Attached files
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
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ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year ended December 31, 2016
[ ] 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 Technologies Ltd.
(Exact name of registrant as specified in its charter)
Delaware
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46-5482689
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(State or Other Jurisdiction of Incorporation or Organization)
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(I.R.S. Employer Identification No.)
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4742 N. 24th Street Suite 300
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Phoenix, AZ
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85016
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(Address of Principal Executive Offices)
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(Zip Code)
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Registrant's telephone number, including area code: 855-777-0077 ext 801
(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 ☒
Indicate by check mark whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐
Indicate by check mark if disclosure of delinquent filings pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.
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
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Accelerated filer
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Non-accelerated filer
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Smaller reporting company
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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, 2016, 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 $0 because the Company's Class A Common Stock was not traded publicly as of that date.
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 14, 2017, the issuer had 21,891,852 shares of its Class A common stock issued and outstanding and 1,600,000 shares of its Class B common stock issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
None.
FISCAL YEAR ENDED DECEMBER 31, 2016
ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
PART I
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Page
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ITEM 1.
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BUSINESS
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3
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ITEM 1A.
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RISK FACTORS
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10
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ITEM 1B.
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UNRESOLVED STAFF COMMENTS
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15
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ITEM 2.
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PROPERTIES
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16
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ITEM 3.
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LEGAL PROCEEDINGS
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16
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ITEM 4.
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MINE SAFETY DISCLOSURES
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16
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PART II
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ITEM 5.
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MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
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21
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ITEM 6.
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SELECTED FINANCIAL DATA
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21
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ITEM 7.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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21
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ITEM 7A.
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QUANTITATIVE AND QULAITATIVE DISCLOSURES ABOUT MARKET RISK
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22
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ITEM 8.
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FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
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22
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ITEM 9.
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CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES
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23
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ITEM 9A.
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CONTROLLS AND PROCEDURES
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22
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ITEM 9B.
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OTHER INFORMATION
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22
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PART III
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ITEM 10.
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DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
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23
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ITEM 11.
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EXECUTIVE COMPENSATION
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23
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ITEM 12.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
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23
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ITEM 13.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
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23
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ITEM 14.
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PRINCIPAL ACCOUNTING FEES AND SERVICES
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23
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PART IV
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ITEM 15.
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EXHIBITS, FINANCIAL STATEMENT SCHEDULES
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23
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SIGNATURES | 24 |
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PART I
Special Note Regarding Forward-Looking Statements
Information included or incorporated by reference in this Annual Report on Form 10-K contains forward-looking statements. All forward-looking statements are inherently uncertain as they are based on current expectations and assumptions concerning future events or future performance of the Company. Readers are cautioned not to place undue reliance on these forward-looking statements, which are only predictions and speak only as of the date hereof. Forward-looking statements may contain the words "believes," "project," "expects," "anticipates," "estimates," "forecasts," "intends," "strategy," "plan," "may," "will," "would," "will be," "will continue," "will likely result," and similar expressions, and are subject to numerous known and unknown risks and uncertainties. Additionally, statements relating to implementation of business strategy, future financial performance, acquisition strategies, capital raising transactions, performance of contractual obligations, and similar statements may contain forward-looking statements. In evaluating such statements, prospective investors and shareholders should carefully review various risks and uncertainties identified in this Report, including the matters set forth under the captions "Risk Factors" and in the Company's other SEC filings. These risks and uncertainties could cause the Company's actual results to differ materially from those indicated in the forward-looking statements. The Company disclaims any obligation to update or publicly announce revisions to any forward-looking statements to reflect future events or developments.
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 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 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 Technologies Ltd. (the "Company") was incorporated under the laws of the State of Delaware on April 22, 2014. The Company was formed to serve as a vehicle to effect an asset acquisition, merger, exchange of capital stock, or other business combination with a domestic or foreign business. As of the date of this Report, the Company is a technology holding company owning three companies (ALTIA, LLC, Quality Circuit Assembly, Inc., and Horizon Well Testing, LLC.)
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Who We Are
Alpine 4 is a publicly held enterprise with four principles at the core of its business: Synergy, Innovation, Drive, and Excellence (S.I.D.E.). At Alpine 4, we believe synergistic innovation drives excellence. By anchoring these words to our combined experience and capabilities, we are able to aggressively pursue opportunities within and across vertical markets. We deliver solutions that not only drive industry standards, but also increase value for our shareholders.
At Alpine 4, we understand the nature of how technology and innovation can accentuate a business. We strive to develop strategic synergies between our holdings to create value and operational excellence within a unique long-term perspective.
Our Strategy
Alpine 4's strategy is to provide Fortune 500-level execution strategies in its subsidiary companies and market segments to businesses and companies that have the most to benefit from this access.
Alpine 4 feels this opportunity exists in smaller middle market operating companies with revenues between $5 to $150 million. In this target rich environment, businesses generally sell at more reasonable multiples, presenting greater opportunities for operational and strategic improvements and have greater potential for growth. Implementation of our strategy within our holdings is accomplished by the offering of strategic and tactical MBA-level training and development, delivered via the following modules:
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Alpine 4 Mini MBA program; and
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An Alpine 4 developed ERP (Enterprise Resource Planning system) and collaboration system called SPECTRUMebos. SPECTRUMebos is what we are defining as an Enterprise Business Operating System (ebos). This system will combine the key technology software components of Accounting and Financial Reporting, an Enterprise Resource Planning System (ERP), a Document Management System (DMS), a Business Intelligence (BI) platform and a Customer Resource Management (CRM) hub which will be tethered to management reporting and collaboration toolsets. Management believes that these tools will help drive real-time information in two directions: first, to the front lines by empowering customer-facing stakeholders; and second, back to management for planning, problem solving, and integration. Management believes that SPECTRUMebos will be the technology "secret sauce" in managing our portfolio of companies and, in time, will be an offering to external customers.
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All great strategies must have trades offs. Therefore, Alpine 4 avoids companies that have unionized employees, businesses that have more than $150 million in revenue and companies that reside in highly regulated business industries.
Diversification
It is our goal to help drive Alpine 4 into a leading multi-faceted holding company with diverse products and services that not only benefit from one another as whole but also have the benefit of independence. This type of corporate structure is about having our subsidiaries prosper through strong onsite leadership, while working synergistically with other Alpine 4 holdings. Alpine 4 has been set up with a holding company model, with Presidents who will run each 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 motto of S.I.D.E (Synergistic, Innovation, Drives, Excellence) is utilized. 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 of 2016, Alpine 4 formed a new Limited Liability Company called ALTIA (Automotive Logic & Technology In Action) to create an independent subsidiary for Alpine 4's 6th Sense Auto product and its BrakeActive product.
Effective, January 1, 2017, Alpine 4 acquired 100% of Horizon Well Testing, LLC ("Horizon"). Additional information about the acquisition of Horizon can be found in our Current Reports on Form 8-K filed with the SEC on December 8, 2016, and January 13, 2017.
Finally, we have entered into two additional LOI's to acquire two different companies, and will provide additional disclosures relating to those transactions as they progress.
Recent Developments
Acquisition of Horizon Well Testing
On November 30, 2016, Alpine 4 entered into a Stock Purchase Agreement (the "HWT SPA") with Horizon Well Testing, L.L.C., an Oklahoma company ("HWT") and its sole shareholder, Alan Martin ("HWT Seller"). Effective as of January 1, 2017, Alpine 4 acquired and took full control of HWT.
Since 2010, HWT has been providing services to the Oil and Gas industry. This acquisition is another step in Alpine 4's strategy of diversification through acquisitions.
Pursuant to the HWT SPA, Alpine 4, HWT and HWT Seller agreed on the terms pursuant to which Alpine 4 would purchase from HWT Seller all of the outstanding shares of common stock of HWT (the "HWT Stock"). The purchase price paid by Alpine 4 for the HWT Stock consisted of cash, a note, a convertible note, and securities consideration. The "Cash Consideration" paid was $2,200,000. The "Note" consisted of a secured note in the amount of $300,000, secured by a subordinated security interest in the assets of HWT. The Note bears interest at 1% and will be payable in full by April 30, 2017. The "Convertible Note" consisted of a secured convertible note in the amount of $1,500,000, secured by a subordinated security interest in the assets of HWT. The HWT Seller has the opportunity to convert the Convertible Note into shares of Alpine 4's Class A common stock at a conversion price of $8.50 after a restricted period according to securities laws. The Convertible Note bears interest at 5% and is payable in full with a balloon payment on the 18-month anniversary of the closing date of the transaction with no monthly payments. The "Securities" consisted of two components, an aggregate of 379,403 shares of alpine 4s Class A common stock issued to the Seller, and a warrant to purchase an additional 75,000 shares of Class A common stock.
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In the HWT SPA, Mr. Martin acknowledged and agreed that his entry into consulting agreements with Alpine 4 was an integral part of the transaction contemplated by the HWT SPA. As such, Mr. Martin agreed to enter into consulting agreements with Alpine 4 and HWT, and continue to work with HWT for a period of time agreed upon by Alpine 4 and Mr. Martin.
Change in Capital Structure
Effective November 1, 2016, pursuant to the approved amendment for a reverse split, Alpine 4 issued one (1) new share for each ten (10) old share of the Company's commons stock. The reverse split only reduced the number of outstanding shares of class A and Class B common stock and did not correspondingly reduce the number of Class a and Class B commons shares authorized for issuance, which remained at 500,000,000 and 100,000,000 respectively.
Common Stock
Voting Rights
Holders of our Class A and Class B common stock have identical rights, except that holders of our Class A common stock are entitled to one vote per share and holders of our Class B common stock are entitled to ten votes per share. Holders of shares of Class A common stock and Class B common stock will vote together as a single class on all matters (including the election of directors) submitted to a vote of stockholders, unless otherwise required by law. We have not provided for cumulative voting for the election of directors in our certificate of incorporation.
Dividends
Subject to preferences that may apply to any shares of preferred stock outstanding at the time, the holders of Class A common stock and Class B common stock shall be entitled to share equally in any dividends that our board of directors may determine to issue from time to time. In the event a dividend is paid in the form of shares of common stock or rights to acquire shares of common stock, the holders of Class A common stock shall receive Class A common stock, or rights to acquire Class A common stock, as the case may be, and the holders of Class B common stock shall receive Class B common stock, or rights to acquire Class B common stock, as the case may be.
Liquidation Rights
Upon our liquidation, dissolution or winding-up, the holders of Class A common stock and Class B common stock shall be entitled to share equally all assets remaining after the payment of any liabilities and the liquidation preferences on any outstanding preferred stock.
Conversion
Our Class A common stock is not convertible into any other shares of our capital stock.
Each share of Class B common stock is convertible at any time at the option of the holder into one share of Class A common stock. In addition, each share of Class B common stock shall convert automatically into one share of Class A common stock upon any transfer, whether or not for value, except for certain transfers described in our certificate of incorporation.
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Once transferred and converted into Class A common stock, the Class B common stock shall not be reissued. No class of common stock may be subdivided or combined unless the other class of common stock concurrently is subdivided or combined in the same proportion and in the same manner.
The foregoing description of the Second Amended and Restated Certificate of Incorporation is qualified in its entirety by reference to the text of the Amendment attached as Exhibit 3.1 to the Current Report on Form 8-K filed with the SEC on August 27, 2015, and incorporated therein by reference.
Employees
As of the date of this Report, we had 63 full-time and 5 part-time employees. We believe our relationships with our employees is good. Other than as disclosed in this Report, 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.
RISKS ASSOCIATED WITH ALPINE 4:
Alpine 4 is an "emerging growth company," and the reduced disclosure requirements applicable to "emerging growth companies" could make our common stock less attractive to investors.
Alpine 4 is an "emerging growth company," as defined in the JOBS Act. For as long as we are an emerging growth company, we may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies, including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements and exemptions from the requirements of holding advisory "say-on-pay" votes on executive compensation and shareholder advisory votes on golden parachute compensation. We will remain an "emerging growth company" until the earliest of (i) the last day of the fiscal year during which we have total annual gross revenues of $1 billion or more; (ii) the last date of the fiscal year following the fifth anniversary of the date of the first sale of common stock under the Company's first filed registration statement; (iii) the date on which we have, during the previous three-year period, issued more than $1 billion in non-convertible debt; and (iv) the date on which we are deemed to be a "large accelerated filer" under the Exchange Act. We will be deemed a large accelerated filer on the first day of the fiscal year after the market value of our common equity held by non-affiliates exceeds $700 million, measured on October 31.
We cannot predict if investors will find our common stock less attractive to the extent we rely on the exemptions available to emerging growth companies. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may be more volatile.
In addition, Section 107 of the JOBS Act also provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. An emerging growth company can therefore delay the adoption of certain accounting standards until those standards would otherwise apply to private companies.
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A Company that elects to be treated as an emerging growth company shall continue to be deemed an emerging growth company until the earliest of (i) the last day of the fiscal year during which it had total annual gross revenues of $1,000,000,000 (as indexed for inflation), (ii) the last day of the fiscal year following the fifth anniversary of the date of the first sale of common stock under the Company's first filed registration statement; (iii) the date on which it has, during the previous 3-year period, issued more than $1,000,000,000 in non-convertible debt; or (iv) the date on which is deemed to be a 'large accelerated filer' as defined by the SEC, which would generally occur upon it attaining a public float of at least $700 million.
However, we are choosing to "opt out" of such extended transition period, and as a result, we will comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for non-emerging growth companies. Section 107 of the JOBS Act provides that our decision to opt out of the extended transition period for complying with new or revised accounting standards is irrevocable.
Our independent auditors have expressed substantial doubt about our ability to continue as a going concern.
Alpine 4 has incurred net losses of $17,436,455 since inception through December 31, 2016. This net loss was primarily driven in 2015 by stock issuance to employees. Because we have yet to attain profitable operations, in their report on our financial statements for the period ended December 31, 2016, our independent auditors included an explanatory paragraph regarding their substantial doubt about our ability to continue as a going concern. While we believe we will have net operating gains beginning in the second quarter of 2017, there can be no guarantee that we will be able to achieve these net operating gains. Our ability to continue as a going concern is subject to our ability to generate a profit and/or obtain necessary funding from outside sources, including obtaining additional funding from the sale of our securities, increasing sales or obtaining loan from various financial institutions where possible. Our net operating losses increase the difficulty in meeting such goals and there can be no assurances that such methods will prove successful. Our financial statements contain additional note disclosures describing the management's assessment of our ability to continue as a going concern.
Management of Alpine 4 cannot guarantee that Alpine 4 will continue to generate revenues which could result in a total loss of the value of your investment if it is unsuccessful in its business plans.
Alpine 4 has generated only limited revenues during its history. Additionally, there can be no assurance that Alpine 4 will be able to continue to generate revenues or that revenues will be sufficient to maintain its business. As a result, investors or shareholders could lose all of their investment if Alpine 4 is not successful in its proposed business plans.
Alpine 4's needs could exceed the amount of time or level of experience its officers and directors may have. Alpine 4 will be dependent on key executives, and the loss of the services of the current officers and directors could severely impact Alpine 4's business operations.
Alpine 4's business plan does not provide for the hiring of any additional employees other than outlined in its plan of operations until sales will support the expense. Until that time, the responsibility of developing Alpine 4's business and fulfilling the reporting requirements of a public company will fall upon the officers and the directors. In the event they are unable to fulfill any aspect of their duties to Alpine 4, it may experience a shortfall or complete lack of sales resulting in little or no profits and eventual closure of our business.
Additionally, the management of future growth will require, among other things, continued development of Alpine 4's financial and management controls and management information systems, stringent control of costs, increased marketing activities, and the ability to attract and retain qualified management, research, and marketing personnel. The loss of key executives or the failure to hire qualified replacement personnel would compromise Alpine 4's ability to generate revenues or otherwise have a material adverse effect on Alpine 4. There can be no assurance that Alpine 4 will be able to successfully attract and retain skilled and experienced personnel.
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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 Alpine 4 has shown a net loss since inception, ownership of Alpine 4 shares is highly risky and could result in a complete loss of the value of your investment if Alpine 4 is unsuccessful in its business plans.
Based upon current plans, Alpine 4 expects to incur operating losses in future periods as it incurs significant expenses associated with the growth of its business. Further, there is no guarantee that it will be successful in realizing future revenues or in achieving or sustaining positive cash flow at any time in the future. Any such failure could result in the possible closure of its business or force Alpine 4 to seek additional capital through loans or additional sales of its equity securities to continue business operations, which would dilute the value of any shares you receive in connection with the Share Exchange.
Growth and development of operations will depend on the acceptance of Alpine 4's proposed businesses. If Alpine 4's products are not deemed desirable and suitable for purchase and it cannot establish a customer base, it may not be able to generate future revenues, which would result in a failure of the business and a loss of the value of your investment.
The acceptance of Alpine 4's automotive products, and specifically the LotWatch and ServiceWatch products (now called 6th Sense Auto) purchased from AutoTek, is critically important to our success. Alpine 4 cannot be certain that the services that it will be offering will be appealing and as a result there may not be any demand for these products and its sales could be limited and it may never realize any revenues. In addition, there are no assurances that if we alter or change the products we offer in the future that the demand for these new products will develop and this could adversely affect our business and any possible revenues.
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If demand for the products Alpine 4 plans to offer slows, then its business would be materially affected, which could result in the loss of your entire investment.
Demand for products which we intend to sell depends on many factors, including:
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the number of customers Alpine 4 is able to attract and retain over time;
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the economy, and in periods of rapidly declining economic conditions, customers may defer purchases of new vehicles, which will impact the sales and deployment of products such as ours;
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the competitive environment in the automotive aftermarket product market may force us to reduce prices below our desired pricing level or increase promotional spending; and
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the ability to anticipate changes in consumer preferences and to meet customers' needs in a timely cost effective manner.
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For the long term, demand for the products we plan to offer may be affected by:
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the ability to establish, maintain and eventually grow market share in a competitive environment.
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delivery of its information globally, geopolitical changes, changes in liquor regulations, currency fluctuations, natural disasters, pandemics and other factors beyond our control may increase the cost of items it purchases, create communication issues or render product delivery difficult which could have a material adverse effect on its sales and profitability.
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All of these factors could result in immediate and longer term declines in the demand for the products we plan to offer, which could adversely affect our sales, cash flows and overall financial condition. Holders of Alpine 4 Common Stock could lose their entire investment as a result.
Alpine 4 has limited management resources, and will be dependent on key executives. The loss of the services of the current officers and directors could severely impact Alpine 4's business operations and future development, which could result in a loss of revenues and adversely impact the ability to ever sell any Exchange Shares received through participation in the Share Exchange.
Alpine 4 is relying on a small number of key individuals to implement its business and operations and, in particular, the professional expertise and services of Kent B. Wilson, our President, Chief Executive Officer, and Secretary, David Schmitt, our Chief Financial Officer, and Charles Winters, our Chairman of the Board of Directors. 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 and Mr. Schmitt. If they choose not to serve as officers or if they are unable to perform their duties, this could have an adverse effect on Company business operations, financial condition and operating results if we are unable to replace Mr. Wilson, Mr. Schmitt or Mr. Winters with other individuals qualified to develop and market our business. The loss of their services could result in a loss of revenues, which could result in a reduction of the value of any ownership of Alpine 4.
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Competition that Alpine 4 faces is varied and strong.
Alpine 4's subsidiaries' products and industries as a whole are subject to competition. There is no guarantee that we can sustain our market position or expand our business.
We compete with a number of entities in providing products to our customers. Such competitor entities include a variety of large nationwide corporations, including but not limited to public entities and companies that have established loyal customer bases over several decades.
Many of our current and potential competitors are well established and have significantly greater financial and operational resources, and name recognition than we have. As a result, these competitors may have greater credibility 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:
o
|
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;
|
o
|
Our ability to anticipate changes in consumer preferences and to meet customers' needs for our products in a timely cost effective manner; and
|
o
|
Our ability to establish, maintain and eventually grow market share in these competitive environments.
|
Our revenue growth rate depends primarily on our ability to satisfy relevant channels and end-customer demands, identify suppliers of our necessary ingredients and to coordinate those suppliers, all subject to many unpredictable factors.
We may not be able to identify and maintain the necessary relationships with suppliers of product and services as planned. Delays or failures in deliveries could materially and adversely affect our growth strategy and expected results. As we supply more customers, our rate of expansion relative to the size of such customer base will decline. In addition, one of our biggest challenges is securing an adequate supply of suitable product. Competition for product is intense, and commodities costs subject to price volatility.
11
Our ability to execute our business plan also depends on other factors, including:
o
|
ability to keep satisfied vendor relationships
|
o
|
hiring and training qualified personnel in local markets;
|
o
|
managing marketing and development costs at affordable levels;
|
o
|
cost and availability of labor;
|
o
|
the availability of, and our ability to obtain, adequate supplies of ingredients that meet our quality standards; and
|
o
|
securing required governmental approvals in a timely manner when necessary.
|
Risks Related to Our Common Stock
Alpine 4 stockholders, and others who choose to purchase shares of Alpine 4 common stock if and when offered, may have difficulty in reselling their shares due to the limited public market or state Blue Sky laws.
Our common stock is currently quoted on the OTC market. Current Alpine 4 stockholders and persons who desire to purchase them in any trading market should be aware that there might be additional significant state law restrictions upon the ability of investors to resell our shares. Accordingly, investors should consider any secondary market for our securities to be a limited one.
Sales of our common stock under Rule 144 could reduce the price of our stock.
Under Rule 144 affiliates of Alpine 4 may not sell more than one percent of the total issued and outstanding shares in any 90-day period and must resell the shares in an unsolicited brokerage transaction at the market price. If substantial amounts of our common stock become available for resale under Rule 144 once a market has developed for our common stock, the then-prevailing market prices for our common stock may be reduced.
We may, in the future, issue additional securities, which would reduce our stockholders' percent of ownership and may dilute our share value.
Our Certificate of Incorporation, as amended to date, authorizes us to issue 500,000,000 shares of Class A common stock, and 100,000,000 shares of Class B common stock. As of the date of this Annual Report, we had 21,891,852 shares of Class A common stock outstanding, and 1,600,000 shares of Class B common stock outstanding. Accordingly, we may issue up to an additional 478,108,148 shares of Class A common stock, and an additional 98,400,000 shares of Class B common stock. The future issuance of additional shares of Class A common stock may 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.
12
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.
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;
|
·
|
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.
|
13
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 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.
14
ITEM 1B. UNRESOLVED STAFF COMMENTS.
Not applicable to Smaller Reporting Companies.
ITEM 2. PROPERTIES.
Alpine 4 maintains our corporate office in rented offices at 4742 N. 24th Street, Suite 300, Phoenix, AZ 85016. The monthly rent obligation is approximately $3,600 per month.
QCA rents a location at 1709 Junction Court #380 San Jose, CA 95112. The monthly rent obligation is approximately $27,500 per month.
HWT owns properties at 3635 E Hwy #270 McAlester, OK 74502 and 27274 CR 460 Alva, OK 73717. They also rent a location at 510 ½ W Second Street Watonga, OK 73772. The monthly rent obligation is approximately $1,500 per month.
ITEM 3. LEGAL PROCEEDINGS.
None.
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 OTC QB Market under the symbol ALPP. As of the date of this Report, the share price was $1.05/share with limited volume. Alpine 4 plans to work with a market maker and other professionals to drive trading volume and interest in the stock.
Shareholders
As of the date of this Report, Alpine 4 had 402 shareholders of record.
15
Dividends
Alpine 4 has not declared any cash dividends on its common stock since inception. 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.
Director Independence
Alpine 4 is not required by any outside organization (such as a stock exchange or trading facility) to have independent directors.
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.
Recent Sales of Unregistered Securities
Private Offerings of Shares
During the quarter ended December 31, 2016 (Successor), the Company had no sales of the Company's Class A common stock.
Issuance of Equity Securities in Horizon Transaction
In connection with the acquisition of Horizon Well Testing, L.L.C. ("HWT"), described in more detail above under "Recent Developments," Alpine 4 purchased all of the outstanding stock of HWT (the "HWT Stock") from Alan Martin (the "Seller"). The purchase price paid by Alpine 4 for the HWT Stock consisted of cash, a note, a convertible note, and securities consideration. The "Cash Consideration" paid was $2,200,000. The "Note" consisted of a secured note in the amount of $300,000, secured by a subordinated security interest in the assets of HWT. The Note bears interest at 1% and will be payable in full by April 30, 2017. The "Convertible Note" consisted of a secured convertible note in the amount of $1,500,000, secured by a subordinated security interest in the assets of HWT. The HWT Seller has the opportunity to convert the Convertible Note into shares of Alpine 4's Class A common stock at a conversion price of $8.50 after a restricted period according to securities laws. The Convertible Note bears interest at 5% and is payable in full with a balloon payment on the 18-month anniversary of the closing date of the transaction with no monthly payments. The "Securities" consisted of two components, an aggregate of 379,403 shares of alpine 4s Class A common stock issued to the Seller, and a warrant to purchase an additional 75,000 shares of Class A common stock.
The Note, the Convertible Note, and the Securities was issued to the Seller pursuant to a share exchange agreement with the Seller, in which the Seller made certain representations and warranties, including that he was an accredited investor, that he was acquiring the securities for his own account and not for the account of another, that he was acquiring the securities for investment purposes and not with a view to distribute the securities acquired, and that he had sufficient knowledge and experience in financial and business matters to evaluate the merits and risks of an investment in the Company. As such, the securities were issued to the Seller without registration under the 1933 Act in reliance on Section 4(a)(2) of the 1933 Act and the rules and regulations promulgated thereunder. The Horizon transaction did not involve a public offering.
16
Stock Options to Employees and Consultants
On April 7, 2017, the Company issued 741,500 options to purchase shares of the Company's Class A common stock to 34 employees and consultants of the Company. The options were issued pursuant to the Company's 2016 Stock Option and Stock Award Plan (the "Plan"). The options granted vest over the next four years and the exercise price of the options granted was $0.90, which was the last closing bid price of the Company's common stock as traded on the OTC QB Market.
The Company provided to each of the recipients of the Options copies of the Company's public filings including the financial information and other disclosures about the Company. The options were issued to the recipients without registration under the 1933 Act in reliance on Section 4(a)(2) of the 1933 Act and rules and regulations promulgated thereunder. The issuance of the options did not involve a public offering of the Company's securities.
ITEM 6. SELECTED FINANCIAL DATA.
Not required for Smaller Reporting Companies.
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 to update or revise any forward-looking statements.
Overview and Highlights
Company Background
Alpine 4 Technologies Ltd. (the "Company") was incorporated under the laws of the State of Delaware on April 22, 2014. The Company was formed to serve as a vehicle to affect an asset acquisition, merger, exchange of capital stock, or other business combination with a domestic or foreign business. As of the date of this Report, the Company is a technology holding company owning three companies (ALTIA, LLC; Quality Circuit Assembly, Inc. ("QCA"); and Horizon Well Testing, LLC). For 2016, QCA made up most of the revenue for the consolidated financial statements. Horizon Well Testing was not acquired until January 1, 2017, so it is not combined in our 2016 or 2015 financial statements.
17
The Company owns no real estate or personal property. The Company selected December 31 as its fiscal year end.
Business Strategy
Alpine 4's strategy is to provide Fortune 500-level execution strategies in its subsidiary companies and market segments to businesses and companies that have the most to benefit from this access.
Alpine 4 feels this opportunity exists in smaller middle market operating companies with revenues between $5 to $150 million. In this target rich environment, businesses generally sell at more reasonable multiples, presenting greater opportunities for operational and strategic improvements and have greater potential for growth. Implementation of our strategy within our holdings is accomplished by the offering of strategic and tactical MBA-level training and development, delivered via the following modules:
-
|
Alpine 4 Mini MBA program; and
|
-
|
An Alpine 4 developed ERP (Enterprise Resource Planning system) and collaboration system called SPECTRUMebos. SPECTRUMebos is what we are defining as an Enterprise Business Operating System (ebos). This system will combine the key technology software components of Accounting and Financial Reporting, an Enterprise Resource Planning System (ERP), a Document Management System (DMS), a Business Intelligence (BI) platform and a Customer Resource Management (CRM) hub which will be tethered to management reporting and collaboration toolsets. Management believes that these tools will help drive real-time information in two directions: first, to the front lines by empowering customer-facing stakeholders; and second, back to management for planning, problem solving, and integration. Management believes that SPECTRUMebos will be the technology "secret sauce" in managing our portfolio of companies and, in time, will be an offering to external customers.
|
All great strategies must have trades offs. Therefore, Alpine 4 avoids companies that have unionized employees, businesses that have more than $150 million in revenue and companies that reside in highly regulated business industries.
Business Seasonality and Product Introductions
Following the acquisition of the Quality Circuit Assembly, Inc. and Horizon Well Testing, LLC and with the newly acquired dealership pilot and contract for ALTIA, LLC, the Company expects to experience higher net sales in its second and third quarters compared to other quarters in its fiscal year. Each company has varying seasonality to their sales and will be reflected in the financial statements.
Going Concern
The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company has incurred losses since inception and had accumulated a deficit of $17,436,455 as of December 31, 2016. The Company requires capital for its contemplated operational and marketing activities. The Company's ability to raise additional capital through the future issuances of common stock is unknown. The obtainment of additional financing, the successful development of the Company's contemplated plan of operations, and its transition, ultimately, to the attainment of profitable operations are necessary for the Company to continue operations. The ability to successfully resolve these factors raise substantial doubt about the Company's ability to continue as a going concern. The financial statements of the Company do not include any adjustments that may result from the outcome of these aforementioned uncertainties. However, management believes we will have net operating gains beginning in the second quarter of 2017 and our ability to continue as a going concern is subject to our ability to generate a profit and/or obtain necessary funding from outside sources, including obtaining additional funding from the sale of our securities, increasing sales or obtaining loan from various financial institutions where possible. Our net operating losses increase the difficulty in meeting such goals and there can be no assurances that such methods will prove successful. Our financial statements contain additional note disclosures describing the management's assessment of our ability to continue as a going concern.
In order to mitigate the risk related with this uncertainty, the Company plans to issue additional shares of common stock for cash and services during the next 12 months.
18
Results of Operations
Explanatory Note
The consolidated financial statements included in this Annual Report are presented under predecessor entity reporting and because the Company, as the acquiring entity in the QCA Transaction, had nominal operations as compared with the acquired company, QCA, prior historical information of the acquirer is not presented.
This new basis of accounting was created on April 1, 2016, the effective date for financial reporting purposes of the stock purchase agreement. In the following discussion, the results of the operations and cash flows for the periods ended on or prior to March 31, 2016, and the financial position of QCA as of balance sheet date on or prior to March 31, 2016 are referred to as "Predecessor" financial information, and the results of operations and cash flows of the Company for periods beginning April 1, 2016 and the financial position of the Company as of April 1, 2016 and subsequent balance sheet dates are referred to herein as "Successor" consolidated financial information.
Financial statements and information are presented for the twelve months ended December 31, 2015 (Predecessor), and the nine months ended December 31, 2016 (Successor). Due to this there is some lack of comparability.
Revenue
Our revenues for the year ended December 31, 2015 (Predecessor) and for the nine months ended December 31, 2016 (Successor), were $7,513,844 and $6,072,384, respectively. We expect our revenue to grow significantly over the next 12 months. Management's expectations of growth in revenues is based on multiple areas. First, management believes that its contacts within the automobile dealership industry, and the anticipated increase in interest in Alpine 4's products and services as Alpine 4 increases its advertising and brand and product/service awareness campaigns will produce increased revenues as the Company engages more dealerships with the Alpine 4 products. Second, management anticipates continued growth of QCA through new customers and internal growth. Third, management plans to continue the Company's focus on finding and acquiring companies.
Cost of Revenue
Our cost of revenues for the year ended December 31, 2015 (Predecessor), and for the nine months ended December 31, 2016 (Successor), were $5,736,354 and $4,239,850, respectively. We expect our cost of revenue to increase over the next 12 months as our revenue increases.
General and administrative expenses
Our general and administrative expenses for the year ended December 31, 2015 (Predecessor), and for the nine months ended December 31, 2016 (Successor), were $1,404,526 and $3,847,876, respectively. For the year ended December 31, 2015 (Predecessor), and for the nine months ended December 31, 2016 (Successor), $0 and $1,866,039 of our general and administrative expenses were non-cash expenses related to the issuance of our common stock for services, of which $1,275,000 was for employees. The significant increase in general and administrative expenses is due to the issuance of common stock for services and the expansion of our business in 2016. We expect that our general and administrative expenses will increase significantly over the next 12 months as we ramp up our operations. As we increase our advertising and brand and product/service awareness campaigns and as we hire additional personnel as needed and as operations permit, management anticipates that such actions will result in significantly increased expenses to the Company. The addition of more dealerships also will increase expenses relating to installations, customer management, and operational costs.
19
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 by selling shares of our common stock and by generating income from the sale of our products. As noted above, management's expectations of growth in revenues is based on management's contacts within the automobile dealership industry, and the anticipated increase in interest in Alpine 4's products and services as Alpine 4 increases its advertising and brand and product/service awareness campaigns. Additionally, management anticipates that the new campaigns will result in the Company's adding new dealerships in 2017.
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, as of the date of this Report, the Company was in negotiations to acquire additional businesses, which management believes 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, or at all.
The Company also may elect to seek bank financing or to engage in debt financing through a placement agent. If the Company is unable to raise sufficient capital from operations or through sales of its securities or other means, we may need to delay implementation of our business plans.
Contractual Obligations
Our significant contractual obligations as of December 31, 2016, were as follows:
|
Payments due by Period
|
|||||||||||||||||||
|
Less than
One Year
|
One to
Three Years
|
Three to
Five Years
|
More Than
Five Years
|
Total
|
|||||||||||||||
Notes payable, related parties
|
$
|
205,000
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
205,000
|
||||||||||
Notes payable, non-related parties
|
1,332,031
|
107,270
|
39,809
|
1,479,110
|
||||||||||||||||
Convertible notes payable
|
254,780
|
1,760,198
|
2,014,978
|
|||||||||||||||||
Interest on notes
|
19,262
|
19,262
|
||||||||||||||||||
Total
|
$
|
1,811,073
|
$
|
1,867,468
|
$
|
39,809
|
$
|
-
|
$
|
3,718,350
|
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.
20
Critical Accounting Policies and Estimates
The preparation of financial statements and related disclosures in conformity with U.S. generally accepted accounting principles ("U.S. GAAP") and the Company's discussion and analysis of its financial condition and operating results require the Company's management to make judgments, assumptions, and estimates that affect the amounts reported in its condensed consolidated financial statements and accompanying notes. Note 2, "Summary of Significant Accounting Policies," of this Form 10-K describes the significant accounting policies and methods used in the preparation of the Company's condensed consolidated financial statements. Management bases its estimates on historical experience and on various other assumptions it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Actual results may differ from these estimates and such differences may be material.
Management believes the Company's critical accounting policies and estimates are those related to revenue recognition and inventory valuation. Management considers these policies critical because they are both important to the portrayal of the Company's financial condition and operating results, and they require management to make judgments and estimates about inherently uncertain matters.
Revenue Recognition
ALTIA
The Company accounts for its revenue per the guidance in Accounting Standards Codification ("ASC") 605-25-25 by allocating the total contract amount between the product and service elements. When a vehicle is sold to the driving consumer who purchases the 6th Sense Auto service, the cost of the service is added to the price of the car and the amount collected by the dealership for this service is remitted to the Company. At the time of the vehicle is purchased, the Company recognizes the service portion of the contract over the service period of generally 12 to 36 months.
Quality Circuit Assembly
The Company accounts for its revenue per the guidance in ASC 605-25-25 by allocating the total contract amount between the product and service elements. Revenue is recognized when either the product has completely been built and shipped or the service has been completed. If a deposit for product or service is received prior to completion the payment is recorded to deferred revenue until such point the product or services meets our revenue recognition policy. There is an implied warranty on all our services and production. If a customer is unsatisfied with our work then we will redo the work until the customer is satisfied. Any returns are credited to the customer until the rework is completed and then reinvoiced to the customer. Management assess the materiality and likelihood of warranty work and records reserves as needed. For all periods presented the warrant reserve assessment was immaterial.
Principles of consolidation
The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries as of December 31, 2016 (Successor), and December 31, 2015 (Predecessor). Significant intercompany balances and transactions have been eliminated.
Basis of presentation
The accompanying financial statements present the balance sheets, statements of operations, stockholders' deficit and cash flows of the Company. The financial statements have been prepared in accordance with U.S. GAAP.
21
Use of estimates
The preparation of financial statements in conformity with U.S. GAAP requires the Company to make estimates and judgments that affect the reported amounts of assets and liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities. These estimates and judgments are based on historical information, information that is currently available to the Company and on various other assumptions that the Company believes to be reasonable under the circumstances. Actual results could differ from those estimates.
Advertising
Advertising costs are expensed when incurred. All advertising takes place at the time of expense. We have no long-term contracts for advertising. Advertising expense for all periods presented were under $10,000.
Cash
Cash and cash equivalents consist of cash and short-term investments with original maturities of less than 90 days. Cash equivalents are placed with high credit quality financial institutions and are primarily in money market funds. The carrying value of those investments approximates fair value. As of December 31, 2016 (Successor) and 2015 (Predecessor), the Company had no cash equivalents.
Major Customers
For all periods presented the Company had two customers that made up approximately 50% of total revenues. All other customers were less than 10% each of total revenues in each period.
For all periods presented the Company had two customers that made up approximately 50% of outstanding accounts receivable. All other customers were less than 10% each of total accounts receivable for each period presented.
Accounts Receivable
The Company maintains reserves for potential credit losses on accounts receivable. Management reviews the composition of accounts receivable and analyzes historical bad debts, customer concentrations, customer credit worthiness, current economic trends and changes in customer payment patterns to evaluate the adequacy of these reserves. Reserves are recorded primarily on a specific identification basis. As of December 31, 2016 and 2015, we had no allowance for bad debt.
Inventory
Inventory is valued at the lower of the inventory's cost (weighted average basis) or the current market price of the inventory. Management compares the cost of inventory with its market value and an allowance is made to write down inventory to market value, if lower. Inventory is segregated into four areas, raw materials, WIP, finished goods, and In-Transit. Below is a breakdown of how much inventory is in each area as of December 31, 2016 (Successor), and December 31, 2015 (Predecessor).
Dec 31, 2016 (Successor)
|
Dec 31, 2015 (Predecessor)
|
|||||||
Raw materials
|
527,599
|
391,845
|
||||||
WIP
|
193,525
|
351,697
|
||||||
Finished goods
|
195,990
|
192,820
|
||||||
In Transit
|
13,000
|
13,000
|
||||||
|
$
|
930,114
|
$
|
949,362
|
22
Property and Equipment
Property and equipment are carried at cost less depreciation. Depreciation and amortization are provided principally on the straight-line method over the estimated useful lives of the assets, which range from ten years to 39 years as follows:
Buildings
|
39 years
|
Leasehold Improvements
|
15 years or time remaining on lease (whichever is shorter)
|
Equipment
|
10 years
|
Maintenance and repair costs are charged against income as incurred. Significant improvements or betterments are capitalized and depreciated over the estimated life of the asset.
Purchased Intangibles and Other Long-Lived Assets
The Company amortizes intangible assets with finite lives over their estimated useful lives, which range between five and fifteen years as follows:
Customer List
|
15 years
|
Non-compete agreements
|
5 years
|
Software development
|
5 years
|
Impairment of Intangibles
The Company evaluates intangible assets for impairment on a yearly basis or as needed. During the nine months ended December 31, 2016 (Successor), the period from January 1, 2016 through March 31, 2016 (Predecessor), and the twelve months ended December 31, 2015 (Predecessor), there have been no impairment losses.
Impairment of Long-Lived Assets
The Company accounts for long-lived assets in accordance with the provisions of the Financial Accounting Standards Board ("FASB") Topic 360, "Accounting for the Impairment of Long-Lived Assets". This statement requires that long-lived assets and certain identifiable intangibles be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. An impairment loss would be recognized when the estimated future cash flows from the use of the asset are less than the carrying amount of that asset. During the nine months ended December 31, 2016 (Successor), the period from January 1, 2016 through March 31, 2016 (Predecessor), and the twelve months ended December 31, 2015 (Predecessor), there have been no impairment losses.
Goodwill
In financial reporting, goodwill is not amortized, but is tested for impairment annually in the fourth quarter of the fiscal year or whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Events that result in an impairment review include significant changes in the business climate, declines in our operating results, or an expectation that the carrying amount may not be recoverable. We assess potential impairment by considering present economic conditions as well as future expectations. All assessments of goodwill impairment are conducted at the individual reporting unit level. As of December 31, 2016 the only reporting unit with goodwill was QCA.
23
The Company used qualitative factors according to ASC 350-20-35-3 to determine whether it is more likely than not that the fair value of goodwill is less than its carrying amount. Based on the qualitative criteria, the Company believes there not to be any triggers for potential impairment of goodwill and therefore, the Company has recorded no impairment of goodwill in any period presented.
Fair Value Measurement
The Company's financial instruments consist of cash and cash equivalents, accounts receivable, accounts payable, accrued expenses, convertible notes, notes and line of credit. The carrying amount of these financial instruments approximates fair value due either to length of maturity or interest rates that approximate prevailing market rates unless otherwise disclosed in these financial statements.
Leases
Leases are reviewed by management and examined to see if they are required to be categorized as an operating lease, a capital lease or a financing transaction.
Earnings (loss) per share
Basic earnings (loss) per common share is computed by dividing net income (loss) available to common shareholders by the weighted-average number of shares of common stock outstanding during the period. Diluted earnings per common share is computed by dividing income available to common shareholders by the weighted-average number of shares of common stock outstanding during the period increased to include the number of additional shares of common stock that would have been outstanding if potentially dilutive securities had been issued. The only potentially dilutive securities outstanding during the periods presented were the convertible debentures, but they are anti-dilutive due to the net loss incurred. All earnings (loss) per common share have been adjusted retroactively for periods presented to reflect changes in number of shares as a result of the reverse stock split amount.
Stock-based compensation
The Company accounts for equity instruments issued in exchange for the receipt of goods or services from other than employees in accordance with FASB ASC 718-10, Compensation – Stock Compensation, and the conclusions reached by FASB ASC 505-50, Equity – Equity-Based Payments to Non-Employees. Costs are measured at the estimated fair market value of the consideration received or the estimated fair value of the equity instruments issued, whichever is more reliably measurable. The value of equity instruments issued for consideration other than employee services is determined on the earliest of a performance commitment is reached or completion of performance by the provider of goods or services as defined by FASB ASC 505-50.
24
Income taxes
The Company records income taxes under the asset and liability method, whereby deferred tax assets and liabilities are recognized based on the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, and attributable to operating loss and tax credit carry forwards. Accounting standards regarding income taxes requires a reduction of the carrying amounts of deferred tax assets by a valuation allowance, if based on the available evidence, it is more likely than not that such assets will not be realized. Accordingly, the need to establish valuation allowances for deferred tax assets is assessed at each reporting period based on a more-likely-than-not realization threshold. This assessment considers, among other matters, the nature, frequency and severity of current and cumulative losses, forecasts of future profitability, the duration of statutory carry forward periods, the Company's experience with operating loss and tax credit carry forwards not expiring unused, and tax planning alternatives.
The Company recorded valuation allowances on the net deferred tax assets. Management will reassess the realization of deferred tax assets based on the accounting standards for income taxes each reporting period. To the extent that the financial results of operations improve and it becomes more likely than not that the deferred tax assets are realizable, the Company will be able to reduce the valuation allowance.
Significant judgment is required in evaluating the Company's tax positions and determining its provision for income taxes. During the ordinary course of business, there are many transactions and calculations for which the ultimate tax determination is uncertain. Accounting standards regarding uncertainty in income taxes provides a two-step approach to recognizing and measuring uncertain tax positions. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount which is more than 50% likely, based solely on the technical merits, of being sustained on examinations. The Company considers many factors when evaluating and estimating its tax positions and tax benefits, which may require periodic adjustments and which may not accurately anticipate actual outcomes.
Embedded Conversion Features
The Company evaluates embedded conversion features within convertible debt under ASC 815 "Derivatives and Hedging" to determine whether the embedded conversion feature(s) should be bifurcated from the host instrument and accounted for as a derivative at fair value with changes in fair value recorded in earnings. If the conversion feature does not require derivative treatment under ASC 815, the instrument is evaluated under ASC 470-20 "Debt with Conversion and Other Options" for consideration of any beneficial conversion features.
Related Party Disclosure
FASB ASC 850, "Related Party Disclosures" requires companies to include in their financial statements disclosures of material related party transactions. The Company discloses all material related party transactions. Related parties are defined to include any principal owner, director or executive officer of the Company and any immediate family members of a principal owner, director or executive officer.
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.
25
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Dismissal of Anton & Chia, LLP
On December 10, 2015, the Board of Directors of Alpine 4 terminated the engagement of Anton & Chia, LLP ("Anton"), as the Company's independent certifying accountant. Other than an explanatory paragraph included in Anton's audit report for the Registrant's fiscal year ended December 31, 2014, relating to the uncertainty of the Registrant's ability to continue as a going concern, the audit report for fiscal year ended December 31, 2014, did not contain an adverse opinion or a disclaimer of opinion, nor was it qualified or modified as to uncertainty, audit scope or accounting principles. As described below, the change in independent public accounting firms is not the result of any disagreement with Anton.
Anton was appointed by the Board of Directors to be the auditor from inception of the Company, and provided an initial audit report dated May 7, 2014. There were no disagreements with Anton on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which, if not resolved to the satisfaction of Anton, would have caused Anton to make reference to the subject matter of the disagreements in connection with their report, and (2) there were no "reportable events" as that term is defined in Item 304(a)(1)(v) of Regulation S-K.
Appointment of Malone Bailey LLP
On December 10, 2015, the Company's Board of Directors approved the engagement of Malone Bailey LLP, of Houston, Texas ("Malone Bailey"), as the Company's independent registered public accounting firm.
The Company has not consulted with Malone Bailey during its two most recent fiscal years or during any subsequent interim period prior to its appointment as the Company's independent registered public accounting firm with respect to the application of accounting principles to a specified transaction, either completed or proposed, or the type of audit opinion that might be rendered on Registrant's financial statements, or any other matters or reportable events as defined in Items 304(a)(2)(i) and (ii) of Regulation S-K.
The Company disclosed the change in auditors in a Current Report on Form 8-K filed with the SEC on December 16, 2015.
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, 2016. 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.
2. Changes in Internal Control Over Financial Reporting
During the most recent fiscal year, we hired a full-time CFO to segregate duties from our Chief Executive Officer, Kent Wilson, and allow increase of controls over financial reporting. Our process for evaluating controls and procedures is continuous and encompasses constant improvement of the design and effectiveness of established controls and procedures and the remediation of any deficiencies which may be identified during this process. Upon hiring a full-time CFO, we implemented a monthly close process, segregation of duties and controls over cash and reporting.
26
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, 2016.
Areas of material weakness include:
·
|
segregation of duties
|
·
|
inadequate control activities
|
·
|
monitoring processes
|
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 effective as of December 31, 2016. 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.
27
ITEM 9B. OTHER INFORMATION
Not applicable.
PART III
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
|
44
|
President, Chief Executive Officer
|
Director
|
Charles Winters
|
39
|
N/A
|
Chairman of the Board
|
Scott Edwards
|
61
|
N/A
|
Director
|
Ian Kantrowitz
|
35
|
N/A
|
Director
|
David Schmitt
|
38
|
Chief Financial Officer
|
N/A
|
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.
On August 21, 2014, Mr. Wilson formed a corporation, WBK 1 Inc., a Delaware corporation. On September 17, 2014, WBK 1 Inc. filed a Form 10 with the U.S. Securities and Exchange Commission. WBK 1 Inc. is a "shell company" as defined in the rules of the SEC. Mr. Wilson was the Chief Executive Officer, Secretary, Treasurer and Director of WBK 1 Inc. from its inception through December 28, 2014, when he sold all of his ownership in WBK 1 to an unrelated third party. WBK 1 disclosed the change in ownership in a Current Report filed with the Commission on December 29, 2014. There is no relationship between Alpine 4, AutoTek, and WBK 1 Inc.
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.
28
Biographical Information for Scott Edwards
Mr. Edwards is automotive sales and marketing executive with over 19 years of experience in the automotive industry. He currently represents a large national automotive franchise distributorship and has extensive knowledge of the inner workings of the retail and wholesale automotive market.
Biographical Information for Ian Kantrowitz
As Director of Investor Relations, Mr. Kantrowitz is accountable for creating and presenting a consistently applied investment message to our shareholders and the investment community on behalf of Alpine 4. Furthermore, he is responsible for monitoring and presenting management with the opinions of the investment community regarding the company's performance.
Prior to joining the Alpine 4 team, Mr. Kantrowitz was a project manager for two major homebuilders in Phoenix, AZ, Continental Homes and Engle Homes. Mr. Kantrowitz has also been actively involved in the automotive industry where his in-depth knowledge of the auto industry lends a valuable perspective to our in-house product, 6th Sense Auto. Additionally, he was a top performing banker for Wells Fargo Bank, ranked number 5 in the country.
Biographical Information for David Schmitt
Mr. Schmitt, age 38, had been serving as the Company's VP of Finance and the Controller, prior to his appointment as the Company's new CFO. Over the past five years Mr. Schmitt has held roles as the VP of Finance for Alpine 4 Technologies, Ltd., Director of Accounting & Associate Director of Accounting for a $100,000,000+ for profit education company, and Accounting Manager for an automotive recycling company. Mr. Schmitt has an active CPA license from the Arizona State Board of Accountancy since May of 2013. He has his undergraduate degree in Finance from the University of Richmond and his Masters of Accountancy from University of Phoenix;
Our bylaws authorize no fewer than one director. We currently have four directors.
Term of office. Our directors are appointed for a one-year term to hold office until the next annual meeting of our shareholders or until removed from office in accordance with our bylaws. Our officers are appointed by our Board and hold office until removed by the Board.
Family relationships. There are no family relationships between or among the directors, executive officers or persons nominated or chosen by us to become directors or executive officers.
Director or officer involvement in certain legal proceedings. To the best of our knowledge, except as described below, during the past five years, none of the following occurred with respect to a present or former director or executive officer of the Company: (1) any bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time; (2) any conviction in a criminal proceeding or being subject to a pending criminal proceeding (excluding traffic violations and other minor offenses); (3) being subject to any order, judgment or decree, not subsequently reversed, suspended or vacated, of any court of any competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities or banking activities; and (4) being found by a court of competent jurisdiction (in a civil action), the Securities and Exchange Commission or the Commodities Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended or vacated.
29
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.
Section 16(a) beneficial ownership reporting compliance. 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, 2016, 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 2016:
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
|
2
|
None
|
||||||
Charles Winters, Director
|
1
|
1
|
None
|
||||||
Scott Edwards, Director
|
1
|
1
|
None
|
||||||
Ian Kantrowitz, Director
|
0
|
0
|
None
|
||||||
David Schmitt, CFO
|
1
|
0
|
None
|
ITEM 11. EXECUTIVE COMPENSATION.
Summary Compensation Table
Name and |
Salary
|
Bonus
|
Stock awards
|
Option awards
|
Nonequity incentive plan compensation
|
Nonqualified deferred compensation earnings
|
All other compensation
|
Total
|
|||||||||||||||||||||||||
principal position
|
Year
|
($)
|
($)
|
($)
|
($)
|
($)
|
($)
|
($)
|
($)
|
||||||||||||||||||||||||
(a)
|
(b)
|
(c)
|
(d)
|
(e)
|
(f)
|
(g)
|
(h)
|
(i)
|
(j)
|
||||||||||||||||||||||||
Kent Wilson, Chief Executive Officer (Principal Executive Officer)
|
2015
|
$
|
15,000
|
0
|
$
|
5,000,000
|
0
|
0
|
0
|
$
|
12,000
|
$
|
5,027,000
|
||||||||||||||||||||
2016 | $ | 120,000 | 0 | 0 | 0 | 0 | 0 | $ | 7,000 | $ | 127,000 | ||||||||||||||||||||||
David Schmitt, Chief Financial Officer
|
2016
|
$
|
31,538
|
$
|
0
|
$
|
680,000
|
0
|
0
|
0
|
$
|
0
|
$
|
711,538
|
|||||||||||||||||||
Terry Protto, VP of Portfolio Management
|
2016
|
$
|
93,281
|
$
|
0
|
$
|
425,000
|
0
|
0
|
0
|
$
|
29,960
|
$
|
548,241
|
30
Outstanding Equity Awards
As of December 31, 2016, the Company had 2,750 outstanding equity awards to members of the Advisory board. These represent the vested amount which have been expensed as of December 31, 2016.
Director Compensation
The following table sets forth the amounts paid to the Company's directors for their service as directors of the Company. 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
|
0
|
$
|
0
|
$
|
0
|
$
|
0
|
$
|
0
|
$
|
0
|
|||||||||||||||
Kent Wilson
|
$
|
0
|
0
|
$
|
0
|
$
|
0
|
$
|
0
|
$
|
0
|
$
|
0
|
|||||||||||||||
Charles Winters
|
$
|
0
|
0
|
$
|
0
|
$
|
0
|
$
|
0
|
$
|
0
|
$
|
0
|
|||||||||||||||
Scott Edwards
|
$
|
0
|
0
|
$
|
0
|
$
|
0
|
$
|
0
|
$
|
0
|
$
|
0
|
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 common stock as of April 14, 2017, (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:
-
|
21,891,852 shares of Alpine 4 Class A common stock outstanding as of April 14, 2017; and
|
|
|
-
|
1,600,000 shares of Alpine 4 Class B common stock outstanding as of April 14, 2017.
|
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.
31
Name and Address of beneficial owner (1)
|
Amount of
beneficial
ownership of
Class A
Common
Stock
|
Amount of
beneficial
ownership of
Class B
Common
Stock
|
Percentage
of Class A
Common
Stock (2)
|
Percentage of
Class B
Common Stock
|
Voting
Power (3)
|
|||||||||||||||
|
||||||||||||||||||||
Richard Battaglini, Former Chairman of the Board and Former President
|
1,303,231
|
0
|
5.95
|
%
|
0
|
%
|
3.44
|
%
|
||||||||||||
Richard Evans
515 W. Coliseum Blvd
Ft. Wayne, IN 46808
|
3,270,000
|
0
|
14.94
|
%
|
0
|
%
|
8.63
|
%
|
||||||||||||
Kent B. Wilson, Chief Executive Officer, Director(4)
|
2,431,689
|
1,000,000
|
11.11
|
%
|
62.50
|
%
|
32.81
|
%
|
||||||||||||
Scott Edwards, Director (5)
|
252,000
|
200,000
|
1.15
|
%
|
12.50
|
%
|
5.94
|
%
|
||||||||||||
Charles Winters, Director (6)
|
709,800
|
200,000
|
3.24
|
%
|
12.50
|
%
|
7.15
|
%
|
||||||||||||
Ian Kantrowitz, Director (7)
|
847,371
|
200,000
|
3.87
|
%
|
12.50
|
%
|
7.51
|
%
|
||||||||||||
David Schmitt, Chief Financial Officer
|
81,000
|
0
|
0.37
|
%
|
0
|
%
|
0.21
|
%
|
||||||||||||
All Officers and Directors As a Group (5 persons)
|
4,321,860
|
1,600,000
|
19.74
|
%
|
100.00
|
%
|
53.63
|
%
|
(1)
|
Except as otherwise indicated, the address of the stockholder is: Alpine 4 Technologies Ltd., 4742 N. 24th Street, Suite 300, Phoenix AZ 85016.
|
(2)
|
The percentages listed in the table are based on 21,891,852 shares of Alpine 4 Class A common stock outstanding as of April 14, 2017.
|
(3)
|
The Voting Power column includes the effect of shares of Class B common stock held by the named individuals, as indicated in the footnotes below. Each share of Class B common stock has 10 votes. The total voting power for each person is also explained in the footnotes below.
|
(4)
|
Mr. Wilson owned as of the date of this Report 2,431,689 shares of Class A common stock, and 1,000,000 shares of Class B common stock, which represents an aggregate of 12,431,689 votes, or approximately 32.81% of the voting power.
|
(5)
|
Mr. Edwards owned as of the date of this Report 252,000 shares of Class A Common Stock. Additionally, Mr. Edwards owned 200,000 shares of Alpine 4 Class B Common Stock which together with the Class A Common Stock will represent an aggregate of 2,252,200 votes, or approximately 5.94 % of the voting power.
|
(6)
|
Mr. Winters owned as of the date of this Report 709,800 shares of Class A Common Stock. Additionally, Mr. Winters owns 200,000 shares of Alpine 4 Class B Common Stock which together with the Class A Common Stock will represent an aggregate of 2,709,800 votes, or approximately 7.15% of the voting power.
|
(7)
|
Mr. Kantrowitz owned as of the date of this Report 847,371 shares of Class A Common Stock. Additionally, Mr. Kantrowitz owned 200,000 shares of Alpine 4 Class B Common Stock which together with the Class A Common Stock will represent an aggregate of 2,847,371 votes, or approximately 7.51% of the voting power.
|
(8)
|
Mr. Schmittt owned as of the date of this Report 81,000 shares of Class A Common Stock. Additionally, Mr. Schmitt owned 0 shares of Alpine 4 Class B Common Stock which together with the Class A Common Stock will represent an aggregate of 81,000 votes, or approximately .21% of the voting power
|
32
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Related Party Transactions
None.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Malone Bailey
As discussed above, on December 10, 2015, the Company's Board of Directors terminated the engagement of Anton & Chia, LLP ("Anton"), as the Company's independent certifying accountant, and approved the engagement of Malone Bailey LLP, of Houston, Texas ("Malone Bailey"), as the Company's independent registered public accounting firm for the year ended December 31, 2015.
Set forth below are the aggregate fees billed by Malone Bailey for professional services rendered for the year ended December 31, 2016.
Audit Fees
The fees for the audit and review services billed and to be billed by Malone Bailey for the period from January 1, 2016, to December 31, 2016 were $89,384.
Audit Related Fees
The fees for the audit related services billed and to be billed by Malone Bailey for the period from January 1, 2016, to December 31, 2016 were $51,139.
Tax Fees
The fees for the tax related services billed and to be billed by Malone Bailey for the period from January 1, 2016, to December 31, 2016 were $0.
Set below are aggregate fees billed by Malone Bailey for professional services rendered for the year ended December 31, 2015.
Audit Fees
The fees for the audit and review services billed and to be billed by Malone Bailey for the period from December 10, 2015, to December 31, 2015 were $17,500.
Audit Related Fees
The fees for the audit related services billed and to be billed by Malone Bailey for the period from December 10, 2015, to December 31, 2015 were $0.
Tax Fees
The fees for the tax related services billed and to be billed by Malone Bailey for the period from December 10, 2015, to December 31, 2015 were $0.
33
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
15(a)(1). Financial Statements.
ALPINE 4 TECHNOLOGIES LTD.
FINANCIAL STATEMENTS
DECEMBER 31, 2016 (SUCCESSOR) AND 2015 (PREDECESSOR)
Table of Contents
Page
|
||
Reports of Independent Registered Public Accounting Firms
|
||
Report of MaloneBailey, LLP
|
F-2
|
|
Financial Statements:
|
||
Consolidated Balance Sheets
|
F-3
|
|
Consolidated Statements of Operations
|
F-4
|
|
Consolidated Statements of Stockholders' Equity (Deficit)
|
F-5
|
|
Consolidated Statements of Cash Flows
|
F-6
|
|
Notes to Consolidated Financial Statements
|
F-7
|
34
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
Alpine 4 Technologies, Ltd.
Phoenix, Arizona
We have audited the accompanying consolidated balance sheet of Alpine 4 Technologies Ltd. and its subsidiaries (collectively, the "Company", or "Successor") as of December 31, 2016, and the related consolidated statements of operations, stockholders' deficit, and cash flows for the period from April 1, 2016 through December 31, 2016. We have also audited the accompanying balance sheet of Quality Circuit Assembly, Inc. (the "Predecessor") as of December 31, 2015 and the related statements of operations, stockholders' equity, and cash flows for the year then ended and for the period from January 1, 2016 through March 31, 2016. These consolidated financial statements are the responsibility of the entity's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform an audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Alpine 4 Technologies Ltd. and its subsidiaries as of December 31, 2016, and the consolidated results of their operations and their cash flows for the period from April 1, 2016 through December 31, 2016, in conformity with accounting principles generally accepted in the United States of America. Further, in our opinion, the Predecessor financial statements referred to above present fairly, in all material respects, the financial position of Quality Circuit Assembly, Inc. as of December 31, 2015 and the results of its operations and its cash flows for the year ended December 31, 2015 and for the period from January 1, 2016 through March 31, 2016.
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 3 to the consolidated financial statements, the Company has suffered recurring losses from operations and has a net capital deficiency that raises substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 3. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 3 to the consolidated financial statements, the Company has suffered recurring losses from operations and has a net capital deficiency that raises substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 3. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ MaloneBailey, LLP
www.malonebailey.com
Houston, Texas
April 14, 2017
F-1
ALPINE 4 TECHNOLOGIES, LTD. and SUBSIDIARIES
|
||||||||
CONSOLIDATED BALANCE SHEETS
|
||||||||
(Audited)
|
||||||||
Successor
|
Predecessor
|
|||||||
December 31,
2016
|
December 31,
2015
|
|||||||
ASSETS
|
||||||||
CURRENT ASSETS:
|
||||||||
Cash
|
$
|
209,494
|
$
|
365,221
|
||||
Accounts receivable
|
1,346,585
|
1,091,953
|
||||||
Inventory
|
930,114
|
949,362
|
||||||
Prepaid expenses and other current assets
|
39,734
|
12,193
|
||||||
Total current assets
|
2,525,927
|
2,418,729
|
||||||
Property and equipment, net
|
5,202,133
|
166,263
|
||||||
Intangible asset, net
|
757,528
|
-
|
||||||
Goodwill
|
1,963,761
|
-
|
||||||
Other non-current assets
|
688,204
|
-
|
||||||
Total non-current assets
|
8,611,626
|
166,263
|
||||||
TOTAL ASSETS
|
$
|
11,137,553
|
$
|
2,584,992
|
||||
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
|
||||||||
CURRENT LIABILITIES:
|
||||||||
Accounts payable
|
$
|
1,434,170
|
$
|
655,942
|
||||
Accrued expenses
|
299,043
|
116,984
|
||||||
Deferred Revenue
|
12,536
|
202,049
|
||||||
Deposits
|
12,509
|
-
|
||||||
Notes payable
|
1,332,031
|
19,940
|
||||||
Notes payable, related parties
|
205,000
|
10,000
|
||||||
Convertible notes payable, net of discount of $7,421 and $0
|
247,359
|
|||||||
Financing Lease Obligation
|
13,814
|
|||||||
Income Tax Payable
|
20,123
|
45,410
|
||||||
Total current liabilities
|
3,576,585
|
1,050,325
|
||||||
NON-CURRENT LIABILITIES:
|
||||||||
Long-term debt
|
147,079
|
39,522
|
||||||
Convertible notes payable
|
1,760,198
|
|||||||
Financing Lease Obligation
|
6,572,579
|
-
|
||||||
Deferred tax liability
|
287,153
|
21,560
|
||||||
Total non-current liabilities
|
8,767,009
|
61,082
|
||||||
TOTAL LIABILITIES
|
12,343,594
|
1,111,407
|
||||||
STOCKHOLDERS' EQUITY (DEFICIT):
|
||||||||
Preferred stock, $0.0001 par value, 5,000,000 shares authorized, none issued and outstanding
|
-
|
|||||||
Class A Common stock, $0.0001 par value, 500,000,000 shares authorized, 21,474,481 shares issued and outstanding
|
2,148
|
|||||||
Class B Common stock, $0.0001 par value, 100,000,000 shares authorized, 1,600,000 and 0 shares issued and outstanding
|
160
|
|||||||
Predecessor Common stock
|
240,000
|
|||||||
Additional paid-in capital
|
16,228,106
|
-
|
||||||
Dividends
|
-
|
(129,253
|
)
|
|||||
Accumulated earnings/(deficit)
|
(17,436,455
|
)
|
1,362,838
|
|||||
Total stockholders' equity/(deficit)
|
(1,206,041
|
)
|
1,473,585
|
|||||
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
|
$
|
11,137,553
|
$
|
2,584,992
|
The accompanying notes are an integral part of these audited consolidated financial statements.
F-2
ALPINE 4 TECHNOLOGIES, LTD. and SUBSIDIARIES
|
||||||||||||
CONSOLIDATED STATEMENTS OF OPERATIONS
|
||||||||||||
(Audited)
|
||||||||||||
Twelve month period
|
||||||||||||
Successor
|
Predecessor
|
|||||||||||
Period from
April, 1,
2016
to December 31,
2016
|
Period from
January, 1,
2016
to March 31,
2016
|
Twelve
Months Ended
December 31,
2015
|
||||||||||
Revenue
|
$
|
6,072,384
|
$
|
1,788,654
|
$
|
7,513,844
|
||||||
Cost of revenue (exclusive of depreciation)
|
4,239,850
|
1,383,031
|
5,736,354
|
|||||||||
Gross Profit
|
1,832,534
|
405,623
|
1,777,490
|
|||||||||
Operating expenses:
|
||||||||||||
General and administrative expenses
|
3,847,876
|
533,894
|
1,404,526
|
|||||||||
Depreciation
|
175,853
|
33,492
|
100,280
|
|||||||||
Amortization
|
56,626
|
-
|
-
|
|||||||||
Total operating expenses
|
4,080,355
|
567,386
|
1,504,806
|
|||||||||
Gain (Loss) from operations
|
(2,247,821
|
)
|
(161,763
|
)
|
272,684
|
|||||||
Other expenses
|
||||||||||||
Interest expense
|
959,308
|
456
|
2,064
|
|||||||||
Other expenses/(income)
|
(17,429
|
)
|
-
|
|||||||||
(Gain) on disposal of fixed assets
|
(34,062
|
)
|
||||||||||
Total other expenses
|
941,879
|
456
|
(31,998
|
)
|
||||||||
Gain (Loss) before income tax
|
(3,189,700
|
)
|
(162,219
|
)
|
304,682
|
|||||||
Income tax expense (benefit)
|
(52,694
|
)
|
(31,770
|
)
|
197,386
|
|||||||
Net gain/(loss)
|
$
|
(3,137,006
|
)
|
$
|
(130,449
|
)
|
$
|
107,296
|
||||
Weighted average shares outstanding :
|
||||||||||||
Basic
|
21,294,890
|
|||||||||||
Diluted
|
21,294,890
|
-
|
-
|
|||||||||
Loss per share
|
||||||||||||
Basic
|
$
|
(0.15
|
)
|
$ | $ | |||||||
Diluted
|
$
|
(0.15
|
)
|
$ | $ |
The accompanying notes are an integral part of these audited consolidated financial statements.
F-3
ALPINE 4 TECHNOLOGIES, LTD. and SUBSIDIARIES
|
||||||||||||||||||||||||||||
CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT
|
||||||||||||||||||||||||||||
Additional
|
Accumulated
|
Total
Stockholders'
|
||||||||||||||||||||||||||
Class A Common Stock
|
Class B Common Stock
|
Paid-in
|
Earnings/
|
Earnings/
|
||||||||||||||||||||||||
Shares
|
Amount
|
Shares
|
Amount
|
Capital
|
(Deficit)
|
(Deficit)
|
||||||||||||||||||||||
Dividends
|
(129,253
|
)
|
(129,253
|
)
|
||||||||||||||||||||||||
Net loss
|
107,296
|
107,296
|
||||||||||||||||||||||||||
Balance, December 31, 2015 (Predecessor)
|
240,000
|
240,000
|
-
|
-
|
(129,253
|
)
|
1,362,838
|
1,473,585
|
||||||||||||||||||||
Net loss
|
(130,449
|
)
|
(130,449
|
)
|
||||||||||||||||||||||||
Balance, March 31,2016 (Predecessor)
|
240,000
|
$
|
240,000
|
-
|
$
|
-
|
$
|
(129,253
|
)
|
$
|
1,232,389
|
$
|
1,343,136
|
|||||||||||||||
Alpine 4 Technologies, Ltd beginning balance
|
20,920,069
|
2,092
|
1,600,000
|
160
|
13,903,376
|
(14,299,449
|
)
|
(393,821
|
)
|
|||||||||||||||||||
Issue shares of common stock for cash
|
670
|
-
|
6,000
|
6,000
|
||||||||||||||||||||||||
Issue shares of common stock to consultants for services
|
66,784
|
7
|
591,032
|
591,039
|
||||||||||||||||||||||||
Issue shares of common stock for convertible note payable and accrued interest
|
336,938
|
34
|
336,903
|
336,937
|
||||||||||||||||||||||||
Issue shares of common stock to officers and directors for services
|
150,000
|
15
|
1,274,985
|
1,275,000
|
||||||||||||||||||||||||
Beneficial converstion feature associated with convertible notes
|
115,810
|
115,810
|
||||||||||||||||||||||||||
Adjustment for reverse stock split
|
20
|
-
|
||||||||||||||||||||||||||
Net loss
|
(3,137,006
|
)
|
(3,137,006
|
)
|
||||||||||||||||||||||||
Balance, December 31,2016
|
21,474,481
|
$
|
2,148
|
1,600,000
|
$
|
160
|
$
|
16,228,106
|
$
|
(17,436,455
|
)
|
$
|
(1,206,041
|
)
|
The accompanying notes are an integral part of these audited consolidated financial statements.
F-4
ALPINE 4 TECHNOLOGIES, LTD. and SUBSIDIARIES
|
||||||||||||
CONSOLIDATED STATEMENT OF CASH FLOWS
|
||||||||||||
(Audited)
|
||||||||||||
Twelve month period
|
||||||||||||
Successor
|
Predecessor
|
|||||||||||
Period from
April, 1,
2016 to
December 31,
2016
|
Period from
January, 1,
2016 to
March 31,
2016
|
Twelve Months
Ended
December 31,
2015
|
||||||||||
OPERATING ACTIVITIES:
|
||||||||||||
Net loss
|
$
|
(3,137,006
|
)
|
$
|
(130,449
|
)
|
$
|
107,296
|
||||
Adjustments to reconcile net loss to net cash used in operating activities:
|
||||||||||||
Depreciation
|
175,853
|
33,492
|
100,280
|
|||||||||
Amortization
|
56,626
|
-
|
-
|
|||||||||
(Gain) on distribution of fixed assets
|
-
|
-
|
(34,062
|
)
|
||||||||
Employee stock compensation
|
1,275,000
|
-
|
-
|
|||||||||
Stock issued for services
|
591,039
|
-
|
-
|
|||||||||
Amortization of debt issuance
|
8,447
|
-
|
-
|
|||||||||
Amortization of debt discounts
|
274,615
|
-
|
-
|
|||||||||
Change in current assets and liabilities:
|
||||||||||||
Accounts receivable
|
(187,411
|
)
|
47,578
|
(53,761
|
)
|
|||||||
Inventory
|
243,240
|
(14,062
|
)
|
(38,402
|
)
|
|||||||
Prepaids
|
(33,699
|
)
|
(41,040
|
)
|
854
|
|||||||
Accounts payable
|
256,937
|
16,468
|
149,982
|
|||||||||
Accrued expenses
|
203,246
|
56,723
|
(23,556
|
)
|
||||||||
Deferred tax
|
(59,157
|
)
|
(41,645
|
)
|
(150,498
|
)
|
||||||
Deferred revenue
|
11,538
|
-
|
202,049
|
|||||||||
Net cash provided by (used in) operating activities
|
(320,732
|
)
|
(72,935
|
)
|
260,182
|
|||||||
INVESTING ACTIVITIES:
|
||||||||||||
Capital expenditures
|
(267,401
|
)
|
-
|
(79,304
|
)
|
|||||||
Acquisition, net of cash acquired
|
(2,800,000
|
)
|
-
|
-
|
||||||||
Net cash used by investing activities
|
(3,067,401
|
)
|
-
|
(79,304
|
)
|
|||||||
FINANCING ACTIVITIES:
|
||||||||||||
Proceeds from issuances of notes payable, related party
|
175,000
|
-
|
45,000
|
|||||||||
Proceeds from issuances of notes payable, non-related party
|
3,630,631
|
-
|
-
|
|||||||||
Repaymentsof notes payable, non-related party
|
(2,482,825
|
)
|
-
|
-
|
||||||||
Repayments of notes payable, related party
|
(1,535
|
)
|
(10,000
|
)
|
(35,000
|
)
|
||||||
Repayments of convertible notes
|
(82,672
|
)
|
(59,461
|
)
|
(19,342
|
)
|
||||||
Proceeds from convertible notes payable
|
15,500
|
-
|
-
|
|||||||||
Proceeds from the sale of common stock
|
6,000
|
-
|
-
|
|||||||||
Net Proceeds from financing lease obligation, net of commissions and financing charges
|
2,704,260
|
-
|
-
|
|||||||||
Change in restricted cash
|
(641,537
|
)
|
-
|
-
|
||||||||
Cash paid for rent deposit on lease of building
|
(46,667
|
)
|
-
|
-
|
||||||||
Cash paid on financing lease obligation
|
(21,314
|
)
|
-
|
-
|
||||||||
Dividends
|
-
|
-
|
(30,605
|
)
|
||||||||
Net cash provided by (used in) financing activities
|
3,254,841
|
(69,461
|
)
|
(39,947
|
)
|
|||||||
NET INCREASE (DECREASE) IN CASH
|
(133,292
|
)
|
(142,396
|
)
|
140,931
|
|||||||
CASH, BEGINNING BALANCE
|
342,786
|
365,221
|
224,290
|
|||||||||
CASH, ENDING BALANCE
|
$
|
209,494
|
$
|
222,825
|
$
|
365,221
|
||||||
CASH PAID FOR:
|
||||||||||||
Interest
|
$
|
217,791
|
$
|
456
|
$
|
2,362
|
||||||
Income taxes
|
$
|
-
|
$
|
47,500
|
$
|
350,952
|
||||||
SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING ACTIVITIES:
|
||||||||||||
Common stock issued for convertible note payable and accrued interest
|
$
|
336,937
|
$
|
-
|
$
|
-
|
||||||
Issuance of note payable for acquisition of QCA
|
$
|
2,000,000
|
$
|
-
|
$
|
-
|
||||||
Purchase of building from lease proceeds
|
$
|
3,895,000
|
$
|
-
|
$
|
-
|
||||||
Debt discount from convertible note payable
|
$
|
115,810
|
$
|
-
|
$
|
-
|
||||||
Proceeds for refinancing of line of credit and notes payable paid dirctly to former lender
|
$
|
1,319,122
|
$
|
-
|
$
|
-
|
||||||
Distribution of fixed assets to owners
|
$
|
-
|
$
|
-
|
$
|
98,648
|
The accompanying notes are an integral part of these audited consolidated financial statements.
F-5
ALPINE 4 TECHNOLOGIES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016 (SUCCESSOR) AND 2015 (PREDECESSOR)
Note 1 – Description of Business
Alpine 4 Technologies Ltd. ("we" or the "Company") was incorporated under the laws of the State of Delaware on April 22, 2014. The Company was formed to serve as a vehicle to affect an asset acquisition, merger, exchange of capital stock, or other business combination with a domestic or foreign business. As of the date of this Report, the Company is a technology holding company owning three companies (ALTIA, LLC; Quality Circuit Assembly, Inc. ("QCA")_; and Horizon Well Testing, LLC). For 2016 QCA made up most of the revenue for the consolidated financials. Horizon Well Testing was not acquired until January 1, 2017, so it is not combined in our 2016 or 2015 financial statements.
Acquisition Reporting
As discussed in Note 9, the Company entered into a stock purchase transaction with QCA in which the Company purchased 100% of QCA's outstanding stock.
The consolidated financial statements herein are presented under predecessor entity reporting and because the acquiring entity had nominal operations as compared with the acquired company, QCA, prior historical information of the acquirer is not presented.
This new basis of accounting was created on April 1, 2016, the effective date for financial reporting purposes of the stock purchase agreement. In the following discussion, the results of the operations and cash flows for the periods ended on or prior to March 31, 2016, and the financial position of QCA as of balance sheet date on or prior to March 31, 2016 are referred to as "Predecessor" financial information, and the results of operations and cash flows of the Company for periods beginning April 1, 2016 and the financial position of the Company as of April 1, 2016 and subsequent balance sheet dates are referred to herein as "Successor" consolidated financial information.
Note 2 - Summary of Significant Accounting Policies
Principles of consolidation
The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries as of December 31, 2016 (Successor) and December 31, 2015 (Predecessor). Significant intercompany balances and transactions have been eliminated.
Basis of presentation
The accompanying financial statements present the balance sheets, statements of operations, stockholders' deficit and cash flows of the Company. The financial statements have been prepared in accordance with accounting principles generally accepted in the United States ("U.S. GAAP").
Use of estimates
The preparation of financial statements in conformity with U.S. GAAP requires the Company to make estimates and judgments that affect the reported amounts of assets and liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities. These estimates and judgments are based on historical information, information that is currently available to the Company and on various other assumptions that the Company believes to be reasonable under the circumstances. Actual results could differ from those estimates.
Advertising
Advertising costs are expensed when incurred. All advertising takes place at the time of expense. We have no long-term contracts for advertising. Advertising expense for all periods presented were under $10,000.
F-6
ALPINE 4 TECHNOLOGIES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016 (SUCCESSOR) AND 2015 (PREDECESSOR)
Cash
Cash and cash equivalents consist of cash and short-term investments with original maturities of less than 90 days. Cash equivalents are placed with high credit quality financial institutions and are primarily in money market funds. The carrying value of those investments approximates fair value. As of December 31, 2016 (Successor) and 2015 (Predecessor), the Company had no cash equivalents.
Major Customers
For all periods presented the Company had two customers that made up approximately 50% of total revenues. All other customers were less than 10% each of total revenues in each period.
For all periods presented the Company had two customers that made up approximately 50% of outstanding accounts receivable. All other customers were less than 10% each of total accounts receivable for each period presented.
Accounts Receivable
The Company maintains reserves for potential credit losses on accounts receivable. Management reviews the composition of accounts receivable and analyzes historical bad debts, customer concentrations, customer credit worthiness, current economic trends and changes in customer payment patterns to evaluate the adequacy of these reserves. Reserves are recorded primarily on a specific identification basis. As of December 31, 2016 and 2015, we had no allowance for bad debt.
Inventory
Inventory is valued at the lower of the inventory's cost (weighted average basis) or market. Management compares the cost of inventory with its market value and an allowance is made to write down inventory to market value, if lower. Inventory is segregated into four areas, raw materials, Work in Process (WIP), finished goods, and In-Transit. Below is a breakdown of how much inventory is in each area as of December 31, 2016 (Successor), and December 31, 2015 (Predecessor).
Inventory
|
||||||||
|
Dec 31, 2016 (Successor)
|
Dec 31, 2015 (Predecessor)
|
||||||
Raw materials
|
527,599
|
391,845
|
||||||
WIP
|
193,525
|
351,697
|
||||||
Finished goods
|
195,990
|
192,820
|
||||||
In Transit
|
13,000
|
13,000
|
||||||
|
$
|
930,114
|
$
|
949,362
|
F-7
ALPINE 4 TECHNOLOGIES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016 (SUCCESSOR) AND 2015 (PREDECESSOR)
Property and Equipment
Property and equipment are carried at cost less depreciation. Depreciation and amortization are provided principally on the straight-line method over the estimated useful lives of the assets, which range from ten years to 39 years as follows:
Buildings
|
39 years
|
Leasehold Improvements
|
15 years or time remaining on lease (whichever is shorter)
|
Equipment
|
10 years
|
Maintenance and repair costs are charged against income as incurred. Significant improvements or betterments are capitalized and depreciated over the estimated life of the asset.
Below is a table of Property and Equipment:
Property and Equipment
|
||||||||
Dec 31, 2016 (Successor)
|
Dec 31, 2015 (Predecessor)
|
|||||||
Machinery & Equipment
|
$
|
1,263,941
|
$
|
1,191,843
|
||||
Office furniture & fixtures
|
-
|
164,868
|
||||||
Building
|
3,895,000
|
-
|
||||||
Leasehold Improvements
|
219,045
|
-
|
||||||
Less: Accumulated Depreciation
|
(175,853
|
)
|
(1,190,448
|
)
|
||||
|
$
|
5,202,133
|
$
|
166,263
|
Purchased Intangibles and Other Long-Lived Assets
The Company amortizes intangible assets with finite lives over their estimated useful lives, which range between five and fifteen years as follows:
Customer List
|
15 years
|
Non-compete agreements
|
5 years
|
Software development
|
5 years
|
Below are tables for Intangibles and Other Long-Lived Assets:
Intangibles
|
||||||||
Dec 31, 2016 (Successor)
|
Dec 31, 2015 (Predecessor)
|
|||||||
Software
|
191,300
|
-
|
||||||
Non-compete
|
100,000
|
-
|
||||||
Customer List
|
531,187
|
-
|
||||||
Less: Accumulated Amortization
|
(64,959
|
)
|
-
|
|||||
|
$
|
757,528
|
$
|
-
|
F-8
ALPINE 4 TECHNOLOGIES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016 (SUCCESSOR) AND 2015 (PREDECESSOR)
Other Long-Lived Assets
|
||||||||
Dec 31, 2016 (Successor)
|
Dec 31, 2015 (Predecessor)
|
|||||||
Restricted Cash
|
$
|
630,270
|
$
|
-
|
||||
Deposits
|
57,934
|
-
|
||||||
|
$
|
688,204
|
$
|
-
|
Restricted cash consists of deposit account collateralizing letters of credit in favor of the counterparty in our lease financing obligation. Changes in restricted cash are reflected as financing activities because the cash is being used in conjunction with financing activities.
Impairment of Intangibles
The Company evaluates intangible assets for impairment on a yearly basis or as needed. During the nine months ended December 31, 2016 (Successor), the period from January 1, 2016 through March 31, 2016 (Predecessor) and the twelve months ended December 31, 2015 (Predecessor), there have been no impairment losses.
Gross Intangible Assets
|
||||||||||||||||||||
Weighted
Average
Amortization
Period
(Years)
|
December 31,
2015
(Predecessor)
|
Acquisitions
|
Impairment
Charges
|
December 31,
2016
(Successor)
|
||||||||||||||||
Software
|
5
|
-
|
191,300
|
-
|
191,300
|
|||||||||||||||
Non-compete
|
5
|
-
|
100,000
|
-
|
100,000
|
|||||||||||||||
Customer List
|
15
|
-
|
531,187
|
-
|
531,187
|
|||||||||||||||
|
-
|
822,487
|
-
|
822,487
|
Accumulated Amortization on Intangible Assets
|
||||||||||||
December 31,
2015
(Predecessor)
|
Amortization
|
December 31,
2016
(Successor)
|
||||||||||
Software
|
-
|
(33,332
|
)
|
(33,332
|
)
|
|||||||
Non-compete
|
-
|
(5,000
|
)
|
(5,000
|
)
|
|||||||
Customer List
|
-
|
(26,627
|
)
|
(26,627
|
)
|
|||||||
Total Accumulated Amortization
|
-
|
(64,959
|
)
|
(64,959
|
)
|
|||||||
|
||||||||||||
Intangible Assets, net of Amortization
|
-
|
757,528
|
F-9
ALPINE 4 TECHNOLOGIES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016 (SUCCESSOR) AND 2015 (PREDECESSOR)
5 Year Expected Amortization
|
||||||||||||||||||||||||
|
2017
|
2018
|
2019
|
2020
|
2021
|
Thereafter
|
||||||||||||||||||
Software
|
33,332
|
33,332
|
33,332
|
33,332
|
24,640
|
-
|
||||||||||||||||||
Non-compete
|
35,000
|
20,000
|
20,000
|
20,000
|
-
|
-
|
||||||||||||||||||
Customer List
|
26,627
|
26,627
|
26,627
|
26,627
|
26,627
|
371,425
|
||||||||||||||||||
Total Accumulated Amortization
|
94,959
|
79,959
|
79,959
|
79,959
|
51,267
|
371,425
|
Impairment of Long-Lived Assets
The Company accounts for long-lived assets in accordance with the provisions of the Financial Accounting Standards Board ("FASB") Topic 360, "Accounting for the Impairment of Long-Lived Assets". This statement requires that long-lived assets and certain identifiable intangibles be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. An impairment loss would be recognized when the estimated future cash flows from the use of the asset are less than the carrying amount of that asset. During the nine months ended December 31, 2016 (Successor), the period from January 1, 2016 through March 31, 2016 (Predecessor) and the twelve months ended December 31, 2015 (Predecessor), there have been no impairment losses.
Goodwill
In financial reporting, goodwill is not amortized, but is tested for impairment annually in the fourth quarter of the fiscal year or whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Events that result in an impairment review include significant changes in the business climate, declines in our operating results, or an expectation that the carrying amount may not be recoverable. We assess potential impairment by considering present economic conditions as well as future expectations. All assessments of goodwill impairment are conducted at the individual reporting unit level. As of December 31, 2016, the only reporting unit with goodwill was QCA.
The Company used qualitative factors according to Accounting Standards Codification ("ASC") 350-20-35-3 to determine whether it is more likely than not that the fair value of goodwill is less than its carrying amount. Based on the qualitative criteria the company believes there not to be any triggers for potential impairment of goodwill and therefore the Company has recorded no impairment of goodwill in any period presented.
Fair Value Measurement
The Company's financial instruments consist of cash and cash equivalents, accounts receivable, accounts payable, accrued expenses, convertible notes, notes and line of credit. The carrying amount of these financial instruments approximates fair value due either to length of maturity or interest rates that approximate prevailing market rates unless otherwise disclosed in these financial statements.
Revenue Recognition
ALTIA
The Company accounts for its revenue per the guidance in ASC 605-25-25 by allocating the total contract amount between the product and service elements. When a vehicle is sold to the driving consumer who purchases the 6th Sense Auto service, the cost of the service is added to the price of the car and the amount collected by the dealership for this service is remitted to the Company. At the time the vehicle is purchased, the Company recognizes the service portion of the contract over the service period of generally 12 to 36 months.
F-10
ALPINE 4 TECHNOLOGIES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016 (SUCCESSOR) AND 2015 (PREDECESSOR)
Quality Circuit Assembly
The Company accounts for its revenue per the guidance in ASC 605-25-25 by allocating the total contract amount between the product and service elements. Revenue is recognized when either the product has completely been built and shipped or the service has been completed. If a deposit for product or service is received prior to completion the payment is recorded to deferred revenue until such point the product or services meets our revenue recognition policy. Management assesses the materiality and likelihood of warranty work and returns and records reserves as needed. For all periods presented management determined that the warranty and returns would be immaterial.
Leases
Leases are reviewed by management and examined to see if they are required to be categorized as an operating lease, a capital lease or a financing transaction.
Earnings (loss) per share
Basic earnings (loss) per common share is computed by dividing net income (loss) available to common shareholders by the weighted-average number of shares of common stock outstanding during the period. Diluted earnings per common share is computed by dividing income available to common shareholders by the weighted-average number of shares of common stock outstanding during the period increased to include the number of additional shares of common stock that would have been outstanding if potentially dilutive securities had been issued. The only potentially dilutive securities outstanding during the periods presented were the convertible debentures, but they are anti-dilutive due to the net loss incurred. All earnings (loss) per common share have been adjusted retroactively for periods presented to reflect changes in number of shares as a result of the reverse stock split amount.
Stock-based compensation
The Company accounts for equity instruments issued in exchange for the receipt of goods or services from other than employees in accordance with FASB ASC 718-10, Compensation – Stock Compensation, and the conclusions reached by FASB ASC 505-50, Equity – Equity-Based Payments to Non-Employees. Costs are measured at the estimated fair market value of the consideration received or the estimated fair value of the equity instruments issued, whichever is more reliably measurable. The value of equity instruments issued for consideration other than employee services is determined on the earliest of a performance commitment is reached or completion of performance by the provider of goods or services as defined by FASB ASC 505-50.
Income taxes
The Company records income taxes under the asset and liability method, whereby deferred tax assets and liabilities are recognized based on the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, and attributable to operating loss and tax credit carry forwards. Accounting standards regarding income taxes requires a reduction of the carrying amounts of deferred tax assets by a valuation allowance, if based on the available evidence, it is more likely than not that such assets will not be realized. Accordingly, the need to establish valuation allowances for deferred tax assets is assessed at each reporting period based on a more-likely-than-not realization threshold. This assessment considers, among other matters, the nature, frequency and severity of current and cumulative losses, forecasts of future profitability, the duration of statutory carry forward periods, the Company's experience with operating loss and tax credit carry forwards not expiring unused, and tax planning alternatives.
The Company recorded valuation allowances on the net deferred tax assets. Management will reassess the realization of deferred tax assets based on the accounting standards for income taxes each reporting period. To the extent that the financial results of operations improve and it becomes more likely than not that the deferred tax assets are realizable, the Company will be able to reduce the valuation allowance.
F-11
ALPINE 4 TECHNOLOGIES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016 (SUCCESSOR) AND 2015 (PREDECESSOR)
Significant judgment is required in evaluating the Company's tax positions and determining its provision for income taxes. During the ordinary course of business, there are many transactions and calculations for which the ultimate tax determination is uncertain. Accounting standards regarding uncertainty in income taxes provides a two-step approach to recognizing and measuring uncertain tax positions. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount which is more than 50% likely, based solely on the technical merits, of being sustained on examinations. The Company considers many factors when evaluating and estimating its tax positions and tax benefits, which may require periodic adjustments and which may not accurately anticipate actual outcomes.
Embedded Conversion Features
The Company evaluates embedded conversion features within convertible debt under ASC 815 "Derivatives and Hedging" to determine whether the embedded conversion feature(s) should be bifurcated from the host instrument and accounted for as a derivative at fair value with changes in fair value recorded in earnings. If the conversion feature does not require derivative treatment under ASC 815, the instrument is evaluated under ASC 470-20 "Debt with Conversion and Other Options" for consideration of any beneficial conversion features.
Related Party Disclosure
FASB ASC 850, "Related Party Disclosures" requires companies to include in their financial statements disclosures of material related party transactions. The Company discloses all material related party transactions. Related parties are defined to include any principal owner, director or executive officer of the Company and any immediate family members of a principal owner, director or executive officer.
Recent Accounting Pronouncements
In May 2014, the FASB issued Accounting Standards Update ("ASU") No. 2014-09 (ASU 2014-09), Revenue from Contracts with Customers. ASU 2014-09 will eliminate transaction- and industry-specific revenue recognition guidance under current U.S. GAAP and replace it with a principle based approach for determining revenue recognition. ASU 2014-09 will require that companies recognize revenue based on the value of transferred goods or services as they occur in the contract. The ASU also will require additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. ASU 2014-09 is effective for reporting periods beginning after December 15, 2016, and early adoption is not permitted. Entities can transition to the standard either retrospectively or as a cumulative-effect adjustment as of the date of adoption. Management is currently assessing the impact the adoption of ASU 2014-09 and has not determined the effect of the standard on our ongoing financial reporting.
In April 2015, the FASB issued ASU No. 2015-03, Simplifying the Presentation of Debt Issuance Costs. Public business entities should apply the guidance in ASU 2015-03 to annual reporting periods beginning December 15, 2015. ASU 2015-03 was adopted and had no impact.
In August 2015, the FASB issued ASU No. 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date. The amendment in this ASU defers the effective date of ASU No. 2014-09 for all entities for one year. Public business entities, certain not-for-profit entities, and certain employee benefit plans should apply the guidance in ASU 2014-09 to annual reporting periods beginning December 15, 2017, including interim reporting periods within that reporting period. Earlier application is permitted only as of annual reporting periods beginning after December 31, 2016, including interim reporting periods with that reporting period.
In February 2015, the FASB issued ASU No. 2015-02, Consolidation (Topic 810): Amendments to the Consolidation Analysis. ASU 2015-02 provides guidance on the consolidation evaluation for reporting organizations that are required to evaluate whether they should consolidate certain legal entities such as limited partnerships, limited liability corporations, and securitization structures (collateralized debt obligations, collateralized loan obligations, and mortgage-backed security transactions). ASU 2015-02 is effective for periods beginning after December 15, 2015. The adoption of ASU 2015-02 is not expected to have a material effect on the Company's financial statements. Early adoption is permitted.
F-12
ALPINE 4 TECHNOLOGIES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016 (SUCCESSOR) AND 2015 (PREDECESSOR)
In September, 2015, the FASB issued ASU No. 2015-16, Business Combinations (Topic 805). Topic 805 requires that an acquirer retrospectively adjust provisional amounts recognized in a business combination, during the measurement period. To simplify the accounting for adjustments made to provisional amounts, the amendments in the update require that the acquirer recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amount is determined. The acquirer is required to also record, in the same period's financial statements, the effect on earnings of changes in depreciation, amortization, or other income effects, if any, as a result of the change to the provisional amounts, calculated as if the accounting had been completed at the acquisition date. In addition an entity is required to present separately on the face of the income statement or disclose in the notes to the financial statements the portion of the amount recorded in current-period earnings by line item that would have been recorded in previous reporting periods if the adjustment to the provisional amounts had been recognized as of the acquisition date. The adoption of ASU 2015-016 is not expected to have a material effect on the Company's financial statements.
In November 2015, the FASB issued ASU No. 2015-17, Balance Sheet Classification of Deferred Taxes. The new guidance requires that all deferred tax assets and liabilities, along with any related valuation allowance, be classified as noncurrent on the balance sheet. This update is effective for annual periods beginning after December 15, 2016 and interim periods within those annual periods. The Company does not anticipate the adoption of this ASU will have a significant impact on its financial position, results of operations, or cash flows.
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). The guidance in ASU No. 2016-02 supersedes the lease recognition requirements in ASC Topic 840, Leases (FAS 13). ASU 2016-02 requires an entity to recognize assets and liabilities arising from a lease for both financing and operating leases, along with additional qualitative and quantitative disclosures. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, with early adoption permitted. The Company is currently evaluating the effect this standard will have on its financial statements.
Other recent accounting pronouncements issued by the FASB, including its Emerging Issues Task Force, the American Institute of Certified Public Accountants, and the Securities and Exchange Commission did not or are not believed by management to have a material impact on the Company's present or future financial statements.
Note 3 – Going Concern
The accompanying financial statements have been prepared on a going concern basis. The working capital of the Company is currently negative and causes doubt of the ability for the Company to continue. The Company requires capital for its operational and marketing activities. The Company's ability to raise additional capital through the future issuances of common stock is unknown. The obtainment of additional financing, the successful development of the Company's plan of operations, and its transition, ultimately, to the attainment of profitable operations are necessary for the Company to continue operations. The ability to successfully resolve these factors raise substantial doubt about the Company's ability to continue as a going concern. The financial statements of the Company do not include any adjustments that may result from the outcome of these aforementioned uncertainties.
In order to mitigate the risk related with this uncertainty, the Company has a three-fold plan to resolve these risks. First the acquisition of QCA has allowed for an increased level of cash flow to the Company as demonstrated in the sales for the second and third quarters of 2016. Second, the Company has acquired Horizon Well Testing and is considering other potential acquisition targets that, like QCA, will increase income and cash flow to the Company. Third, the Company plans to issue additional shares of common stock for cash and services during the next 12 months and has engaged MCAP, LLC to provide advisory services in connection with that capital raise.
F-13
ALPINE 4 TECHNOLOGIES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016 (SUCCESSOR) AND 2015 (PREDECESSOR)
Note 4 – Leases
During the nine months ending December 31, 2016 (Successor) the Company entered into a financing transaction for a building. The Company bought the property for $3,895,000 and subsequently sold the property for $7,000,000 to an unrelated third-party real estate company and simultaneously entered into an arrangement with the third-party real estate company to lease back the property. Because the leaseback was not a typical leaseback, this transaction is recorded as a financing transaction with the asset and related financing obligation recorded on the balance sheet. The lease has a 15-year term expiring in 2031 and certain default provisions requiring the Company to perform repairs and maintenance, make timely rent payments and insure the building. The Company also issued a letter of credit for $630,270 in favor of the landlord; the letter of credit is collateralized by a savings account which is classified as restricted cash under non-current assets. The remaining payments under the financing transaction as of December 31, 2016 (Successor), totals $9,762,396. Imputed interest of $3,176,003 is being amortized over the lease term with an effective interest rate of 7.80%. The Company paid costs of $54,898 and a commission of $350,000 in conjunction with the transaction, which is characterized as debt issuance costs and will be amortized over the lease term. The current unamortized balance of the debt issuance costs is $348,542 and in accordance with ASU 2015-03 debt issuance costs are reflected as a contra-liability reducing the related financing lease obligation.
As of December 31, 2016 (Successor), the future minimum capital lease and financing transaction payments, net of amortization of debt issuance costs, are as follows:
Fiscal Year
|
||||
2017
|
$
|
571,499
|
||
2018
|
584,763
|
|||
2019
|
599,382
|
|||
2020
|
614,366
|
|||
2021
|
629,725
|
|||
Thereafter
|
6,762,661
|
|||
Total
|
9,762,396
|
|||
Less: Current capital leases and financing transaction
|
(13,814
|
)
|
||
Less: imputed interest
|
(3,176,003
|
)
|
||
Noncurrent capital leases and financing transaction
|
$
|
6,572,579
|
The Company also has a commitment to pay $276,000 towards Leasehold Improvements, of which $207,000 has been satisfied and reflected on the balance sheet as of December 31, 2016 (Successor).
The money received from the sale of the building was used to purchase Quality Circuit Assembly. Since this is a financing transaction the sale is recorded under financing obligation lease on the Balance Sheet and amortized over the 15-year term of the lease.
Operating Leases
The company also had two operating leases as of December 31, 2016 (Successor), for its location in San Jose, CA (QCA), and Phoenix, AZ (Alpine). Approximate monthly rent obligations are $27,500 and $3,600 respectively.
F-14
ALPINE 4 TECHNOLOGIES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016 (SUCCESSOR) AND 2015 (PREDECESSOR)
The five-year minimum rent payments for each location are as follows
Fiscal Year
|
San Jose, CA
|
Phoenix, AZ
|
||||||
2017
|
$
|
236,851
|
$
|
18,000
|
||||
2018
|
266,134
|
-
|
||||||
2019
|
274,118
|
-
|
||||||
2020
|
282,342
|
-
|
||||||