and when we do sell shares to Lincoln Park, after Lincoln Park has acquired the shares, Lincoln Park may resell all, some or none of those shares at any time or from time to time in its discretion. Therefore, sales to Lincoln Park by us under the Purchase Agreement may result in substantial dilution to the interests of other holders of our common stock. In addition, if we sell a substantial number of shares to Lincoln Park under the Purchase Agreement, or if investors expect that we will do so, the actual sales of shares or the mere existence of our arrangement with Lincoln Park may make it more difficult for us to sell equity or equity-related securities in the future at a time and at a price that we might otherwise wish to effect such sales. However, we have the right to control the timing and amount of any additional sales of our shares to Lincoln Park and the Purchase Agreement may be terminated by us at any time at our discretion without any cost to us.

 

Pursuant to the terms of the Purchase Agreement, we have the right, but not the obligation, to direct Lincoln Park to purchase up to $10,000,000 of our common stock, exclusive of the 2,275,086 Commitment Shares issued to Lincoln Park on the date of the Purchase Agreement and the 1,666,666 Initial Purchase Shares. Depending on the price per share at which we sell our common stock to Lincoln Park pursuant to the Purchase Agreement, we may need to sell to Lincoln Park under the Purchase Agreement more shares of our common stock than are offered under this prospectus in order to receive aggregate gross proceeds equal to the $10,000,000 total commitment available to us under the Purchase Agreement. If we choose to do so, we must first register for resale under the Securities Act such additional shares of our common stock, which could cause additional substantial dilution to our stockholders. The number of shares ultimately offered for resale by Lincoln Park under this prospectus is dependent upon the number of shares we direct Lincoln Park to purchase under the Purchase Agreement. The Purchase Agreement prohibits us from issuing or selling to Lincoln Park under the Purchase Agreement any shares of our common stock if those shares, when aggregated with all other shares of our common stock then beneficially owned by Lincoln Park, would exceed the Beneficial Ownership Cap.

 

The following table sets forth the amount of gross proceeds we would receive from Lincoln Park from our sale of shares to Lincoln Park under the Purchase Agreement at varying purchase prices:

 

Assumed Average

Purchase Price

Per Share

 

 

Number of

Registered

Shares to be

Issued if Full

Purchase (1)

 

 

Percentage of

Outstanding Shares

After Giving Effect to

the Issuance to

Lincoln Park (2)

 

 

Gross Proceeds

from the Sale of

Shares to Lincoln

Park Under the

Purchase Agreement

 

$

0.0500

 

 

 

10,058,248

 

 

 

8.33

%

 

$

502,912.40

 

$

0.0585

(3)

 

 

10,058,248

 

 

 

8.33

%

 

$

588,407.51

 

$

0.25

 

 

 

10,058,248

 

 

 

8.33

%

 

$

2,514,562.00

 

$

0.50

 

 

 

10,058,248

 

 

 

8.33

%

 

$

5,029,124.00

 

$

0.75

 

 

 

10,058,248

 

 

 

8.33

%

 

$

7,543,686.00

 

$

1.00

 

 

 

9,750,000

 

 

 

8.10

%

 

$

9,750,000.00

 


23 


 

(1)

Although the Purchase Agreement provides that we may sell up to $10,000,000 of our common stock to Lincoln Park, we are only registering 14,000,000 shares under this prospectus which represents: (i) 2,275,086 Commitment Shares and the 1,666,666 Initial Purchase Shares that we already issued to Lincoln Park as consideration for making the commitment under the Purchase Agreement, and (ii) an additional 10,058,248 shares which may be issued to Lincoln Park in the future under the Purchase Agreement, if and when we sell shares to Lincoln Park under the Purchase Agreement, and which may or may not cover all the shares we ultimately sell to Lincoln Park under the Purchase Agreement, depending on the purchase price per share. As a result, we have included in this column only those shares that we are registering in this offering.

 

 

(2)

The denominator is based on 110,677,860 shares outstanding as of July 23, 2020, (which includes the 2,275,086 Commitment Shares and the 1,666,666 Initial Purchase Shares previously issued to Lincoln Park upon the execution of the Purchase Agreement), as adjusted to include the issuance of the number of shares set forth in the adjacent column which we would have sold to Lincoln Park, assuming the purchase price in the adjacent column. The numerator is based on the number of shares issuable under the Purchase Agreement at the corresponding assumed purchase price set forth in the adjacent column.

 

 

(3)

The closing sale price of our common stock on July 23, 2020, was $0.0585.

 

DILUTION

 

The sale of our common stock to Lincoln Park pursuant to the Purchase Agreement will have a dilutive impact on our stockholders. In addition, the lower our stock price is at the time we exercise our right to sell shares to Lincoln Park, the more shares of our common stock we will issue to raise our desired amount of proceeds from the sale, and the greater the dilution to our existing stockholders.

 

The net tangible book value of our company as of December 31, 2019 was $(17,922,245) or approximately $(0.1558) per share of common stock. Net tangible book value per share is determined by dividing the net tangible book value of our company (total tangible assets less total liabilities) by the number of outstanding shares of our common stock as of December 31, 2019.

 

After giving effect to the sale of 14,000,000 shares of common stock to Lincoln Park pursuant to the Purchase Agreement and assuming gross proceeds of approximately $591,425 from the sale of shares to Lincoln Park pursuant to the Purchase Agreement (based on the closing price of our common stock on July 23, 2020), our adjusted net tangible book value as of December 31, 2019 would have been $(17,001,915) or approximately $(0.1318) per share. This represents an immediate increase in net tangible book value of approximately $0.0240 per share to existing stockholders.

 

The hypothetical dilution calculation shown above is based on 131,273,215 shares of Class A, Class B, and Class C common stock issued and outstanding as of July 23, 2020, and excludes:

 

951,344 shares of Class A common stock issuable upon exercise of stock options outstanding at a weighted-average exercise price of $0.24 per share;

 

 

275,000 shares of Class A common stock issuable upon exercise of warrants outstanding at a weighted-average exercise price of $1.02 per share; and

 

 

9,881,522 shares of Class A common stock issuable upon conversion of $2,795,852 of convertible debt outstanding at conversion prices ranging from $0.15 to $1.00 per share; and

 

 

2,000,000 shares of our Class A common stock reserved for future issuance under our 2016 Stock Option and Stock Award Plan.

 

To the extent that outstanding options or warrants outstanding have been or may be exercised or other shares are issued upon conversion of outstanding convertible notes, investors purchasing our common stock in this offering may experience further dilution. In addition, we expect to raise additional capital to fund our current or future operating


24 


plans. To the extent that additional capital is raised through the sale of equity or convertible debt securities, the issuance of these securities could result in further dilution to our stockholders.

 

Market Price of Our Common Stock and Related Stockholder Matters

 

Our common stock trades on the OTCQB Market under the symbol “ALPP.” The following table sets forth the range of high and low sales prices per share of our common stock during the periods shown.

 

 

2020

 

2019

 

2018

 

 

High

 

Low

 

High

 

Low

 

High

 

Low

 

 

 

 

 

 

 

 

 

 

 

 

 

 

First Quarter

 

$

0.21

 

 

$

0.0001

 

 

$

0.06

 

 

$

0.02

 

 

$

0.34

 

 

$

0.112

 

Second Quarter

 

$

0.117

 

 

$

0.025

 

 

$

0.091

 

 

$

0.006

 

 

$

0.19

 

 

$

0.050

 

Third Quarter

 

$

0.071

 

 

$

0.055

 

 

$

0.037

 

 

$

0.008

 

 

$

0.18

 

 

$

0.06

 

Fourth Quarter

 

 

 

 

 

 

 

 

 

$

0.44

 

 

$

0.013

 

 

$

0.115

 

 

$

0.05

 

 

PLEASE NOTE: Trading in the Company’s Class A common stock is limited, and as such, relatively small sales may have a disproportionately large impact on the trading price. The prices shown in the table above reflect the price fluctuations resulting from relatively low volume of trades.

 

Holders

 

As of July 23, 2020, we had 389 registered holders of record of our Class A common stock. A substantially greater number of holders of our common stock are “street name” or beneficial holders, whose shares of record are held through banks, brokers, other financial institutions and registered clearing agencies.

 

BUSINESS

 

Background

 

We were 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 our 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 of this Prospectus, we were a holding company that owned eight operating subsidiaries: ALTIA, LLC; Quality Circuit Assembly, Inc.; American Precision Fabricators, Inc.; Morris Sheet Metal, Corp; JTD Spiral, Inc.; Deluxe Sheet Metal, Inc,; Excel Fabrication, LLC; and SPECTRUMebos, Inc. (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.  


25 


 

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 leadership while working synergistically with other Alpine 4 holdings.  The essence of our business model is based around acquiring business-to-business (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 these categories are blended into a longer-term view of the business landscape, the value-driving force that makes this a truly purposeful and powerful business model becomes apparent.  As stated earlier, we believe that 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 we feel that our competitors simply do not have.  The DSF model reshapes the environment each subsidiary operates in by sharing and exploiting the resources each company has, thus giving them a competitive advantage over their industry peers.  


26 


SCREEN SHOT 2019-08-06 AT 7.40.57 AM.PNG  

 

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 attempt to validate and determine 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,” “The What Should Be,” and “The What Will Be.”  

 

“The What Is” (TWI).  TWI is the defining point of where a company is holistically in a myriad of metrics, including Sales, Finance, Ease of Operations, Ownership, and Customer Relations. Subsequently, this is usually the point where most acquirers stop in their due diligence.  We look to define this position not just from a numbers standpoint, but also to determine how this perspective maps 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 and determine whether TWI is out of the norm with competitors, and whether that data shows 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.  However, 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 (KPIs) that run their respective departments, and finally, the subsidiaries they manage must have posted a net profit for three consecutive months.


27 


Diversification

 

It is our goal to help drive Alpine 4 into a leading, multi-faceted holding company with diverse products and services that not only benefit from one another as whole but also have the benefit of independence.  This type of corporate structure is about having our subsidiaries prosper through strong onsite leadership, while working synergistically with other Alpine 4 holdings.   Alpine 4 has been set up with a holding company model, with Presidents who will run each subsidiary business, and Managers with specific industry related experience who, along with Kent Wilson, the CEO of Alpine 4, will help guide our portfolio of companies as needed.  Alpine 4 will work with our Presidents and Managers to ensure that our core principles of Synergy, Innovation, Drive, Excellence are implemented and internalized.  Further, we plan to work with our subsidiaries and capital partners to provide the proper capital allocation and to work to make sure each business is executing at high levels. 

 

In 2016, we saw the beginning of our plan for diversification take hold with the acquisition of Quality Circuit Assembly, Inc. (“QCA”), when Alpine 4 acquired 100% of QCA’s stock effective April 1, 2016.  Additional information relating to our acquisition of QCA can be found in our Current Report on Form 8-K, filed with the SEC on March 15, 2016.

 

In October 2016, we formed a new Limited Liability Company called ALTIA (Automotive Logic & Technology In Action) to create an independent subsidiary for Alpine 4’s 6th Sense Auto product and its BrakeActive product.

 

Effective, January 1, 2017, we acquired 100% of Venture West Energy Services (“VWES”) (formerly Horizon Well Testing, LLC). Additional information about the acquisition of VWES can be found in our Current Reports on Form 8-K filed with the SEC on December 8, 2016, and January 13, 2017.  Due to many different circumstances but primarily from the effects of the theft event that occurred in April 2017 on December 31, 2018, we discontinued operations on this company and began the liquidation of the VWES assets.  In February 2019, VWES filed for Chapter 7 bankruptcy.  As of March 31, 2019, VWES’ bankruptcy was completed.

 

In April 2018, we acquired 100% of American Precision Fabricators (APF) Additional information relating to our acquisition of APF can be found in our Current Report on Form 8-K, filed with the SEC on April 10, 2018.

 

Effective January 1, 2019, we 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”).

 

On November 6, 2019, we completed our acquisition of Deluxe Sheet Metal, Inc., an Indiana corporation (“DSMI”), DSM Holding, LLC, an Indiana limited liability company (“DHL”), and Lonewolf Enterprises, LLC, an Indiana limited liability company (“LWE,” and collectively with DSMI and DHL, “DSM”).

 

And on February 21, 2020, the Company, through its holding subsidiary A4 Construction, completed the acquisition of Excel Fabrication, LLC, an Idaho Limited Liability Company.

 

At the core of our business strategy is our focus on scalable corporate platform solutions.  We have built a strong portfolio of manufacturing, software, and energy driven businesses with a focus on long-term value creation.

 

Subsidiaries & Product Groups

 

As of the date of the filing of this Prospectus, we had the following subsidiaries and product groups:

 

ALTIA, LLC is an automotive technology company with several core product offerings.

 

 

 

 

 o

6th Sense Auto is a connected car technology that provides a distinctive and powerful advantage to management, sales, finance and service departments at automotive dealerships in order to increase productivity, profitability and customer retention.   6thSenseAuto uses disruptive technology to improve inventory management, reduce costs, increase sales, and enhance service.

 

 

 


28 


 

 o

BrakeActive™ is a safety device that can improve a vehicle’s third brake light’s ability to greatly reduce or prevent a rear end collision by as much as 40%. According to a National Highway Traffic Safety Administration report issued in 2010, rear end collisions could be reduced by 90% if trailing vehicles had one additional second to react. The Company’s new programmable technology and device aims to provide this additional reaction time to trailing vehicles.

 

 

 

Quality Circuit Assembly (“QCA”) - Since 1988, QCA has been providing electronic contract manufacturing solutions delivered to its customers via strategic business partnerships. Our abilities encompass a wide variety of skills, beginning with prototype development and culminating in the ongoing manufacturing of a complete product or assembly. Turnkey solutions are tailored around each customer's specific requirements.  Conveniently located in San Jose, California, with close proximity to San Jose airport and all major carriers, QCA’s primary aim is to provide contract-manufacturing solutions to market leading companies within the industrial, scientific, instrumentation, military, medical and green industries.

 

 

 

American Precision Fabricators (“APF”) – Based in Fort Smith, Arkansas, APF is a sheet metal fabricator that provides American made fabricated metal parts, assemblies and sub-assemblies to Original Equipment Manufacturers (“OEM”). The Company supplies several industries with fabricated parts that it creates in-house.  It offers several production capabilities with its state-of-the-art machinery.

 

 

 

Morris Sheet Metal (“MSM”) – Based in Fort Wayne, Indiana, MSM is a commercial sheet metal contractor and fabricator. MSM designs, fabricates, and installs dust collectors, commercial ductwork, kitchen hoods, industrial ventilation systems, machine guards, architectural work, water furnaces, and much more.

 

 

 

JTD Spiral (“JTD”) -  Based in Fort Wayne, Indiana, JTD is a sister company to MSM and provides specialized spiral duct work to MSM clientele.

 

 

 

Deluxe Sheet Metal, Inc (“DLX”) – Based in South Bend, Indiana, DLX is a commercial sheet metal contractor and fabricator. MSM designs, fabricates, and installs dust collectors, commercial ductwork, kitchen hoods, industrial ventilation systems, machine guards, architectural work, water furnaces, and much more.

 

 

Excel Fabrication, LLC (“EXL”) – Based in Twin Falls, Idaho, EXL is an industrial service with customers in the Food, Beverage, Dairy, Mining, Petrochemical, Mineral, and Ammonia Refrigeration.  EXL’s capabilities include a vast amount of field work including new fabrication, design build, installation, repairs, service, maintenance, turn arounds, down days planned or unplanned with quick and responsive teams for most any items required by the customer needs and demands.

 

SPECTRUMebos, Inc. (“SPECTRUMebos”) is an Enterprise Business Operating System (EBOS). Developed by Alpine 4, SPECTRUMebos seeks to combine key technology software components relevant to:

accounting and financial reporting for an ERP system; 

a Document Management System (DMS); 

a Business Intelligence (BI) platform; and 

a Customer Resource Management (CRM) hub. 

 

All of these components ‘tether’ to a management reporting and collaboration toolset.

 

The underlying concept is that SPECTRUMebos can embed itself in a robust blockchain ledger system. The objective is that the security and authenticity of transactions remains static.

The tools help drive real-time information in two directions:

first, to the front lines by assisting customer-facing stakeholders; and  

second, back to management for planning, problem-solving and integration. 

 

 

Silo Subsidiary Structure

 

In the first quarter of 2020, we formed three new subsidiaries: A4 Construction Services, Inc. (“A4 Construction”), A4 Manufacturing, Inc. (“A4 Manufacturing”), and A4 Technologies, Inc. (“A4 Technologies”). All three are


29 


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.

 

As Mr. Wilson communicated to the shareholders of the Company in his CEO letter in early 2020, the Company has been looking to silo its various subsidiaries into sector-specific holding companies since 2019.  In early 2020, by forming A4 Construction, A4 Manufacturing, and A4 Technologies, the Company began this process. By the end of the second quarter of 2020, the Company plans to have shifted the other subsidiaries into these silos, as follows:

 

-A4 Manufacturing: American Precision Fabricators; Quality Circuit Assembly, Inc. 

 

-A4 Construction Services: Excel Fabrication, LLC; Morris Sheet Metal Corp.; JTD Spiral, Inc.; and Deluxe Sheet Metal, Inc. 

 

-A4 Technologies: ALTIA, LLC, Spectrumebos, Inc. 

 

-A4 Corporate Services, LLC  

 

As Mr. Wilson communicated in the 2019 Annual Shareholder letter regarding the Company’s plan to silo our subsidiaries into sector-specific holding companies, we have created those siloed subsidiary holding companies. Those silos or holding subsidiaries are; A4 Manufacturing, Inc., A4 Construction Services, Inc., and A4 Technologies, Inc.  They were created as wholly owned Delaware corporations, and by the end of the third quarter of 2020, we anticipate that we will have incorporated our subsidiaries into them.   We also created the long-awaited operating company for SPECTRUMebos under the name SPECTRUMebos, Inc. and we will begin to move the IP assets and development work into that entity throughout 2020 in preparation for commercialization of the product in 2021.  

 

Recent Developments

 

Acquisition of Excel Fabrication, LLC

 

On February 21, 2020, the Company, through its holding subsidiary A4 Construction, completed the acquisition of Excel Fabrication, LLC, an Idaho Limited Liability Company (“EFL”).

 

Pursuant to a securities purchase agreement (the “SPA”) among the Company and Mark Bell, the owner of EFL (the “Seller”), the Company acquired all of the outstanding LLC membership interests of EFL, for the consideration and on the terms and subject to the conditions set forth in the SPA.

 

The total purchase price was $5,492,000 (the “Purchase Price”), which is the sum of the cash paid at closing (the “Cash Consideration”), by wire transfer of immediately available funds to the accounts designated by Seller, and promissory notes (the “Note Consideration”), also delivered at closing.  As part of the purchase price, the Company is also liable to the Seller for royalty payments over a period of five years, whenever revenues exceed certain thresholds as provided for in the purchase agreement, at rates ranging from 2% to 7%.

 

The Cash Consideration consisted of $2,600,000, plus $600,000 of future Accounts Receivables that were over 90 days aged, plus the addition of working capital, less any Long-Term Liability (as defined in the SPA) of EFL satisfied at Closing, as set forth in the SPA, but not less certain liabilities, as set forth in the SPA.  The Seller and the other parties to the SPA also signed an Amendment (“Amendment”) to the SPA to tranche the Cash payment into two payments, the first for $1,780,000 paid at closing, and the second to be paid on or before February 28, 2020, in the amount of $820,000, which was paid in full.  

 

Additionally, the Note Consideration consisted of a secured promissory note issued in favor of Seller only, issued by EFL, in the amount of $2,300,000.00 (the “Note ”), in the form set forth in an exhibit to the SPA, secured by a subordinated security interest in the assets listed in a related security agreement (the “Security Agreement”) (discussed below). The parties to the SPA agreed that the Company has the right to change the senior lender from time to time while the Note remains unpaid so long as at all times, there is no breach or default or Event of Default under the Notes, the SPA, or the other transaction documents.


30 


With respect to the Note Consideration, EFL issued a secured promissory note (the “Note”) to the Seller.  The terms of the Notes are as follows: the Note is in the amount of $2,300,000, accrues interest at a rate of 4.25% annually. Monthly payments of interest are due monthly, with a balloon payment of all principal and any unpaid interest due on February 21, 2024.

 

In connection with the SPA and the Note, the Company, EFL (collectively, the “Note Parties”), and the Seller entered into a Security Agreement, pursuant to which the Note Parties agreed to grant to the Seller a subordinated security interest in certain collateral set forth in the Security Agreement.  Pursuant to the Security Agreement, the collateral includes, but is not limited to the equipment, accounts receivable, tools, parts, inventory, and commingled goods relating to the foregoing property, customer accounts, intellectual property, and investment property of EFL (collectively, the “Collateral”).

 

The Note Parties and the Seller also entered into a Subordination Agreement with the Senior Lender, wherein the Note Parties acknowledged the senior security interest of the Senior Lender in the Collateral, and agreed to not enforce or assert any of their rights to the Collateral under the Security Agreement until the Senior Lender confirms that the Note Parties have paid in full the senior indebtedness owing to the Senior Lender.  The Subordination Agreement also contained standard terms and conditions.

 

Formation of Silo Subsidiaries

 

As noted above, in January 2020, the Company formed three new Delaware corporation subsidiaries: A4 Construction, A4 Manufacturing, and A4 Technologies.

 

COVID-19 Updates and Impacts

 

Mr. Wilson, the Company’s CEO, provided several updates to the Company’s shareholders, employees, and the public relating to the COVID-19 outbreak and its impact on the Company, the Company’s subsidiaries, and their businesses.

 

-In the April 2, 2020, update, which was filed with the SEC in a Current Report on April 3, 2020, Mr. Wilson provided unofficial 2019 revenue guidance and 2020 preliminary revenue guidance. 

 

-In the April 8, 2020, update, which was filed with the SEC in a Current Report on April 8, 2020, Mr. Wilson informed shareholders, employees, and the public that the Company was temporarily suspending its efforts to uplist to a national exchange, and to postpone any adjustment (including a previously discussed reverse stock split) to the Company’s outstanding equity securities. 

 

-In the May 1, 2020, update, which was filed with the SEC in a Current Report on May 1, 2020, Mr. Wilson provided updates to shareholders, employees, and the public relating to the efforts by the Company and its subsidiaries to obtain SBA Paycheck Protection Program funds, the ability to provide masks to the employees of the Company and its subsidiaries, and the economic impacts on the Company and its subsidiaries due to the COVID-19 pandemic and the related “Shelter in Place” and “Stay Home, Stay Safe” requirements imposed by the various state governments where the Company and its subsidiaries are located. 

 

Additional information can be found in each of the Current Reports referenced above.

 

Employees

 

As of the date of this Prospectus, we had 282 full-time and three part-time employees. We believe that our relationship with our employees is good. Other than as disclosed in this Prospectus or previously filed with the SEC, we have no employment agreements with our employees.


31 


 

PROPERTIES

 

Alpine 4 Technologies, Ltd maintains our corporate office in rented offices at 2525 E Arizona Biltmore Cir, Suite 237, Phoenix, Arizona 85016. The monthly rent obligation is approximately $5,100 per month.

 

Quality Circuit Assembly, Inc. rents a location at 1709 Junction Court #380 San Jose, California 95112.  The monthly rent obligation is approximately $27,500 per month.

 

American Precision Fabricators rents a property 4401 Savannah St. Fort Smith, Arkansas 72903 for $15,833 per month.

 

Deluxe Sheet Metal rents space at 6661 Lonewolf Dr, South Bend, Indiana 46628. The rent obligation is approximately $75,000 per month.

 

Morris Sheet Metal and JTD Spiral rent office and fabrication space at 6212 Highview Dr, Fort Wayne, Indiana 46818. The monthly rent obligation is approximately $26,000.

 

Excel Fabrication rents office and fabrication space at 297 Wycoff Cir, Twin Falls, ID 83301.  The monthly rent obligation is approximately $16,667.

 

LEGAL PROCEEDINGS.

 

From time to time, claims may be made against us in the ordinary course of business, which could result in litigation. Claims and associated litigation are subject to inherent uncertainties and unfavorable outcomes could occur, such as monetary damages, fines, penalties, or injunctions prohibiting us from selling one or more products or engaging in other activities. The occurrence of an unfavorable outcome in any specific period could have a material adverse effect on our results of operations for that period or future periods.

 

However, as of the date of this Annual Report, neither the Company nor any of our subsidiaries were a party to, nor are any of our property subject to, any legal proceedings which require disclosure pursuant to this item.

 

 

 

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION

 

There are statements in this Prospectus 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 Prospectus 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 Prospectus 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 or intention to update or revise any forward-looking statements.


32 


 

Overview and Highlights

 

Company Background

 

Alpine 4 Technologies Ltd. ("we" 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 of this Prospectus, the Company was a holding company that owned eight operating subsidiaries: ALTIA, LLC; Quality Circuit Assembly, Inc.; American Precision Fabricators, Inc.; Morris Sheet Metal, Corp; and JTD Spiral, Inc.; Deluxe Sheet Metal, Inc,; Excel Fabrication, LLC; and SPECTRUMebos, Inc. (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 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. 


33 


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 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


34 


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 of which 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 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 and Deluxe, 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 year ended December 31, 2019, as compared to the year ended December 31, 2018.

 

 

 

 

 

 

Year Ended December 31, 2019

 

Year Ended December 31, 2018

 

$ Change

 

 

 

 

 

 

 

 

 

 

Revenue

 

 

$

28,151,524

$

14,261,794

$

13,889,730

Cost of revenue

 

 

 

22,509,046

 

9,440,998

 

13,068,048

Gross Profit

 

 

 

5,642,478

 

4,820,796

 

821,682

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

General and administrative expenses

 

8,122,204

 

5,470,148

 

2,652,056

 

    Total operating expenses

 

8,122,204

 

5,470,148

 

2,652,056

Loss from operations

 

 

(2,479,726)

 

(649,352)

 

(1,830,374)

 

 

 

 

 

 

 

 

 

 

Other income (expenses)

 

 

 

 

 

 

 

Interest expense

 

 

(5,237,205)

 

(3,121,201)

 

(2,116,004)

 

Change in value of derivative liabilities

(252,230)

 

604,219

 

(856,449)

 

Gain on extinguishment of debt

 

-

 

6,305

 

(6,305)


35 


 

Bargain purchase gain

 

 

2,143,779

 

-

 

        2,143,779

 

Other income

 

 

185,314

 

119,737

 

65,577

 

    Total other income (expenses)

 

(3,160,342)

 

(2,390,940)

 

(769,402)

 

 

 

 

 

 

 

 

 

 

Loss before income tax

 

 

(5,640,068)

 

(3,040,292)

 

(2,599,776)

 

 

 

 

 

 

 

 

 

 

Income tax expense

 

 

(87,054)

 

(43,399)

 

(43,655)

 

 

 

 

 

 

 

 

 

 

Loss from continuing operations

 

(5,553,014)

 

(2,996,893)

 

(2,556,121)

 

 

 

 

 

 

 

 

 

 

Discontinued operations

 

 

2,419,849

 

(4,911,124)

 

7,330,973

 

 

 

 

 

 

 

 

 

 

Net loss

 

 

$

(3,133,165)

$

(7,908,017)

$

4,774,852

 

 

 

 

 

 

 

 

 

 

 

Revenue

 

Our revenues for the year ended December 31, 2019, increased by $13,889,730 as compared to the year ended December 31, 2018.  In 2019, the increase in revenue related to $1,366,922 for APF (acquired in April 2018); $12,881,450 for Morris (acquired in January 2019); and $1,574,474 for Deluxe (acquired in November 2019), offset by a decrease of $469,933 relating to the 6th Sense Auto and Brake Active services of ALTIA, and $1,463,183 for QCA.  The increase in revenue was driven by the acquisitions of APF, Morris, and Deluxe.  We expect our revenue to continue to grow over the remainder of 2020.

 

Cost of revenue

 

Our cost of revenue for the year ended December 31, 2019, increased by $13,068,048 as compared to the year ended December 31, 2018.  In 2019, the increase in our cost of revenue related to $1,841,202 for APF (acquired in April 2018); $10,346,309 for Morris (acquired in January 2019); and $1,400,428 for Deluxe (acquired in November 2019), offset by a decrease of $79,593 relating to the 6th Sense Auto and Brake Active services of ALTIA, and $440,298 for QCA. 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 year ended December 31, 2019, increased by $2,652,056 as compared to the year ended December 31, 2018.  The increase consisted primarily of an increase to general and administrative expenses associated with the operations of APF, Morris, and Deluxe which were acquired in April 2018, January 2019, and November 2019, respectively.

 

Other expenses

 

Other expenses for the year ended December 31, 2019, increased by $769,402 as compared to 2018.  This increase was primarily due to the increase in interest expense due to the increase in outstanding debt in 2019 compared to 2018 and the amortization of debt discounts, the increase in change in derivative liability offset by the bargain purchase gain in 2019.


36 


 

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.

 

The operating results for VWES have been presented in the accompanying consolidated statement of operations for the years ended December 31, 2019 and 2018, as discontinued operations and are summarized below:

 

 

 

 

Years Ended December 31,

 

 

 

2019

 

2018

Revenue

 

$

-  

$

       3,040,458

Cost of revenue

 

 

-  

 

       2,974,313

Gross Profit

 

 

-  

 

            66,145

Operating expenses

 

 

           95,179

 

       5,045,078

Loss from operations

 

 

          (95,179)

 

      (4,978,933)

Other income

 

 

-  

 

            67,809

Gain on disposition of discontinued operations

 

 

2,515,028

 

 

Net income (loss)

 

$

          2,419,849

$

      (4,911,124)

 

As of December 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.

 

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

 

 

-

 

-

 

-


37 


 

 

 

 

 

 

 

 

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 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.


38 


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.

 

Contractual Obligations

 

Our significant contractual obligations as of December 31, 2019, were as follows:

 

 

 

Payments due by Period

 

 

Less than One Year

 

One to Three Years

 

Three to Five Years

 

More Than Five Years

 

Total

Finance Lease obligations

$

1,501,852

$

3,088,847

$

3,151,338

$

16,820,594

$

24,562,631

Operating Lease obligations

 

349,392

 

428,962

 

23,400

 

-

 

801,754

Notes payable, related parties

 

341,820

 

-

 

-

 

-

 

341,820

Notes payable, non-related parties

 

8,724,171

 

7,049,018

 

360,404

 

2,440,762

 

18,574,355

Convertible notes payable

 

1,956,951

 

1,673,688

 

-

 

-

 

3,630,639

Total

$

12,874,186

$

12,240,515

$

3,535,142

$

19,261,356

$

47,911,199

 

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 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 audited annual consolidated financial statements and our unaudited quarterly consolidated financial statements included in this Prospectus.


39 


 

MANAGEMENT

 

As of the date of this Prospectus, the officers and directors of Alpine 4 were the following:

 

Name

Age

Officer/Position

Board Member/Position

Kent B. Wilson

47

President, Chief Executive Officer

Director

Charles Winters

43

N/A

Chairman of the Board

Scott Edwards

65

N/A

Director

Ian Kantrowitz

40

N/A

Director

Jeffrey Hail

58

Chief Operating Officer

 

 

Biographical Information for Kent B. Wilson

 

Mr. Wilson serves as the Chief Executive Officer and Secretary for the Company. Previously, he has raised approximately two million dollars via seed capital and private placement funds to start Crystal Technology Holdings, Ltd./NextSure, LLC.  This company successfully designed, built, and brought two products to market, including an internet-based insurance rating engine that allowed prospective buyers to rate and buy their auto insurance online via a virtual insurance agent.  Since 2002 Mr. Wilson has been actively involved with all facets of corporate financial and operational planning and has held the title of CFO and CEO for several different companies.  Mr. Wilson has also consulted for various finance departments of publicly traded companies such as JDA Software and Switch & Data, Inc. to help them identify and develop best SOX and GAAP practices and procedures. In 2011, Mr. Wilson took over as CFO of United Petroleum Company and helped guide them from a small startup with less than $1 million in revenue to a company with $20 million in revenue and a growth path for 2013 and 2014.  Mr. Wilson holds a BA degree in Management and holds an MBA from Northcentral University. ​  

 

Biographical Information for Charles Winters

 

Mr. Winters is an automotive executive with over 10 years of automotive dealership experience.  He is also a principal in several automotive dealerships and repair shops throughout the southwest.  Mr. Winters holds a Bachelor's Degree in Economics from Auburn University.

 

Biographical Information for Scott Edwards

 

Mr. Edwards is automotive sales and marketing executive with over 19 years of experience in the automotive industry.  He currently represents a large national automotive franchise distributorship and has extensive knowledge of the inner workings of the retail and wholesale automotive market.

 

Biographical Information for Ian Kantrowitz

 

As Director of Investor Relations, Mr. Kantrowitz is accountable for creating and presenting a consistently applied investment message to our shareholders and the investment community on behalf of Alpine 4. Furthermore, he is responsible for monitoring and presenting management with the opinions of the investment community regarding the company's performance.

 

Prior to joining the Alpine 4 team, Mr. Kantrowitz was a project manager for two major homebuilders in Phoenix, AZ, Continental Homes and Engle Homes.  Mr. Kantrowitz has also been actively involved in the automotive industry where his in-depth knowledge of the auto industry lends a valuable perspective to our in-house product, 6th Sense Auto. Additionally, he was a top performing banker for Wells Fargo Bank, ranked number 5 in the country.

 

Our bylaws authorize no fewer than one director. As of the date of this Prospectus, we had four directors.

 

Biographical Information for Jeff Hail

 

Jeff Hail is the Chief Operating Officer (COO) of Alpine 4 Technologies, Ltd. Raised and educated in Scottsdale, AZ; Mr. Hail earned his Bachelor of Science degree in Operations and Production Management from the W.P. Carey School of Business at Arizona State University.  Mr. Hail’s professional experience has been both in the government


40 


and private sector.  As a Buyer/Contract Officer with the Arizona Department of Transportation writing, awarding and administering highway services contracts.

 

In the private sector, Mr. Hail experienced success by starting a number of different companies and building them to be the leaders in their niche sectors from both electronics manufacturing to e-commerce.  As a result, he brings a broad-based experience level with the operational aspects of running a business in today’s realm.

 

Term of office. Our directors are appointed for a one-year term to hold office until the next annual meeting of our shareholders or until removed from office in accordance with our bylaws. Our officers are appointed by our Board and hold office until removed by the Board.

 

Family relationships. There are no family relationships between or among the directors, executive officers or persons nominated or chosen by us to become directors or executive officers.

 

Director or officer involvement in certain legal proceedings. To the best of our knowledge, except as described below, during the past five years, none of the following occurred with respect to a present or former director or executive officer of the Company: (1) any bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time; (2) any conviction in a criminal proceeding or being subject to a pending criminal proceeding (excluding traffic violations and other minor offenses); (3) being subject to any order, judgment or decree, not subsequently reversed, suspended or vacated, of any court of any competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities or banking activities; and (4) being found by a court of competent jurisdiction (in a civil action), the Securities and Exchange Commission or the Commodities Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended or vacated.

 

As of the date of this Prospectus, we did not have a standing audit, compensation, or nominating committee of the Board of Directors.  The Company has determined that the Board of Directors does not have an "Audit Committee Financial Expert" as that term is defined in Item 407(d)(5) of SEC Regulation S-K.

 

Code of Ethics

 

We have adopted a Code of Business Conduct that applies to all of our directors, officers and employees, including our principal executive officer and principal financial officer. The Code of Business Conduct is posted on our website at www.alpine4.com/code-of-conduct/.

 

Director Independence

 

Alpine 4 is not required by any outside organization (such as a stock exchange or trading facility) to have independent directors.

 

Summary Compensation Table

 

Name and Principal Position

Year

Salary

Bonus

Stock Awards

Option Awards

Nonequity Incentive Plan Compensation

Deferred Compensation Earnings

All Other Compensation

Total

(a)

(b)

(c)

(d)

(e)

(f)

(g)

(h)

(i)

(j)

Kent B. Wilson, Chief Executive Officer

2019

200,000

0

9,750

0

0

0

0

209,750

 

2018

200,000

0

44,200

0

0

0

0

244,200

Jeff Hail, Chief Operating Officer

2019

136,000

0

5,363

0

0

0

0

141,363

 

2018

120,000

0

18,200

0

0

0

0

138,200


41 


 

Outstanding Equity Awards

 

None

 

Director Compensation

 

The following table sets forth the amounts paid to the Company's directors for their service as directors of the Company during the year ended December 31, 2019.  Please note: the compensation of Mr. Wilson, who is also an executive officer of the Company, is set forth above.

 

Name

 

Fees earned

or paid

in cash

 

 

Stock awards

 

 

Option awards

 

 

Non-equity

incentive

plan

compensation

 

 

Nonqualified deferred

compensation
 earnings

 

 

All other compensation

 

 

Total

 

 

 

($)

 

 

($)

 

 

($)

 

 

($)

 

 

($)

 

 

($)

 

 

($)

 

(a)

 

(b)

 

 

(c)

 

 

(d)

 

 

(e)

 

 

(f)

 

 

(g)

 

 

(h)

 

Ian Kantrowitz

 

$

0

 

 

 

7,150

 

 

$

0

 

 

$

0

 

 

$

0

 

 

$

0

 

 

$

7,150

 

Charles Winters

 

$

0

 

 

 

3,900

 

 

$

0

 

 

$

0

 

 

$

0

 

 

$

0

 

 

$

3,900

 

Scott Edwards

 

$

0

 

 

 

2,600

 

 

$

0

 

 

$

0

 

 

$

0

 

 

$

0

 

 

$

2,600

 

 

 

Securities Authorized for Issuance under Equity Compensation Plans

 

 Adoption of 2016 Stock Option and Stock Award Plan

 

On November 10, 2016, the Company's Board of Directors adopted the Company's 2016 Stock Option and Stock Award Plan (the “Plan”).  Pursuant to the Plan, the Company may issue stock options, including incentive stock options and non-qualifying stock options, and stock grants to employees and consultants of the Company, as set forth in the Plan, a copy of which was filed as an exhibit to the Company’s Quarterly Report on Form 10-Q for the period ended September 30, 2016.

 

The Company has reserved 2,000,000 shares of the Company's Class A common stock for issuance under the Plan.

 

Equity Compensation Plan Information

 

Plan category

Number of

securities to

be issued

upon exercise of outstanding

options,

warrants

and rights

 

Weighted-

average

exercise price

of outstanding

options,

warrants

and rights

 

Number of

securities

remaining

available for

future issuance under equity compensation

plans (excluding securities

reflected in column (a))

 

 

(a)

 

(b)

 

(c)

 

Equity compensation plans approved by security holders

 

 

1,790,000

 

 

$

0.19

 

 

 

210,000

 

Equity compensation plans not approved by security holders

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

 

1,790,000

 

 

$

0.19

 

 

 

210,000

 


42 


BENEFICIAL OWNERSHIP OF SECURITIES

 

The following table sets forth certain information regarding beneficial ownership of Alpine 4 Class A and Class B common stock as of July 23, 2020, (i) by each person (or group of affiliated persons) who owns beneficially more than five percent of the outstanding shares of common stock, (ii) by each director and executive officer of Alpine 4, and (iii) by all of the directors and executive officers of Alpine 4 as a group.  The percentages are based on the following figures:

 

110,677,860   shares of Class A common stock;

 

 

9,023,088 shares of Class B common stock;

 

 

11,572,267 shares of Class C common stock; and

 

 

5 shares of Series B Preferred stock.

 

Except as otherwise noted, the persons named in the table have sole voting and dispositive power with respect to all shares beneficially owned, subject to community property laws where applicable.

 

Name and Address of beneficial owner (1); Class of Securities

Title/Class of Security

Number of Shares

Beneficial

Ownership of

Shares Listed

Votes

Total Voting Power (2)

Kent B. Wilson, Chief Executive Officer, Director (3)

CLASS A

2,016,890

1.82%

2,016,890

 

 

CLASS B

3,285,449

36.41%

32,854,490

 

 

CLASS C

790,169

6.83%

3,950,845

 

 

B Preferred

2

40.00%

207,016,060

 

Total Votes

 

 

 

245,838,285

31.67%

 

 

 

 

 

 

Scott Edwards, Director (4)

CLASS A

252,000

0.23%

252,000

 

 

CLASS B

350,000

3.88%

3,500,000

 

 

CLASS C

225,200

1.95%

1,126,000

 

 

B Preferred

1

20.00%

103,508,030

 

Total Votes

 

 

 

108,386,030

13.96%

 

 

 

 

 

 

Charles Winters, Director (5)

CLASS A

709,800

0.64%

709,800

 

 

CLASS B

1,300,000

14.41%

13,000,000

 

 

CLASS C

300,000

2.59%

1,500,000

 

 

B Preferred

1

20.00%

103,508,030

 

Total Votes

 

 

 

118,717,830

15.29%

 

 

 

 

 

 

Ian Kantrowitz, Director (6)

CLASS A

847,371

0.77%

847,371

 

 

CLASS B

1,499,429

16.62%

14,994,290

 

 

CLASS C

634,738

5.48%

3,173,690

 

 

B Preferred

1

20.00%

103,508,030

 

Total Votes

 

 

 

122,523,381

15.78%

 

 

 

 

 

 

Jeff Hail

Chief Operating Officer (7)

CLASS A

541,000

0.49%

541,000

 

 

CLASS B

1,124,211

12.46%

11,242,110

 


43 


 

CLASS C

413,000

3.57%

2,065,000

 

Total Votes

 

 

 

13,848,110

1.78%

 

 

 

 

 

 

As a Group

CLASS A

4,367,061

3.95%

4,367,061

 

5 PEOPLE

CLASS B

7,559,089

83.77%

75,590,890

 

 

CLASS C

2,363,107

20.42%

11,815,535

 

 

B Preferred

5

100.00%

517,540,150

 

Total Votes

 

 

 

609,313,636

78.49%

 

 

(1)

Except as otherwise indicated, the address of the stockholder is: Alpine 4 Technologies Ltd., 2525 E Arizona Biltmore Cir, Suite 237, Phoenix AZ 85016.

 

 

(2)

The Voting Power column includes the effect of shares of Class B Common Stock, Class C Common Stock, and Series B Preferred Stock held by the named individuals, as indicated in the footnotes below. Each share of Class B common stock has 10 votes.  Each share of Class C Common Stock has 5 votes. Collectively, all of the shares of Series B Preferred have voting power equal to 200% of the total voting power of all other Classes or series of outstanding shares. Each Series B Preferred share has a fractional portion of that aggregate vote.  The total voting power for each person is also explained in the footnotes below.

 

 

(3)

Mr. Wilson owned as of the date of this Prospectus 2,016,890 shares of Class A common stock; 3,285,449 shares of Class B Common Stock; 790,169 shares of Class C Common Stock, and 2 shares of Series B Preferred Stock, which represent an aggregate of 245,838,285 votes, or approximately 31.67% of the total voting power.

 

 

(4)

Mr. Edwards owned as of the date of this Prospectus 252,000 shares of Class A Common Stock; 350,000 shares of Class B Common Stock; 225,200 shares of Class C Common Stock, and 1 share of Series B Preferred Stock, which represent an aggregate of 108,386,030 votes, or approximately 13.96% of the voting power.

 

 

(5)

Mr. Winters owned as of the date of this Prospectus 709,800 shares of Class A Common Stock; 1,300,000 shares of Class B Common Stock; 300,000 shares of Class C Common Stock, and 1 share of Series B Preferred Stock, which represent an aggregate of 118,717,830 votes, or approximately 15.29% of the voting power.

 

 

(6)

Mr. Kantrowitz owned as of the date of this Prospectus 847,371 shares of Class A Common Stock; 1,499,429 shares of Class B Common Stock; 634,738 shares of Class C Common Stock, and 1 share of Series B Preferred Stock, which represent an aggregate of 122,523,381 votes, or approximately 15.78% of the voting power.

 

 

(7)

Mr. Hail owned as of the date of this Prospectus 541,000 shares of Class A Common Stock; 1,124,211 shares of Class B Common Stock; and 413,000 shares of Class C Common Stock, which represent an aggregate of 13,848,110 votes, or approximately 1.78% of the voting power.

 

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

 

Related Party Transactions

 

The Company had outstanding notes payable due to related parties totaling $341,820 at December 31, 2019.

 

In January 2020, five officers and directors of the Company converted $603,448 owed to them as salaries and commissions into 4,023,088 shares of the Company’s Class B Common stock. The conversion price was $0.15 per share, the closing price of the Company’s Class A common stock on January 7, 2020, which was when the individuals agreed with the Company to convert the amounts owing. The Class B common stock converts one share for one share into Class A common stock, so the Class A common stock market price was used as the conversion price.


44 


DESCRIPTION OF SECURITIES

 

Authorized Capital Stock

 

Our authorized capital stock consists of 155,000,000 shares of which 150,000,000 shares shall be common stock, par value $0.0001 per share, and 5,000,000 shares shall be preferred stock, par value of $0.0001 per share.

 

Common Stock

 

Pursuant to our amended Certificate of Incorporation, we are authorized to issue three classes of common stock: Class A common stock (125,000,000 shares); Class B common stock (10,000,000 shares); and Class C common stock (15,000,000 shares). The specific rights and preferences are set forth below.

 

Voting Rights

 

Holders of our Class A, Class B, and Class C common stock will have identical rights, except that holders of our Class A common stock are entitled to one vote per share; holders of our Class B common stock will be entitled to ten (10) votes per share; and holders of our Class C common stock will be entitled to five (5) votes per share. Holders of shares of Class A, Class B, and Class C common stock will vote together as a single class on all matters (including the election of directors) submitted to a vote of stockholders, unless otherwise required by law. We have not provided for cumulative voting for the election of directors in our certificate of incorporation.

 

Dividends

 

Subject to preferences that may apply to any shares of preferred stock outstanding at the time, the holders of Class A, Class B, and Class C common stock shall be entitled to share equally in any dividends that our board of directors may determine to issue from time to time. In the event a dividend is paid in the form of shares of common stock or rights to acquire shares of common stock, the holders of Class A common stock shall receive Class A common stock, or rights to acquire Class A common stock, as the case may be; the holders of Class B common stock shall receive Class B common stock, or rights to acquire Class B common stock, as the case may be; and the holders of Class C common stock shall receive Class C common stock, or rights to acquire Class C common stock, as the case may be.

 

Liquidation Rights

 

Upon our liquidation, dissolution or winding-up, the holders of Class A, Class B, and Class C common stock shall be entitled to share equally all assets remaining after the payment of any liabilities and the liquidation preferences on any outstanding preferred stock.

 

Conversion

 

Class A Common

 

Our Class A common stock is not convertible into any other shares of our capital stock.

 

Class B Common

 

Each share of Class B common stock is convertible at any time at the option of the holder into one share of Class A common stock. In addition, each share of Class B common stock shall convert automatically into one share of Class A common stock upon any transfer, whether or not for value, except for certain transfers described in our Certificate of Incorporation.

 

Once converted into Class A common stock, the Class B common stock will be classified as authorized and unissued, and may be reissued. No class of common stock may be subdivided or combined unless the other class of common stock concurrently is subdivided or combined in the same proportion and in the same manner.

 

The Amendment also provides that shares of Class B common stock, when converted into Class A common stock,


45 


will be deemed to be authorized and unissued shares. The prior version of the Company’s Certificate of Incorporation provided that Class B common stock, when converted into Class A common stock, would be retired and could not be reissued. The Amendment will permit the Company to reissue shares of Class B common stock after their conversion.

 

Class C Common

 

Each share of Class C common stock is convertible as follows:

 

-

Between the date of issuance by the Company to the holder (the “Issuance Date”) and the third anniversary of the Issuance Date, the Class C common stock may not be converted into Class A common stock.

 

 

-

Beginning on the third anniversary of the Issuance Date (the “Initial Conversion Date”), the shareholder may convert up to 25% of the Class C shares owned by such holder into shares of Class A common stock.

 

 

-

Beginning on the fourth anniversary of the Issuance Date, the shareholder may convert up to an additional 25% of the Class C shares owned by such holder into shares of Class A common stock.

 

 

-

Beginning on the fifth anniversary of the Issuance Date, the shareholder may convert up to an additional 25% of the Class C shares owned by such holder into shares of Class A common stock.

 

 

-

Beginning on the sixth anniversary of the Issuance Date, the shareholder may convert up to an additional 25% of the Class C shares owned by such holder into shares of Class A common stock.

 

 

-

The conversion schedule and limitations above are referred to herein as the “Conversion Schedule.

 

 

-

As discussed more fully below, any Transfer (as defined in the Amendment) of Class C Common Stock shall result in the Initial Conversion Date being deemed to be reset, and shall be the third anniversary of such Transfer, and the Conversion Schedule shall be reset and calculated from the reset Initial Conversion Date.

 

Once converted into Class A common stock, the Class C common stock shall not be reissued. No class of common stock may be subdivided or combined unless the other class of common stock concurrently is subdivided or combined in the same proportion and in the same manner.

 

Restrictions on Transfer

 

Class A Common

 

There are no restrictions on the transfer of the Class A common stock, other than restrictions required by federal and state securities laws.

 

Class B Common

 

Each share of Class B Common Stock shall automatically, without any further action, convert into one (1) fully paid and non-assessable share of Class A Common Stock upon a Transfer (as defined in the Amendment) of such share, other than a Transfer:

 

-

from a Class B Stockholder to any other Class B Stockholder who is a natural person to certain Permitted Entities, and from any of the Permitted Entities back to such Class B Stockholder and/or any other Permitted Entity established by or for such Class B Stockholder:

 

 

 

 

 o

Certain trusts;

 

 

 

 

 o

An Individual Retirement Account, as defined in Section 408(a) of the Internal Revenue Code, or certain pensions, profit sharing, stock bonus or other type of plans or trusts;

 

 

 


46 


 

 o

Certain entities, including a corporation over which such Class B Stockholder has voting control; a partnership over which such Class B Stockholder has voting control; a limited liability company over which such Class B Stockholder has voting control;

 

 

 

-

by a Class B Stockholder that is a partnership, or a nominee for a partnership, or a limited liability company, which partnership or limited liability company beneficially held more than five percent (5%) of the total outstanding shares of Class B Common Stock as of the transfer to certain persons listed in the Amendment;

 

Additionally, each share of Class B Common Stock held of record by a Class B Stockholder who is a natural person, or by such Class B Stockholder’s Permitted Entities, shall automatically, without any further action, convert into one (1) fully paid and non-assessable share of Class A Common Stock upon the death of such Class B Stockholder.

 

Shares of Class B Common Stock that are converted into shares of Class A Common Stock as provided in this section shall be retired and may not be reissued.

 

Class C Common

 

Upon the Transfer (as defined in the Amendment) of any share of Class C Common Stock other than a Transfer:

 

-

from a Class C Stockholder to any other Class C Stockholder who is a natural person to certain Permitted Entities, and from any of the Permitted Entities back to such Class C Stockholder and/or any other Permitted Entity established by or for such Class C Stockholder:

 

 

 

 

 o

Certain trusts;

 

 

 

 

 o

An Individual Retirement Account, as defined in Section 408(a) of the Internal Revenue Code, or certain pensions, profit sharing, stock bonus or other type of plans or trusts;

 

 

 

 

 o

Certain entities, including a corporation over which such Class C Stockholder has voting control; a partnership over which such Class C Stockholder has voting control; a limited liability company over which such Class C Stockholder has voting control;

 

 

 

-

by a Class C Stockholder that is a partnership, or a nominee for a partnership, or a limited liability company, which partnership or limited liability company beneficially held more than five percent (5%) of the total outstanding shares of Class C Common Stock as of the transfer to certain persons listed in the Amendment;

 

the Initial Conversion Date shall be deemed to be reset, and shall be the third anniversary of such Transfer, and the Conversion Schedule shall be reset and calculated from the reset Initial Conversion Date.

 

Additionally, each share of Class C Common Stock held of record by a Class C Stockholder who is a natural person, or by such Class C Stockholder’s Permitted Entities, shall automatically, without any further action, convert into one (1) fully paid and non-assessable share of Class A Common Stock upon the death of such Class C Stockholder.

 

The transfer agent and registrar for our Class A and Class C common stock is VStock Transfer, LLC. The transfer agent’s address is 18 Lafayette Place, Woodmere, NY 11598, and its telephone number is 212.828.8436.

 

Preferred Stock

 

We are authorized by our Certificate of Incorporation to issue one or more series of preferred stock, and our Board of Directors is authorized to determine the rights, preferences, and terms of any such series without being required to seek approval of the shareholders. This is often referred to as having “blank check” preferred stock rights.

 

As of the date of this Prospectus, we had one series of preferred stock outstanding, our Series B Convertible Preferred Stock (the “Series B Preferred Stock”).

 

The terms of the Series B Preferred Stock include the following:


47 


 

-

 

Number of shares: The Company designated 100 shares of Series B Preferred Stock.

 

 

 

-

 

The Stated Value of the Series B Preferred Stock is $1.00 per share.

 

 

 

-

 

No dividends will accrue.

 

 

 

-

 

Voting Rights

 

 

 

 

 o

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.

 

 

 

 

 o

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.

 

 

 

-

 

Liquidation

 

 

 

 

 o

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.

 

 

 

-

 

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

 

 

 

 

 o

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 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).

 

 

 

 

 o

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 the date of this Prospectus, we had 5 shares of Series B Preferred Stock outstanding, held by the members of our Board of Directors.

 

Dividend Policy

 

We have never declared or paid any cash dividends on our capital stock, and we do not currently intend to pay any cash dividends on our common stock for the foreseeable future. We expect to retain future earnings, if any, to fund the development and growth of our business. Any future determination to pay dividends on our common stock will be at the discretion of our board of directors and will depend upon, among other factors, our financial condition, operating results, current and anticipated cash needs, plans for expansion and other factors that our board of directors may deem relevant.


48 


 

Anti-Takeover Provisions of Our Charter Documents and Delaware Law

 

Some provisions of our Charter, our Bylaws and Delaware law could make it more difficult to acquire our company by means of a tender offer, a proxy contest, or otherwise.

 

Our Bylaws establish advance notice procedures with respect to stockholder proposals and the nomination of candidates for election as directors, other than nominations made by or at the direction of our board of directors or a committee of our board of directors. These procedures provide that notice of stockholder proposals must be timely given in writing to our corporate secretary prior to the meeting at which the action is to be taken. Generally, for a proposal to be timely submitted for consideration at an annual meeting, notice must be delivered to our secretary not less than 90 days nor more than 120 days prior to the first anniversary date of the annual meeting for the preceding year. Our Bylaws specify the requirements as to form and content of all stockholders’ notices. These provisions might preclude our stockholders from bringing matters before our annual meeting of stockholders or from making nominations for directors at our annual meeting of stockholders if the proper procedures are not followed.

 

Our Charter and Bylaws both provide that vacancies on our board of directors, including newly created directorships, may be filled only by a majority vote of directors then in office, and directors so chosen shall hold office for a term expiring at the next annual meeting of stockholders or until such director’s successor shall have been duly elected and qualified. Accordingly, the board of directors could prevent any stockholder from filling the new directorships with such stockholder’s own nominee.

 

Additionally, as noted, our Charter provides our Board with “blank check” preferred stock authority, by which means the Board of Directors may designate a new series of preferred stock, and determine the rights and preferences, including voting rights, without the need to seek approval from our shareholders.

 

Delaware Anti-Takeover Law

 

We are subject to Section 203 of the Delaware General Corporation Law which contains anti-takeover provisions. In general, Section 203 prohibits a publicly held Delaware corporation from engaging in a business combination with an interested stockholder for a period of three years following the date that the person became an interested stockholder, unless the business combination or the transaction in which the person became an interested stockholder is approved in a prescribed manner. Generally, a business combination includes a merger, asset or stock sale or another transaction resulting in a financial benefit to the interested stockholder. An interested stockholder is a person who, together with affiliates and associates, owns 15% or more of the corporation’s voting stock. The existence of this provision may have an anti-takeover effect with respect to transactions that are not approved in advance by our board of directors, including discouraging attempts that might result in a premium over the market price for the shares of common stock held by stockholders.

 

No Cumulative Voting

 

Under Delaware law, cumulative voting for the election of directors is not permitted unless a corporation’s certificate of incorporation authorizes cumulative voting. Our Charter does not provide for cumulative voting in the election of directors. Cumulative voting allows a minority stockholder to vote a portion or all of its shares for one or more candidates for seats on our board of directors. Without cumulative voting, a minority stockholder will not be able to gain as many seats on our board of directors based on the number of shares of our stock the stockholder holds as compared to the number of seats the stockholder would be able to gain if cumulative voting were permitted. The absence of cumulative voting makes it more difficult for a minority stockholder to gain a seat on our board of directors to influence our board’s decision regarding a takeover.

 

Stockholder Action by Written Consent

 

Delaware law generally provides that the affirmative vote of a majority of the shares entitled to vote on such matter is required to amend a corporation’s certificate of incorporation or bylaws, unless a corporation’s certificate of incorporation or bylaws requires a greater percentage. Our Charter permits our board of directors to amend or repeal most provisions of our Bylaws by majority vote. Generally, our Charter may be amended by holders of a majority of


49 


the voting power of the then outstanding shares of our capital stock entitled to vote. The stockholder vote or consent with respect to an amendment of our Charter or Bylaws would be in addition to any separate class vote that might in the future be required under the terms of any series of preferred stock that might be outstanding at the time such a proposed amendment were submitted to stockholders. Delaware law and the provisions of our Bylaws generally permit stockholders owning the requisite percentage of shares of common stock necessary to approve an amendment to our Charter and Bylaws to act by written consent in lieu of a meeting of our stockholders.

 

Limitation of Liability and Indemnification of Officers and Directors

 

Our Bylaws provide indemnification, including advancement of expenses, to the fullest extent permitted under applicable law to any person made or threatened to be made a party to any threatened, pending, or completed action, suit, or proceeding, whether civil, criminal, administrative, or investigative by reason of the fact that such person is or was a director or officer of the company, or is or was serving at our request as a director or officer of another corporation, partnership, joint venture, trust, or other enterprise, including service with respect to an employee benefit plan. In addition, our Charter provides that our directors will not be personally liable to us or our stockholders for monetary damages for breaches of their fiduciary duty as directors, unless they violated their duty of loyalty to us or our shareholders, acted in bad faith, knowingly or intentionally violated the law, authorized illegal dividends or redemptions or derived an improper personal benefit from their action as directors. This provision does not limit or eliminate our rights or the rights of any stockholder to seek nonmonetary relief such as an injunction or rescission in the event of a breach of a director’s duty of care. In addition, this provision does not limit the directors’ responsibilities under Delaware law or any other laws, such as the federal securities laws. We have obtained insurance that insures our directors and officers against certain losses, and which insures us against our obligations to indemnify the directors and officers. We also have entered into indemnification agreements with our directors and executive officers.

 

SELLING STOCKHOLDER

 

This prospectus relates to the possible resale by the selling stockholder, Lincoln Park, of shares of common stock that have been or may be issued to Lincoln Park pursuant to the Purchase Agreement. We are filing the registration statement of which this prospectus forms a part pursuant to the provisions of the Registration Rights Agreement, which we entered into with Lincoln Park on January 16, 2020, concurrently with our execution of the Purchase Agreement, in which we agreed to provide certain registration rights with respect to sales by Lincoln Park of the shares of our common stock that have been or may be issued to Lincoln Park under the Purchase Agreement.

 

Lincoln Park, as the selling stockholder, may, from time to time, offer and sell pursuant to this prospectus any or all of the shares that we have sold or may sell to Lincoln Park under the Purchase Agreement. The selling stockholder may sell some, all or none of its shares. We do not know how long the selling stockholder will hold the shares before selling them, and we currently have no agreements, arrangements or understandings with the selling stockholder regarding the sale of any of the shares.

 

The following table presents information regarding the selling stockholder and the shares that it may offer and sell from time to time under this prospectus. The table is prepared based on information supplied to us by the selling stockholder and reflects its holdings as of July 23, 2020. Neither Lincoln Park nor any of its affiliates has held a position or office, or had any other material relationship, with us or any of our predecessors or affiliates. Beneficial ownership is determined in accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and Rule 13d-3 thereunder.

 

Selling Stockholder

 

Shares Beneficially Owned Before this Offering

 

 

Percentage of Outstanding Shares Beneficially Owned Before this Offering

 

 

Shares to be Sold in this Offering

 

 

Percentage of Outstanding Shares Beneficially Owned After this Offering

 

Lincoln Park Capital Fund, LLC (1)

 

 

3,941,752(2

)

 

 

3.56

%(3)

 

 

14,000,000

(4)

 

 

*(5

)

_____________

* Represents less than 1%


50 


(1)Josh Scheinfeld and Jonathan Cope, the Managing Members of Lincoln Park Capital, LLC, are deemed to be beneficial owners of all of the shares of common stock owned by Lincoln Park Capital Fund, LLC. Messrs. Cope and Scheinfeld have shared voting and investment power over the shares being offered under the prospectus filed with the SEC in connection with the transactions contemplated under the Purchase Agreement. Lincoln Park Capital, LLC is not a licensed broker dealer or an affiliate of a licensed broker dealer. 

 

(2)Represents 2,275,086 Commitment Shares of our common stock issued to Lincoln Park upon our execution of the Purchase Agreement as a fee for its commitment to purchase shares of our common stock under the Purchase Agreement, together with and 1,666,666 Initial Purchase Shares, all of which shares are covered by the registration statement that includes this prospectus. We have excluded from the number of shares beneficially owned by Lincoln Park prior to the offering all of the additional shares of common stock that Lincoln Park may be required to purchase pursuant to the Purchase Agreement, because the issuance of such shares is solely at our discretion and is subject to certain conditions, the satisfaction of all of which are outside of Lincoln Park’s control, including the registration statement of which this prospectus is a part becoming and remaining effective. Furthermore, under the terms of the Purchase Agreement, issuances and sales of shares of our common stock to Lincoln Park are subject to certain limitations on the amounts we may sell to Lincoln Park at any time, including the Beneficial Ownership Cap. See the description under the heading “Lincoln Park Transaction” for more information about the Purchase Agreement. 

 

(3)Based on 110,677,860 outstanding shares of our common stock as of July 23, 2020, which includes the 2,275,086 Commitment Shares and the and 1,666,666 Initial Purchase Shares we issued to Lincoln Park on January 16, 2020. 

 

(4)Although the Purchase Agreement provides that we may sell up to $10,000,000 of our common stock to Lincoln Park, only and, 14,000,000 shares of our common stock are being offered under this prospectus, which represents: (i) 2,275,086 Commitment Shares issued to Lincoln Park upon our execution of the Purchase Agreement as consideration for its commitment to purchase shares of our common stock under the Purchase Agreement; (ii) and 1,666,666 Initial Purchase Shares; and (iii) an aggregate of and 10,058,248 shares of our common stock that may be sold by us to Lincoln Park at our discretion from time to time over a 36-month period commencing after the satisfaction of certain conditions set forth in the Purchase Agreement, including that the SEC has declared effective the registration statement that includes this prospectus. Depending on the price per share at which we sell our common stock to Lincoln Park pursuant to the Purchase Agreement, we may need to sell to Lincoln Park under the Purchase Agreement more shares of our common stock than are offered under this prospectus in order to receive aggregate gross proceeds equal to the $10,000,000 total commitment available to us under the Purchase Agreement. If we choose to do so, we must first register for resale under the Securities Act such additional shares. The number of shares ultimately offered for resale by Lincoln Park is dependent upon the number of shares we sell to Lincoln Park under the Purchase Agreement. 

 

(5)Assumes the sale of all shares of common stock registered pursuant to this prospectus, although the selling stockholder is under no obligation to sell any shares of common stock at this time. 

 

PLAN OF DISTRIBUTION

 

The common stock offered by this prospectus is being offered by the selling stockholder, Lincoln Park. The common stock may be sold or distributed from time to time by the selling stockholder directly to one or more purchasers or through brokers, dealers, or underwriters who may act solely as agents at market prices prevailing at the time of sale, at prices related to the prevailing market prices, at negotiated prices, or at fixed prices, which may be changed. The sale of the common stock offered by this prospectus could be affected in one or more of the following methods:

 

-

ordinary brokers’ transactions;

 

 

-

transactions involving cross or block trades;

 

 

-

through brokers, dealers, or underwriters who may act solely as agents;

 

 


51 


-

“at the market” into an existing market for the common stock;

 

 

-

in other ways not involving market makers or established business markets, including direct sales to purchasers or sales effected through agents;

 

 

-

in privately negotiated transactions; or

 

 

-

any combination of the foregoing.

 

In order to comply with the securities laws of certain states, if applicable, the shares may be sold only through registered or licensed brokers or dealers. In addition, in certain states, the shares may not be sold unless they have been registered or qualified for sale in the state or an exemption from the state’s registration or qualification requirement is available and complied with.

 

Lincoln Park is an “underwriter” within the meaning of Section 2(a)(11) of the Securities Act.

Lincoln Park has informed us that it intends to use an unaffiliated broker-dealer to effectuate all sales, if any, of the common stock that it may purchase from us pursuant to the Purchase Agreement. Such sales will be made at prices and at terms then prevailing or at prices related to the then current market price. Each such unaffiliated broker-dealer will be an underwriter within the meaning of Section 2(a)(11) of the Securities Act. Lincoln Park has informed us that each such broker-dealer will receive commissions from Lincoln Park that will not exceed customary brokerage commissions.

 

Brokers, dealers, underwriters or agents participating in the distribution of the shares as agents may receive compensation in the form of commissions, discounts, or concessions from the selling stockholder and/or purchasers of the common stock for whom the broker-dealers may act as agent. The compensation paid to a particular broker-dealer may be less than or in excess of customary commissions. Neither we nor Lincoln Park can presently estimate the amount of compensation that any agent will receive.

 

We know of no existing arrangements between Lincoln Park or any other stockholder, broker, dealer, underwriter or agent relating to the sale or distribution of the shares offered by this prospectus. At the time a particular offer of shares is made, a prospectus supplement, if required, will be distributed that will set forth the names of any agents, underwriters or dealers and any compensation from the selling stockholder, and any other required information.

 

We will pay the expenses incident to the registration, offering, and sale of the shares to Lincoln Park. We have agreed to indemnify Lincoln Park and certain other persons against certain liabilities in connection with the offering of shares of common stock offered hereby, including liabilities arising under the Securities Act or, if such indemnity is unavailable, to contribute amounts required to be paid in respect of such liabilities. Lincoln Park has agreed to indemnify us against liabilities under the Securities Act that may arise from certain written information furnished to us by Lincoln Park specifically for use in this prospectus or, if such indemnity is unavailable, to contribute amounts required to be paid in respect of such liabilities.

 

Lincoln Park has represented to us that at no time prior to the Purchase Agreement has Lincoln Park or its agents, representatives or affiliates engaged in or effected, in any manner whatsoever, directly or indirectly, any short sale (as such term is defined in Rule 200 of Regulation SHO of the Exchange Act) of our common stock or any hedging transaction, which establishes a net short position with respect to our common stock. Lincoln Park agreed that during the term of the Purchase Agreement, it, its agents, representatives or affiliates will not enter into or effect, directly or indirectly, any of the foregoing transactions.

 

We have advised Lincoln Park that it is required to comply with Regulation M promulgated under the Exchange Act. With certain exceptions, Regulation M precludes the selling stockholder, any affiliated purchasers, and any broker-dealer or other person who participates in the distribution from bidding for or purchasing, or attempting to induce any person to bid for or purchase any security which is the subject of the distribution until the entire distribution is complete. Regulation M also prohibits any bids or purchases made in order to stabilize the price of a security in connection with the distribution of that security. All of the foregoing may affect the marketability of the securities offered by this prospectus.

 


52 


This offering will terminate on the earlier of (i) termination of the Purchase Agreement or (ii) the date that all shares offered by this prospectus have been sold by Lincoln Park.

 

Placement Agent Fee

 

Prior to our entry into the Purchase Agreement, we had engaged Alliance Global Partners (“A.G.P.”) as a placement agent to help us raise capital in connection with a private offering. A.G.P. introduced us to Lincoln Park, for which we agreed to pay A.G.P. a fee of 10% of the amount of the funds received from Lincoln Park. At the time of signing our agreement with A.G.P., we paid an advance of $12,000, which was to be applied to the 10% fee payable. In connection with execution of the Purchase Agreement, we sold the Initial Purchase Shares to Lincoln Park for $250,000, and were obligated to pay a fee of $25,000 to A.G.P., and we paid the remaining $13,000. Going forward, we are required to pay a placement agent fee of 10% to A.G.P. of all amounts received from Lincoln Park.

 

Our common stock is quoted on the OTCQB under the symbol “ALPP.”

 

LEGAL MATTERS

 

The legal validity of the securities offered by this prospectus will be passed upon for us by Kirton McConkie, P.C., Salt Lake City, Utah.

 

EXPERTS

 

The audited financial statements for the years ended December 31, 2019 and 2018, and for each of the two years in the period ended December 31, 2019, appearing in this prospectus and the registration statement, have been audited by MaloneBailey, LLC, an independent registered public accounting firm, as set forth in their report thereon appearing elsewhere herein, and are included in reliance upon such report given on the authority of such firm as experts in accounting and auditing.

 

 

WHERE YOU CAN FIND MORE INFORMATION

 

We have filed a registration statement on Form S-1 under the Securities Act of 1933, as amended, relating to the shares of common stock being offered by this prospectus, and reference is made to such registration statement. This prospectus and it does not contain all information in the registration statement, as certain portions have been omitted in accordance with the rules and regulations of the Securities and Exchange Commission.

 

In addition, since our common stock is registered under the Securities Exchange Act of 1934, we are required to file annual, quarterly, and current reports, or other information with the SEC as provided by the Securities Exchange Act of 1934, as amended. Our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to reports filed or furnished pursuant to Sections 13(a) and 15(d) of the Securities Exchange Act of 1934, as amended, are available free of charge on the Investor Relations portion of our website, www.alpine4.com, as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. In addition, the SEC maintains an internet site that contains the reports, proxy and information statements, and other information we electronically file with or furnish to the SEC, located at http://www.sec.gov.

 

Information contained in, or that can be accessed through, our website is not a part of, and shall not be incorporated by reference into, this prospectus. We have included our website address in this prospectus solely as an inactive textual reference.


53 



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

 

To the Board of Directors and Stockholders of

Alpine 4 Technologies, Ltd.

Phoenix, Arizona

 

Opinion on the Financial Statements

 

We have audited the accompanying consolidated balance sheets of Alpine 4 Technologies, Ltd. and its subsidiaries (collectively, the “Company”) as of December 31, 2019 and 2018, and the related consolidated statements of operations, stockholders’ deficit, and cash flows for the years then ended, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2019 and 2018, and the results of their operations and their cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

 

Going Concern Matter

 

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 3 to the financial statements, the Company has suffered recurring losses from operations and has a net capital deficiency that raises substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 3. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

Basis for Opinion

 

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.

 

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

 

/s/ MaloneBailey, LLP

www.malonebailey.com

We have served as the Company's auditor since 2015.

Houston, Texas

June 1, 2020


F-1



ALPINE 4 TECHNOLOGIES, LTD. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31,

 

December 31,

 

 

 

 

 

2019

 

2018

 

 

 

 

 

 

 

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

 

CURRENT ASSETS:

 

 

 

 

 

Cash

$

302,486 

$

207,205 

 

Accounts receivable

 

8,731,565 

 

2,610,354 

 

Contract assets

 

667,724

 

 

Inventory, net

 

2,401,242

 

2,175,795 

 

Capitalized contract costs

 

 

64,234 

 

Prepaid expenses and other current assets

 

269,289 

 

222,200 

 

Assets of discontinued operations

 

 

121,296 

 

 

Total current assets

 

12,372,306 

 

5,401,084 

 

 

 

 

 

 

 

 

Property and equipment, net

 

17,157,845 

 

7,990,556 

Intangible asset, net

 

2,774,618 

 

677,210 

Right of use assets, net

 

660,032 

 

Goodwill

 

2,517,453 

 

3,193,861 

Other non-current assets

 

319,344 

 

290,238 

Assets of discontinued operations

 

 

387,727 

 

 

 

 

 

 

 

 

 

TOTAL ASSETS

$

35,801,598 

$

17,940,676 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' DEFICIT

 

 

 

 

 

 

 

 

 

 

 

 

CURRENT LIABILITIES:

 

 

 

 

 

Accounts payable  

$

5,148,805 

$

3,102,970 

 

Accrued expenses

 

2,676,651 

 

1,254,853 

 

Contract liabilities

 

170,040 

 

 

Deferred revenue

 

 

25,287 

 

Derivative liabilities

 

2,298,609 

 

1,892,321 

 

Deposits

 

12,509 

 

12,509 

 

Notes payable, current portion

 

8,724,171 

 

3,585,603 

 

Notes payable, related parties, current portion

 

341,820 

 

192,000 

 

Convertible notes payable, current portion, net of discount of $846,833 and $942,852

 

1,110,118 

 

2,644,735 

 

Financing lease obligation, current portion

 

377,330 

 

105,458 

 

Operating lease obligation, current portion

 

266,623 

 

 

Acquisition contingency

 

500,000 

 


F-2



 

Net liabilities of discontinued operations

 

 

2,752,447 

 

 

Total current liabilities

 

21,626,676 

 

15,568,183 

 

 

 

 

 

 

 

 

Notes payable, net of current portion

 

9,850,184 

 

4,517,441 

Convertible notes payable, net of current portion

 

1,673,688 

 

450,000 

Financing lease obligations, net of current portion

 

13,696,011 

 

8,295,176 

Operating lease obligations, net of current portion

 

403,931 

 

Deferred tax liability

 

521,250 

 

608,304 

 

 

 

 

 

 

 

 

 

TOTAL LIABILITIES

$

47,771,740 

$

29,439,104 

 

 

 

 

 

 

 

 

STOCKHOLDERS' DEFICIT:

 

 

 

 

 

Preferred stock, 5,000,000 shares of Preferred Stock at $.0001 par value preferred. As of December 31, 2019 and 2018 we have Series B Preferred at $0.0001 par value; 100 shares authorized designated 100 of the 5,000,000 shares as Series B Preferred.  0 and 0 shares issued and outstanding at December 31, 2019 and 2018.

 

 

 

Class A Common stock, $0.0001 par value, 125,000,000 shares authorized, 100,070,161 and 26,567,410 shares issued and outstanding at December 31, 2019 and 2018

 

10,007 

 

2,657 

 

Class B Common stock, $0.0001 par value, 10,000,000 shares authorized, 5,000,000 and 5,000,000 shares issued and outstanding at December 31, 2019 and 2018

 

500 

 

500 

 

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

 

996 

 

 

Additional paid-in capital

 

19,763,883 

 

17,018,509 

 

Accumulated deficit

 

(31,745,528)

 

(28,520,094)

 

 

Total stockholders' deficit

 

(11,970,142)

 

(11,498,428)

 

TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT

$

35,801,598 

$

17,940,676 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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


F-3



ALPINE 4 TECHNOLOGIES, LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Years Ended December 31,

 

 

 

 

 

2019

 

2018

 

 

 

 

 

 

 

 

Revenue

 

 

$

 28,151,524 

$

 14,261,794 

Cost of revenue

 

 

 

 22,509,046 

 

 9,440,998 

Gross Profit

 

 

 

 5,642,478 

 

 4,820,796 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

General and administrative expenses

 

 

 

 8,122,204 

 

 5,470,148 

 

 

 

 

 

 

 

 

 

    Total operating expenses

 

 

 

 8,122,204 

 

 5,470,148 

Loss from operations

 

 

 

 (2,479,726)

 

 (649,352)

 

 

 

 

 

 

 

 

Other income (expenses)

 

 

 

 

 

 

 

Interest expense

 

 

 

 (5,237,205)

 

 (3,121,201)

 

Change in value of derivative liability

 

 

 

 (252,230)

 

 604,219 

 

Gain on extinguishment of debt

 

 

 

 - 

 

 6,305 

 

Bargain purchase gain

 

 

 

 2,143,779 

 

 - 

 

Other income

 

 

 

 185,314 

 

 119,737 

 

    Total other income (expenses)

 

 

 

 (3,160,342)

 

 (2,390,940)

 

 

 

 

 

 

 

 

Loss before income tax

 

 

 

 (5,640,068)

 

 (3,040,292)

 

 

 

 

 

 

 

 

Income tax (benefit)

 

 

 

 (87,054)

 

 (43,399)

 

 

 

 

 

 

 

 

Loss from continuing operations

 

 

 

 (5,553,014)

 

 (2,996,893)

 

 

 

 

 

 

 

 

Discontinued operations:

 

 

 

 

 

 

 

Loss from operations of discontinued operations

 

 

 

 (95,179)

 

 (4,911,124)

 

Gain on disposition of discontinued operations

 

 

 

 2,515,028 

 

 - 

 

    Total discontinued operations

 

 

 

 2,419,849 

 

 (4,911,124)

 

 

 

 

 

 

 

 

Net loss

 

 

$

 (3,133,165)

$

 (7,908,017)

 

 

 

 

 

 

 

 

Weighted average shares outstanding :

 

 

 

 

 

 

 

Basic and diluted

 

 

 

 75,206,998 

 

 28,447,969 

 

 

 

 

 

 

 

 


F-4



Basic and diluted income (loss) per share

 

 

 

 

 

 

 

Continuing operations

 

 

$

 (0.07)

$

 (0.11)

 

Discontinued operations

 

 

 

 0.03 

 

 (0.17)

 

 

 

 

$

 (0.04)

$

 (0.28)

 

 

 

 

 

 

 

 

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


F-5



ALPINE 4 TECHNOLOGIES, LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

Total

 

 

Class A Common Stock

 

Class B Common Stock

 

Class C Common Stock

 

Paid-in

 

Accumulated

 

Stockholders'

 

 

Shares

 

Amount

 

Shares

 

Amount

 

Shares

 

Amount

 

Capital

 

Deficit

 

Deficit

Balance, December 31, 2017

 

23,222,087

$

2,322

 

1,600,000 

$

 160 

 

-

 

 -

$

16,573,632 

$

(20,433,875)

$

(3,857,761)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adoption of ASC 606

 

-

 

-

 

 

 - 

 

-

 

 -

 

 

(178,202)

 

(178,202)

Issuance of shares for discount/inducement on convertible note payable

 

1,849,999

 

186

 

 

 - 

 

-

 

 -

 

65,828 

 

 

66,014 

Issuance of shares of common stock for modification of debt

 

100,000

 

10

 

 

 - 

 

-

 

 -

 

14,990 

 

 

15,000 

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

 

1,015,921

 

101

 

 

 - 

 

-

 

 -

 

54,086 

 

 

54,187 

Reclassification of shares from mezzanine

 

379,403

 

38

 

 

 - 

 

-

 

 -

 

(38)

 

 

Change in fair value of warrant modification

 

-

 

-

 

 

 - 

 

-

 

 -

 

4,310 

 

 

4,310 

Shares issued for employee compensation

 

-

 

-

 

3,400,000 

 

 340 

 

-

 

 -

 

176,460 

 

 

176,800 

Derivative liability resolution

 

-

 

-

 

 

 

 

 

-

 

 -

 

58,018 

 

 

58,018 

Share-based compensation expense

 

-

 

-

 

 

 

 

 

-

 

 -

 

71,223 

 

 

71,223 

Net loss

 

-

 

-

 

 

 

 

 

-

 

 -

 

 

(7,908,017)

 

(7,908,017)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

68,602,751

 

6,860

 

 

 - 

 

-

 

 -

 

516,976 

 

 

523,836 

Issuance of shares of common stock for debt settlement

 

2,000,000

 

200

 

 

 - 

 

-

 

 -

 

470,200 

 

 

470,400 

Issuance of shares of common stock for penalty interest

 

2,700,000

 

270

 

 

 - 

 

30,000

 

 3

 

680,352 

 

 

680,625 

Issuance of shares of common stock for dividend

 

-

 

-

 

 

 - 

 

7,097,594

 

 710

 

91,559 

 

(92,269)

 

Conversion of Class B common stock to Class A common stock

 

200,000

 

20

 

(200,000)

 

 (20)

 

-

 

 -

 

 

 

Issuance of shares of common stock for services

 

-

 

-

 

200,000 

 

 20 

 

2,827,606

 

 283

 

43,171 

 

 

43,474 


F-6



Derivative liability resolution

 

-

 

-

 

 

 - 

 

-

 

 -

 

864,679 

 

 

864,679 

Share-based compensation expense

 

-

 

-

 

 

 - 

 

-

 

 -

 

78,437 

 

 

78,437 

Net loss

 

-

 

-

 

 

 - 

 

-

 

 -

 

 

(3,133,165)

 

(3,133,165)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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


F-7



ALPINE 4 TECHNOLOGIES, LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Years Ended December 31,

 

 

 

 

 

2019

 

2018

 

 

 

 

 

 

 

 

OPERATING ACTIVITIES:

 

 

 

 

 

Net loss

$

 (3,133,165)

$

 (7,908,017)

 

Adjustments to reconcile net loss to

 

 

 

 

 

  net cash used in operating activities:

 

 

 

 

 

 

Depreciation

 

 1,022,925 

 

 871,847 

 

 

Amortization

 

 232,592 

 

 75,412 

 

 

(Gain) loss on extinguishment of debt

 

 68,526 

 

 (136,300)

 

 

(Gain) loss on disposal of property and equipment

 

 177,574

 

 536,772 

 

 

Change in value of derivative liabilities

 

 252,230 

 

 (604,219)

 

 

Stock issued for services

 

 43,474

 

 176,800 

 

 

Stock issued for penalties

 

 1,151,025

 

-

 

 

Employee stock compensation

 

 78,437 

 

 71,223 

 

 

Amortization of debt issuance

 

 - 

 

 213,354 

 

 

Amortization of debt discounts

 

 1,144,756 

 

 1,428,954 

 

 

Impairment of assets

 

 - 

 

 1,764,382 

 

 

Gain on disposal of discontinued operations

 

 (2,515,028)

 

 - 

 

 

Issuance of convertible debentures for penalty interest

 

 492,890

 

 - 

 

 

Noncash lease expense

 

 231,381 

 

 - 

 

 

Bargain purchase gain

 

 (2,143,779)

 

 - 

 

 

Change in current assets and liabilities:

 

 

 

 

 

 

 

Accounts receivable

 

 (1,174,600)

 

 398,371 

 

 

 

Inventory

 

 964,706 

 

 (348,194)

 

 

 

Contract assets

 

 (107,080)

 

 - 

 

 

 

Capitalized contracts costs

 

 64,234 

 

 37,300 

 

 

 

Prepaid expenses and other assets

 

 (392,466) 

 

 159,927 

 

 

 

Accounts payable

 

 595,134

 

 1,441,304 

 

 

 

Accrued expenses

 

 1,413,859

 

 929,323 

 

 

 

Contract liabilities

 

 (77,019)

 

 - 

 

 

 

Operating lease liability

 

 (220,859)

 

 - 

 

 

 

Deferred tax

 

 (87,054)

 

 (43,399)

 

 

 

Deferred revenue

 

 (25,287)

 

 (319,410)

 

Net cash used in operating activities

 

 (1,942,594)

 

 (1,254,570)

 

 

 

 

 

 

 

 


F-8



INVESTING ACTIVITIES:

 

 

 

 

 

 

Capital expenditures

 

 (71,175)

 

 (271,516)

 

 

Proceeds from insurance claim on automobiles and trucks

 

 - 

 

 318,879 

 

 

Cash paid for acquisitions, net of cash acquired

 

 (2,926,658)

 

 (1,976,750)

 

Net cash used in investing activities

 

 (2,997,833)

 

 (1,929,387)

 

 

 

 

 

 

 

 

FINANCING ACTIVITIES:

 

 

 

 

 

 

Proceeds from issuances of notes payable, related party

 

 282,320 

 

 145,000 

 

 

Proceeds from issuances of notes payable, non-related party

 

 1,548,989 

 

 924,750 

 

 

Proceeds from issuances of convertible notes payable

 

 873,000 

 

 2,355,950 

 

 

Proceeds from financing lease

 

 12,267,000 

 

 1,900,000 

 

 

Repayments of notes payable, related party

 

 (132,500)

 

 (56,500)

 

 

Repayments of notes payable, non-related party

 

 (9,642,837)

 

 (741,079)

 

 

Repayments of convertible notes payable

 

 (1,473,180)

 

 (1,417,133)

 

 

Proceeds from line of credit, net

 

 1,311,663 

 

 327,325 

 

 

Cash paid on financing lease obligations

 

 (206,058)

 

 (175,663)

 

Net cash provided by financing activities

 

 4,828,397

 

 3,262,650 

 

 

 

 

 

 

 

 

NET INCREASE (DECREASE) IN CASH AND RESTRICTED CASH

 

 (112,030)

 

 78,693 

 

 

 

 

 

 

 

 

CASH AND RESTRICTED CASH, BEGINNING BALANCE

 

 414,516 

 

 335,823 

 

 

 

 

 

 

 

 

CASH AND RESTRICTED CASH, ENDING BALANCE

$

 302,486 

$

 414,516 

 

 

 

 

 

 

 

 

CASH PAID FOR:

 

 

 

 

 

Interest

$

 1,982,469 

$

 1,162,149 

 

Income taxes

$

 - 

$

 - 

 

 

 

 

 

 

 

 

SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING ACTIVITIES:

 

 

 

 

 

Common stock issued for convertible note discount and accrued interest

$

 523,836 

$

 66,104

 

Issuance of convertible payable for acquisition

$

 - 

$

 450,000 

 

Issuance of note payable for acquisition

$

 5,846,343 

$

 1,950,000 

 

Debt discount due to derivative liabilities

$

 1,018,737 

$

 2,282,970 

 

Notes payable and redeemable common stock restructuring

$

 - 

$

 3,197,538 

 

Release of derivative liability

$

 864,679 

$

 58,018 

 

Capital leases

$

 - 

$

 247,000 

 

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

$

 891,413 

$

 - 


F-9



 

Goodwill adjustment to intangible asset for APF acquisition

$

 790,000 

$

 - 

 

Class C common stock issued for dividend

$

 92,269 

$

 - 

 

Proceeds from sale of assets offset directly against debt

$

$

 1,141,588 

 

Financed equipment purchase

$

 26,999 

$

 - 

 

 

 

 

 

 

 

 

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


F-10



Note 1 – Organization and Basis of Presentation

 

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).  The Company is a technology holding company owning six companies (ALTIA, LLC; Quality Circuit Assembly, Inc. ("QCA"); Venture West Energy Services (“VWES”) (formerly Horizon Well Testing, LLC, currently filed for Chapter 7 bankruptcy); American Precision Fabricators, Inc., an Arkansas corporation (“APF”), Morris and Deluxe.

 

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.

 

Note 2 - Summary of Significant Accounting Policies

 

Principles of consolidation

 

The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries as of December 31, 2019 and 2018.  Significant intercompany balances and transactions have been eliminated.

 

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.

 

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 December 31, 2019 and 2018, the Company had no cash equivalents.  


F-11



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.  

 

 

 

December 31,

 

 

December 31,

 

 

2019

 

 

2018

Cash  

$

302,486

 

$

207,205

Restricted cash included in other non-current assets

 

-

 

 

207,311

Total cash and restricted cash shown in statement of cash flows

$

302,486

 

$

414,516

 

Major Customers

 

The Company had one customer that made up 7%, respectively, of accounts receivable as of December 31, 2019.  The Company had two customers that made up 29% and 27%, respectively, of accounts receivable as of December 31, 2018.

 

For the years ended December 31, 2019, the Company had one customer that made up 13% of total revenues.  For the years ended December 31, 2018, the Company had two customer that made up 29% and 13% 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 December 31, 2019 and 2018, allowance for bad debt was $18,710 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 inventory to net realizable value, if lower.  Inventory is segregated into three areas, raw materials, work-in-process and finished goods.  Inventory, net at December 31, 2019 and 2018 consists of:

 

 

 

December 31,

 

 

December 31,

 

 

2019

 

 

2018

Raw materials

$

1,791,733

 

$

676,621

Work in process

 

576,196

 

 

-

Finished goods

 

59,972

 

 

1,499,174

Total inventory

 

2,427,901

 

 

2,175,795

Reserve for inventory

 

(26,659)

 

 

-

Inventory, net

$

2,401,242

 

$

2,175,795


F-12



Property and Equipment

 

Property and equipment are carried at cost less depreciation. Depreciation and amortization are provided principally on the straight-line method over the estimated useful lives of the assets, which range from ten years to 39 years as follows:

 

Automobiles & Trucks

10 to 20 years

Buildings

39 years

Leasehold Improvements

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

Equipment

10 years

 

Maintenance and repair costs are charged against income as incurred.  Significant improvements or betterments are capitalized and depreciated over the estimated life of the asset.

 

Property and equipment consisted of the following as of December 31, 2019 and 2018:

 

 

 

December 31,

 

 

December 31,

 

 

2019

 

 

2018

Automobiles and trucks

$

155,179

 

$

155,179

Machinery and equipment

 

4,206,058

 

 

2,548,855

Office furniture and fixtures

 

114,867

 

 

109,619

Building and improvement

 

14,167,000

 

 

5,795,000

Leasehold improvements

 

12,816

 

 

261,608

Total Property and equipment

 

18,655,920

 

 

8,870,261

Less: Accumulated depreciation

 

(1,498,075)

 

 

(879,705)

Property and equipment, net

$

17,157,845

 

$

7,990,556

 

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.  As a result of the termination of this lease, the Company recognized a loss on disposal of property and equipment of $177,574. 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 five and fifteen years as follows:

 

Customer List

10-15 years

Non-compete agreements

15 years

Software development

5 years

 

Intangible assets consisted of the following as of December 31, 2019 and 2018:

 

 

 

December 31,

 

 

December 31,

 

 

2019

 

 

2018

Software

$

278,474

 

$

278,474

Non-compete

 

100,000

 

 

100,000

Customer lists

 

2,861,187

 

 

531,187

Total Intangible assets

 

3,239,661

 

 

909,661

Less: Accumulated amortization

 

(465,043)

 

 

(232,451)

Intangibles, net

$

2,774,618

 

$

677,210


F-13



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

 

Years Ending December 31,

 

 

2020

$

286,627

2021

 

286,627

2022

 

286,627

2023

 

253,028

2024

 

253,028

Thereafter

 

1,408,681

Total

$

2,774,618

 

Other Long-Term Assets

 

Other long-term assets consisted of the following as of December 31, 2019 and 2018:

 

 

 

December 31,

 

 

December 31,

 

 

2019

 

 

2018

Restricted Cash

$

-

 

$

207,311

Deposits

 

285,927

 

 

50,927

Other  

 

33,417

 

 

32,000

 

$

319,344

 

$

290,238

 

Restricted cash consists of deposit account collateralizing letters of credit in favor of the counterparty in our lease financing obligation.  Changes in restricted cash are reflected as financing activities because the cash is being used in conjunction with financing activities.  In connection with the termination of the San Diego building in 2019, the deposit account collateralizing the letter of credit was no longer required.  The $207,311 cash deposit was paid to the lessor.

 

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, except to the impairment loss of $1,596,537 for the year ended December 31, 2018 related to the discontinued operation.

 

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 December 31, 2019 and 2018, the reporting units with goodwill were QCA, APF and Morris.

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 there not to be any triggers for potential impairment of goodwill and therefore the Company has recorded no impairment of goodwill for the periods presented.


F-14



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 12 – Derivative Liabilities and Fair Value Measurements.

 

Redeemable Common Stock

 

379,403 shares of the Company's Class A common stock that were issued as consideration for the VWES acquisition contain a redemption feature which allows for the redemption of common stock at the option of the holder. In accordance with ASC 480, redemption provisions not solely within the control of the Company require the security to be classified outside of permanent equity.   Accordingly, at December 31, 2017, 379,403 shares of Class A common stock were classified outside of permanent equity at its redemption value.  During the year ended December 31, 2018, the shares were redeemed and classified as permanent equity.

 

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, while prior period amounts are not adjusted and continue to be reported in accordance with the historic accounting under ASC Topic 605.

 

The Company recorded a net increase to its opening accumulated deficit of $178,202 as of January 1, 2018 due to the cumulative impact of adopting ASC Topic 606, with the impact related to recognition of revenue and costs relating to the sales of the 6th Sense Auto service.  Under the new revenue standard, sales of the Company’s 6th Sense Auto service, which includes a hardware and a monthly subscription component, are required to be treated as a single performance obligation and recognized over time.  As a result, the deferred revenue increased by $279,736 and capitalized contract costs increased by $101,534.  The impact to the consolidated statement of operations for the year ended December 31, 2018 was a net increase of $279,736 to revenue and a net increase of $101,534 to cost of revenue as a result of applying 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

QCA 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


F-15



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.

 

Morris and Deluxe

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 December 31, 2019 and 2018, 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.


F-16



Earnings (loss) per share

 

Basic earnings (loss) per common share is computed by dividing net income (loss) available to common shareholders by the weighted-average number of shares of common stock outstanding during the period. Diluted earnings per common share is computed by dividing income available to common shareholders by the weighted-average number of shares of common stock outstanding during the period increased to include the number of additional shares of common stock that would have been outstanding if potentially dilutive securities had been issued. The only potentially dilutive securities outstanding during the periods presented were the convertible debentures, but they are anti-dilutive due to the net loss incurred. 

 

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 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.


F-17



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 June 2018, the FASB issued ASU 2018-07, Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting, which simplifies the accounting for share-based payments granted to nonemployees for goods and services and aligns most of the guidance on such payments to nonemployees with the requirements for share-based payments granted to employees. ASU 2018-07 is effective on January 1, 2019. The adoption of this ASU did not have any impact on the Company’s financial statements and disclosures.

 

In February 2016, the FASB issued ASU 2016-02,  Leases (Topic 842). ASU 2016-02 requires lessees to recognize lease assets and lease liabilities on the balance sheet and requires expanded disclosures about leasing arrangements. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018 and interim periods in fiscal years beginning after December 15, 2018, with early adoption permitted.   ASU 2016-02 and additional ASUs are now codified as ASC 842, Leases. ASC 842 supersedes the lease accounting guidance in ASC 840 Leases, and requires lessees to recognize a lease liability and a corresponding lease asset for virtually all lease contracts. It also requires additional disclosures about leasing arrangements.  The Company adopted ASC 842 on January 1, 2019 and used the modified retrospective transition approach and did not restate its comparative periods.  The Company elected to utilize the “package” of three expedients, as defined in ASC 842, which retain the lease classification and initial direct costs for any leases that existed prior to adoption of the standard. As of the date of implementation on January 1, 2019, the impact of the adoption of ASC 842 resulted in the recognition of a right of use asset and lease payable obligation on the Company’s consolidated balance sheets of $891,413.  As the right of use asset and the lease payable obligation were the same upon adoption of ASC 842, there was no cumulative effect impact on the Company’s accumulated deficit.

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.


F-18



Note 3 – Going Concern

 

The accompanying financial statements have been prepared on a going concern basis. The working capital of the Company is currently negative and causes doubt of the ability for the Company to continue. The Company requires capital for its operational and marketing activities.  The Company's ability to raise additional capital through the future issuances of common stock is unknown. The obtainment of additional financing, the successful development of the Company's plan of operations, and its 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.

 

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 and Deluxe 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 and Deluxe 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 December 31, 2019, the future minimum finance and operating lease payments are as follows:

 

 

 

Finance

 

Operating

Year Ended December 31,

 

Leases

 

Leases

2020

$

1,501,852

$

349,392

2021

 

1,529,431

 

359,212

2022

 

1,559,416

 

69,750

2023

 

1,577,117

 

23,400

2024

 

1,574,221

 

-

Thereafter

 

16,820,594

 

-

Total

 

24,562,631

 

801,754

Less: imputed interest

 

(10,489,290)

 

(131,200)

Less: current lease obligation

 

(377,330)

 

(266,623)

Non-current leases obligations

$

13,696,011

$

403,931

 

Finance Leases

 

In 2016, the Company sold a building and used the money to purchase QCA.  Because this is a financing transaction, the sale is recorded under "financing lease obligation" on the accompanying consolidated balance sheet and amortized over the 15-year term of the lease.  The term of the lease has been extended through September 30, 2032 at a monthly rate of approximately $69,000.  These payments are reflected in the table above.  During the year ended December 31, 2019, the Company terminated its lease agreement for this building.  As a result of the termination of this lease, the Company recognized a loss on disposal of property and equipment of $177,574.  A letter of credit of $1,000,000 was provided to the landlord in the above QCA financing lease obligation that was collateralized by a deposit of $207,311.  In connection with the termination of this lease in 2019, the deposit account collateralizing the letter of credit was no longer required.

 


F-19



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 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.

 

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 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 sheet as of December 31, 2019:

 

 

 

 

 

December 31,

 

 

Classification on Balance Sheet

 

2019

Assets

 

 

 

 

 Operating lease assets

Operating lease right of use assets

$

660,032

Total lease assets

 

 

$

660,032

 

 

 

 

 

Liabilities

 

 

 

 

Current liabilities

 

 

 

 

 Operating lease liability

Current operating lease liability

$

266,623

Noncurrent liabilities

 

 

 

 Operating lease liability

Long-term operating lease liability

 

403,931

Total lease liability

 

$

670,554

 

The lease expense for the year ended December 31, 2019 was $350,339.  The cash paid under operating leases during the year ended December 31, 2019 was $339,818.  At December 31, 2019, the weighted average remaining lease terms were 2.38 years and the weighted average discount rate was 15%


F-20



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, the 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.  In addition with the acquisitions of Morris and Deluxe, the Company secured three lines of credit with Advanced Energy Capital for borrowings up to $5,250,000 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.

 

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 (see Note 9).  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.

 

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.

 

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. Subsequent to December 31, 2019, the Company entered into a debt conversion agreement with the seller. See Note 15.

 

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.   


F-21



The outstanding balances for the loans as of December 31, 2019 and 2018 were as follows:

 

 

 

December 31,

 

 

December 31,

 

 

2019

 

 

2018

Lines of credit, current portion

$

3,816,103

 

$

2,504,440

Equipment loans, current portion

 

368,011

 

 

260,301

Term notes, current portion

 

3,849,273

 

 

820,862

Merchant loans

 

690,784

 

 

-

Total current

 

8,724,171

 

 

3,585,603

Long-term portion

 

9,850,184

 

 

4,517,441

Total notes payable

$

18,574,355

 

$

8,103,044

 

Future scheduled maturities of outstanding notes payable from related parties are as follows:

 

Year Ending December 31,

 

 

2020

$

8,724,171

2021

 

2,914,354

2022

 

4,134,664

2023

 

180,061

2024

 

180,343

Thereafter

 

2,440,762

Total

$

18,574,355

 

Note 6 – Notes Payable, Related Parties

 

At December 31, 2019 and 2018, notes payable due to related parties consisted of the following:

 

 

 

December 31,

 

 

December 31,

 

 

2019

 

 

2018

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

 

329,820

 

 

180,000

Total notes payable - related parties

$

341,820

 

$

192,000

 

$232,500 of the above notes are in default as of December 31, 2019 and are due on demand by the lenders as of the date of the Company’s quarterly report for the quarter ended March 31, 2020.

 


F-22



Note 7 – Convertible Notes Payable

 

At December 31, 2019 and 2018, convertible notes payable consisted of the following:

 

 

 

 

December 31,

 

 

December 31,

 

 

 

2019

 

 

2018

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 each of the 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 $10 per share.      

 

 

1,324,588

 

 

1,654,588

 

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.  The note is past due.

 

 

10,000

 

 

10,000

 

On January 10, 2018, the Company entered into a variable convertible note for $150,000 with net proceeds of $135,000.  The note is due October 1, 2018 and bears interest at 12% per annum.  The note is immediately convertible into shares of Class A common stock at the lesser of $0.16 per share or 60% of the lowest trading price the previous 25 days prior to conversion.  The Company can prepay the note within the first 90 days following January 10, 2018 with a prepayment penalty equal to 145% of the total outstanding balance.  The Company issued 499,999 shares to the lender with this note, which has been recorded as a discount.

 

 

-

 

 

95,000

 

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 (see Note 9).  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


F-23



 

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

 

 

61,699

 

On April 9, 2018, the Company entered into a variable convertible note for $37,800 with net proceeds of $35,000.  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.

 

 

-

 

 

37,800

 

On June 4, 2018, the Company entered into a variable convertible note for $165,000 with net proceeds of $151,500.  The note is due December 4, 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.  The Company issued 850,000 shares of Class A common stock to the note holder which are returnable if no event of default has occurred and the note is paid in full within 180 days of the note date.  

 

 

-

 

 

165,000

 

On July 18, 2018, the Company entered into a variable convertible note for $88,000 with net proceeds of $88,000.  The note is due April 30, 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 42% to the average of the two lowest trading closing prices of the stock for ten days prior to conversion.

 

 

-

 

 

88,000

 

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 was amended to a payment plan and convertible at fixed rate of .15 into shares of the Company's Class A common stock. The note was amended in November 2019 to effect a floor in the conversion price of $0.15 and a payment plan of $18,000 per month for 11 months with the balance of principal and interest due on October 30, 2020.

 

 

187,681

 

 

337,500


F-24



 

On September 27, 2018, the Company entered into a variable convertible note for $93,000 with net proceeds of $93,000.  The note is due July 15, 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 42% to the average of the two lowest trading closing prices of the stock for ten days prior to conversion.

 

 

-

 

 

93,000

 

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. The note was amended in November 2019 to effect a floor in the conversion price of $0.15 and a payment plan of $17,000 per month for 11 months with the balance of principal and interest due on October 30, 2020.

 

 

115,000

 

 

220,000

 

On November 12, 2018, the Company entered into a variable convertible note for $670,000 with net proceeds of $636,000.  The note is due November 12, 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 35% to the average of the three lowest trading closing prices of the stock for ten days prior to conversion.

 

 

-

 

 

670,000

 

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. The note was amended in November 2019 to increase the principal amount by $180,000 due to penalty interest; increase the interest rate to 15% and effect a fixed conversion price of $0.15 per share.

 

 

195,000

 

 

130,000

 

On November 6, 2019, the Company issued 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.

 

 

600,000

 

 

-

 

On November 6, 2019, the Company issued 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

 

 

-

 

On November 14, 2019, the Company issued 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.

 

 

137,870

 

 

-


F-25



 

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

 

 

-

 

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

 

 

-

Total convertible notes payable

 

 

3,630,639

 

 

4,037,587

Less: discount on convertible notes payable

 

 

(846,833)

 

 

(942,852)

Total convertible notes payable, net of discount

 

 

2,783,806

 

 

3,094,735

Less: current portion of convertible notes payable

 

 

(1,110,118)

 

 

(2,644,735)

Long-term portion of convertible notes payable

 

$

1,673,688

 

$

450,000


F-26



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 12).  During the year ended December 31, 2019, the Company issued convertible notes with a fixed conversion price.  The beneficial conversion feature related to these convertible notes was been recorded as a discount on the convertible notes and as a component of equity.  The discounts are being amortized over the terms of the convertible notes payable.  Amortization of debt discounts during the years ended December 31, 2019 and 2018 amounted to $1,144,756 and $1,428,954, respectively, and is recorded as interest expense in the accompanying consolidated statements of operations.  The unamortized discount balance for these notes was $846,833 as of December 31, 2019, which is expected to be amortized over the next 12 months.