(Former name, former address and former fiscal year, if changed since last report)
Securities Registered pursuant to Section 12(g) of the Act: Class A Common Stock, $0.0001 par value per share
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No⌧
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act. Yes ☐ No ⌧
Indicate by check mark whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ⌧ No ◻
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ⌧ No ◻
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter. As of June 30, 2020, the aggregate market value of the voting and non-voting common equity held by non-affiliates, computed based on the average bid and asked price of the Class A common stock, was $6,903,702.
State the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date: As of April 5, 2021, the issuer had 136,923,432 shares of its Class A common stock issued and outstanding; 9,023,088 shares of its Class B common stock issued and outstanding; and 14,162,267 shares of Class C common stock issued and outstanding.
PART I
Special Note Regarding Forward-Looking Statements
This Annual Report contains forward-looking statements. The forward-looking statements are contained principally in the sections entitled “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:
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history of operating losses, our ability develop and implement our business strategies and grow our business:
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our ability to execute our strategy and business plan regarding growth, acquisitions, and focusing on our strategy of Drivers, Stabilizers, and Facilitators;
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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;
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our ability to timely source adequate supply of our development products from third-party manufacturers on which we depend;
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the potential, if any, for future development of any of our present or future products;
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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;
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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
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the accuracy of our estimates regarding expenses, future revenues, capital requirements and needs for additional financing.
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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 Report 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 Report, 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 Report 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.
Although forward-looking statements in this Annual Report on Form 10-K reflect the good faith judgment of our management, such statements can only be based on facts and factors currently known by us. Consequently, forward-looking statements are inherently subject to risks and uncertainties, and actual results and outcomes may differ
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materially from the results and outcomes discussed in or anticipated by the forward-looking statements. Factors that could cause or contribute to such differences in results and outcomes include, without limitation, those specifically addressed under the heading "Risk Factors Related to Our Business" below, as well as those discussed elsewhere in this Annual Report on Form 10-K. Readers are urged not to place undue reliance on these forward-looking statements, which speak only as of the date of this Annual Report on Form 10-K. We file reports with the Securities and Exchange Commission ("SEC"). You can read and copy any materials we file with the SEC at the SEC's Public Reference Room, 100 F. Street, NE, Washington, D.C. 20549. You can obtain additional information about the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. In addition, the SEC maintains an Internet site (www.sec.gov) that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC, including us.
We disclaim any obligation or intention to revise or update any forward-looking statements in order to reflect any event or circumstance that may arise after the date of this Annual Report on Form 10-K. Readers are urged to carefully review and consider the various disclosures made throughout the entirety of this Annual Report, which attempt to advise interested parties of the risks and factors that may affect our business, financial condition, results of operations and prospects.
ITEM 1. BUSINESS.
Our Business
Company Background and History
Alpine 4 Holdings, Inc (formerly Alpine 4 Technologies, Ltd) (“we”, “our”, “Alpine 4”, 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 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 Report, the Company was a holding company that owned nine operating subsidiaries:
-A4 Corporate Services, LLC;
-ALTIA, LLC;
-Quality Circuit Assembly, Inc.;
-Morris Sheet Metal, Corp;
-JTD Spiral, Inc.;
-Excel Construction Services, LLC;
-SPECTRUMebos, Inc.;
-Impossible Aerospace, Inc.; and
-Vayu (US), Inc.
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”). In the first quarter of 2021, we formed additional silo subsidiaries: A4 Defense Systems, Inc. (“A4 Defense”); and A4 Aerospace Corporation. All of these 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 subsidiaries.
In March 2021, the Company announced the combination of its subsidiaries Deluxe Sheet Metal, Inc. (Deluxe) and Morris Sheet Metal Corporation (Morris) to become one of the largest sheet metal contractors in the Midwest region
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of the United States. Both companies will be under the Morris Sheet Metal brand. Management anticipates that Deluxe and Morris will be fully integrated by May 2021. The Company’s management believes that the combination of these businesses will create a more harmonious relationship between the two companies. The combining of resources should empower Morris to strengthen its brand through its strategic banking relationship, eliminate duplicative and competitive interests, and expand its footprint beyond the Indiana home base.
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. 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 Construction Services’ office and fabrication space are located at 297 Wycoff Cir, Twin Falls, Idaho 83301. Impossible Aerospace’s headquarters are located at 2222 Ronald St, Santa Clara, California 95050. Vayu (US) has its headquarters at 3815 Plaza Drive, Ann Arbor, MI 48108.
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 B2B companies in a broad spectrum of industries via our acquisition strategy of DSF (Drivers, Stabilizer, Facilitator). Our DSF business model (which is discussed further below) offers our shareholders an opportunity to own small-cap businesses that hold defensible positions in their individual market space. Further, Alpine 4’s greatest opportunity for growth exists in the smaller to middle-market operating companies with revenues between $5 to $150 million annually. In this target-rich environment, businesses generally sell at more reasonable multiples, presenting greater opportunities for operational and strategic improvements that have greater potential to enhance profit.
Driver, Stabilizer, Facilitator (DSF)
Driver: A Driver is a company that is in an emerging market or technology, that has enormous upside potential for revenue and profits, with a significant market opportunity to access. These types of acquisitions are typically small, brand new companies that need a structure to support their growth.
Stabilizer: Stabilizers are companies that have sticky customers, consistent revenue and provide solid net profit returns to Alpine 4.
Facilitators: Facilitators are our “secret sauce”. Facilitators are companies that provide a product or service that an Alpine 4 sister company can use as leverage to create a competitive advantage.
When you blend these categories into a longer-term view of the business landscape, you can then begin to see the value-driving force that makes this a truly purposeful and powerful business model. As stated earlier, our greatest competitive advantage is our highly diversified business structure combined with a collaborative business culture, that helps drive out competition in our markets by bringing; resources, planning, technology and capacity that our competitors simply don’t have. DSF reshapes the environment each subsidiary operates in by sharing and exploiting the resources each company has, thus giving them a competitive advantage that their peers don’t have.
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How We Do It:
Optimization vs. Asset Producing
The process to purchase a perspective company can be long and arduous. During our due diligence period, we are validating and determining three major points, not just the historical record of the company we are buying. Those three major points are what we call the “What is, What Should Be and What Will Be”.
·“The What Is” (TWI). TWI is the defining point of where a company is holistically in a myriad of metrics; Sales, Finance, Ease of Operations, Ownership and Customer Relations to name a few. Subsequently, this is usually the point where most acquirers stop in their due diligence. We look to define this position not just from a number’s standpoint, but also how does this perspective map out to a larger picture of culture and business environment.
·“The What Should Be” (TWSB). TWSB is the validation point of inflection where we use many data inputs to assess if TWI is out of the norm with competitors, and does that data show the potential for improvement.
·“The What Will Be” (TWWB). TWWB is how we seek to identify the net results or what we call Kinetic Profit (KP) between the TWI and TWSB. The keywords are Kinetic Profit. KP is the profit waiting to be achieved by some form of action or as we call it, the Optimization Phase of acquiring a new company.
Optimization: During the Optimization Phase, we seek to root up employees with in-depth training on various topics. Usually, these training sessions include; Profit and Expense Control, Production Planning, Breakeven Analysis and Profit Engineering to name a few. But the end game is to guide these companies to: become net profitable with the new debt burden placed on them post-acquisition, mitigate the loss of sales due to acquisition attrition (we typically plan on 10% of our customers leaving simply due to old ownership not being involved in the company any longer), potential replacement of employees that no longer wish to be employed post-acquisition and other ancillary issues that may arise. The Optimization Phase usually takes 12-18 months post-acquisition and a company can fall back into Optimization if it is stagnant or regresses in its training.
Asset Producing: Asset Producing is the ideal point where we want our subsidiaries to be. To become Asset Producing, subsidiary management must have completed prescribed training formats, proven they understand the key performance indicators that run their respective departments and finally, the subsidiaries they manage must have posted a net profit for 3 consecutive months.
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
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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.
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 the real estate assets of Lonewolf Enterprises, LLC, an Indiana limited liability company (“LWE,” and collectively with DSMI and DHL, “DSM”).
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”). EFL subsequently changed its name to Excel Construction Services, LLC.
On November 13, 2020, the Company and a newly formed and wholly owned subsidiary of the Company named ALPP Acquisition Corporation 1, Inc. a Delaware corporation (“Merger Sub 1”), entered into a merger agreement (the “IA Agreement”) with Impossible Aerospace Corporation, a Delaware corporation (“IAC”), pursuant to which IAC merged with and into Merger Sub 1 (the “IA Merger”). On November 12, 2020, the Company created Merger Sub 1 and became its sole shareholder. Merger Sub 1 was created solely for the purpose of the IA Merger. The IA Merger closed on December 15, 2020.
On December 29, 2020, the Company and a newly formed and wholly owned subsidiary of the Company named ALPP Acquisition Corporation 2, Inc. a Delaware corporation (“Merger Sub 2”), entered into a merger agreement (the “Vayu Agreement”) with Vayu (US), Inc., a Delaware corporation (“VAYU”), pursuant to which VAYU merged with and into Merger Sub 2 (the “Vayu Merger”). On December 29, 2020, the Company created Merger Sub 2 and became its sole shareholder. Merger Sub 2 was created solely for the purpose of the Vayu Merger. The Vayu Merger closed on February 8, 2021.
As of the date of this Report, the Company was exploring additional acquisition and merger transactions, and additional information will be provided if and when such transactions are closed.
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.
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As of the date of the filing of this Annual Report, our subsidiaries and product groups consisted of the following:
Subsidiaries & Product Groups
As of the date of the filing of this Report, we had the following subsidiaries and product groups:
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ALTIA, LLC is an automotive technology company with several core product offerings.
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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.
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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.
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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.
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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. As of August 31, 2020 APF has ceased operations.
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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.
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JTD Spiral (“JTD”) - Based in Fort Wayne, Indiana, JTD is a sister company to MSM and provides specialized spiral duct work to MSM clientele.
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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.
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Excel Fabrication, LLC (name subsequently changed to Excel Construction Services) (“EXL”) –Based in Twin Falls, Idaho, EXL is an industrial service with customers in the Food, Beverage, Dairy, Mining, Petrochemical, Mineral, and Ammonia Refrigeration. Excel’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.
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Impossible Aerospace (“IA”) builds high performance electric aircraft that save lives. Founded in 2016 by former Tesla engineer Spencer Gore, IA unveiled its US-1 aircraft in 2018, unique for its long endurance and US origin. The company is backed by Bessemer Venture Partners, Eclipse Venture, and Airbus Ventures. IA is committed to serving the needs of government agencies, first responders, private security providers, and those working to keep our critical infrastructure working at full potential. The IA team consists of experts in aviation, engineering, advanced imaging and law enforcement and come from some of the most progressive companies in the US including SpaceX, Tesla, NASA, FLIR Systems and Icon Aircraft.
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Vayu (US), Inc. (“Vayu”), has as its mission to solve the hardest and most critical logistics challenges, anywhere in the world. We aim to set the standard and lead the market in safe, reliable, and affordable vertical take-off and landing (“VTOL”) aircraft. Vayu focuses on four key areas: medical, logistics, energy, and disaster relief.
-Medical – From blood products for transfusion and time-sensitive anti-venoms, to critical medications, vaccines, and surgical supplies, Vayu’s drones deliver vital supplies --anywhere, anytime. Vayu’s drone not only brings precious cargo to remote areas, but it can also pick up medical products, such as lab samples, and return them to a central laboratory for testing.
-Logistics - Mail. Spare parts. Consumer electronics. Time-sensitive documents. These are just a few examples of the use cases where Vayu’s vehicle can play a critical role. Delivery from hub-to-hub or to the ‘last mile’. Vayu’s vehicle can both decrease costs, due to its fuel efficiency and autonomous capability -- and increase market share.
-Energy – Vayu’s drone can reach open-pit mines and offshore oil platforms. By transporting spare parts, or other commodities, Vayu’s vehicle can save a company from down-time and high costs of on-site stocking, while avoiding more costly forms of transportation.
-Disaster Relief – In times of crisis, when infrastructure is compromised, Vayu’s drones can reach areas otherwise completely inaccessible. Whether it’s after an earthquake, hurricane, or flooding, Vayu’s drones can take off and land anywhere, and reach populations in need.
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Recent Developments
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 estimates and 2020 preliminary revenue estimates.
-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.
Amendment to Certificate of Incorporation
On February 5, 2021, the Company filed with the Secretary of State of Delaware a Certificate of Amendment to its Certificate of Incorporation to change the name of the Company and to increase the number of authorized shares of Class A Common Stock from 125,000,000 to 195,000,000.
The change in the Company’s name (the “Name Change”) was required to be approved by the Financial Industry Regulatory Authority (“FINRA”). FINRA approved the name change, which took effect on March 2, 2021.
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The increase in our authorized Class A Common Stock is not required to be approved by FINRA and took effect on February 5, 2021.
Impossible Aerospace Merger
On November 13, 2020, the Company and a newly formed and wholly owned subsidiary of the Company named ALPP Acquisition Corporation 1, Inc. a Delaware corporation (“Merger Sub 1”), entered into a merger agreement (the “IA Agreement”) with Impossible Aerospace Corporation, a Delaware corporation (“IAC”), pursuant to which IAC merged with and into Merger Sub 1 (the “IA Merger”).
On November 12, 2020, the Company created Merger Sub 1 and became its sole shareholder. Merger Sub 1 was created solely for the purpose of the IA Merger. The IA Merger closed on December 15, 2020.
Pursuant to the IA Agreement, the Merger of Merger Sub 1 with and into IAC was structured as a reverse triangular merger and was intended to qualify as a tax-free reorganization. Under the IA Agreement, IAC would be the surviving entity (the “Surviving Corporation”). The Board of Directors of the Company and of Merger Sub 1 determined that the Merger would be in the best interests of the Company and Merger Sub 1 and their respective shareholders. Additionally, the Board of Directors of IAC determined it to be in the best interests of IAC and its shareholders to enter into the Agreement and recommended the Merger to the IAC shareholders.
Additional information about the IA Merger can be found in the Company’s Current Report filed with the Commission on November 17, 2020.
Vayu Merger
On December 29, 2020, the Company and a newly formed and wholly owned subsidiary of the Company named ALPP Acquisition Corporation 2, Inc. a Delaware corporation (“Merger Sub 2”), entered into a merger agreement (the “Vayu Agreement”) with Vayu (US), Inc., a Delaware corporation (“VAYU”), pursuant to which VAYU merged with and into Merger Sub 2 (the “Vayu Merger”).
On December 29, 2020, the Company created Merger Sub 2 and became its sole shareholder. Merger Sub was created solely for the purpose of the Vayu Merger. The Vayu Merger closed on February 8, 2021.
Pursuant to the Vayu Agreement, the Merger of Merger Sub 2 with and into VAYU was structured as a reverse triangular merger and was intended to qualify as a tax-free reorganization. Under the Agreement, VAYU would be the surviving entity (the “Surviving Corporation”). The Board of Directors of the Company and of Merger Sub 2 determined that the Vayu Merger would be in the best interests of the Company and Merger Sub 2 and their respective shareholders. The Board of Directors of VAYU determined it to be in the best interests of VAYU and its shareholders to enter into the Vayu Agreement and recommended the Merger to the VAYU shareholders.
Additional information about the Vayu Merger can be found in the Company’s Current Report filed with the Commission on January 4, 2021.
Name Change
On March 2, 2021, the previously reported change to the name of Alpine 4 Technologies Ltd. to Alpine 4 Holdings, Inc., took effect in the market. The Company had previously filed a Certificate of Amendment to its Certificate of Incorporation to effectuate the change in Delaware, and on March 1, 2021, FINRA reported that the name change would take effect on March 2, 2021.
New Independent Directors
On March 2, 2021, the Company’s Board of Directors unanimously determined to increase the size of the Board, and appointed four new independent directors in connection with the Company’s efforts to uplist its Class A common stock for trading on The Nasdaq Stock Market.
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The new directors are Mrs. Gerry Garcia, Mr. Edmond Lew, Mr. Christophe Jeunot, and Mr. Jonathan Withem. Biographical information about the new directors is provided below in the Section “Directors, Executive Officers, and Corporate Governance.”
New Member of Vayu (US) Team
On March 18, 2021, the Company welcomed recently retired U.S Airforce Technical Sergeant, Nathan Grier, to the Vayu (US), Inc. (Vayu) team. Mr. Grier is the former Programs Director of Counter Small Unmanned Aerial Systems (C-sUAS)/ Small Unmanned Aerial Systems (sUAS)/ Nuclear Convoy for the U.S. Airforce.
Former Technical Sergeant Grier was responsible for establishing the F.E. Warren Airforce Bases' UAVs lab where he maintained the Research Development Test & Evaluation (“RDT&E”) Program for C-sUAS and sUAS technology projects. The RDT&E Program provides physical security equipment and analyses to meet the immediate and projected force protection challenges of the Services and the combatant commands. Mr. Grier was the Air Force Global Strike subject matter expert on all sUAS and C-sUAS matters, training all new pilots to fly sUAS, obtaining FAA Part 107 certifications, and creating and authoring C-sUAS doctrine/literature used by all U.S. Nuclear Intercontinental Ballistic Missile Wings.
Additionally, Former Technical Sergeant Grier has a background as a Cyber Security Manager with the 18th Military Police (MP) Brigade, as he himself was an MP. He anticipates completing his master's degree in cyber security in June of 2021.
Registered Direct Offering
On February 11, 2021, the Company entered into a Securities Purchase Agreement (the “Purchase Agreement”) with certain purchasers identified on the signature page thereto (the “Purchasers”), pursuant to which the Company agreed to sell to the Purchasers in a registered direct offering an aggregate of 8,333,333 shares of the Company’s Class A common stock (the “Common Stock”), for aggregate gross proceeds to the Company of $50,000,000, before deducting fees to the placement agent and other estimated offering expenses payable by the Company. At the closing, the Company issued an aggregate of 8,333,333 shares of our Common Stock (“Shares”)
A.G.P./Alliance Global Partners served as the placement agent in connection with the offering under the Purchase Agreement pursuant to the terms of a placement agent agreement, dated February 11, 2021, between the Company and A.G.P (the “Placement Agent Agreement”). Pursuant to the Placement Agent Agreement, A.G.P received a cash fee of 7% of the aggregate gross proceeds raised from the sale of the Shares and warrants to purchase shares of the Company’s Class A Common Stock in an amount equal to 5% of the Shares from the offering (the “Placement Agent Warrants”). The Placement Agent Warrants have an exercise price of $6.60 per share and are not exercisable until August 16, 2021, as well as certain transfer restrictions pursuant to FINRA Rule 5110.
Additional information about this transaction can be found in the Company’s Current Report on Form 8-K filed on February 12, 2021.
Employees
As of the date of this Report, we had 273 full-time and 2 part-time employees. We believe that our relationship with our employees is good. Other than as disclosed in this Report or previously filed with the SEC, we have no employment agreements with our employees.
ITEM 1A. RISK FACTORS
Because of the following factors, as well as other factors affecting the Company's financial condition and operating results, past financial performance should not be considered to be a reliable indicator of future performance, and investors should not use historical trends to anticipate results or trends in future periods.
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Risks Associated with Our Business and Operations
We are an "emerging growth company," and the reduced disclosure requirements applicable to "emerging growth companies" could make our common stock less attractive to investors.
We are 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 management 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.
Our needs could exceed the amount of time or level of experience its officers and directors may have. We will be dependent on key executives, and the loss of the services of the current officers and directors could severely impact our business operations.
Our business plan provides for hiring of additional employees to support our growing operations and acquisition support. As we continue to grow and until we have hired all necessary personnel, the responsibility of developing
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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 this Annual Report, 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 have 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 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 we have has shown a net loss since inception, ownership of our shares is highly risky and could result in a complete loss of the value of your investment if we are unsuccessful in its business plans.
Based upon current plans, we expect to stop incurring operating losses in future periods as our subsidiaries move from their Optimization Phase to their 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.
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Growth and development of operations will depend on the growth in our acquisition model and from organic growth from its subsidiaries’ businesses. If we cannot find desirable acquisition candidates, it may not be able to generate growth with future revenues.
We expect to continue its strategy of acquiring businesses, which management believes will result in significant growth in projected annualized revenue by the end of 2021. However, there is no guarantee that it will be successful in realizing future revenue growth from its acquisition model. As such, we are 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 we are unable to locate or identify suitable acquisition candidates, or to enter into transactions with such candidates, or if we are unable to integrate the acquired businesses, we may not be able to grow its revenues to the extent anticipated, or at all.
We may make acquisitions which could divert the attention of management and which may not be integrated successfully into our existing business.
We may pursue acquisitions to increase our market penetration, enter new geographic markets and expand the scope of services we provide. We cannot guarantee that we will identify suitable acquisition candidates, that acquisitions will be completed on acceptable terms or that we will be able to integrate successfully the operations of any acquired business into our existing business. The acquisitions could be of significant size and involve operations in multiple jurisdictions. The acquisition and integration of another business would divert management attention from other business activities. This diversion, together with other difficulties we may incur in integrating an acquired business, could have a material adverse effect on our business, financial condition and results of operations. In addition, we may borrow money or issue capital stock to finance acquisitions. Such borrowings might not be available on terms as favorable to us as our current borrowing terms and may increase our leverage, and the issuance of capital stock could dilute the interests of our stockholders. Currently, we are not contemplating the acquisition of any specific entity.
As we acquire companies or technologies in the future, they could prove difficult to integrate, disrupt our business, dilute stockholder value and adversely affect our operating results and the value of your investment.
As part of our business strategy, we regularly evaluate investments in, or acquisitions of, complementary businesses, joint ventures, services and technologies, and we expect that periodically we will continue to make such investments and acquisitions in the future. Acquisitions and investments involve numerous risks, including:
-the potential failure to achieve the expected benefits of the combination or acquisition;
-difficulties in and the cost of integrating operations, technologies, services and personnel;
-diversion of financial and managerial resources from existing operations;
-risk of entering new markets in which we have little or no experience;
-potential write-offs of acquired assets or investments;
-potential loss of key employees;
-inability to generate sufficient revenue to offset acquisition or investment costs;
-the inability to maintain relationships with customers and partners of the acquired business;
-the difficulty of incorporating acquired technology and rights into our products and services and of maintaining quality standards consistent with our established brand;
-potential unknown liabilities associated with the acquired businesses;
-unanticipated expenses related to acquired technology and its integration into existing technology;
-negative impact to our results of operations because of the depreciation and amortization of amounts related to acquired intangible assets, fixed assets and deferred compensation, and the loss of acquired deferred revenue;
-the need to implement controls, procedures and policies appropriate for a public company at companies that prior to the acquisition lacked such controls, procedures and policies; and
-challenges caused by distance, language and cultural differences.
In addition, if we finance acquisitions by issuing additional convertible debt or equity securities, our existing stockholders may be diluted which could affect the market price of our stock. Further, if we fail to properly evaluate and execute acquisitions or investments, our business and prospects may be seriously harmed, and the value of your investment may decline.
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We have limited management resources and will be dependent on key executives. The loss of the services of the current officers and directors could severely impact our business operations and future development, which could result in a loss of revenues and adversely impact the business.
We are 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 our Class A common stock.
Competition that we face is varied and strong.
Our 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 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:
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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;
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Our ability to anticipate changes in consumer preferences and to meet customers' needs for our products in a timely cost-effective manner; and
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Our ability to establish, maintain and eventually grow market share in these competitive environments.
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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:
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ability to keep satisfied vendor relationships
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hiring and training qualified personnel in local markets;
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managing marketing and development costs at affordable levels;
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cost and availability of labor;
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the availability of, and our ability to obtain, adequate supplies of ingredients that meet our quality standards; and
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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.
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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-19) outbreak. 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-19) or other epidemics. A public health epidemic, including Novel Coronavirus (COVID-19), poses the risk that we 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-19) and/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-19) or 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.
Our existing debt levels may adversely affect our financial condition or operational flexibility and prevent us from fulfilling our obligations under our outstanding indebtedness.
As of December 31, 2020, we had total debt of approximately $50,000,000. This level of debt or any increase in our debt level could have adverse consequences for our business, financial condition, operating results and operational flexibility, including the following: (i) the debt level may cause us to have difficulty borrowing money in the future for working capital, capital expenditures, acquisitions or other purposes; (ii) our debt level may limit operational flexibility and our ability to pursue business opportunities and implement certain business strategies; and (iii) we have a higher level of debt than some of our competitors or potential competitors, which may cause a competitive disadvantage and may reduce flexibility in responding to changing business and economic conditions, including increased competition and vulnerability to general adverse economic and industry conditions. If we fail to satisfy our obligations under our outstanding debt, an event of default could result that could cause some or all of our debt to become due and payable.
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Risks Related to Our Class A Common Stock
Alpine 4 stockholders, and others who choose to purchase shares of Alpine 4 Class A 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 Class A 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 Class A 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 195,000,000 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 Report, we had 136,923,432 shares of Class A common stock outstanding; 9,023,088 shares of Class B common stock issued and outstanding; and 14,572,267 shares of Class C common stock issued and outstanding.
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.
Our stockholders are subject to significant dilution upon the occurrence of certain events which could result in a decrease in our stock price.
As of April 5, 2021, we had approximately $2,095,000 in outstanding convertible debt which was convertible into shares of our Class A common stock at prices between $0.15 and $3.00 per share of Class A common stock. As of April 5, 2021, there were approximately 7,266,000 shares of our Class A common stock that would be issuable upon the conversion of outstanding convertible debt.
Future sales of substantial amounts of our Class A common stock into the public and the issuance of the shares upon conversion of the outstanding convertible notes will be dilutive to our existing stockholders and could result in a decrease in our stock price.
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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:
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announcements of new products, brands, commercial relationships, acquisitions or other events by us or our competitors;
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regulatory or legal developments in the United States and other countries;
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fluctuations in stock market prices and trading volumes of similar companies;
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general market conditions and overall fluctuations in U.S. equity markets;
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social and economic impacts resulting from the global COVID-19 pandemic;
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variations in our quarterly operating results;
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changes in our financial guidance or securities analysts' estimates of our financial performance;
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changes in accounting principles;
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our ability to raise additional capital and the terms on which we can raise it;
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sales of large blocks of our common stock, including sales by our executive officers, directors and significant stockholders;
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additions or departures of key personnel;
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discussion of us or our stock price by the press and by online investor communities; and
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other risks and uncertainties described in these risk factors.
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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
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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 do not have experience being officers of a public company. It may be time consuming, difficult and costly for us to develop and implement 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.
Alpine 4's 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. 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. All outstanding shares of Preferred Stock are fully paid and non-assessable.
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 future capital raising transactions. 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 any future capital raising transactions. We intend to use the net proceeds from future capital raising transactions 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 such capital raising transactions. 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 that 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
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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:
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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;
|
|
|
|
|
-
|
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.
22
ITEM 1B. UNRESOLVED STAFF COMMENTS.
Not applicable to Smaller Reporting Companies.
ITEM 2. PROPERTIES.
Alpine 4 Holdings, Inc. (formerly Alpine 4 Technologies, Ltd.), maintains our corporate office in rented offices at 2525 E Arizona Biltmore Cir, Suite 237, Phoenix, AZ 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, CA 95112. The monthly rent obligation is approximately $27,500 per month.
American Precision Fabricators, rents a property 4401 Savannah St. Fort Smith, AR 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. As discussed elsewhere in this Report, on March 8, 2021, the Company announced that Deluxe Sheet Metal would merge with and into Morris Sheet Metal. Following the closing of such merger, Deluxe Sheet Metal remains & operates from this same property.
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 $25,000.
Excel Construction Services rents office and fabrication space at 297 Wycoff Cir, Twin Falls, ID 83301. The monthly rent obligation is approximately $18,700.
Impossible Aerospace’s headquarters are located at 1709 Junction Court, Suite 380, San Jose, CA 95112. There is not a current rent obligation as this is in our Quality Circuit Assembly, Inc occupied space for the time being.
Vayu (US) has its headquarters at 326 W Liberty St, Ann Arbor, Michigan 48103. The monthly rent obligation is approximately $1,700.
ITEM 3. 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.
In June 2020, the Company’s subsidiary Excel Fabrication, LLC filed a lawsuit against Fusion Mechanical, LLC, in the Fifth Judicial District Court, State of Idaho (Case Number CV42-20-2246). The Company claimed tortious interference and trade secret violations by the defendant. The defendant filed a motion to dismiss, which was denied by the Court. As of the date of this Report, discovery was proceeding. The Company intends to pursue vigorously its claims.
In August 2020, the Company filed a lawsuit in the United States District Court, District of Arizona (Case No.2:20-cv-01679-DJH), against Alan Martin, the seller of Horizon Well Testing LLC (“HWT”) dba Venture West Energy Services, LLC. The Company brought claims for breach of contract, including but not limited to breaches of the seller’s representations and warranties in the purchase agreement in connection with the acquisition of HWT. The defendant answered and counterclaimed, claiming breach by the Company of its obligation to issue a promissory note (to be issued in connection with the acquisition of HWT). The parties have engaged in discovery and settlement negotiations, both of which were ongoing as of the date of this Report.
23
ITEM 4. MINE SAFETY DISCLOSURES.
Not applicable.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2020 and 2019
Note 1 – Organization and Basis of Presentation
Alpine 4 Holdings, Inc. (fka Alpine 4 Technologies Ltd.) (together with its subsidiaries, the “Company,” “we,” or “our”), 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. On March 2, 2021, the Company changed its name from Alpine 4 Technologies Ltd. to Alpine 4 Holdings, Inc.
Effective January 1, 2019, the Company purchased all of the outstanding capital stock of Morris Sheet Metal Corp., an Indiana corporation (“MSM”), JTD Spiral, Inc. a wholly owned subsidiary of MSM, an Ind-iana corporation, Morris Enterprises LLC, an Indiana limited liability company and Morris Transportation LLC, an Indiana limited liability company (collectively “Morris”).
Effective November 6, 2019, the Company purchased all of the outstanding capital stock and units of Deluxe Sheet Metal, Inc., an Indiana corporation, and DSM Holding, LLC, an Indiana limited liability company, and purchased certain real estate from Lonewolf Enterprises, LLC, an Indiana limited liability company (collectively “Deluxe”) (see Note 8).
Effective February 21, 2020, the Company purchased all of the outstanding units of Excel Fabrication, LLC., an Idaho Limited Liability Company (“Excel”).
Effective December 15, 2020, the Company purchased the assets of Impossible Aerospace Corporation, a Delaware corporation (“IA”).
The Company is a technology holding company owning nine companies:
-A4 Corporate Services, LLC;
-ALTIA, LLC;
-Quality Circuit Assembly, Inc.;
-Morris Sheet Metal, Corp;
-JTD Spiral, Inc.;
-Excel Construction Services, LLC;
-SPECTRUMebos, Inc.;
-Impossible Aerospace, Inc.; and
-Vayu (US).
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 generally accepted accounting principles in the United States (“U.S. GAAP”).
Liquidity
The Company’s financial statements are prepared in accordance with GAAP applicable to a going concern, which contemplates realization of assets and the satisfaction of liabilities in the normal course of business within one year after the date the consolidated financial statements are issued.
In accordance with Financial Accounting Standards Board, or the FASB, Accounting Standards Update No. 2014-15, Presentation of Financial Statements - Going Concern (Subtopic 205-40), our management evaluates whether there are conditions or events, considered in aggregate, that raise substantial doubt about our ability to continue as a going concern within one year after the date that the financial statements are issued.
F-8
ALPINE 4 HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2020 and 2019
The Company has experienced significant operating losses with cumulative losses of approximately $39,795,000 as of December 31, 2020 and negative cashflows from operations. For the year ended December 31, 2019, the Company disclosed the substantial doubt about the Company’s ability to continue as a going concern.
The Company received a total of approximately $6.2 million during the year ended December 31, 2020, through several transactions, including the following:
•The Company raised approximately $1.5 million through the sale of convertible notes;
•The Company raised approximately $674,000 in proceeds from the sale of shares of the Company’s stock; and
•The Company received approximately $4.0 million in PPP funds.
The Company also received a total of approximately $55 million in February 2021 in the following two transactions:
•The Company raised approximately $46.0 million in net proceeds in connection with a registered direct offering of its stock (see Note 14) and
•The Company raised approximately $9.0 million in net proceeds in connection with an equity line of credit financing arrangement.
Based on the recent capital raise as indicated above, management believes the Company has sufficient working capital to satisfy the Company’s estimated liquidity needs for 12 months from the issuance of our financial statements for the year ended December 31, 2020.
However, there is no assurance that management’s plans will be successful due to the current economic climate in the United States and globally. At the time of issuance of our consolidated financial statements, management believed that the previously reported going concern has been alleviated based on the reasons set forth above, and management determined that there is no longer any substantial doubt as to the Company’s ability to continue as a going concern.
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, 2020 and 2019. Significant intercompany balances and transactions have been eliminated.
Use of estimates
The consolidated financial statements are prepared in accordance with generally accepted accounting principles in the United States, or U.S. GAAP. Preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, costs and expenses and related disclosures. The Company bases its estimates on historical experience and on various other assumptions that it believes to be reasonable. In many instances, the Company could have reasonably used different accounting estimates and in other instances changes in the accounting estimates are reasonably likely to occur from period to period. This applies in particular to useful lives of non-current assets, valuation allowance for deferred tax assets and impairment of non-current assets. Actual results could differ significantly from our estimates. To the extent that there are material differences between these estimates and actual results, the Company’s future financial statement presentation, financial condition, results of operations and cash flows will be affected. The ultimate impact from COVID-19 on the Company’s operations and financial results during 2021 will depend on, among other things, the ultimate severity and scope of the pandemic, the pace at which governmental and private travel restrictions and public concerns about public gatherings will ease, and the speed with which the economy recovers. The Company is not able to fully quantify the impact that these factors will have on the Company’s financial results during 2021 and beyond. COVID-19 did have a negative impact on the Company’s financial performance in 2020. During the year ended December 31, 2020, the Company took an impairment charge related to intangible assets and goodwill of $1,561,600.
F-9
ALPINE 4 HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2020 and 2019
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, 2020 and 2019, the Company had no cash equivalents.
Major Customers
The Company had two customers that made up 10% and 8%, respectively, of accounts receivable as of December 31, 2020. The Company had one customer that made up 7% of accounts receivable as of December 31, 2019.
For the year ended December 31, 2020, the Company had one customer that made up 10% of total revenues. For the year ended December 31, 2019, the Company had one customer that made up 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, 2020 and 2019, allowance for bad debt was $49,914 and $18,710, 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, 2020 and 2019 consists of:
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Raw materials
|
$
|
1,584,651
|
|
$
|
1,791,733
|
|
Work in process
|
|
573,806
|
|
|
576,196
|
|
Finished goods
|
|
508,145
|
|
|
59,972
|
|
|
|
2,666,602
|
|
|
2,427,901
|
|
Reserve
|
|
-
|
|
|
(26,659)
|
|
Inventory, net
|
$
|
2,666,602
|
|
$
|
2,401,242
|
F-10
ALPINE 4 HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2020 and 2019
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
|
5 to 7 years
|
|
Buildings and improvements
|
39 years
|
|
Leasehold Improvements
|
15 years or time remaining on lease (whichever is shorter)
|
|
Machinery and 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, 2020 and 2019:
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Automobiles and trucks
|
$
|
918,602
|
|
$
|
563,614
|
|
Machinery and equipment
|
|
5,436,847
|
|
|
3,792,964
|
|
Office furniture and fixtures
|
|
119,546
|
|
|
119,526
|
|
Buildings and improvements
|
|
16,167,000
|
|
|
14,167,000
|
|
Leasehold improvements
|
|
-
|
|
|
12,816
|
|
Total Property and equipment
|
|
22,641,995
|
|
|
18,655,920
|
|
Less: Accumulated depreciation
|
|
(3,342,709)
|
|
|
(1,498,075)
|
|
Property and equipment, net
|
$
|
19,299,286
|
|
$
|
17,157,845
|
Included in Buildings and improvements in the above table are two buildings of $9,000,000 and $2,000,000 related to sale leaseback transactions in connection with the acquisitions of Deluxe and Excel. (See Note 3.)
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 $237,048 In addition, as part of the termination, the Company issued the landlord a note payable in the amount of $2,740,000 (see Note 4).
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
|
3-15 years
|
|
Non-compete agreements
|
5-15 years
|
|
Software development
|
5 years
|
|
Patents
|
17 years
|
F-11
ALPINE 4 HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2020 and 2019
Intangible assets consisted of the following as of December 31, 2020 and 2019:
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Software
|
$
|
278,474
|
|
$
|
278,474
|
|
Noncompete
|
|
205,457
|
|
|
100,000
|
|
Customer lists
|
|
2,031,187
|
|
|
2,861,187
|
|
Patents
|
|
5,800,137
|
|
|
-
|
|
Total Intangible assets
|
|
8,315,255
|
|
|
3,239,661
|
|
Less: Accumulated amortization
|
|
(572,171)
|
|
|
(465,043)
|
|
Intangibles, net
|
$
|
7,743,084
|
|
$
|
2,774,618
|
Expected amortization expense of intangible assets over the next 5 years and thereafter is as follows:
|
Years Ending December 31,
|
|
|
|
2021
|
$
|
728,517
|
|
2022
|
|
663,413
|
|
2023
|
|
654,625
|
|
2024
|
|
511,274
|
|
2025
|
|
492,264
|
|
Thereafter
|
|
4,692,991
|
|
Total
|
$
|
7,743,084
|
Other Long-Term Assets
Other long-term assets consisted of the following as of December 31, 2020 and 2019:
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Deposits
|
$
|
293,327
|
|
$
|
285,927
|
|
Other
|
|
108,417
|
|
|
33,417
|
|
|
$
|
401,744
|
|
$
|
319,344
|
Impairment of Long-Lived Assets
The Company accounts for long-lived assets in accordance with the provisions of Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") Topic 360, Accounting for the Impairment of Long-Lived Assets. This statement requires that long-lived assets and certain identifiable intangibles be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. An impairment loss would be recognized when the estimated future cash flows from the use of the asset are less than the carrying amount of that asset. During the year ended December 31, 2020, due to the loss of significant customer and the impact of COVID-19, the Company determined that the customer list for APF and Deluxe was impaired and took a charge to earnings of $671,500 and $450,000, respectively. During the year ended December 31, 2019, there were no impairment losses.
Goodwill
In financial reporting, goodwill is not amortized, but is tested for impairment annually or whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Events that result in an impairment review include significant changes in the business climate, declines in our operating results, or an expectation that the carrying amount may not be recoverable. We assess potential impairment by considering present economic conditions as well as future expectations. All assessments of goodwill impairment are conducted at the individual reporting unit level. As of December 31, 2020 and 2019, the reporting units with goodwill were QCA, Morris and Excel.
F-12
ALPINE 4 HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2020 and 2019
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. During the year ended December 31, 2020, the Company determined that the goodwill for APF was impaired, as the company ceased operating as of August 31, 2020 and took a charge to earnings of $440,100. During year ended December 31, 2019, there were no impairment charge related to goodwill.
Fair Value Measurement
The Company's financial instruments consist of cash and cash equivalents, accounts receivable, accounts payable, accrued expenses, convertible notes, notes and line of credit. The carrying amount of these financial instruments approximates fair value due either to length of maturity or interest rates that approximate prevailing market rates unless otherwise disclosed in these financial statements. For additional information, please see Note 11 – Derivative Liabilities and Fair Value Measurements.
The carrying value of long-term debt approximates fair value since the related rates of interest approximate current market rates.
Revenue Recognition
On January 1, 2018, the Company adopted ASC Topic 606, Revenue from Contracts with Customers using the modified retrospective method applied to those contracts which were not completed as of January 1, 2018. Results for reporting periods beginning after January 1, 2018 are presented under ASC Topic 606.
The following is a summary of the revenue recognition policy for each of the Company’s subsidiaries.
Revenue is recognized under Topic 606 in a manner that reasonably reflects the delivery of its services and products to customers in return for expected consideration and includes the following elements:
·executed contracts with the Company’s customers that it believes are legally enforceable;
·identification of performance obligations in the respective contract;
·determination of the transaction price for each performance obligation in the respective contract;
·allocation the transaction price to each performance obligation; and
·recognition of revenue only when the Company satisfies each performance obligation.
The following is a summary of the revenue recognition policy for each of the Company’s subsidiaries.
ALTIA
Revenues recorded by ALTIA relate primarily to the Company’s 6th Sense Auto service. The Company accounts for its revenue by deferring the total contract amount and recognizing the amounts over the monthly subscription period, ranging from 12 to 36 months.
QCA and Excel Fabrication
QCA and Excel Fabrication are contract manufacturers and recognize revenue when the products have been built and control has been transferred to the customer. If a deposit for product or service is received prior to completion, the payment is recorded to deferred revenue until such point the product or services meets our revenue recognition policy. Management assesses the materiality and likelihood of warranty work and returns, and records reserves as needed. For all periods presented, management determined that the warranty and returns would be immaterial.
F-13
ALPINE 4 HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2020 and 2019
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 Sheet Metal and Deluxe Sheet Metal
For our construction contracts, revenue is generally recognized over time as our performance creates or enhances an asset that the customer controls as it is created or enhanced. Our fixed price construction projects generally use a cost-to-cost input method to measure our progress towards complete satisfaction of the performance obligation as we believe it best depicts the transfer of control to the customer which occurs as we incur costs on our contracts. Under the cost-to-cost measure of progress, the extent of progress towards completion is measured based on the ratio of costs incurred to date to the total estimated costs at completion of the performance obligation. For certain of our revenue streams, that are performed under time and materials contracts, our progress towards complete satisfaction of such performance obligations is measured using an output method as the customer receives and consumes the benefits of our performance completed to date. Due to uncertainties inherent in the estimation process, it is possible that estimates of costs to complete a performance obligation will be revised in the near-term. For those performance obligations for which revenue is recognized using a cost-to-cost input method, changes in total estimated costs, and related progress towards complete satisfaction of the performance obligation, are recognized on a cumulative catch-up basis in the period in which the revisions to the estimates are made. When the current estimate of total costs for a performance obligation indicate a loss, a provision for the entire estimated loss on the unsatisfied performance obligation is made in the period in which the loss becomes evident.
Contract Assets and Contract Liabilities
The timing of revenue recognition may differ from the timing of invoicing to customers. Contract assets include unbilled amounts from our construction projects when revenues recognized under the cost-to-cost measure of progress exceed the amounts invoiced to our customers, as the amounts cannot be billed under the terms of our contracts. Such amounts are recoverable from our customers based upon various measures of performance, including achievement of certain milestones, completion of specified units or completion of a contract. In addition, many of our time and materials arrangements, are billed pursuant to contract terms that are standard within the industry, resulting in contract assets being recorded, as revenue is recognized in advance of billings. Our contract assets do not include capitalized costs to obtain and fulfill a contract. Contract assets are generally classified as current within the consolidated balance sheets.
Contract liabilities from our construction contracts arise when amounts invoiced to our customers exceed revenues recognized under the cost-to-cost measure of progress. Contract liabilities additionally include advanced payments from our customers on certain contracts. Contract liabilities decrease as we recognize revenue from the satisfaction of the related performance obligation.
Contract Retentions
As of December 31, 2020 and 2019, accounts receivable included retainage billed under terms of our contracts. These retainage amounts represent amounts which have been contractually invoiced to customers where payments have been partially withheld pending the achievement of certain milestones, satisfaction of other contractual conditions or completion of the project.
F-14
ALPINE 4 HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2020 and 2019
Earnings (loss) per share
Basic earnings (loss) per common share is computed by dividing net income (loss) available to common shareholders by the weighted-average number of shares of common stock outstanding during the period. Diluted earnings per common share is computed by dividing income available to common shareholders by the weighted-average number of shares of common stock outstanding during the period increased to include the number of additional shares of common stock that would have been outstanding if potentially dilutive securities had been issued. The only potentially dilutive securities outstanding during the periods presented were the convertible debt and options. The following table illustrates the computation of basic and diluted EPS for the years ended December 31, 2020 and 2019:
|
|
|
For the Year Ended December 31, 2020
|
|
For the Year Ended December 31, 2019
|
|
|
|
Net loss
|
|
Shares
|
|
Per Share Amount
|
|
|
Net loss
|
|
Shares
|
|
Per Share Amount
|
|
Basic EPS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss available to stockholders
|
$
|
(8,049,873)
|
|
132,987,390
|
$
|
(0.06)
|
|
$
|
(3,133,165)
|
|
75,206,998
|
$
|
(0.04)
|
|
Effect of Dilutive Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible debt
|
|
(1,001,192)
|
|
6,624,400
|
|
-
|
|
|
|
|
|
|
-
|
|
Dilute EPS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss available to stockholders plus
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
assumed conversions
|
$
|
(9,051,065)
|
|
139,611,790
|
$
|
(0.06)
|
|
$
|
(3,133,165)
|
|
75,206,998
|
$
|
(0.04)
|
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
F-15
ALPINE 4 HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2020 and 2019
determining if the weight of available evidence indicates it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount which is more than 50% likely, based solely on the technical merits, of being sustained on examinations. The Company considers many factors when evaluating and estimating its tax positions and tax benefits, which may require periodic adjustments, and which may not accurately anticipate actual outcomes.
Embedded Conversion Features
The Company evaluates embedded conversion features within convertible debt under ASC 815 Derivatives and Hedging to determine whether the embedded conversion feature(s) should be bifurcated from the host instrument and accounted for as a derivative at fair value with changes in fair value recorded in earnings. If the conversion feature does not require derivative treatment under ASC 815, the instrument is evaluated under ASC 470-20 Debt with Conversion and Other Options for consideration of any beneficial conversion features.
Related Party Disclosure
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 June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. ASU 2016-13 was issued to improve financial reporting by requiring earlier recognition of credit losses on financing receivables and other financial assets in scope. The new standard represents significant changes to accounting for credit losses. Full lifetime expected credit losses will be recognized upon initial recognition of an asset in scope. The current incurred loss impairment model that recognizes losses when a probable threshold is met will be replaced with the expected credit loss impairment method without recognition threshold. The expected credit losses estimate will be based upon historical information, current conditions, and reasonable and supportable forecasts. This ASU as amended by ASU 2019-10, is effective for fiscal years beginning after December 15, 2023. The Company is currently evaluating the effect of this ASU on the Company’s consolidated financial statements and related disclosures.
In January 2017, the FASB issued ASU 2017-04, Intangibles—Goodwill 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 adoption of this ASU did not have a material impact on the Company’s consolidated financial statements and related disclosures.
In December 2019, the FASB issued ASU 2019-12, Simplifying the Accounting for Income Taxes which amends ASC 740 Income Taxes (ASC 740). This update is intended to simplify accounting for income taxes by removing certain exceptions to the general principles in ASC 740 and amending existing guidance to improve consistent application of ASC 740. This update is effective for fiscal years beginning after December 15, 2021. The guidance in this update has various elements, some of which are applied on a prospective basis and others on a retrospective basis with earlier application permitted. The Company is currently evaluating the effect of this ASU on the Company’s consolidated financial statements and related disclosures.
F-16
ALPINE 4 HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2020 and 2019
Other recent accounting pronouncements issued by the FASB, including its Emerging Issues Task Force, the American Institute of Certified Public Accountants, and the Securities and Exchange Commission did not or are not believed by management to have a material impact on the Company's present or future financial statements.
Note 3 – 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, 2020, the future minimum finance and operating lease payments are as follows:
|
|
|
Finance
|
|
Operating
|
|
Years Ending December 31,
|
|
Leases
|
|
Leases
|
|
2021
|
$
|
1,936,603
|
$
|
402,688
|
|
2022
|
|
1,966,588
|
|
103,124
|
|
2023
|
|
1,983,755
|
|
105,156
|
|
2024
|
|
1,978,189
|
|
107,188
|
|
2025
|
|
1,862,341
|
|
26,924
|
|
Thereafter
|
|
17,561,746
|
|
-
|
|
Total payments
|
|
27,289,222
|
|
745,080
|
|
Less: imputed interest
|
|
(10,962,519)
|
|
(141,550)
|
|
Total obligation
|
|
16,326,703
|
|
603,530
|
|
Less: current portion
|
|
(639,527)
|
|
(334,500)
|
|
Non-current capital leases obligations
|
$
|
15,687,176
|
$
|
269,030
|
Finance Leases
In 2016, the Company sold a building and used the money to purchase QCA. Because this was 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.
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 October 1, 2020 an amendment and consent to assignment was executed between the landlord and Excel and QCA.
On January 1, 2019, the Company acquired Morris. In order to fund a portion of the acquisition price, the Company simultaneously entered into a sale leaseback transaction with a third-party lender whereby the building acquired from Morris was sold for $3,267,000, and leased back to the company for a period of 15 years at a monthly rate of $27,500, subject to an annual increase of 2% throughout the term of the lease. The transaction did not qualify as a sale and
F-17
ALPINE 4 HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2020 and 2019
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.
On February 21, 2020, the Company acquired Excel. In order to fund a portion of the acquisition price, the Company simultaneously entered into a sale leaseback transaction with a third-party lender whereby the building acquired from Excel was sold for $2,000,000, and leased back to the Company for a period of 15 years at a monthly rate of $18,700 for the first five years, subject to annual increases throughout the term of the lease. The transaction did not qualify as a sale and leaseback transaction under Topic 842 and as such was accounted for as a financing lease. The payments related to this lease are reflected in the table above.
During the year ended December 31, 2020, the Company entered into three finance leases for equipment totaling $756,990. Each has a 60 month term with an interest rate ranging from 6.7% to 9%.
Operating Leases
The table below presents the lease related assets and liabilities recorded on the Company’s consolidated balance sheet as of December 31, 2020:
|
|
|
|
|
December 31,
|
|
December 31,
|
|
|
|
Classification on Balance Sheet
|
|
2020
|
|
2019
|
|
Assets
|
|
|
|
|
|
|
|
Operating lease assets
|
Operating lease right of use assets
|
$
|
581,311
|
$
|
660,032
|
|
Total lease assets
|
|
|
$
|
581,311
|
$
|
660,032
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
Operating lease liability
|
Current operating lease liability
|
$
|
334,500
|
$
|
266,623
|
|
Noncurrent liabilities
|
|
|
|
|
|
|
Operating lease liability
|
Long-term operating lease liability
|
|
269,030
|
|
403,931
|
|
Total lease liability
|
|
$
|
603,530
|
$
|
670,554
|
During the year ended December 31, 2020, the Company amended its lease for its office space in Phoenix, Arizona through March 2025. As a result of this amendment, the Company remeasured the right of use asset and liability and recorded an additional $193,541 in right of use asset on the date of the modification.
The lease expense for the years ended December 31, 2020 and 2019 was $373,884 and $350,339, respectively. The cash paid under operating leases during the years ended December 31, 2020 and 2019 was $362,771 and $339,818, respectively. At December 31, 2020, the weighted average remaining lease terms were 2.98 years and the weighted average discount rate was 15%.
Note 4 – 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,
F-18
ALPINE 4 HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2020 and 2019
including but not limited to, QCA’s failure to maintain a tangible net worth as contained in the loan agreement. QCA’s credit line with Crestmark totaled $2,800,000 and was restructured from an ABL line of credit to a ledger line of credit. In addition, a minimum interest of 7.75% interest was imposed; an exit fee of 1% through January 31, 2021 and the financial covenant replaced with a requirement for QCA to maintain a free cash flow of at least $1.00 beginning with QCA’s financial statements as of January 31, 2020. The CEO has also validity guaranteed the $2.8 million line of credit with Crestmark. In addition with the acquisitions of Morris, Deluxe and Excel, the Company secured four lines of credit with Advanced Energy Capital for borrowings up to $6,250,000 at variable interest rates, collateralized by their respective accounts receivable.
On February 22, 2018, the Company issued a $3,000,000 note payable under the Amended and Restated Secured Promissory Note with the seller of VWES. The note is secured by the assets of VWES and bears interest at 7% per annum and is due in semi-annual payments of $150,000 commencing on June 1, 2018, through June 1, 2020. The remaining principal and accrued interest is due on the 3 year anniversary. The Company is not current on its payments on the note. The balance as of December 31, 2020 is $2,857,500; the default rate is 10% and the daily late charge is $575.
On April 5, 2018, the Company issued two secured promissory notes in the aggregate principal amount of $1,950,000 (“Secured APF Notes”) as part of the consideration for the purchase of APF. The Secured APF Notes are secured by the equipment, customer accounts and intellectual property of the Company, and all of the products and proceeds from any of the assets of APF. The Secured APF Notes bear interest at 4.25% per annum and have aggregate monthly payments of $19,975 for the first 23 months, with a balloon payment due in April 2020 for the remaining principal and interest outstanding. During the year ended December 31, 2020, the Company amended both of the notes. The noteholders forgave all $450,000 of the $450,000 convertible notes (See Note 6) in exchange for an increase in their notes payable of $67,617. The principal amount of their notes payable was amended to $1,689,000 at 0% interest with weekly payments of $4,086 and the balance to be paid on May 27, 2022. The Company recognized a gain on settlement of debt of $382,384 related to these transactions. The Company made payments on the note after the settlement of $62,019. The balance of these notes at December 31, 2020 was $1,569,769.
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 May 2020, the Company amended the three supplemental notes of $116,667 each with the sellers of Morris. The notes were due January 1, 2020. Each of the new notes as of the date of amendment had accrued interest of $2,703. This was added to the note resulting in the principal amount of each of the new notes equaling to $119,370. The amendment required an initial payment of $30,000 for each note, which was made on May 23, 2020, and 8 monthly installments of $10,000 with one final payment of $13,882 through January 2021. The amended notes have an interest rate of 6%. The Company is current on all of the respective subordinated notes and the supplemental notes have been paid in full as of the date of this report.
In connection with the Deluxe acquisition in November 2019, the Company issued two subordinated secured promissory notes to the seller. The first note for $1,900,000 bears interest at 4.25% per annum, require monthly payment for the first 35 months of $19,463 with any remaining principal and accrued interest due on the 3 year-anniversary. The second note for $496,343 bears interest at 8.75% and is due in January 2020. In January 2020, the Company entered into a debt conversion agreement with the seller which fully settled the second note. (See Note 7)
In connection with the Excel acquisition in February 2020, the Company issued a subordinated secured promissory note to the seller. The note for $2,300,000 bears interest at 4.25% per annum, requires monthly interest only payments for 48 months and is due February 2024. The ending balance for this loan as of December 31, 2020 was $2,062,318.
F-19
ALPINE 4 HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2020 and 2019
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. No principal payments have been made, the outstanding balance as of December 31, 2020 was $2,810,646.
In October and November 2019 the Company entered into two merchant agreements which are secured by rights to customer receipts until the loans have been repaid in full and subject to interest rates ranging from 13% to 20%. Under the terms of these agreements, the Company will receive the disclosed purchase price of $600,000 and $300,000, respectively and agreed to repay the disclosed purchased amount of $839,400 and $420,000, respectively. The merchant lenders collect the purchase amounts at the disclosed weekly payment rates of $29,978 and $11,667 over a period of 28 weeks and 36 weeks, respectively. These loans were personally guaranteed by the CEO and COO. Both merchant agreements were paid in full during the year ended December 31, 2020.
In January 2020, the Company entered into a $200,000 term note with Celtic Capital, Inc. The note is subject to annual interest which is the greater of 13% or 11% plus the 3 month LIBOR rate and requires monthly payments of $3,333 over a period of 60 months. The note is secured by certain equipment of Deluxe.
In connection with the Excel acquisition, the Company entered into a $425,000 term note with Celtic Capital, Inc. The note is subject to annual interest which is the greater of 13% or 11% plus the 3 month LIBOR rate and requires monthly payments of $7,083 over a period of 60 months. The note is secured by certain equipment of Excel.
In October 2019 Morris entered into an equipment finance note for $107,997 with an interest rate of 9.4% for 48 monthly payments with Bryn Mawr Equipment Finance Inc.
The Company issued a $48,000 note in January 2020 to a private investor with an interest rate of 15% with a due date of 1 year.
In April and May 2020 the Company received seven loans under the Paycheck Protection Program (“PPP”) of the Coronavirus Aid, Relief and Economic Security (“CARES”) Act totaling $4,340,956; this includes the assumption of Impossible Aerospace’s PPA Loan of $444,850. The loans have terms of 24 months and accrue interest at 1% per annum. The Company expects some or all of these loans to be forgiven as provided in the CARES Act.
The outstanding balances for the loans as of December 31, 2020 and 2019 were as follows:
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Lines of credit, current portion
|
$
|
2,819,793
|
|
$
|
3,816,103
|
|
Equipment loans, current portion
|
|
245,388
|
|
|
368,011
|
|
Term notes, current portion
|
|
4,035,730
|
|
|
3,849,273
|
|
Merchant loans
|
|
-
|
|
|
690,784
|
|
Total current
|
|
7,100,911
|
|
|
8,724,171
|
|
PPP loans
|
|
4,340,956
|
|
|
-
|
|
Long-term portion of equipment loans and term notes
|
|
10,860,494
|
|
|
9,850,184
|
|
Total notes payable
|
$
|
22,302,361
|
|
$
|
18,574,355
|
Future scheduled maturities of outstanding notes payable from related parties are as follows:
|
Years Ending December 31,
|
|
|
|
2021
|
$
|
7,100,911
|
|
2022
|
|
9,758,821
|
|
2023
|
|
426,368
|
|
2024
|
|
2,468,874
|
|
2025
|
|
309,246
|
|
Thereafter
|
|
2,238,141
|
|
Total
|
$
|
22,302,361
|
F-20
ALPINE 4 HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2020 and 2019
Note 5 – Notes Payable, Related Parties
At December 31, 2020 and 2019, notes payable due to related parties consisted of the following:
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Notes payable; non-interest bearing; due upon demand; unsecured
|
$
|
3,000
|
|
$
|
4,500
|
|
Note payable; bearing interest at 8% per annum; due June 30, 2017; unsecured
|
|
-
|
|
|
7,500
|
|
Series of notes payable, bearing interest at rates from 3% to 20% per annum, with maturity dates from July 2018 to July 2020, unsecured
|
|
235,651
|
|
|
329,820
|
|
Total notes payable - related parties
|
$
|
238,651
|
|
$
|
341,820
|
The above notes which were in default as of December 31, 2020, were due on demand by the lenders as of the date of this Report.
Note 6 – Convertible Notes Payable
At December 31, 2020 and 2019, convertible notes payable consisted of the following:
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
|
2020
|
|
|
2019
|
|
Series of convertible notes payable issued prior to December 31, 2016, bearing interest at rates of 8% - 20% per annum, with due dates ranging from April 2016 through October 2017. The outstanding principal and interest balances are convertible into shares of Class A common stock at the option of the debt holder at exercise prices ranging from $0.10 to $1 per share.
|
|
$
|
25,000
|
|
$
|
25,000
|
|
Secured convertible notes payable issued to the sellers of QCA on April 1, 2016 for an aggregate of $2,000,000, bearing interest at 5% per annum, due in monthly payments starting on July 1, 2016 and due in full on July 1, 2019. On August 6 and 11, 2019, the Company extended the due date of the two notes to December 31, 2020 and December 31, 2022, respectively. In May and June 2020, these convertible notes were amended -- see (A) below. 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.
|
|
|
1,291,463
|
|
|
1,324,588
|
|
Convertible note payable issued in January 2017, bearing interest at rates of 10% per annum, and due in January 2018. The outstanding principal and interest balances are convertible into shares of Class A common stock at the option of the debt holder at an exercise price of $1 per share.
|
|
|
-
|
|
|
10,000
|
F-21
ALPINE 4 HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2020 and 2019
|
On April 5, 2018, the Company entered into convertible promissory notes for an aggregate principal amount of $450,000 as part of the consideration for the acquisition of APF. The convertible notes are due in full in 36 months and bear interest at 4.25% per annum, and are convertible into shares of Class A common stock after 6 months from the issuance date at a rate of $1 per share. During the year ended December 31, 2020, $450,000 of convertible notes were settled for the issuance of a note payable in the net amount of $67,617. A gain on settlement of $382,384 was recognized during the year ended December 31, 2020.(See Note 4 and (B) below)
|
|
|
-
|
|
|
450,000
|
|
On April 9, 2018, the Company entered into a variable convertible note for $124,199 with net proceeds of $115,000. The note is due January 9, 2019 and bears interest at 12% per annum. After 180 days, the note is convertible into shares of the Company's Class A common stock at a discount of 35% to the average of the three lowest trading closing prices of the stock for ten days prior to conversion. In connection with this variable convertible note, the Company issued 76,670 shares of its Class A common stock, along with warrants to purchase 153,340 shares of Class A common stock at an exercise price of $1 per share which are immediately vested and have a 3 year contractual life. The value of the common stock and warrants have been recorded as a discount.
|
|
|
-
|
|
|
500
|
|
On August 30, 2018, the Company entered into a variable convertible note for $337,500 with net proceeds of $303,750. The note is due February 28, 2019 and bears interest at 10% per annum. The note is immediately convertible into shares of the Company's Class A common stock at a discount of 42% to the average of the two lowest trading closing prices of the stock for ten days prior to conversion. This note was amended in November 2019 to affect a floor in the conversion price of $0.15 per share. The note was fully converted as of December 31, 2020.
|
|
|
-
|
|
|
187,681
|
|
On October 23, 2018, the Company entered into a variable convertible note for $220,000 with net proceeds of $198,000. The note is due December 14, 2018 and bears interest at 10% per annum. The note is immediately convertible into shares of the Company's Class A common stock at a discount of 42% to the average of the two lowest trading closing prices of the stock for ten days prior to conversion. This note was amended in November 2019 to affect a floor in the conversion price of $0.15 per share. The note was fully converted as of December 31, 2020.
|
|
|
-
|
|
|
115,000
|
F-22
ALPINE 4 HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2020 and 2019
|
On December 7, 2018, the Company entered into a variable convertible note for $130,000 with net proceeds of $122,200. The note is due September 7, 2019 and bears interest at 12% per annum. The note is immediately convertible into shares of the Company's Class A common stock at a discount of 40% to the lowest trading closing prices of the stock for 20 days prior to conversion. This note was amended in November 2019 to increase the principal amount by $180,000 due to penalty interest; increased the interest to 15% and affect a floor in the conversion price of $0.15 per share. $187,462 of principal amount of note was converted during December 31, 2020.
|
|
|
7,538
|
|
|
195,000
|
|
On November 6, 2019, the Company issued a convertible note for $600,000 with net proceeds of $570,000. The note is due November 6, 2020 and bears interest at 15% per annum. The note is immediately convertible into shares of the Company's Class A common stock at a fixed price of $0.15 per share. This note was fully converted as of December 31, 2020.
|
|
|
-
|
|
|
600,000
|
|
On November 6, 2019, the Company issued a convertible note for $350,000. The note is due November 6, 2020 and bears interest at 15% per annum. The note is immediately convertible into shares of the Company's Class A common stock at a fixed price of $0.15 per share. This note was fully converted as of December 31, 2020.
|
|
|
-
|
|
|
350,000
|
|
On November 14, 2019, the Company issued a convertible note for $137,870. The note is due November 13, 2020 and bears interest at 15% per annum. The note is immediately convertible into shares of the Company's Class A common stock at a fixed price of $0.15 per share. The note was fully converted as of December 31, 2020.
|
|
|
-
|
|
|
137,870
|
|
On November 14, 2019, the Company issued convertible note for $35,000. The note is due November 13, 2020 and bears interest at 15% per annum. The note is immediately convertible into shares of the Company's Class A common stock at a fixed price of $0.15 per share. This note was fully converted as of December 31, 2020.
|
|
|
-
|
|
|
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.
As of December 31, 2020 this amount is past due.
|
|
|
200,000
|
|
|
200,000
|
|
In December 2020, the Company issued convertible notes to individual investors. The notes are due six months from the date of issuance; accrue interest at 5% per annum and are convertible into shares of the Company's Class A common stock at fixed rates ranging from of $0.25 to $3.00.
|
|
|
1,482,500
|
|
|
-
|
|
Total convertible notes payable
|
|
|
3,006,501
|
|
|
3,630,639
|
|
Less: discount on convertible notes payable
|
|
|
(1,343,624)
|
|
|
(846,833)
|
|
Total convertible notes payable, net of discount
|
|
|
1,662,877
|
|
|
2,783,806
|
F-23
ALPINE 4 HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2020 and 2019
|
Less: current portion of convertible notes payable
|
|
|
(562,242)
|
|
|
(1,110,118)
|
|
Long-term portion of convertible notes payable
|
|
$
|
1,100,635
|
|
$
|
1,673,688
|
(A) In May and June 2020 the Company amended the following seller notes: The convertible note with Jeff Moss with a $720,185 balance as of May 4, 2020 was amended to extend the maturity date to May 4, 2027 at 5% interest with weekly payments of $2,605. The principal balance was increased to $798,800 and the balance outstanding at December 31, 2020 was $735,329. The convertible note with Dwight Hargreaves with a $551,001 balance as of June 5, 2020 was amended to extend the maturity date to June 5, 2026 at 6% interest with weekly payments of $2,316. The principal balance was increased to $605,464 and the balance outstanding at December 31, 2020 was $556,135. A loss on extinguishment of debt of $192,272 was recognized on these transactions.
(B) The convertible note with Andy Galbach with an outstanding balance of $450,000 was settled by forgiving $301,500 of the convertible note in exchange for an amendment of another note (one of the Secured APF Notes) which was amended to increase the principal amount by $172,179. The amended note had an amount of $1,239,000 and accrues interest at 0% with weekly payments of $2,644 and the balance to be paid on May 27, 2022. A gain on settlement of $129,321 on the Andy Galbach promissory note and convertible note was recognized during the year ended December 31, 2020. The convertible note with Carl Davis with an outstanding balance of $148,500 was settled by forgiving the entire $148,500 of the convertible note in exchange for an amendment of another note (one of the Secured APF Notes) which was amended to decrease the principal amount by $104,562. The amended note had an amount of $450,000 and accrues interest at 0% with weekly payments of $1,442 and the balance to be paid on May 27, 2022. A gain on settlement of $253,063 Carl Davis promissory note and convertible note was recognized during the year ended December 31, 2020.
The discounts on convertible notes payable arise from stock issued with notes payable, beneficial conversion features, as well as conversion features of certain convertible notes being treated as derivative liabilities (see Note 11). During the years ended December 31, 2020 and 2019, the Company issued convertible notes with a fixed conversion price. The beneficial conversion feature related to these convertible notes that have been recorded as a discount on the convertible notes and as a component of equity was $1,482,500. The discounts are being amortized over the terms of the convertible notes payable. Amortization of debt discounts during the years ended December 31, 2020 and 2019 amounted to $985,709 and $1,144,756, respectively, and is recorded as interest expense in the accompanying consolidated statements of operations. The unamortized discount balance for these notes was $1,343,624 as of December 31, 2020, which is expected to be amortized over the next 12 months.
A summary of the activity in the Company's convertible notes payable is provided below:
|
Balance outstanding, December 31, 2018
|
|
$
|
3,094,735
|
|
Issuance of convertible notes payable for cash
|
|
|
873,000
|
|
Issuance of convertible notes payable for penalty interest
|
|
492,890
|
|
Issuance of convertible notes payable for debt settlement
|
|
127,634
|
|
Repayment of notes
|
|
|
|
|
(1,473,180)
|
|
Conversion of notes payable to common stock
|
|
|
(457,292)
|
|
Discount from derivative liability and beneficial conversion feature
|
|
(1,018,737)
|
|
Amortization of debt discounts
|
|
|
|
1,144,756
|
|
Balance outstanding, December 31, 2019
|
|
|
2,783,806
|
|
Issuance of convertible notes payable for cash
|
|
|
1,482,500
|
|
Non-cash extinguishment
|
|
|
(2,470)
|
|
Repayment of notes
|
|
|
|
|
(335,896)
|
|
Conversion of notes payable to common stock
|
|
|
(1,525,544)
|
|
Penalty interest added to convertible note
|
|
|
15,000
|
|
Convertible note issued for interest
|
|
|
|
192,272
|
|
Settlement of convertible note
|
|
|
|
(450,000)
|
|
Amortization of debt discounts
|
|
|
|
985,709
|
|
Discount from beneficial conversion feature
|
|
|
(1,482,500)
|
|
Balance outstanding, December 31, 2020
|
|
$
|
1,662,877
|
F-24
ALPINE 4 HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2020 and 2019
Note 7 – Stockholders' Equity
Preferred Stock
The Company is authorized to issue 5,000,000 shares of $0.0001 par value preferred stock.
Series B Preferred Stock
The Company is authorized to issue 100 shares of Series B preferred stock. The Series B Preferred Stock has a $1.00 stated value and does not accrue dividends. The Series B has the following voting rights:
·If at least one share of Series B Preferred Stock is issued and outstanding, then the total aggregate issued shares of Series B Preferred Stock at any given time, regardless of their number, shall have that number of votes (identical in every other respect to the voting rights of the holders of all classes of Common Stock or series of preferred stock entitled to vote at any regular or special meeting of stockholders) equal to two hundred percent (200%) of the total voting power of all holders of the Company’s common and preferred stock then outstanding, but not including the Series B Preferred Stock.
·If more than one share of Series B Preferred Stock is issued and outstanding at any time, then each individual share of Series B Preferred Stock shall have the voting rights equal to: Two hundred percent (200%) of the total voting power of all holders of the Company’s common and preferred stock then outstanding, but not including the Series B Preferred Stock divided by the number of shares of Series B Preferred Stock issued and outstanding at the time of voting.
Upon any liquidation, dissolution or winding-up of the Company, whether voluntary or involuntary (a "Liquidation"), the Holders of the Series B Preferred Stock are entitled to receive out of the assets of the Company for each share of Series B Preferred Stock then held by the Holder an amount equal to the Stated Value, and all other amounts in respect thereof then due and payable before any distribution or payment shall be made to the holders of any Junior Securities.
The Series B Preferred Stock shall be convertible into shares of the Company's Class A Common Stock only as follows:
·In the event that the Holder of Series B Preferred Stock ceases to be a director of the Company, upon such director's resignation or removal from the board by any means, the shares of Series B Preferred Stock held by such resigning or removed director shall convert automatically into that same number of shares of Class A Common Stock (i.e. on a one-for-one share basis).
·Shares of Series B Preferred Stock converted into Class A Common Stock, canceled, or redeemed, shall be canceled and shall have the status of authorized but unissued shares of undesignated preferred stock.
As of December 31, 2020 and 2019, 5 and 0 shares of Series B Preferred Stock were outstanding and were issued to officers for services rendered.
Series C Preferred Stock
The Company designated 2,028,572 shares of Series C Preferred Stock with a stated value of $3.50 per share. No dividends will accrue on the Series C Preferred Stock. If dividends are declared on the Company’s Class A, Class B, or Class C Common Stock, the holders of the Series C Preferred Stock will participate in such dividends on a per share basis, pari passu with the Classes of Common Stock.
Voting Rights - The Series C Preferred Stock will vote together with the Class A Common Stock on a one-vote-for-one-Preferred-share basis. As long as any shares of Series C Preferred Stock are outstanding, the Company may not, without the affirmative vote or written consent of the holders of a majority of the then outstanding shares of the Series
F-25
ALPINE 4 HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2020 and 2019
C Preferred Stock, (a) alter or change the powers, preferences or rights given to the Series C Preferred Stock or alter or amend the Certificate of Designation, (b) amend its Certificate of Incorporation or other charter documents in any manner that adversely affects any rights of the holders of the Series C Preferred Stock, or (c) enter into any agreement or arrangement with respect to any of the foregoing.
Liquidation -Upon any liquidation, dissolution or winding-up of the Company, whether voluntary or involuntary (a "Liquidation"), the holders of the Series C Preferred Stock shall participate on a per share basis with the holders of the Class A, Class B, and Class C Common Stock of the Company, and shall be entitled to share equally, on a per share basis, all assets of the Company of whatever kind available for distribution to the holders of all classes of the Common Stock. The Company shall mail written notice of any such Liquidation, not less than 45 days prior to the payment date stated therein, to each record holder of Series C Preferred Stock.
Conversion - The Series C Preferred Stock shall be convertible automatically into shares of the Company's Class A Common Stock (the “Automatic Conversion”) as follows:
·Each share of Series C Preferred Stock will automatically convert into shares of the Company’s Class A Common Stock on the earlier to occur of (a) the fifth day after the twenty-four month anniversary of the original issue date or (b) the fifth day after the date on which the Company’s Class A Common Stock first trades on a national securities exchange (including but not limited to NASDAQ, NYSE, or NYSE American but excluding OTCQX Market) (such date, the “Automatic Conversion Date”).
·The number of shares of the Company’s Class A Common Stock into which the Series C Preferred Stock shall be converted shall be determined by multiplying the number of shares of Series C Preferred Stock to be converted by the $3.50 stated value, and then dividing that product by the Conversion Price. The Conversion Price shall be equal to the Variable Weighted Average Price (“VWAP”) of the five Trading Days prior to the Automatic Conversion Date. “VWAP” shall be defined as the volume weighted average price of the Company’s Class A Common Stock on the OTC Markets or other stock exchange or trading medium where such shares are traded as reported by Bloomberg, L.P. using the VWAP function. If for any reason, VWAP cannot be thus determined, “VWAP” shall mean the average closing or last sale prices over the five Trading Days prior to the Automatic Conversion Date of the Company’s Class A Common Stock on the OTC Markets or such other exchange or trading medium.
Restrictions on Resales of Class C Common Stock - The sale of shares of the Company’s Class A Common Stock issued at the time of conversion by any holder into the market or to any private purchaser shall be limited to not more than twenty-five percent (25%) of all conversion shares received by such holder at the time of the automatic conversion in any given 120-day period.
Company Redemption Rights -At any time on or prior to the Automatic Conversion Date, the Company shall have the right to redeem all (but not less than all) shares of the Series C Preferred Stock issued and outstanding at any time after the original issue date, upon three (3) business days’ notice, at a redemption price per share of Series C Preferred Stock then issued and outstanding (the “Corporation Redemption Price”), equal to the stated value of $3.50 per share.
During the year ended December 31, 2020, the Company issued 1,714,286 shares of Series C Preferred Stock in connection with the acquisition of assets of IA that were valued at $5,848,013.
As of December 31, 2020 and 2019, 1,714,286 and 0 shares of Series C Preferred Stock were outstanding.
Series D Preferred Stock
The Company designated 1,628,572 shares of Series D Preferred Stock with a stated value of $3.50 per share. No dividends will accrue on the Series D Preferred Stock. If dividends are declared on the Company’s Class A, Class B, or Class C Common Stock, the holders of the Series D Preferred Stock will participate in such dividends on a per share basis, pari passu with the Classes of Common Stock.
F-26
ALPINE 4 HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2020 and 2019
Voting Rights - The Series D Preferred Stock will vote together with the Class A Common Stock on a one-vote-for-one-Preferred-share basis. As long as any shares of Series D Preferred Stock are outstanding, the Company may not, without the affirmative vote or written consent of the holders of a majority of the then outstanding shares of the Series D Preferred Stock, (a) alter or change the powers, preferences or rights given to the Series D Preferred Stock or alter or amend the Certificate of Designation, (b) amend its Certificate of Incorporation or other charter documents in any manner that adversely affects any rights of the holders of the Series D Preferred Stock, or (c) enter into any agreement or arrangement with respect to any of the foregoing.
Liquidation - Upon any liquidation, dissolution or winding-up of the Company, whether voluntary or involuntary (a "Liquidation"), the holders of the Series D Preferred Stock shall participate on a per share basis with the holders of the Class A, Class B, and Class C Common Stock of the Company, and shall be entitled to share equally, on a per share basis, all assets of the Company of whatever kind available for distribution to the holders of all classes of the Common Stock. The Company shall mail written notice of any such Liquidation, not less than 45 days prior to the payment date stated therein, to each record holder of Series D Preferred Stock.
Conversion - The Series D Preferred Stock shall be convertible automatically into shares of the Company's Class A Common Stock (the “Automatic Conversion”) as follows:
·Each share of Series D Preferred Stock will automatically convert into shares of the Company’s Class A Common Stock on the earlier to occur of (a) the fifth day after the twenty-four month anniversary of the original issue date or (b) the fifth day after the date on which the Company’s Class A Common Stock first trades on a national securities exchange (including but not limited to NASDAQ, NYSE, or NYSE American but excluding OTCQX Market) (such date, the “Automatic Conversion Date”).
·The number of shares of the Company’s Class A Common Stock into which the Series D Preferred Stock shall be converted shall be determined by multiplying the number of shares of Series D Preferred Stock to be converted by the $3.50 stated value, and then dividing that product by the Conversion Price. The Conversion Price shall be equal to the Variable Weighted Average Price (“VWAP”) of the five Trading Days prior to the Automatic Conversion Date. “VWAP” shall be defined as the volume weighted average price of the Company’s Class A Common Stock on the OTC Markets or other stock exchange or trading medium where such shares are traded as reported by Bloomberg, L.P. using the VWAP function. If for any reason, VWAP cannot be thus determined, “VWAP” shall mean the average closing or last sale prices over the five Trading Days prior to the Automatic Conversion Date of the Company’s Class A Common Stock on the OTC Markets or such other exchange or trading medium.
Restrictions on Resales of Class A Common Stock - The sale of shares of the Company’s Class A Common Stock issued at the time of conversion by any holder into the market or to any private purchaser shall be limited to not more than twenty-five percent (25%) of all conversion shares received by such holder at the time of the automatic conversion in any given 90-day period.
Company Redemption Rights -At any time on or prior to the Automatic Conversion Date, the Company shall have the right to redeem all (but not less than all) shares of the Series D Preferred Stock issued and outstanding at any time after the original issue date, upon three (3) business days’ notice, at a redemption price per share of Series D Preferred Stock then issued and outstanding (the “Corporation Redemption Price”), equal to the stated value of $3.50 per share.
Registration Rights -The shares issued on conversion of the Series D Preferred Stock have piggyback registration rights beginning on that date which his six months after the date on which the Company’s Class A Common Stock trades on a national securities exchange, and are subject to standard underwriter holdback limitations
As of December 31, 2020 and 2019, 0 and 0 shares of Series D Preferred Stock were outstanding.
Common Stock
Pursuant to the Amended and Restated Certificate of Incorporation, the Company is authorized to issue three classes of common stock: Class A common stock, which has one vote per share, Class B common stock, which has ten votes
F-27
ALPINE 4 HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2020 and 2019
per share and Class C common stock, which has five votes per share. Any holder of Class B common stock may convert his or her shares at any time into shares of Class A common stock on a share-for-share basis. Otherwise the voting rights of the two classes of common stock will be identical. Any holder of Class C common stock may convert 25% of his or her shares at any time after the 3rd to 6th anniversary into shares of Class A common stock on a share-for-share basis. Otherwise the voting rights of the two classes of common stock will be identical.
The Company had the following transactions in its common stock during the year ended December 31, 2020:
·issued 11,513,935 shares of Class A common stock for cash for total proceeds of $674,469;
·issued 12,861,995 shares of Class A common stock for the conversion of convertible debt and accrued interest of $1,929,300;
·issued 1,617,067 shares of Class A common stock and 1,617,067 shares of Class C common stock to the Seller of Deluxe for the settlement of debt of $485,120; the fair value of the stock was $330,528. The Company recognized a gain on the settlement of debt of $154,592;
·issued 300,000 shares of Class A common stock with a fair value of $44,700 to a noteholder as penalty interest;
·issued 4,023,088 shares of Class B common stock to settle unpaid salaries of $603,463; and
·issued 2,590,000 shares of Class C common stock for compensation valued at $240,093. The value was determined based on the market value of the Company common stock on the grant date.
The Company had the following transactions in its common stock during the year ended December 31, 2019:
·issued 68,602,751 shares of Class A common stock for the conversion of $457,292 of outstanding convertible notes payable and $66,544 of accrued interest;
·issued 2,000,000 shares of Class A common stock in connection with the settlement of debt. The shares were valued at $470,400 which is based on the market value per share at the settlement date;
·issued 2,700,000 shares of Class A common stock for a penalty related to a convertible note. The shares were valued at $680,625 which is based on the market value per share at the settlement date;
·issued 200,000 shares of Class A common stock as a result of the conversion of a similar number of Class B common stock;
·issued 7,097,595 shares of Class C common stock as a dividend to the Class A common stockholders; and
·issued 200,000 shares of Class B common stock and 2,827,606 shares of Class C common stock to officer, directors and employees for services rendered valued at $43,474.
Stock Options
The Company has issued stock options to purchase shares of the Company’s Class A common stock issued pursuant to the Company's 2016 Stock Option and Stock Award Plan (the "Plan"). The Company uses the Black-Scholes option pricing model to estimate the fair value of stock-based awards on the date of grant and on each modification date.
F-28
ALPINE 4 HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2020 and 2019
The following summarizes the stock option activity for the years ended December 31, 2020 and 2019:
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
|
|
Weighted-
|
|
Average
|
|
|
|
|
|
|
|
|
Average
|
|
Remaining
|
|
|
Aggregate
|
|
|
|
|
|
Exercise
|
|
Contractual
|
|
|
Intrinsic
|
|
|
Options
|
|
|
Price
|
|
Life (Years)
|
|
|
Value
|
|
Outstanding at December 31, 2018
|
1,790,000
|
|
$
|
0.19
|
|
9.10
|
|
$
|
-
|
|
Granted
|
0
|
|
|
|
|
|
|
|
|
|
Forfeited
|
0
|
|
|
|
|
|
|
|
|
|
Exercised
|
0
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2019
|
1,790,000
|
|
$
|
0.19
|
|
8.10
|
|
$
|
176,445
|
|
Granted
|
0
|
|
|
|
|
|
|
|
|
|
Forfeited
|
0
|
|
|
|
|
|
|
|
|
|
Exercised
|
0
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2020
|
1,790,000
|
|
$
|
0.19
|
|
7.09
|
|
$
|
6,176,855
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested and expected to vest
|
|
|
|
|
|
|
|
|
|
|
at December 31, 2020
|
1,790,000
|
|
$
|
0.19
|
|
7.09
|
|
$
|
6,176,855
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at December 31, 2020
|
1,286,969
|
|
$
|
0.23
|
|
6.96
|
|
$
|
4,389,821
|
The following table summarizes information about options outstanding and exercisable as of December 31, 2020:
|
|
|
|
Options Outstanding
|
|
Options Exercisable
|
|
|
|
|
|
|
Weighted
|
|
|
Weighted
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
Average
|
|
|
|
|
Average
|
|
|
Exercise
|
|
Number
|
|
Remaining
|
|
|
Exercise
|
|
Number
|
|
|
Exercise
|
|
|
Price
|
|
of Shares
|
|
Life (Years)
|
|
|
Price
|
|
of Shares
|
|
|
Price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
0.05
|
|
979,000
|
|
7.38
|
|
$
|
0.05
|
|
577,500
|
|
$
|
0.05
|
|
|
0.10
|
|
85,000
|
|
7.28
|
|
|
0.10
|
|
53,125
|
|
|
0.10
|
|
|
0.13
|
|
388,500
|
|
6.58
|
|
|
0.13
|
|
339,938
|
|
|
0.13
|
|
|
0.26
|
|
114,000
|
|
6.34
|
|
|
0.26
|
|
106,875
|
|
|
0.26
|
|
|
0.90
|
|
223,500
|
|
6.27
|
|
|
0.90
|
|
209,531
|
|
|
0.90
|
|
|
|
|
1,790,000
|
|
|
|
|
|
|
1,286,969
|
|
|
|
During the years ended December 31, 2020 and 2019, stock option expense amounted to $78,652 and $78,437, respectively. Unrecognized stock option expense as of December 31, 2020 amounted to $43,748, which will be recognized over a period extending through December 2022.
Warrants
As of December 31, 2020 and 2019, the Company had 275,000 and 277,001 warrants outstanding with a weighted average exercise price of $1.01 and $1.01, respectively. At December 31, 2020 and 2019, the weighted average remaining life of 0.23 and 1.23 years, respectively, and the aggregate intrinsic value was $723,250 and $0, respectively. During the year ended December 31, 2020, 2001 warrants expired.
Note 8 – Business Combinations
Morris
On January 9, 2019, (with an effective date of January 1, 2019) the Company entered into a Securities Purchase Agreement (the "SPA") with Morris Sheet Metal Corp., an Indiana corporation, JTD Spiral, Inc. a wholly owned
F-29
ALPINE 4 HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2020 and 2019
subsidiary of MSM, an Indiana corporation, Morris Enterprises LLC, an Indiana limited liability company and Morris Transportation LLC, an Indiana limited liability company. This acquisition was considered an acquisition of a business under ASC 805.
A summary of the purchase price allocation at fair value is below.
|
|
|
Purchase Allocation
|
|
Cash
|
$
|
192,300
|
|
Accounts receivable
|
|
2,146,541
|
|
Inventory
|
|
453,841
|
|
Contract assets
|
|
210,506
|
|
Property and equipment
|
|
4,214,965
|
|
Customer list
|
|
490,000
|
|
Goodwill
|
|
113,592
|
|
Accounts payable
|
|
(234,236)
|
|
Accrued expenses
|
|
(351,865)
|
|
Contract liabilities
|
|
(92,043)
|
|
Notes payable
|
|
(1,033,695)
|
|
|
$
|
6,109,906
|
The purchase price was paid as follows:
|
Cash
|
$
|
2,159,906
|
|
Seller notes
|
|
3,450,000
|
|
Acquisition contingency
|
|
500,000
|
|
|
$
|
6,109,906
|
Per the SPA, one year after the closing date, the sellers would calculate monthly the 85/25 requirement to meet the Construction Industry Exemption for the Withdraw Liability (WDL). If the calculations verified that Morris Sheet Metal Corp. and/or JTD Spiral, Inc. met the Exemption requirement for six consecutive months the Company would pay the sellers a $500,000 success fee. In January 2020, the Company determined that the conditions were not met; therefore the Company was not required to pay the additional $500,000.
Simultaneous with the purchase of Morris, a building owned by Morris prior to the acquisition was sold in a sale-leaseback transaction agreement, whereby the building was leased from the buyer for 15 years. The proceeds from the sale-leaseback of $3,267,000 were used to fund the cash consideration to the sellers. The building and the lease is being treated as a financing lease (see Note 3).
Deluxe
On November 6, 2019, the Company purchased all of the outstanding capital stock and units of Deluxe Sheet Metal, Inc., an Indiana corporation, and of DSM Holding, LLC, an Indiana limited liability company, and purchased certain real estate from Lonewolf Enterprises, LLC, an Indiana limited liability company (collectively “Deluxe”) This acquisition was considered an acquisition of a business under ASC 805.
F-30
ALPINE 4 HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2020 and 2019
A summary of the purchase price allocation at fair value is below.
|
|
|
Purchase Allocation
|
|
Cash
|
$
|
140,948
|
|
Accounts receivable
|
|
2,785,454
|
|
Inventory
|
|
736,312
|
|
Prepaid expenses and other current assets
|
|
61,320
|
|
Contract assets
|
|
350,138
|
|
Property and equipment
|
|
9,502,045
|
|
Customer list
|
|
1,050,000
|
|
Accounts payable
|
|
(1,122,317)
|
|
Accrued expenses and other current liabilities
|
|
(163,891)
|
|
Contract liabilities
|
|
(155,016)
|
|
Notes payable
|
|
(7,544,871)
|
|
Bargain purchase gain
|
|
(2,143,779)
|
|
|
$
|
3,496,343
|
The Company recognized a bargain purchase gain of $2,143,779 on the acquisition of Deluxe as a result the seller being motivated to sell in order to focus his time and effort on another business venture.
The purchase price was paid as follows:
|
Cash
|
$
|
1,100,000
|
|
Seller notes
|
|
2,396,343
|
|
|
$
|
3,496,343
|
Simultaneous with the purchase of Deluxe, a building, owned by Deluxe prior to the acquisition, was sold in a sale-leaseback transaction agreement, whereby the building was leased from the buyer for 15 years. The proceeds from the sale-leaseback of $9,000,000 were used to fund the cash consideration to the sellers. The building and the lease is being treated as a financing lease (see Note 3).
Excel
On February 21, 2020, the Company purchased Excel Fabrication, LLC., an Idaho Limited Liability Company (“Excel”). This acquisition was considered an acquisition of a business under ASC 805.
A summary of the purchase price allocation at fair value is below.
|
|
|
Purchase Allocation
|
|
Cash
|
$
|
174,283
|
|
Accounts receivable
|
|
1,943,480
|
|
Inventory
|
|
9,075
|
|
Property and equipment
|
|
2,958,190
|
|
Customer list
|
|
410,000
|
|
Goodwill
|
|
7,629
|
|
Accounts payable
|
|
(340,151)
|
|
Accrued expenses and other current liabilities
|
|
(262,506)
|
|
|
$
|
4,900,000
|
F-31
ALPINE 4 HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2020 and 2019
The purchase price was paid as follows:
|
Cash
|
$
|
2,600,000
|
|
Seller notes
|
|
2,300,000
|
|
|
$
|
4,900,000
|
Simultaneous with the purchase of Excel, a building, owned by Excel prior to the acquisition, was sold in a sale-leaseback transaction agreement, whereby the building was leased from the buyer for 15 years. The proceeds from the sale-leaseback of $2,000,000 were used to fund the cash consideration to the seller. The building and the lease is being treated as a financing lease (see Note 3).
Impossible Aerospace
On November 13, 2020, the Company and a newly formed and wholly owned subsidiary of the Company named ALPP Acquisition Corporation 1, Inc. a Delaware corporation (“Merger Sub”), entered into a merger agreement (the “Agreement”) with IA pursuant to which IA merged with and into Merger Sub. The IA acquisition closed on December 15, 2020, and the Company added IA to the Company’s aerospace services portfolio of companies.
Under the provision of ASC 805, the Company had to determine whether this acquisition was a business combination or an asset (or a group of assets) acquisition. In doing so, the Company determined that the acquisition of IA is in fact an asset purchase. Of the consideration given for the IA purchase more than 95% is concentrated in a single asset or a group of assets in Intellectual Property. And as such, the Company accounted for this acquisition as an asset acquisition in accordance with ASC 805-10-20. Accordingly, the assets acquired are initially recognized at the consideration paid, which was fair value of the preferred series C stock issued, including direct acquisition costs, of which there were none. The cost is allocated to the group of assets acquired based on their relative fair values. The assets acquired and liabilities assumed of were as follows at the purchase date:
|
|
|
Purchase Allocation
|
|
Cash
|
$
|
453,876
|
|
Inventory
|
|
199,438
|
|
Property and equipment
|
|
108,753
|
|
Patent
|
|
5,800,138
|
|
Non-solicitation covenant
|
|
105,457
|
|
Accrued expenses and other current liabilities
|
|
(374,799)
|
|
SBA loan (PPP funds)
|
|
(444,850)
|
|
|
$
|
5,848,013
|
The purchase price was paid as follows:
|
Series C Preferred Stock
|
$
|
5,848,013
|
|
|
$
|
5,848,013
|
F-32
ALPINE 4 HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2020 and 2019
The following are the unaudited pro forma results of operations for the years ended December 31, 2020 and 2019, as if Morris, Deluxe, Excel, and IA had been acquired on January 1, 2019. The pro forma results include estimates and assumptions which management believes are reasonable. However, pro forma results do include any anticipated cost savings or other effects of the planned integration of these entities, and are not necessarily indicative of the results that would have occurred if the business combination had been in effect on the dates indicated.
|
|
|
Pro Forma Combined Financials (unaudited)
|
|
|
|
Years Ended December 31,
|
|
|
|
2020
|
|
2019
|
|
Sales
|
$
|
34,527,429
|
$
|
44,746,995
|
|
Cost of goods sold
|
|
29,103,480
|
|
37,828,725
|
|
Gross profit
|
|
5,423,949
|
|
6,918,270
|
|
Operating expenses
|
|
13,933,972
|
|
17,478,575
|
|
Loss from operations
|
|
(8,510,023)
|
|
(10,560,305)
|
|
Net loss from continuing operations
|
|
(10,646,319)
|
|
(13,732,688)
|
|
Loss per share
|
|
(0.08)
|
|
(0.18)
|
Note 9 – Income Taxes
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. A full valuation allowance is established against the remaining net deferred tax assets as of December 31, 2020 and 2019 based on estimates of recoverability. The Company determined that such a valuation allowance was necessary given the current and expected near term losses and the uncertainty with respect to its ability to generate sufficient profits from its new business model. The Company's deferred tax assets, liabilities, and valuation allowance have been adjusted to reflect the impact of the new tax law.
The following is a reconciliation of the difference between the effective and statutory income tax rates for years ended December 31:
|
|
|
2020
|
|
2019
|
|
|
|
Amount
|
|
Percent
|
|
Amount
|
|
Percent
|
|
|
|
|
|
|
|
|
|
|
|
Federal statutory rates
|
$
|
(1,690,473)
|
|
21.0%
|
$
|
(657,965)
|
|
21.0%
|
|
State income taxes
|
|
(482,992)
|
|
6.0%
|
|
(187,990)
|
|
6.0%
|
|
Permanent differences
|
|
(495,960)
|
|
6.2%
|
|
(406,359)
|
|
13.0%
|
|
Valuation allowance against net deferred tax assets
|
|
2,576,374
|
|
-32.0%
|
|
1,165,260
|
|
-37.2%
|
|
Effective rate
|
$
|
(93,051)
|
|
1.2%
|
$
|
(87,054)
|
|
2.8%
|
The significant components of the deferred tax assets at December 31, 2020 and 2019, are summarized below:
|
|
|
2020
|
|
2019
|
|
Deferred income tax asset
|
|
|
|
|
|
Net operation loss carryforwards
|
$
|
6,559,060
|
$
|
3,828,580
|
|
Total deferred income tax asset
|
|
6,559,060
|
|
3,828,580
|
|
Less: valuation allowance
|
|
(6,559,060)
|
|
(3,828,580)
|
|
Total deferred income tax asset
|
$
|
-
|
$
|
-
|
F-33
ALPINE 4 HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2020 and 2019
The significant components of the deferred tax liabilities at December 31, 2020 and 2019, are summarized below:
|
|
|
2020
|
|
2019
|
|
|
|
|
|
|
|
Deferred income tax liabilities:
|
|
|
|
|
|
Book to tax differences in intangible assets
|
$
|
428,199
|
$
|
521,250
|
|
Total deferred income tax liability
|
$
|
428,199
|
$
|
521,250
|
The deferred tax liability is mostly made up of the difference between book and tax values for property and equipment and intangible assets.
The Company has recorded as of December 31, 2020 and 2019 a valuation allowance of $6,559,060 and $3,828,580, respectively, as management believes that it is more likely than not that the deferred tax assets will not be realized in future years. Management has based its assessment on the Company's lack of profitable operating history.
The Company annually conducts an analysis of its tax positions and has concluded that it had no uncertain tax positions as of December 31, 2020 and 2019.
The Company has net operating loss carry-forwards of approximately $23.5 million. Such amounts are subject to IRS code section 382 limitations and begin to expire in 2029. The tax years from 2017 to 2020 are still subject to audit.
Note 10 – Industry Segments
This summary presents the Company's segments, QCA ,APF, Morris, Deluxe, Excel and IA for the years ended December 31, 2020 and 2019:
|
|
|
|
Years Months Ended December 31,
|
|
|
|
|
2020
|
|
2019
|
|
|
|
|
|
|
|
|
Revenue
|
|
|
|
|
|
|
QCA
|
$
|
10,521,932
|
$
|
9,050,560
|
|
|
APF
|
|
2,080,978
|
|
4,471,713
|
|
|
Morris
|
|
10,478,939
|
|
12,881,450
|
|
|
Deluxe
|
|
7,330,236
|
|
1,574,474
|
|
|
Excel
|
|
3,042,264
|
|
-
|
|
|
Unallocated and eliminations
|
|
-
|
|
173,327
|
|
|
|
$
|
33,454,349
|
$
|
28,151,524
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
|
|
|
|
QCA
|
$
|
2,723,821
|
$
|
2,270,301
|
|
|
APF
|
|
51,956
|
|
603,795
|
|
|
Morris
|
|
1,962,404
|
|
2,535,141
|
|
|
Deluxe
|
|
224,413
|
|
174,046
|
|
|
Excel
|
|
401,033
|
|
-
|
|
|
Unallocated and eliminations
|
|
-
|
|
59,195
|
|
|
|
$
|
5,363,627
|
$
|
5,642,478
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
|
|
|
|
|
QCA
|
$
|
547,529
|
$
|
(242,729)
|
|
|
APF
|
|
(1,545,567)
|
|
(189,013)
|
|
|
Morris
|
|
402,807
|
|
673,650
|
|
|
Deluxe
|
|
(1,435,146)
|
|
(653,980)
|
|
|
Excel
|
|
(788,970)
|
|
-
|
|
|
Unallocated and eliminations
|
|
(3,074,517)
|
|
(2,067,654)
|
|
|
|
$
|
(5,893,864)
|
$
|
(2,479,726)
|
F-34
ALPINE 4 HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2020 and 2019
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
|
|
|
|
QCA
|
$
|
347,586
|
$
|
307,172
|
|
|
APF
|
|
271,919
|
|
368,813
|
|
|
Morris
|
|
448,520
|
|
426,528
|
|
|
Deluxe
|
|
723,658
|
|
119,671
|
|
|
Excel
|
|
242,697
|
|
-
|
|
|
Unallocated and eliminations
|
|
35,882
|
|
33,333
|
|
|
|
$
|
2,070,262
|
$
|
1,255,517
|
|
|
|
|
|
|
|
|
Interest Expenses
|
|
|
|
|
|
|
QCA
|
$
|
559,068
|
$
|
227,726
|
|
|
APF
|
|
165,274
|
|
346,927
|
|
|
Morris
|
|
1,016,204
|
|
425,177
|
|
|
Deluxe
|
|
967,133
|
|
384,828
|
|
|
Excel
|
|
421,377
|
|
-
|
|
|
Unallocated and eliminations
|
|
2,334,541
|
|
3,852,547
|
|
|
|
$
|
5,463,597
|
$
|
5,237,205
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
|
|
|
|
QCA
|
$
|
18,945
|
$
|
(292,399)
|
|
|
APF
|
|
(1,385,184)
|
|
(473,135)
|
|
|
Morris
|
|
(81,824)
|
|
279,592
|
|
|
Deluxe
|
|
(2,304,345)
|
|
1,104,971
|
|
|
Excel
|
|
(1,210,347)
|
|
-
|
|
|
Unallocated and eliminations
|
|
(3,087,118)
|
|
(6,172,043)
|
|
|
|
$
|
(8,049,873)
|
$
|
(5,553,014)
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
As of
|
|
|
|
|
December 31,
|
|
December 31,
|
|
|
|
|
2020
|
|
2019
|
|
Total Assets
|
|
|
|
|
|
|
QCA
|
$
|
9,574,237
|
$
|
6,359,711
|
|
|
APF
|
|
1,157,699
|
|
5,344,175
|
|
|
Morris
|
|
6,881,599
|
|
8,771,165
|
|
|
Deluxe
|
|
12,039,414
|
|
14,810,307
|
|
|
Excel
|
|
3,727,168
|
|
-
|
|
|
Impossible Aerospace
|
|
6,342,863
|
|
-
|
|
|
Unallocated and eliminations
|
|
1,011,203
|
|
516,240
|
|
|
|
$
|
40,734,183
|
$
|
35,801,598
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
|
|
|
|
QCA
|
$
|
1,963,761
|
$
|
1,963,761
|
|
|
APF
|
|
-
|
|
440,100
|
|
|
Morris
|
|
113,592
|
|
113,592
|
|
|
Deluxe
|
|
-
|
|
-
|
|
|
Excel
|
|
-
|
|
-
|
|
|
Impossible Aerospace
|
|
7,629
|
|
-
|
|
|
Unallocated and eliminations
|
|
-
|
|
-
|
|
|
|
$
|
2,084,982
|
$
|
2,517,453
|
|
|
|
|
|
|
|
|
Accounts receivable, net
|
|
|
|
|
|
|
QCA
|
$
|
1,938,446
|
$
|
1,234,898
|
|
|
APF
|
|
45,022
|
|
831,477
|
|
|
Morris
|
|
1,944,269
|
|
3,488,340
|
F-35
ALPINE 4 HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2020 and 2019
|
|
Deluxe
|
|
2,015,745
|
|
3,156,492
|
|
|
Excel
|
|
541,387
|
|
-
|
|
|
Unallocated and eliminations
|
|
-
|
|
20,358
|
|
|
|
$
|
6,484,869
|
$
|
8,731,565
|
Note 11 – Derivative Liabilities and Fair Value Measurements
Derivative liabilities
The Company has issued convertible notes payable that were evaluated under the guidance in ASC 815-40, Derivatives and Hedging, and were determined to have characteristics of derivative liabilities. As a result of the characteristics of these notes, the conversion options relating to previously issued convertible debt and outstanding Class A common stock warrants were also required to be accounted for as derivative liabilities under ASC 815. Under this guidance, this derivative liability is marked-to-market at each reporting period with the non-cash gain or loss recorded in the period as a gain or loss on derivatives.
The valuation of our embedded derivatives is determined by using the Black-Scholes Option Pricing Model. As such, our derivative liabilities have been classified as Level 3.
The Company estimated the fair value of the derivative liabilities using the Black-Scholes Option Pricing Model and the following key assumptions during the year ended December 31, 2019:
|
|
|
2019
|
|
|
|
|
|
|
|
Risk free rate
|
|
1.60%
|
|
|
Volatility
|
|
287%-298%
|
|
|
Expected terms (years)
|
|
0.5 to 1.26
|
|
|
Dividend rate
|
|
0%
|
|
Fair value measurements
ASC 820, Fair Value Measurements and Disclosures , defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820 also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 describes three levels of inputs that may be used to measure fair value:
Level 1 – Quoted prices in active markets for identical assets or liabilities.
Level 2 – Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3 – Unobservable inputs that are supported by little or no market activity and that are financial instruments whose values are determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant judgment or estimation.
F-36
ALPINE 4 HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2020 and 2019
If the inputs used to measure the financial assets and liabilities fall within more than one level described above, the categorization is based on the lowest level of input that is significant to the fair value measurement of the instrument.
The following table provides a summary of the fair value of our derivative liabilities as of December 31, 2020 and 2019. There were no derivative liabilities at December 31, 2020 as the convertible notes with variable conversion prices were repaid during the year ended December 31, 2020.
|
|
|
Fair Value
|
|
Fair Value Measurements at
|
|
|
|
As of
|
|
December 31, 2020
|
|
Description
|
|
December 31, 2020
|
|
Using Fair Value Hierarchy
|
|
|
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Conversion feature on convertible notes
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value
|
|
Fair Value Measurements at
|
|
|
|
As of
|
|
December 31, 2019
|
|
Description
|
|
December 31, 2019
|
|
Using Fair Value Hierarchy
|
|
|
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Conversion feature on convertible notes
|
$
|
2,298,609
|
$
|
-
|
$
|
-
|
$
|
2,298,609
|
The below table presents the change in the fair value of the derivative liabilities during the years ended December 31, 2020:
|
Derivative liability balance, December 31, 2018
|
$
|
1,892,321
|
|
Issuance of derivative liability during the period
|
|
1,538,865
|
|
Derivative liability resolution
|
|
(864,679)
|
|
Change in derivative liability during the period
|
|
(267,898)
|
|
Derivative liability balance, December 31, 2019
|
|
2,298,609
|
|
Change in derivative liability during the period
|
|
(2,298,609)
|
|
Derivative liability balance, December 31, 2020
|
$
|
-
|
Note 12 - Contingencies
Legal Proceedings
From time to time, the Company may become involved in lawsuits and other legal proceedings that arise in the course of business. Litigation is subject to inherent uncertainties, and it is not possible to predict the outcome of litigation with total confidence. The Company is currently not aware of any legal proceedings or potential claims against it whose outcome would be likely, individually or in the aggregate, to have a material adverse effect on the Company’s business, financial condition, operating results, or cash flows.
In June 2020, the Company’s subsidiary Excel Fabrication, LLC filed a lawsuit against Fusion Mechanical, LLC, in the Fifth Judicial District Court, State of Idaho (Case Number CV42-20-2246). The Company claimed tortious interference and trade secret violations by the defendant. The defendant filed a motion to dismiss, which was denied by the Court. As of the date of this Report, discovery was proceeding. The Company intends to pursue vigorously its claims.
In August 2020, the Company filed a lawsuit in the United States District Court, District of Arizona (Case No.2:20-cv-01679-DJH), against Alan Martin, the seller of Horizon Well Testing LLC (“HWT”) dba Venture West Energy Services, LLC. The Company brought claims for breach of contract, including but not limited to breaches of the seller’s representations and warranties in the purchase agreement in connection with the acquisition of HWT. The defendant answered and counterclaimed, claiming breach by the Company of its obligation to issue a promissory note (to be issued in connection with the acquisition of HWT). The parties have engaged in discovery and settlement negotiations, both of which were ongoing.
F-37
ALPINE 4 HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2020 and 2019
Note 13 – Discontinued Operations
In December 2018, the Company decided to shut down the operations of its VWES subsidiary. In February 2019, VWES filed for Chapter 7 bankruptcy.
VWES has been presented as discontinued operations in the accompanying consolidated financial statements.
The operating results for VWES have been presented in the accompanying consolidated statement of operations for the years ended December 31, 2020 and 2019 as discontinued operations and are summarized below:
|
|
|
|
Years Ended December 31,
|
|
|
|
|
2020
|
|
2019
|
|
Revenue
|
|
$
|
-
|
$
|
-
|
|
Cost of revenue
|
|
|
-
|
|
-
|
|
Gross Profit
|
|
|
-
|
|
-
|
|
Operating expenses
|
|
|
-
|
|
95,179
|
|
Loss from operations
|
|
|
-
|
|
(95,179)
|
|
Other income (expenses)
|
|
|
-
|
|
-
|
|
Net loss
|
|
$
|
-
|
$
|
(95,179)
|
As of 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.
Note 14 – Subsequent Events
In January 2021, the Company entered into convertible notes totaling $388,000 with the conversion price of $3.00 per share maturing in 3 months and interest rates ranging from 5% to 6.25%.
Beginning February 9, 2021, and through the date of this Report, the Company paid down $10.9 million of debt including accrued interest; $2.4 million in lines of credit; $1.4 million in equipment notes; and $7.1 million in other notes.
In March 2021, the Company repurchased 514,286 outstanding restricted stock units (RSUs) which had not yet settled, from two individuals in privately negotiated transactions. The Company purchased 314,286 Series C Preferred Shares and 200,000 Series D Preferred Shares at $3.50 per share. The RSUs had been issued to the individuals in connection with recent merger transactions. The Company also purchased 15,000 Class C Shares each from three non-executive employees at $4.14 per share and returned those shares to treasury.
On April 8, 2021, the Company entered into a settlement agreement with Kevin Smith wherein the outstanding balance of his notes amounting to $1,883,418 including accrued interest and net other costs was settled in full through a payment of approximately $887,000 and the exchange of 1,617,067 shares of the Company’s Class C common shares held by him to the same number of the Company’s Class A common stock.
Vayu (US) Merger Transaction
On December 29, 2020, the Company entered into a merger agreement (the “Vayu Agreement”) with Vayu (US), Inc., a Delaware corporation (“Vayu”) were the Company issued 1,428,572 Series D Preferred shares to acquire Vayu. The Vayu merger closed on February 8, 2021.
Registered Direct Offering
On February 11, 2021, the Company entered into a Securities Purchase Agreement (the “Purchase Agreement”) with certain investors to purchase of 8,333,333 shares of the Company’s Class A common stock for aggregate gross
F-38
ALPINE 4 HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2020 and 2019
proceeds of approximately $50 million. A.G.P./Alliance Global Partners served as the placement agent and received a cash fee of 7% of the aggregate gross proceeds and warrants to purchase shares of the Company’s Class A Common Stock in an amount equal to 5% of the Shares from the offering with an exercise price of $6.60 per share and are not exercisable until August 16, 2021. Net proceeds from the sale of shares amounted to approximately $46 million.
Subsequent to December 31, 2020, the Company issued 1,524,064 shares of Class A common stock to an investor for cash for total proceeds of $9.3 million. In addition, the Company issued 702,877 shares of Class A common stock for the conversion of debt.
F-39