UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-K

 

[X]

ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the fiscal year ended December 31, 2020

 

 

[   ]

TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the transition period from _______ to __________

 

Commission file number:  000-55205

 

 

 

Alpine 4 Holdings, Inc.

(Exact name of registrant as specified in its charter)

 

Delaware

46-5482689

(State or Other Jurisdiction of Incorporation or Organization)

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

 

 

2525 E Arizona Biltmore Circle Suite 237

 

Phoenix, AZ

85016

(Address of Principal Executive Offices)

(Zip Code)

 

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

 

ALPINE 4 TECHNOLOGIES LTD.

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

 

Securities Registered pursuant to Section 12(b) of the Act: None

 

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 ⌧


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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.

 

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

 

 

Emerging Growth Company

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  

Yes ◻       No ⌧

 

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.

 

 

DOCUMENTS INCORPORATED BY REFERENCE

None.


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ALPINE 4 HOLDINGS, INC.

FISCAL YEAR ENDED DECEMBER 31, 2020

ANNUAL REPORT ON FORM 10-K

 

TABLE OF CONTENTS

 

PART I

 

Page

 

 

 

 

 

ITEM 1.

BUSINESS

5

 

 

 

 

 

ITEM 1A.

RISK FACTORS

12

 

 

 

 

 

ITEM 1B.

UNRESOLVED STAFF COMMENTS

23

 

 

 

 

 

ITEM 2.

PROPERTIES

23

 

 

 

 

 

ITEM 3.

LEGAL PROCEEDINGS

23

 

 

 

 

 

ITEM 4.

MINE SAFETY DISCLOSURES

24

 

 

 

 

 

PART II

 

 

 

 

 

 

 

ITEM 5.

MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

24

 

 

 

 

 

ITEM 6.

SELECTED FINANCIAL DATA

28

 

 

 

 

 

ITEM 7.

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

29

 

 

 

 

 

ITEM 7A.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

35

 

 

 

 

 

ITEM 8.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

35

 

 

 

 

 

ITEM 9.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES

35

 

 

 

 

 

ITEM 9A.

CONTROLS AND PROCEDURES

36

 

 

 

 

 

ITEM 9B.

OTHER INFORMATION

37

 

 

 

 

 

PART III

 

 

 

 

 

 

 

ITEM 10.

DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

37

 

 

 

 

 

ITEM 11.

EXECUTIVE COMPENSATION

40

 

 

 

 

 

ITEM 12.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

41

 

 

 

 

 

ITEM 13.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

44

 

 

 

 

 

ITEM 14.

PRINCIPAL ACCOUNTING FEES AND SERVICES

44

 

 

 

 

 

PART IV

 

 

 

 

 

 

 

ITEM 15.

EXHIBITS, FINANCIAL STATEMENT SCHEDULES

45

 

 

 

 

 

SIGNATURES

 

49

 


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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:

 

-

history of operating losses, our ability develop and implement our business strategies and grow our business:

 

 

-

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

 

 

-

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

 

 

-

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

 

 

-

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

 

 

-

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

 

 

-

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

 

 

-

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

 

 

-

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

 

In some cases, you can identify these statements by terms such as “anticipate,” “believe,” “could,” “estimate,” “expects,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “should,” “will,” “would” or the negative of those terms, and similar expressions that convey uncertainty of future events or outcomes. These forward-looking statements reflect our management’s beliefs and views with respect to future events and are based on estimates and assumptions as of the date of this 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:

 

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

 

 

 

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.

 

 

 

 

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

 

 

 

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

 

 

 

American Precision Fabricators (“APF”) – Based in Fort Smith, Arkansas, APF is a sheet metal fabricator that provides American made fabricated metal parts, assemblies and sub-assemblies to Original Equipment Manufacturers (“OEM”). The Company supplies several industries with fabricated parts that it creates in-house.  It offers several production capabilities with its state-of-the-art machinery. As of August 31, 2020 APF has ceased operations.

 

 

 

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

 

 

 

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

 

 

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

 

 

Excel Fabrication, LLC (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.

 

 

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. 

 

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:

 

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

 

 

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

 

 

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


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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:

 

ability to keep satisfied vendor relationships

 

 

hiring and training qualified personnel in local markets;

 

 

managing marketing and development costs at affordable levels;

 

 

cost and availability of labor;

 

 

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

 

 

securing required governmental approvals in a timely manner when necessary.

 

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

 

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

 

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

 

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:

 

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

 

 

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

 

 

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

 

 

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

 

 

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

 

 

variations in our quarterly operating results;

 

 

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

 

 

changes in accounting principles;

 

 

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

 

 

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

 

 

additions or departures of key personnel;

 

 

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

 

 

other risks and uncertainties described in these risk factors.

 

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

 

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


20


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


21


to raise capital to continue to fund operations by selling shares and may impair our ability to acquire additional intellectual property assets by using our shares as consideration.

 

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

 

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

 

-

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

 

 

-

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

 

 

-

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

 

 

-

actual or anticipated fluctuations in our operating results;

 

 

-

changes in financial estimates or recommendations by securities analysts;

 

 

-

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.

 

PART II

 

ITEM 5.    MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.

 

MARKET PRICES AND DIVIDEND DATA

 

Stock Prices

 

As of the date of this Report, our Class A common stock is listed on the OTCQB Market under the symbol ALPP.  Alpine 4 plans to work with a market maker and other professionals to drive trading volume and interest in the stock.

 

The following table sets forth the range of high and low sales prices per share of our common stock during the periods shown.

 

 

2021

2020

2019

 

High

Low

High

Low

High

Low

First Quarter

$8.505 

$2.45 

$0.21 

$0.001 

$0.06 

$0.02 

 

 

 

 

 

 

 

Second Quarter

 

 

$0.117 

$0.025 

$0.091 

$0.006 

 

 

 

 

 

 

 

Third Quarter

 

 

$0.075 

$0.0335 

$0.037 

$0.008 

 

 

 

 

 

 

 

Fourth Quarter

 

 

$4.40 

$0.0400 

$0.44 

$0.013 

 

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

 

The high and low sales prices for our Class A common stock on April 13, 2021, were $3.69 and $3.30, respectively.

 

Shareholders

 

As of April 5, 2021, Alpine 4 had 328 shareholders of record. This number does not include an indeterminate number of stockholders whose shares are held by brokers in street name. The holders of our Class A common stock are entitled to one vote for each share held of record on all matters submitted to a vote of stockholders. The holders of our Class B common stock have ten (10) votes for each share held of record on all matters submitted to a vote of stockholders. The holders of our Class C common stock have five (5) votes for each share held of record on all matters submitted to a vote of stockholders.  Holders of our common stock have no preemptive rights and no right to convert their common stock into any other securities. There are no redemption or sinking fund provisions applicable to our common stock.

 

Dividends

 

Alpine 4 has not declared any cash dividends on its common stock since inception and does not anticipate paying such dividends in the foreseeable future. Any decisions as to future payments of dividends will depend on Alpine 4's earnings and financial position and such other facts, as the Board of Directors deems relevant.


24


 

Director Independence

 

Alpine 4 is not required by any outside organization (such as a stock exchange or trading facility) to have independent directors. Nevertheless, management believes that four of the Company’s directors, Ms. Garcia and Messrs. Lew, Jeunot, and Withem, would meet the Nasdaq director independence standards as they are not and have not been within the past three years employees or executive officers of the Company, have not received compensation from the Company in any 12-month period in the last three years, and have not been employed as an executive officer of another company where the Company’s current executive officers during the past three years served on the compensation committee of such other company.  

 

Securities Authorized for Issuance under Equity Compensation Plans

 

Adoption of 2016 Stock Option and Stock Award Plan

 

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

 

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

 

Equity Compensation Plan Information

 

Plan category

 

Number of

securities to

be issued upon exercise of outstanding

options,

warrants

and rights

 

 

Weighted-

average

exercise price

of outstanding options,

warrants

and rights

 

 

Number of

securities

remaining

available for

future issuance under equity compensation

plans (excluding securities

reflected in column (a))

 

 

 

(a)

 

 

(b)

 

 

(c)

 

Equity compensation plans approved by security holders

 

 

1,790,000

 

 

$

0.19

 

 

 

210,000

 

Equity compensation plans not approved by security holders

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

 

1,790,000

 

 

$

0.19

 

 

 

210,000

 

 

Recent Sales of Unregistered Securities

 

Issuances in 2021

 

In January 2021, the Company issued 1,428,572 shares of Series D Preferred Stock in connection with the Vayu (US) merger transaction.

 

The shares of Series D Preferred Stock issued in connection with the Vayu (US) merger transaction were issued without registration under the 1933 Act in reliance on Section 4(a)(2) of the 1933 Act and the rules and regulations promulgated thereunder.


25


 

In 2021, through April 5, 2021, the Company issued an aggregate of 53,589 shares of its restricted Class A common stock for convertible debt and accrued interest of $8,058.

 

The shares of Class A common stock referenced above that were issued in 2021, were issued without registration under the 1933 Act in reliance on Section 4(a)(2) of the 1933 Act and the rules and regulations promulgated thereunder.

 

Issuances in 2020

 

During the year ended December 31, 2020, the Company made the following issuances of unregistered securities:

 

The Company issued 11,513,935 shares of Class A common stock to Lincoln Park Capital in connection with the equity line transaction for cash for total proceeds of $674,469.  

 

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

 

In 2020, the Company issued an aggregate of 12,861,995 shares of Class A common stock to four entities for the conversion of convertible debt and accrued interest.  Additionally, the Company issued 300,000 shares of Class A common stock to a noteholder as penalty interest.  The Company also 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 shares of Class A common stock issued in connection with the conversion of convertible debt, for penalties, and for settlement of debt as described above were issued without registration under the 1933 Act in reliance on Section 4(a)(2) of the 1933 Act and the rules and regulations promulgated thereunder.

 

In January 2020, five officers and directors of the Company converted $603,463 owed to them as salaries and commissions into 4,022,988 shares of the Company’s Class B Common stock. The conversion price was $0.15 per share, the closing price of the Company’s Class A common stock on January 7, 2020, which was when the individuals agreed with the Company to convert the amounts owing. The Class B common stock converts one share for one share into Class A common stock, so the Class A common stock market price was used as the conversion price.

 

Additionally, on November 17, 2020, the Company issued 2,590,000 shares of Class C common stock to twelve employees of the Company for compensation valued at $240,093.  The value was determined based on the market value of the Company’s Class A common stock on the issuance date. 

 

The shares of Class B and Class C common stock issued to the officers, directors, and employees described above were issued without registration under the 1933 Act in reliance on Section 4(a)(2) of the 1933 Act and the rules and regulations promulgated thereunder

 

During the year ended December 31, 2020, the Company issued 5 shares of Series B Preferred Stock to officers for services rendered.

 

In November 2020, the Company issued 1,714,286 shares of Series C Preferred Stock in connection with the Impossible Aerospace merger transaction.

 

The shares of Series C Preferred Stock issued in connection with the Impossible Aerospace merger transaction were issued without registration under the 1933 Act in reliance on Section 4(a)(2) of the 1933 Act and the rules and regulations promulgated thereunder.

 

Issuances in 2019

 

During the quarter ended December 31, 2019, the Company issued 4,700,000 shares of its Class A common stock in conjunction with debt settlement and restructuring to fixed rate convertible notes from variable convertible notes.  It also issued 55,000 Class C common stock to various advisors and consultants.   


26


During the quarter ended March 31, 2019, the Company issued 1,670,000 shares of its restricted Class A common stock for note conversions.

 

During the quarter ended June 30, 2019, the Company issued 33,975,924 shares of its restricted Class A common stock for note conversions.  

 

During the quarter ended September 30, 2019, the Company issued 32,956,827 shares of its restricted Class A common stock for note conversions; and issued 200,000 shares of Class B common stock and 2,772,606 shares of Class C common stock to officers, directors, and employees for services rendered.  The Company also issued 7,097,594 of Class C shares to shareholders as a dividend in the third quarter of 2019.

 

The shares of Class A, Class B, and Class C common stock issued during 2019 were issued without registration under the 1933 Act in reliance on Section 4(a)(2) of the 1933 Act and the rules and regulations promulgated thereunder.

 

Purchases of Equity Securities by the Company and Affiliated Purchasers

 

During the fourth quarter of 2020, there were no purchases of the Company’s equity securities by the Company or affiliated purchasers.

 

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 Class C Preferred Shares and 200,000 Class 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.


27


 

ISSUER PURCHASES OF EQUITY SECURITIES

Period

(a)
Total number of shares (or units) purchased

(b)
Average price paid per share (or unit)

(c)
Total number of shares (or units) purchased as part of publicly announced plans or programs

(d)
Maximum number (or approximate dollar value) of shares (or units) that may yet be purchased under the plans or programs

Month #1 – October 1-31, 2020

0

0

$0

0

Month #2 – November 1-30, 2020

0

0

$0

0

Month #3 – December 1-31, 2020

0

0

$0

0

Total

0

0

 

 

 

ITEM 6.SELECTED FINANCIAL DATA. 

 

Not required for Smaller Reporting Companies.


28


ITEM 7.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

 

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

 

Overview and Highlights

 

Company Background

 

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

 

As of the date this Report was filed, the Company was a holding company that owned nine operating subsidiaries: ALTIA, LLC; Quality Circuit Assembly, Inc.; Morris Sheet Metal, Corp; JTD Spiral, Inc.; Deluxe Sheet Metal, Inc,; Excel Construction Services, LLC; SPECTRUMebos, Inc.; Impossible Aerospace, Inc.; and Vayu (US), Inc. In March 2020, the Company announced that Deluxe Sheet Metal’s operations were merging with and into Morris Sheet Metal Corp. 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 companies are Delaware corporations. Each is authorized to issue 1,500 shares of common stock with a par value of $0.01 per share, and the Company is the sole shareholder of each of these three subsidiaries.

 

Business Strategy

 

What We Do:

 

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

 

It is our mandate to grow Alpine 4 into a leading, multi-faceted holding company with diverse subsidiary holdings with products and services that not only benefit from one another as a whole, but also have the benefit of


29


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

 

Driver, Stabilizer, Facilitator (DSF) 

 

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

 

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

 

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

 

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.  

 

 

 

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”.  

 


30


“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.

 

Results of Operations

 

The following are the results of our operations for the year ended December 31, 2020, as compared to the year ended December 31, 2019.

 

 

 

 

 

 

Year Ended December 31, 2020

 

Year Ended December 31, 2019

 

$ Change

 

 

 

 

 

 

 

 

 

 

Revenue

 

 

$

33,454,349

$

28,151,524

$

5,302,825

Cost of revenue

 

 

 

28,090,722

 

22,509,046

 

5,581,676

Gross Profit

 

 

 

5,363,627

 

5,642,478

 

(278,851)

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

General and administrative expenses

 

9,695,891

 

8,122,204

 

1,573,687

 

Impairment loss of intangible asset and goodwill

1,561,600

 

-

 

1,561,600

 

    Total operating expenses

 

11,257,491

 

8,122,204

 

3,135,287

Loss from operations

 

 

(5,893,864)

 

(2,479,726)

 

(3,414,138)

 

 

 

 

 

 

 

 

 

 

Other income (expenses)

 

 

 

 

 

 

 

 

Interest expense

 

 

(5,463,597)

 

(5,237,205)

 

(226,392)

 

Change in value of derivative liabilities

2,298,609

 

(252,230)

 

2,550,839

 

Gain on extinguishment of debt

 

344,704

 

-

 

344,704

 

Change in fair value of contingent consideration

500,000

 

-

 

500,000

 

Bargain purchase gain

 

 

-

 

2,143,779

 

(2,143,779)

 

Other income

 

 

 

71,224

 

185,314

 

(114,090)

 

    Total other expenses

 

 

(2,249,060)

 

(3,160,342)

 

911,282

 

 

 

 

 

 

 

 

 

 

Loss before income tax

 

 

(8,142,924)

 

(5,640,068)

 

(2,502,856)

 

 

 

 

 

 

 

 

 

 

Income tax benefit

 

 

(93,051)

 

(87,054)

 

(5,997)

 

 

 

 

 

 

 

 

 

 

Loss from continuing operations

 

(8,049,873)

 

(5,553,014)

 

(2,496,859)


31


 

 

 

 

 

 

 

 

 

 

Discontinued operations

 

 

-

 

2,419,849

 

(2,419,849)

 

 

 

 

 

 

 

 

 

 

Net loss

 

 

$

(8,049,873)

$

(3,133,165)

$

(4,916,708)

 

Revenue

 

Our revenues for the year ended December 31, 2020, increased by $5,302,825 as compared to the year ended December 31, 2019.  In 2020, the increase in revenue related to $5,755,762 for Deluxe (acquired in November 2019); $3,042,264 for Excel (acquired in February 2020); and $1,062,729 for QCA; offset by a decrease of $2,402,511 for Morris; $2,390,735 for APF; and $173,327 relating to the 6th Sense Auto and Brake Active services of ALTIA.  The increase in revenue was driven by the acquisitions of Deluxe and Excel.  We expect our revenue to continue to grow during 2021.

 

Cost of revenue

 

Our cost of revenue for the year ended December 31, 2020, increased by $5,581,676 as compared to the year ended December 31, 2019.  In 2020, the increase in our cost of revenue related to $5,705,399 for Deluxe; $2,641,231 for Excel; $602,124 for QCA; offset by a decrease of $1,829,774 for Morris; $1,838,903 for APF; and $114,132 relating to the 6th Sense Auto and Brake Active services of ALTIA. The increase in cost of revenue among all the different segments was the result of the increase in revenues as described above.  We expect our cost of revenue to increase over the next year as our revenue increases.

 

Operating expenses

 

Our operating expenses for the year ended December 31, 2020, increased by $3,135,287 as compared to the year ended December 31, 2019.  The increase is a result of the impairment loss of $1,561,600 related to the customer list and goodwill for APF and the customer list for Deluxe and also due to the cost of operating the additional operations with the acquisitions of Deluxe and Excel, offset by a reduction in expenses due to cross sharing of resources between corporate and our subsidiaries.

 

Other expenses

 

Other expenses for the year ended December 31, 2020, decreased by $911,282 as compared to the same period in 2019.  This decrease was primarily due to the change in derivative liability, the change in fair value of contingent consideration, and the gain on extinguishment of debt.

 

Discontinued operations

 

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

 

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

 

As of 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.


32


 

Liquidity and Capital Resources

 

We have financed our operations since inception from the sale of common stock, capital contributions from stockholders, and from the issuance of notes payable and convertible notes payable.  We expect to continue to finance our operations from our current operating cash flow and by the selling shares of our common stock and or debt instruments.  In the first quarter of 2021, we raised approximately $55,000,000 through the sale of our common stock.

 

In April and May 2020, we received seven loans under the Paycheck Protection Program of the Coronavirus Aid, Relief and Economic Security (“CARES”) Act totaling $3,896,107.  The loans have terms of 24 months and accrue interest at 1% per annum.  We expect some or all of these loans to be forgiven as provided by in the CARES Act.

 

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

 

Liquidity Outlook

 

As noted above, 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.

 

The Company has experienced significant operating losses over the past 4 years (2014 through December 31, 2020) with cumulative losses of approximately $39,352,000 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 has experienced significant operating losses over the past 7 years (2014 through December 31, 2020) with cumulative losses of approximately $39,352,000 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 twelve months 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 in the following two transactions:

 

The Company raised approximately $46.0 million in connection with a registered direct offering of stock, as disclosed above under the heading “Recent Developments;” and 

The Company raised approximately $9.0 in through puts to an investor in connection with an equity line of credit financing arrangement. 

 

As such, as of the date of this Report, the Company had approximately $35.0 million of cash (after paying down significant debt of the Company) which management believes will be sufficient to satisfy the Company’s estimated liquidity needs for the 12 months from the issuance of our financial statements for the year ended December 31, 2020.


33


 

However, there is no assurance that management’s plan 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 no longer had substantial doubt of the Company’s ability to continue as a going concern.

 

The financial statements included in this Report do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts and classification of liabilities that might be necessary in the event that the Company cannot continue as a going concern.

 

Off-Balance Sheet Arrangements

 

The Company has not entered into any transactions with unconsolidated entities whereby the Company has financial guarantees, subordinated retained interests, derivative instruments, or other contingent arrangements that expose the Company to material continuing risks, contingent liabilities, or any other obligation under a variable interest in an unconsolidated entity that provides financing, liquidity, market risk, or credit risk support to the Company.

 

Critical Accounting Policies and Estimates

 

Our 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. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable. In many instances, we 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 and valuation allowance for deferred tax assets. Actual results could differ significantly from our estimates. To the extent that there are material differences between these estimates and actual results, our future financial statement presentation, financial condition, results of operations and cash flows will be affected. We believe that the accounting policies discussed below are critical to understanding our historical and future performance, as these policies relate to the more significant areas involving our judgments and estimates.

 

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

 

The Company has not changed its estimate for the useful lives of its property and equipment, but would expect that a decrease in the estimated useful lives of property and equipment by 20% would result in an annual increase to depreciation expense of approximately $460,000, and an increase in the estimated useful lives of property and equipment by 20% would result in an annual decrease to depreciation expense of approximately $310,000.

 

Intangible 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

15 years

Software development

5 years

Patent

17 years


34


 

The intangible assets with finite useful lives are reviewed for impairment when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets’ carrying amounts. In that event, a loss is recognized based on the amount by which the carrying amount exceeds the fair value of the long-lived assets. The Company has not changed its estimate for the useful lives of its intangible assets, but would expect that a decrease in the estimated useful lives of intangible assets by 20% would result in an annual increase to amortization expense of approximately $141,000, and an increase in the estimated useful lives of intangible assets by 20% would result in an annual decrease to amortization expense of approximately $94,000.

 

Income Taxes

 

The Company accounts for income taxes in accordance with Accounting Standards Codification (“ASC”) Topic 740, Income Taxes. ASC 740 requires a company to use the asset and liability method of accounting for income taxes, whereby deferred tax assets are recognized for deductible temporary differences, and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion, or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.  The Company has not changed it methodology for estimating the valuation allowance. A change in valuation allowance affect earnings in the period the adjustments are made and could be significant due to the large valuation allowance currently established.

 

Under ASC 740, a tax position is recognized as a benefit only if it is “more likely than not” that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized on examination. For tax positions not meeting the “more likely than not” test, no tax benefit is recorded. The Company has no material uncertain tax positions for any of the reporting periods presented.

 

For a summary of our critical accounting policies, refer to Note 2 of our consolidated financial statements included under Item 8 – Financial Statements in this Form 10-K.

 

ITEM 7A.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Not required for Smaller Reporting Companies.

 

ITEM 8.   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

 

Our consolidated financial statements and footnotes thereto are set forth beginning on page F-1 of this Report.

 

ITEM 9.    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

 

None.

 


35


ITEM 9A.  CONTROLS AND PROCEDURES

 

1. Disclosure Controls and Procedures

 

Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) promulgated under the Exchange Act, as of December 31, 2020.  Based on this evaluation, our principal executive officer and principal financial officer concluded that as of the end of the period covered by this Report, our disclosure controls and procedures were ineffective. However, as discussed below, additional staff has been hired.  Management will continue to work to improve its disclosure controls and procedures in 2021.

 

2. Changes in Internal Control Over Financial Reporting

 

In April 2020, the Company hired Larry Zic as VP and Corporate Controller and in December 2020, the Company promoted him to Chief Accounting Officer. The Company believes that the appointment of Mr. Zic as Chief Accounting Officer constituted a change in the Company’s Internal Control over Financial Reporting. As such, there is further segregation of duties.

 

3. Management's Report on Internal Control Over Financial Reporting

 

Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) under the Exchange Act. Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Internal control over financial reporting includes those policies and procedures that:

 

pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets;

 

 

provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles;

 

 

provide reasonable assurance that our receipts and expenditures are being made only in accordance with authorization of our management and directors; and

 

 

provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of assets that could have a material effect on our financial statements.

 

Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in "Internal Control—Integrated Framework" issued by the Committee of Sponsoring Organizations of the Treadway Commission.

 

Based on this evaluation, our management determined that our internal controls over financial reporting were not effective as of December 31, 2020.

 

Areas of material weakness include:

 

lack of segregation of duties; and

 

 

inadequate controls and monitoring processes over financial reporting.

 

As noted above, additional staff has been hired to address the issue of segregation of duties and the controls and monitoring processes.  Management anticipates making significant progress to remediate these areas of weakness in 2021.


36


 

4. Inherent Limitations on Effectiveness of Controls

 

Generally, disclosure controls and procedures are designed to provide reasonable assurance of achieving their objectives.  Nevertheless, an internal control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system reflects the fact that there are resource constraints, and the benefits of controls are considered relative to their costs. As noted above, we have determined that our disclosure controls and procedures and our internal controls over financial reporting were not effective as of December 31, 2020.  Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the internal control. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, control may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate.

 

ITEM 9B.   OTHER INFORMATION

 

None.

 

PART III

 

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.

 

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

 

Name

Age

Officer/Position

Board Member/Position

Kent B. Wilson

48

President, Chief Executive Officer

Director

Charles Winters

44

N/A

Chairman of the Board

 

 

 

 

Ian Kantrowitz

41

N/A

Director*

Gerry Garcia

40

N/A

Director*

Edmond Lew

42

N/A

Director*

Christophe Jeunot

49

N/A

Director*

Jonathan Withem

32

N/A

Director*

Jeffrey Hail

59

Chief Operating Officer

 

 

*These individuals have been appointed to the Board of Direcors, but had not commenced their service as of the date of this Report. Management anticipates that these individuals will begin their service on the Board of Directors in connection with the Company’s planned uplisting to a national exchange. 

 

Biographical Information for Kent B. Wilson

 

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


37


 

Biographical Information for Charles Winters

 

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

 

Biographical Information for Ian Kantrowitz

 

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

 

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

 

Biographical information for Gerry Garcia 

 

Mrs. Gerry Garcia was appointed to the Board on March 2, 2021.  There was no arrangement or understanding between the Company and Mrs. Garcia pursuant to which Mrs. Garcia was selected or appointed as a Director.  The Board has asked Mrs. Garcia to serve on the Audit Committee and Compensation Committee of the Board.

 

Mrs. Garcia is an Independent Consultant with more than 18 years of combined business and educational experience, including more than 4 years as the Director of Operations at an Arizona-based charter school.  Mrs. Garcia has spent the last 16 years serving as a member on multiple Boards of Directors for various non-profit 501(c)(3) organizations. The Board feels that her knowledge of financial/strategic planning and reporting, budget analysis, and fiduciary prudence from prior Boards will be paramount to upholding the financial accountability, stability and strength of the Company. Mrs. Garcia’s extensive efforts in Special Education have been driven by her passion to lift up and add value to all around her.

 

There are no transactions or proposed transactions between the Company and Mrs. Garcia required to be disclosed as “related party transactions” pursuant to Item 404(a) of Regulation S-K.

 

Biographical information for Edmond Lew 

 

Mr. Lew was appointed to the Board of Directors on March 2, 2021.  There was no arrangement or understanding between the Company and Mr. Lew pursuant to which Mr. Lew was selected or appointed as a Director.  The Board has asked Mr. Lew to serve on the Audit Committee and Compensation Committee of the Board.

 

Mr. Lew started his career in Information Technology (“IT”) as a Systems Engineer, building out hosted applications and delivering them through terminal computing in the early 2000s.  This model would evolve and later be adopted as what is now recognized as cloud computing. After working in the support, implementation, and data center sides of the industry, Mr. Lew went out on his own as an IT consultant. Mr. Lew was self-employed for 14 years, lending his expertise to businesses in the construction, hospitality, utilities, education, arts, logistics, law enforcement and technology fields.  Additionally, Mr. Lew has given back to the community by volunteering extensively over the past 15 years with various charities and non-profits, focusing on arts and social service organizations.  In the interest of becoming a more capable and effective leader, Mr. Lew has completed board governance and diversity training courses and has applied those skills in his volunteer work as well as his professional career. Mr. Lew is an avid cyclist, a talented private chef and a former competitive eater.

 

There are no transactions or proposed transactions between the Company and Mr. Lew required to be disclosed as “related party transactions” pursuant to Item 404(a) of Regulation S-K.


38


 

Biographical information for Christophe Jeunot 

 

Mr. Jeunot was appointed to the Board of Directors on March 2, 2021.  There was no arrangement or understanding between the Company and Mr. Jeunot pursuant to which Mr. Jeunot was selected or appointed as a Director.  The Board has asked Mr. Jeunot to serve on the Audit Committee and Compensation Committee of the Board.

 

Mr. Jeunot collaborates with Fortune 500 national and international companies as a Story Board Artist aiding in movie, television and branding campaigns. His clients range from Netflix and Peloton to Goldman Sachs, Exxon Mobile, Samsung and 3M, among others. Mr. Jeunot’s European perspective and creativity allows solutions to be derived through an alternative lens, lending to diverse and dynamic thinking within strategic planning sessions. Mr. Jeunot’s affinity for nature and the environment makes him a conscientious proponent for green technologies.

 

There are no transactions or proposed transactions between the Company and Mr. Jeunot required to be disclosed as “related party transactions” pursuant to Item 404(a) of Regulation S-K.

 

Biographical information for Jonathan Withen

 

Mr. Withem was appointed to the Board of Directors on March 2, 2021.  There was no arrangement or understanding between the Company and Mr. Withem pursuant to which Mr. Withem was selected or appointed as a Director.  The Board has asked Mr. Withem to serve on the Audit Committee and Compensation Committee of the Board.  

 

Mr. Withem contributed to the development of custom interfaces for eCommerce and onsite sales for entertainment company ETIX. As one of the largest interactive ticketing platforms, ETIX processes over 50 million tickets in 40 countries annually. Mr. Withem has experience working with a variety of teams to create, test and release new products, in addition to client training. Mr. Withem’s expertise in project management and budgetary compliance ensures adherence to strict time frames in the achievement of established goals. Mr. Withem is an avid music lover, teaching music curriculum privately and for a California liberal arts university remotely.

 

There are no transactions or proposed transactions between the Company and Mr. Withem required to be disclosed as “related party transactions” pursuant to Item 404(a) of Regulation S-K.

 

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

 

Biographical Information for Jeff Hail

 

Jeff Hail is the Chief Operating Officer (COO) of Alpine 4 Holdings, Inc. (Formerly Alpine 4 Technologies, Ltd.) Raised and educated in Scottsdale, AZ; Mr. Hail earned his Bachelors of Science degree in Operations and Production Management from the W.P. Carey School of Business at Arizona State University  Mr. Hail’s professional experience has been both in the government and private sector.  As a Buyer/Contract Officer with the Arizona Department of Transportation writing, awarding and administering highway services contracts.

 

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

 

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

 

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

 

Director or officer involvement in certain legal proceedings. To the best of our knowledge, except as described below, during the past five years, none of the following occurred with respect to a present or former director or executive officer of the Company: (1) any bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time;


39


(2) any conviction in a criminal proceeding or being subject to a pending criminal proceeding (excluding traffic violations and other minor offenses); (3) being subject to any order, judgment or decree, not subsequently reversed, suspended or vacated, of any court of any competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities or banking activities; and (4) being found by a court of competent jurisdiction (in a civil action), the Securities and Exchange Commission or the Commodities Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended or vacated.

 

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

 

Delinquent Section 16(a) Reports. Section 16(a) of the Exchange Act requires our directors and executive officers and persons who beneficially own more than ten percent of a registered class of our equity securities to file with the SEC initial reports of ownership and reports of changes in ownership of common stock and other equity securities. Officers, directors and greater than ten percent beneficial shareholders are required by SEC regulations to furnish us with copies of all Section 16(a) forms they file. To the best of our knowledge based solely on a review of Forms 3, 4, and 5 (and any amendments thereof) received by us during or with respect to the year ended December 31, 2020, the following persons failed to file, on a timely basis, the identified reports required by Section 16(a) of the Exchange Act during fiscal year ended December 2020:

 

Name and Principal Position

Number of Late Reports

Transactions not Reported in Timely Manner

Known Failures to File a Required Form

Kent Wilson, CEO, Director

2

6

None

Charles Winters, Director

1

1

1

Scott Edwards, Director

0

0

None

Ian Kantrowitz, Director

1

3

None

 

ITEM 11. EXECUTIVE COMPENSATION.

 

Summary Compensation Table

 

Name and Principal Position

Year

Salary

Bonus

Stock Awards

Option Awards

Nonequity Incentive Plan Compensation

Deferred Compensation Earnings

All Other Compensation

Total

(a)

(b)

(c)

(d)

(e)

(f)

(g)

(h)

(i)

(j)

Kent B. Wilson, Chief Executive Officer

2020

300,000

0

46,300

0

0

0

204,073

550,373

 

2019

200,000

0

9,750

0

0

0

0

209,750

Jeff Hail, Chief Operating Officer

2020

275,250

0

34,763

0

0

0

0

310,013

 

2019

136,000

0

5,363

0

0

0

0

141,363

Larry Zic, Chief Accounting Officer

2020

87,461

0

18,540

0

0

0

0

106,001

 

2019

0

0

0

0

0

0

0

0

 

Outstanding Equity Awards

 

None


40


 

Director Compensation

 

The following table sets forth the amounts paid to the Company's directors for their service as directors of the Company during the year ended December 31, 2020.  Please note: the compensation of Mr. Wilson, who is also an executive officer of the Company, is set forth above.

 

Name

 

Fees earned

or paid

in cash

 

 

Stock awards

 

 

Option awards

 

 

Non-equity

incentive

plan

compensation

 

 

Nonqualified deferred

compensation
 earnings

 

 

All other compensation

 

 

Total

 

 

 

($)

 

 

($)

 

 

($)

 

 

($)

 

 

($)

 

 

($)

 

 

($)

 

(a)

 

(b)

 

 

(c)

 

 

(d)

 

 

(e)

 

 

(f)

 

 

(g)

 

 

(h)

 

Ian Kantrowitz

 

$

0

 

 

 

34,763

 

 

$

0

 

 

$

0

 

 

$

0

 

 

$

119,994

 

 

$

154,757

 

Kent Wilson

 

$

0

 

 

 

46,300

 

 

$

0

 

 

$

0

 

 

$

0

 

 

$

204,073

 

 

$

250,373

 

Charles Winters

 

$

0

 

 

 

34,763

 

 

$

0

 

 

$

0

 

 

$

0

 

 

$

90,000

 

 

$

124,763

 

 

 

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.

 

The following table sets forth certain information regarding beneficial ownership of Alpine 4 Class A and Class B common stock as of April 12, 2021, (i) by each person (or group of affiliated persons) who owns beneficially more than five percent of the outstanding shares of common stock, (ii) by each director and executive officer of Alpine 4, and (iii) by all of the directors and executive officers of Alpine 4 as a group.  The percentages are based on the following figures:

 

136,923,432 shares of Class A common stock;

 

 

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

 

 

14,162,267 shares of Class C common stock; and

 

 

5 shares of Series B Preferred stock.

 

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

 

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

Title/Class of Security

Number of Shares

Beneficial

Ownership of

Shares Listed

Votes

Total Voting Power (2)

Kent B. Wilson

Chief Executive Officer,  Director(3)

CLASS A

1,951,890

1.42%

1,951,890

 

 

CLASS B

3,285,449

36.41%

32,854,490

 

 

CLASS C

1,290,169

9.11%

6,450,845

 

 

B Preferred

2

40.00%

238,532,518

 

Total Votes

 

 

 

279,789,743

31.28%

 

 

 

 

 

 

Scott Edwards

Former Director (4)

CLASS A

252,000

0.18%

252,000

 

 

CLASS B

350,000

3.88%

3,500,000

 

 

CLASS C

600,200

4.24%

3,001,000

 


41


 

B Preferred

0

0%

0

 

Total Votes

 

 

 

6,753,000

0.75%

 

 

 

 

 

 

Charles Winters, Director (5)

CLASS A

709,800

0.52%

709,800

 

 

CLASS B

1,300,000

14.41%

13,000,000

 

 

CLASS C

675,000

4.77%

3,375,000

 

 

B Preferred

1

20.00%

119,266,259

 

Total Votes

 

 

 

136,351,059

15.24%

 

 

 

 

 

 

Ian Kantrowitz

Director (6)

CLASS A

826,871

0.60%

826,871

 

 

CLASS B

1,499,429

16.62%

14,994,290

 

 

CLASS C

1,009,738

7.13%

5,048,690

 

 

B Preferred

1

20.00%

119,266,259

 

Total Votes

 

 

 

140,136,110

15.67%

 

 

 

 

 

 

Jeff Hail

Chief Operating

Officer (7)

CLASS A

541,000

0.39%

541,000

 

 

CLASS B

1,124,211

12.46%

11,242,110

 

 

CLASS C

788,000

5.56%

3,940,000

 

 

B Preferred

1

20.00%

119,266,259

 

Total Votes

 

 

 

134,989,369

15.09%

 

 

 

 

 

 

Gerry Garcia*

Director (8)

CLASS A

10,000

0.0%

10,000

 

 

CLASS B

0

0.0%

0

 

 

CLASS C

0

0.0%

0

 

 

B Preferred

0

0.0%

0

 

Total Votes

 

 

 

 

0%

 

 

 

 

 

 

Edmond Lew*

Director (9)

CLASS A

81,667

0.1%

81,667

 

 

CLASS B

0

0.0%

0

 

 

CLASS C

0

0.0%

0

 

 

B Preferred

0

0.0%

0

 

Total Votes

 

 

 

 

0.01%

 

 

 

 

 

 

Christophe Jeunot*

Director (10)

CLASS A

122,236

0.1%

122,236

 

 

CLASS B

0

0.0%

0

 

 

CLASS C

0

0.0%

0

 

 

B Preferred

0

0.0%

0

 

Total Votes

 

 

 

 

0.01%

 

 

 

 

 

 

Jonathan Withem*

Director (11)

CLASS A

0

0.0%

0

 

 

CLASS B

0

0.0%

0

 

 

CLASS C

0

0.0%

0

 

 

B Preferred

0

0.0%

0

 

Total Votes

 

 

 

 

0%

 

 

 

 

 

 

As a Group

CLASS A

4,243,464

3.09%

4,243,464

 

8 PEOPLE

CLASS B

7,209,089

79.90%

75,590,890

 

 

CLASS C

3,762,907

26.57%

21,815,535

 


42


 

B Preferred

5

100.00%

596,331,294

 

Total Votes

 

 

 

697,981,183

78.03%

 

*These individuals have been appointed to the Board of Directors, but had not commenced their service as of the date of this Report. Management anticipates that these individuals will begin their service on the Board of Directors in connection with the Company’s planned uplisting to a national exchange. 

 

(1)

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

 

 

(2)

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

 

 

(3)

Mr. Wilson owned as of the date of this Annual Report 1,951,890 shares of Class A common stock; 3,285,449 shares of Class B Common Stock; 1,290,169 shares of Class C Common Stock, and 2 shares of Series B Preferred Stock, which represent an aggregate of 279,789,743 votes, or approximately 31.28% of the total voting power.

 

 

(4)

Mr. Edwards owned as of the date of this Annual Report 252,000 shares of Class A Common Stock; 350,000 shares of Class B Common Stock; 600,200 shares of Class C Common Stock, which represent an aggregate of 6,753,000 votes, or approximately 0.75% of the voting power. Mr. Edwards resigned from the Board of Directors on March 2, 2021, and is not included in the calculation of Directors and Officers as a Group. His shareholding information is included in this Annual Report because he served as a Director through all of fiscal year 2020.

 

 

(5)

Mr. Winters owned as of the date of this Annual Report 709,800 shares of Class A Common Stock; 1,300,000 shares of Class B Common Stock; 675,000 shares of Class C Common Stock, and 1 share of Series B Preferred Stock, which represent an aggregate of 136,351,059 votes, or approximately 15.24% of the voting power.

 

 

(6)

Mr. Kantrowitz owned as of the date of this Annual Report 826,871 shares of Class A Common Stock; 1,499,429 shares of Class B Common Stock; 1,009,738 shares of Class C Common Stock, and 1 share of Series B Preferred Stock, which represent an aggregate of 140,136,110 votes, or approximately 15.67% of the voting power.

 

 

(7)

Mr. Hail owned as of the date of this Annual Report 541,000 shares of Class A Common Stock; 1,124,211 shares of Class B Common Stock; 788,000 shares of Class C Common Stock, and 1 share of Series B Preferred Stock, which represent an aggregate of 134,989,369 votes, or approximately 15.09% of the voting power.

 

 

(8)

Mrs. Garcia owned as of the date of this Annual Report 10,000 shares of Class A Common Stock; 0 shares of Class B Common Stock; 0 shares of Class C Common Stock, and 0 share of Series B Preferred Stock.

 

 

(9)

Mr. Lew owned as of the date of this Annual Report 81,667 shares of Class A Common Stock; 0 shares of Class B Common Stock; 0 shares of Class C Common Stock, and 0 share of Series B Preferred Stock.

 

 

(10)

Mr. Jeunot owned as of the date of this Annual Report 122,236 shares of Class A Common Stock; 0 shares of Class B Common Stock; 0 shares of Class C Common Stock, and 0 share of Series B Preferred Stock.

 

 

(11)

Mr. Withem owned as of the date of this Annual Report 0 shares of Class A Common Stock; 0 shares of Class B Common Stock; 0 shares of Class C Common Stock, and 0 share of Series B Preferred Stock.


43


 

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

 

Related Party Transactions

The Company had outstanding notes payable due to related parties totaling $238,651 at December 31, 2020.

 

Additionally, in January 2020, Kent Wilson, Charles Winters, Ian Kantrowitz,  Jeff Hail, and Shannon Rigney, who were serving as officers and employees of the Company, collectively converted $603,463 owed to them as salaries and commissions into 4,022,088 shares of the Company’s Class B Common stock, as follows:

 

 

Amount Owed

Shares Issued

Kent Wilson

$204,067

1,360,449

 Ian Kantrowitz

$119,914

799,429

 Jeff Hail

$116,132

774,212

 Shannon Rigby 

$73,344

488,960

 Charlie Winters

$90,006

600,038

TOTAL

$603,463

4,023,088

 

The conversion price was $0.15 per share, which was the closing price of the Company’s Class A common stock on January 7, 2020, which was when the individuals agreed with the Company to convert the amounts owing. The Class B common stock converts one share for one share into Class A common stock, so the Class A common stock market price was used as the conversion price.

 

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.

 

MaloneBailey, LLP (“MaloneBailey”)

 

Set below are aggregate fees billed by MaloneBailey for professional services rendered for the year ended December 31, 2020.

 

Audit Fees

 

The fees for the audit and review services billed by MaloneBailey for the period from January 1, 2020, to December 31, 2020 were $232,000.

 

Audit Related Fees

 

The fees for the audit related services billed by MaloneBailey for the period from January 1, 2020, to December 31, 2020 were $11,000.

 

Tax Fees

 

The fees for the tax related services billed by MaloneBailey for the period from January 1, 2020, to December 31, 2020 were $0.

 

Set below are aggregate fees billed by MaloneBailey for professional services rendered for the year ended December 31, 2019.

 

Audit Fees

 

The fees for the audit and review services billed by Malone Bailey for the period from January 1, 2019, to December 31, 2019, were $129,049.


44


 

Audit Related Fees

 

The fees for the audit related services billed by Malone Bailey for the period from January 1, 2019, to December 31, 2019, were $0.

 

Tax Fees

 

The fees for the tax related services billed by Malone Bailey for the period from January 1, 2019, to December 31, 2019, were $0.

 

PART IV

 

ITEM 15.  EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

 

15(a)(1). Financial Statements.

 

The following consolidated financial statements, and related notes and Report of Independent Registered Public Accounting Firm are filed as part of this Annual Report:


45


 

ALPINE 4 HOLDINGS, INC. AND SUBSIDIARIES (FORMERLY ALPINE 4 TECHNOLOGIES, LTD.)

Consolidated Financial Statements

 

Contents

 

 

Page

Financial Statements:

 

 

 

Report of Independent Registered Public Accounting Firm

F-2

 

 

Consolidated Balance Sheets as of December 31, 2020 and 2019  

F-3

 

 

Consolidated Statements of Operations for the Years Ended December 31, 2020 and 2019

F-4

 

 

Consolidated Statements of Changes in Stockholders' Deficit for the Years Ended December 31, 2020 and 2019

F-5

 

 

Consolidated Statements of Cash Flows for the Years Ended December 31, 2020 and 2019

F-6

 

 

Notes to Consolidated Financial Statements

F-7


F-1


 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

 

To the Stockholders and Board of Directors of

Alpine 4 Holdings, Inc and Subsidiaries

 

 

Opinion on the Financial Statements

 

We have audited the accompanying consolidated balance sheets of Alpine 4 Holdings, Inc. (formerly Alpine 4 Technologies Ltd.) and its subsidiaries (collectively, the “Company”) as of December 31, 2020 and 2019, and the related consolidated statements of operations, changes in stockholders’ deficit, and cash flows for the years then ended, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019 and the results of their operations and their cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

 

Basis for Opinion

 

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

 

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

 

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

 

 

 

/s/ MaloneBailey, LLP

www.malonebailey.com

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

Houston, Texas

April 14, 2021


F-2


 

 

ALPINE 4 HOLDINGS, INC. AND SUBSIDIARIES

(FORMERLY ALPINE 4 TECHNOLOGIES, LTD.)

CONSOLIDATED BALANCE SHEETS

 

 

 

 

 

 

December 31,

 

December 31,

 

 

 

 

 

2020

 

2019

ASSETS

 

 

 

 

 

 

 

 

 

 

 

 

CURRENT ASSETS:

 

 

 

 

 

Cash

$

    277,738

$

     302,486

 

Restricted cash

 

 444,845

 

                 -   

 

Accounts receivable, net

 

6,484,869

 

8,731,565

 

Contract assets

 

717,421

 

667,724

 

Inventory, net

 

 

2,666,602

 

2,401,242

 

Prepaid expenses and other current assets

 

32,301

 

269,289

 

 

Total current assets

 

10,623,776

 

12,372,306

 

 

 

 

 

 

 

 

Property and equipment, net

 

19,299,286

 

17,157,845

Intangible asset, net

 

7,743,084

 

2,774,618

Right of use assets, net

 

581,311

 

660,032

Goodwill

 

2,084,982

 

2,517,453

Other non-current assets

 

401,744

 

319,344

 

 

 

 

 

 

 

 

 

TOTAL ASSETS

$

40,734,183

$

35,801,598

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' DEFICIT  

 

 

 

 

 

 

 

 

 

 

 

 

CURRENT LIABILITIES:

 

 

 

 

 

Accounts payable  

$

4,854,467

$

5,148,805

 

Accrued expenses

 

2,872,202

 

2,676,651

 

Contract liabilities

 

233,485

 

170,040

 

Derivative liabilities

 

-

 

2,298,609

 

Deposits

 

-

 

12,509

 

Notes payable, current portion

 

7,100,911

 

8,724,171

 

Notes payable, related parties

 

238,651

 

341,820

 

Convertible notes payable, current portion, net of discount of $1,343,624 and $846,833

 

562,242

 

1,110,118

 

Financing lease obligation, current portion

 

639,527

 

377,330

 

Operating lease obligation, current portion

 

334,500

 

266,623

 

Contingent consideration

 

-

 

500,000

 

 

Total current liabilities

 

16,835,985

 

21,626,676

 

 

 

 

 

 

 

 

Notes payable, net of current portion

 

15,201,450

 

9,850,184

Convertible notes payable, net of current portion

 

1,100,635

 

1,673,688

Financing lease obligations, net of current portion

 

15,687,176

 

13,696,011

Operating lease obligations, net of current portion

 

269,030

 

403,931

Deferred tax liability

 

428,199

 

521,250

 

 

 

 

 

 

 

 

 

TOTAL LIABILITIES

 

49,522,475

 

47,771,740

 

 

 

 

 

 

 

 

STOCKHOLDERS' DEFICIT:

 

 

 

 

 

Preferred stock, $0.0001 par value, 5,000,000 shares authorized

 

-   

 

-   

 

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

 

5

 

-   

 

Series C preferred stock; $3.50 stated value; 2,028,572 shares authorized, 1,714,286 and 0 shares issued and outstanding at December 31, 2020 and 2019

 

171

 

 

 

Series D preferred stock; $3.50 stated value; 1,628,572 shares authorized, 0 and 0 shares issued and outstanding at December 31, 2020 and 2019

 

 

 

 

 

Class A Common stock, $0.0001 par value, 195,000,000 shares authorized, 126,363,158 and 100,070,161

 

12,636

 

                  10,007

 

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

 

902

 

500

 

Class C Common stock, $0.0001 par value, 15,000,000 shares authorized, 14,162,267 and 9,955,200  shares issued and outstanding at December 31, 2020 and 2019

 

1,417

 

996

 

Additional paid-in capital

 

30,991,978

 

19,763,883

 

Accumulated deficit

 

(39,795,401)

 

(31,745,528)

 

 

Total stockholders' deficit

 

(8,788,292)

 

 

 

TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT

$

40,734,183

$

35,801,598

 

 

 

 

 

 

 

 

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


F-3


 

 

ALPINE 4 HOLDINGS, INC. AND SUBSIDIARIES

(FORMERLY ALPINE 4 TECHNOLOGIES, LTD.)

CONSOLIDATED STATEMENTS OF OPERATIONS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Years Ended December 31,

 

 

 

 

 

2020

 

2019

 

 

 

 

 

 

 

 

Revenue, net

 

 

$

            33,454,349

$

            28,151,524

Cost of revenue

 

 

 

            28,090,722

 

            22,509,046

Gross Profit

 

 

 

              5,363,627

 

              5,642,478

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

General and administrative expenses

 

              9,695,891

 

              8,122,204

 

Impairment loss of intangible asset and goodwill

 

              1,561,600

 

                          -

 

    Total operating expenses

 

            11,257,491

 

              8,122,204

Loss from operations

 

 

            (5,893,864)

 

            (2,479,726)

 

 

 

 

 

 

 

 

Other income (expenses)

 

 

 

 

 

 

Interest expense

 

 

            (5,463,597)

 

            (5,237,205)

 

Change in value of derivative liability

 

              2,298,609

 

               (252,230)

 

Gain on extinguishment of debt

 

                344,704

 

                          -

 

Change in fair value of contingent consideration

 

                500,000

 

                          -

 

Bargain purchase gain

 

 

                          -

 

              2,143,779

 

Other income

 

 

                  71,224

 

                185,314

 

    Total other income (expenses)

 

            (2,249,060)

 

            (3,160,342)

 

 

 

 

 

 

 

 

Loss before income tax

 

 

            (8,142,924)

 

            (5,640,068)

 

 

 

 

 

 

 

 

Income tax (benefit)

 

 

                 (93,051)

 

                 (87,054)

 

 

 

 

 

 

 

 

Loss from continuing operations

 

            (8,049,873)

 

            (5,553,014)

 

 

 

 

 

 

 

 

Discontinued operations:

 

 

 

 

 

 

Loss from operations of discontinued operations

 

                          -

 

                 (95,179)

 

Gain on disposition of discontinued operations

 

                          -

 

              2,515,028

 

    Total discontinued operations

 

                          -

 

              2,419,849

 

 

 

 

 

 

 

 

Net loss

 

 

$

            (8,049,873)

$

            (3,133,165)

 

 

 

 

 

 

 

 

Weighted average shares outstanding :

 

 

 

 

 

Basic

 

 

 

          132,987,390

 

            75,206,998

 

Diluted

 

 

 

          139,611,790

 

            75,206,998

 

 

 

 

 

 

 

 

Basic Income (loss) per share

 

 

 

 

 

Continuing operations

 

$

                    (0.06)

$

                    (0.07)

 

Discontinued operations

 

                        -   

$

                     0.03

 

 

 

 

$

                    (0.06)

 

                    (0.04)

 

 

 

 

 

 

 

 

Diluted income (loss) per share

 

 

 

 

 

Continuing operations

 

$

                    (0.06)

$

                    (0.07)

 

Discontinued operations

 

                        -   

$

                     0.03

 

 

 

 

$

                    (0.06)

 

                    (0.04)

 

 

 

 

 

 

 

 

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


F-4


 

ALPINE 4 HOLDINGS, INC. AND SUBSIDIARIES

(FORMERLY ALPINE 4 TECHNOLOGIES, LTD.)

CONSOLIDATED STATEMENTS CHANGES IN STOCKHOLDERS' DEFICIT

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

Total

 

 

 

 

Series B Preferred Stock

 

Series C Preferred Stock

 

Class A Common Stock

 

Class B Common Stock

 

Class C Common Stock

 

Paid-in

 

Accumulated

 

Stockholders'

 

 

 

 

Shares

 

Amount

 

Shares

 

Amount

 

Shares

 

Amount

 

Shares

 

Amount

 

Shares

 

Amount

 

Capital

 

Deficit

 

Deficit

Balance, December 31, 2018

-

$

-

 

 

$

 

 

26,567,410

$

2,657

 

5,000,000

$

500

 

-

$

-

$

17,018,509

$

(28,520,094)

$

(11,498,428)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

-

 

-

 

-

 

-

 

68,602,751

 

6,860

 

-

 

-

 

-

 

-

 

516,976

 

-

 

523,836

Issuance of shares of common stock for debt settlement

 

-

 

-

 

-

 

-

 

2,000,000

 

200

 

-

 

-

 

-

 

-

 

470,200

 

-

 

470,400

Issuance of shares of common stock for penalty

 

-

 

-

 

-

 

-

 

2,700,000

 

270

 

-

 

-

 

30,000

 

3

 

680,352

 

-

 

680,625

Issuance of shares of common stock for dividend

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

7,097,594

 

710

 

91,559

 

(92,269)

 

-

Conversion of Class B common stock to Class A common stock

 

-

 

-

 

-

 

-

 

200,000

 

20

 

(200,000)

 

(20)

 

-

 

-

 

-

 

-

 

-

Issuance of shares of common stock for services

 

-

 

-

 

-

 

-

 

-

 

-

 

200,000

 

20

 

2,827,606

 

283

 

43,171

 

-

 

43,474

Derivative liability resolution

 

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

864,679

 

-

 

864,679

Share-based compensation expense

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

78,437

 

-

 

78,437

Net loss

 

 

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

(3,133,165)

 

          (3,133,165)

                                                                                                                                         

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, December 31, 2019

-

 

-

 

-

 

-

 

100,070,161

 

10,007

 

5,000,000

 

500

 

9,955,200

 

996

 

19,763,883

 

(31,745,528)

 

(11,970,142)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of shares of common stock for cash

 

-

 

-

 

-

 

-

 

11,513,935

 

1,151

 

-

 

-

 

-

 

-

 

673,318

 

-

 

674,469

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

 

-

 

-

 

-

 

-

 

12,861,995

 

1,286

 

-

 

-

 

-

 

-

 

1,928,014

 

-

 

1,929,300

Issuance of shares of common stock for debt settlement

 

-

 

-

 

-

 

-

 

1,617,067

 

162

 

-

 

-

 

1,617,067

 

162

 

330,204

 

-

 

330,528

Issuance of shares of common stock for penalty interest

 

-

 

-

 

-

 

-

 

300,000

 

30

 

-

 

-

 

-

 

-

 

44,670

 

-

 

44,700

Issuance of shares of common stock for deferred compensation

 

-

 

-

 

-

 

-

 

-

 

-

 

4,023,088

 

402

 

-

 

-

 

603,061

 

-

 

603,463

Issuance of shares of common stock for compensation

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

2,590,000

 

259

 

239,834

 

-

 

240,093

Issuance of shares of series B preferred stock for services

 

5

 

5

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

5

Issuance of shares of series C preferred stock for acquisition

 

-

 

-

 

1,714,286

 

171

 

-

 

-

 

-

 

-

 

-

 

-

 

5,847,842

 

-

 

5,848,013

Share-based compensation expense

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

78,652

 

-

 

78,652

Beneficial conversion feature on convertible notes

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

1,482,500

 

-

 

1,482,500

Net loss

 

 

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

                        -

 

(8,049,873)

 

(8,049,873)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, December 31, 2020

5

$

5

 

1,714,286

$

171

 

126,363,158

$

12,636

 

9,023,088

$

902

 

14,162,267

$

1,417

$

30,991,978

$

(39,795,401)

$

(8,788,292)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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


F-5


 

ALPINE 4 HOLDINGS, INC. AND SUBSIDIARIES

(FORMERLY ALPINE 4 TECHNOLOGIES, LTD.)

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Years Ended December 31,

 

 

 

 

 

 

2020

 

2019

 

 

 

 

 

 

 

 

 

OPERATING ACTIVITIES:

 

 

 

 

 

Net loss

 

$

(8,049,873)

$

(3,133,165)

 

Adjustments to reconcile net loss to

 

 

 

 

 

  net cash used in operating activities:

 

 

 

 

 

 

Depreciation

 

 

1,844,634

 

1,022,925

 

 

Amortization

 

 

225,628

 

232,592

 

 

(Gain) loss on extinguishment of debt

 

(344,704)

 

68,526

 

 

(Gain) loss on disposal of property and equipment

 

-

 

177,574

 

 

Change in fair value of derivative liabilities

 

(2,298,609)

 

252,230

 

 

Common stock issued for services

 

240,093

 

43,474

 

 

Preferred stock issued for services

 

5

 

-

 

 

Change in fair value of contingent consideration

 

(500,000)

 

-

 

 

Bad debt expense

 

88,305

 

-

 

 

Non-cash adjustment to debt booked to interest expense

 

79,211

 

-

 

 

Stock issued for penalties

 

44,700

 

1,151,025

 

 

Employee stock compensation

 

78,652

 

78,437

 

 

Amortization of debt discounts

 

985,709

 

1,144,756

 

 

Gain on disposal of discontinued operations

 

-

 

(2,515,028)

 

 

Issuance of convertible debentures for interest

 

105,000

 

492,890

 

 

Operating lease expense

 

272,262

 

231,381

 

 

Bargain purchase gain

 

-

 

(2,143,779)

 

 

Impairment loss of intangible asset and goodwill

 

1,561,600

 

-

 

 

Write off of inventory

 

127,919

 

 

 

 

Change in current assets and liabilities:

 

 

 

 

 

 

 

Accounts receivable

 

3,951,827

 

(1,174,600)

 

 

 

Inventory

 

 

(184,766)

 

964,706

 

 

 

Contract assets

 

(49,697)

 

(107,080)

 

 

 

Capitalized contract costs

 

 

 

64,234

 

 

 

Prepaid expenses and other assets

 

(256,682)

 

(392,466)

 

 

 

Accounts payable

 

(634,489)

 

595,134

 

 

 

Accrued expenses

 

940,098

 

1,413,859

 

 

 

Contract liabilities

 

63,445

 

(77,019)

 

 

 

Operating lease liability

 

(260,565)

 

(220,859)

 

 

 

Deposits

 

 

(12,509)

 

-

 

 

 

Deferred tax

 

(93,051)

 

(87,054)

 

 

 

Deferred revenue

 

-

 

(25,287)

 

Net cash used in operating activities

 

(2,075,857)

 

(1,942,594)

 

 

 

 

 

 

 

 

 

INVESTING ACTIVITIES:

 

 

 

 

 

 

Capital expenditures

 

(75,670)

 

(71,175)

 

 

Cash paid for acquisitions

 

(2,513,355)

 

(2,926,658)

 

 

Cash assumed in acquisition

 

453,876

 

-

 

Net cash used in investing activities

 

(2,135,149)

 

(2,997,833)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

FINANCING ACTIVITIES:

 

 

 

 

 

 

Proceeds from the sale of common stock

 

674,469

 

-

 

 

Proceeds from issuances of notes payable, related parties

 

47,000

 

282,320

 

 

Proceeds from issuances of notes payable, non-related party

 

4,654,817

 

1,548,989

 

 

Proceeds from issuances of convertible notes payable

 

1,482,500

 

873,000

 

 

Proceeds from financing lease

 

2,000,000

 

12,267,000

 

 

Repayments of notes payable, related party

 

(290,003)

 

(132,500)

 

 

Repayments of notes payable, non-related parties

 

(2,101,825)

 

(9,642,837)

 

 

Repayments of convertible notes payable

 

(335,896)

 

(1,473,180)

 

 

Proceeds from (repayment of) line of credit, net

 

(996,331)

 

1,311,663

 

 

Cash paid on financing lease obligations

 

(503,628)

 

(206,058)

 

Net cash provided by financing activities

 

4,631,103

 

4,828,397

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NET INCREASE (DECREASE) IN CASH AND RESTRICTED CASH

 

420,097

 

(112,030)

 

 

 

 

 

 

 

 

 

CASH AND RESTRICTED CASH, BEGINNING BALANCE

 

302,486

 

414,516


F-6


 

 

 

 

 

 

 

 

 

CASH AND RESTRICTED CASH, ENDING BALANCE

$

722,583

$

302,486

 

 

 

 

 

 

 

 

 

CASH PAID FOR:

 

 

 

 

 

 

Interest

 

$

3,504,227

$

1,982,469

 

Income taxes

 

$

-

$

-

 

 

 

 

 

 

 

 

 

SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING AND INVESTING:

 

Penalty interest added to debt

$

15,000

$

-

 

Common stock issued for convertible note payable and accrued interest

$

1,929,300

$

523,836

 

Common stock issued for debt settlement

$

330,528

$

-

 

Issuance of note payable for acquisition

$

2,300,000

$

5,846,343

 

Debt discount due to derivative liabilities

$

-

$

1,018,737

 

Release of derivative liability

$

-

$

864,679

 

ROU asset and operating lease obligation recognized under Topic 842

$

193,541

$

891,413

 

Goodwill adjustment to intangible asset for APF acquisition

$

-

$

790,000

 

Class C common stock issued for dividend

$

-

$

92,269

 

Common stock issued to settle unpaid salaries

$

603,463

$

-

 

Equipment purchased on financing lease

$

756,990

$

26,999

 

Other asset reclassified to fixed asset

$

86,471

$

-

 

Interest added to note payable - related party

$

139,834

$

-

 

Issuance of shares of series C preferred stock for acquisition

$

5,848,013

$

-

 

Beneficial conversion feature on convertible notes

$

1,482,500

$

-

 

Reduction of acquisition note payable for uncollectible accounts

$

150,044

$

-

 

 

 

 

 

 

 

 

 

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


F-7


ALPINE 4 HOLDINGS, INC. AND SUBSIDIARIES

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