ALPINE 4 TECHNOLOGIES, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
Years Ended
December 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
OPERATING ACTIVITIES:
|
|
|
|
|
|
|
Net loss
|
|
$
|
(7,908,017
|
)
|
|
$
|
(2,997,420
|
)
|
Adjustments to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
871,847
|
|
|
|
671,423
|
|
Amortization
|
|
|
75,412
|
|
|
|
92,080
|
|
Gain on extinguishment of debt
|
|
|
(136,300
|
)
|
|
|
|
|
Loss on disposal of fixed assets
|
|
|
536,772
|
|
|
|
18,841
|
|
Change in value of derivative liabilities
|
|
|
(604,219
|
)
|
|
|
126,054
|
|
Employee stock compensation
|
|
|
71,223
|
|
|
|
87,136
|
|
Stock issued for services
|
|
|
176,800
|
|
|
|
62,084
|
|
Amortization of debt issuance
|
|
|
213,354
|
|
|
|
50,500
|
|
Amortization of debt discounts
|
|
|
1,428,954
|
|
|
|
89,292
|
|
Impairment of assets
|
|
|
1,764,382
|
|
|
|
-
|
|
Change in current assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
398,371
|
|
|
|
(506,436
|
)
|
Inventory
|
|
|
(348,194
|
)
|
|
|
(282,432
|
)
|
Capitalized contracts costs
|
|
|
37,300
|
|
|
|
|
|
Prepaid expenses and other assets
|
|
|
159,927
|
|
|
|
(120,379
|
)
|
Accounts payable
|
|
|
1,441,304
|
|
|
|
546,825
|
|
Accrued expenses
|
|
|
929,323
|
|
|
|
723,733
|
|
Income tax payable
|
|
|
|
|
|
|
(20,123
|
)
|
Deferred tax
|
|
|
(43,399
|
)
|
|
|
(105,450
|
)
|
Deferred revenue
|
|
|
(319,410
|
)
|
|
|
52,425
|
|
Net cash used in operating activities
|
|
|
(1,254,570
|
)
|
|
|
(1,511,847
|
)
|
|
|
|
|
|
|
|
|
|
INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
(271,516
|
)
|
|
|
(192,805
|
)
|
Proceeds from insurance claim on automobiles and trucks
|
|
|
-
|
|
|
|
237,732
|
|
Proceeds from the sale of fixed assets
|
|
|
318,879
|
|
|
|
-
|
|
Acquisition, net of cash acquired
|
|
|
(1,976,750
|
)
|
|
|
(1,937,616
|
)
|
Net cash used in investing activities
|
|
|
(1,929,387
|
)
|
|
|
(1,892,689
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Proceeds from issuances of notes payable, related party
|
|
|
145,000
|
|
|
|
105,500
|
|
Proceeds from issuances of notes payable, non-related party
|
|
|
924,750
|
|
|
|
1,952,390
|
|
Proceeds from issuances of convertible notes payable
|
|
|
2,355,950
|
|
|
|
785,500
|
|
Proceeds from sale of common stock
|
|
|
-
|
|
|
|
40,000
|
|
Proceeds from sale leaseback transaction
|
|
|
1,900,000
|
|
|
|
-
|
|
Repayments of notes payable, related party
|
|
|
(56,500
|
)
|
|
|
(223,500
|
)
|
Repayments of notes payable, non-related party
|
|
|
(741,079
|
)
|
|
|
(247,084
|
)
|
Repayments of convertible notes payable
|
|
|
(1,417,133
|
)
|
|
|
(219,721
|
)
|
Proceeds from line of credit, net
|
|
|
327,325
|
|
|
|
709,201
|
|
Cash paid on financing lease obligations
|
|
|
(175,663
|
)
|
|
|
(1,691
|
)
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
3,262,650
|
|
|
|
2,900,595
|
|
|
|
|
|
|
|
|
|
|
NET INCREASE (DECREASE) IN CASH AND RESTRICTED CASH
|
|
|
78,693
|
|
|
|
(503,941
|
)
|
|
|
|
|
|
|
|
|
|
CASH AND RESTRICTED CASH, BEGINNING BALANCE
|
|
|
335,823
|
|
|
|
839,764
|
|
|
|
|
|
|
|
|
|
|
CASH AND RESTRICTED CASH, ENDING BALANCE
|
|
$
|
414,516
|
|
|
$
|
335,823
|
|
|
|
|
|
|
|
|
|
|
CASH PAID FOR:
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
1,162,149
|
|
|
$
|
1,219,080
|
|
Income taxes
|
|
$
|
-
|
|
|
$
|
2,167
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING ACTIVITIES:
|
|
|
|
|
|
Common stock issued for convertible note payable and accrued interest
|
|
$
|
54,187
|
|
|
$
|
99,573
|
|
Common stock issued for convertible note discount
|
|
$
|
11,917
|
|
|
$
|
16,500
|
|
Issuance of convertible note for acquisition
|
|
$
|
450,000
|
|
|
$
|
1,500,000
|
|
Issuance of note payable for acquisition
|
|
$
|
1,950,000
|
|
|
$
|
300,000
|
|
Issuance of warrants for acquisition
|
|
$
|
-
|
|
|
$
|
40,941
|
|
Issuance of redeemable common stock for acquisition
|
|
$
|
-
|
|
|
$
|
1,439,725
|
|
Debt discount from convertible note payable
|
|
$
|
-
|
|
|
$
|
30,000
|
|
Debt discount due to derivative liabilities
|
|
$
|
2,282,970
|
|
|
$
|
115,000
|
|
Reclassification of warrants embedded conversion option as derivative liability
|
|
$
|
-
|
|
|
$
|
252,633
|
|
Notes payable and redeemable common stock restructuring
|
|
$
|
3,197,538
|
|
|
$
|
-
|
|
Capital leases
|
|
$
|
247,000
|
|
|
$
|
-
|
|
Proceeds from sale of assets offset directly against debt
|
|
$
|
1,141,588
|
|
|
$
|
-
|
|
Release of derivative liability
|
|
$
|
58,018
|
|
|
$
|
-
|
|
The accompanying notes are an integral part of these consolidated financial statements.
ALPINE 4 TECHNOLOGIES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2018 and 2017
Note 1 – Organization and Basis of Presentation
The Company was incorporated under the laws of the State of Delaware on April 22, 2014. The Company was
formed to serve as a vehicle to affect an asset acquisition, merger, exchange of capital stock, or other business combination with a domestic or foreign business. The Company is a technology holding company owning four companies (ALTIA, LLC;
Quality Circuit Assembly, Inc. ("QCA"); Venture West Energy Services (“VWES”) (formerly Horizon Well Testing, LLC); and American Precision Fabricators, Inc., an Arkansas corporation (“APF”). On April 5, 2018, the Company acquired 100% of the
outstanding shares of APF (see Note 9).
Basis of presentation
The accompanying financial statements present the balance sheets, statements of operations, stockholders'
deficit and cash flows of the Company. The financial statements have been prepared in accordance with U.S. GAAP.
Note 2 - Summary of Significant Accounting Policies
Principles of
consolidation
The consolidated financial statements include the accounts of the Company and its wholly owned
subsidiaries as of December 31, 2018 and 2017. Significant intercompany balances and transactions have been eliminated.
Use of estimates
The preparation of financial statements in conformity with U.S. GAAP requires the Company to make
estimates and judgments that affect the reported amounts of assets and liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities. These estimates and judgments are based on historical information, information
that is currently available to the Company and on various other assumptions that the Company believes to be reasonable under the circumstances. Actual results could differ from those estimates.
Reclassification
Certain prior year amounts have been reclassified to conform to the current period presentation. These
reclassifications had no impact on net earnings and financial position.
Advertising
Advertising costs are expensed when incurred. All advertising takes place at the time of expense. We
have no long-term contracts for advertising. Advertising expense for all periods presented were not significant.
Cash
Cash and cash equivalents consist of cash and short-term investments with original maturities of less than
90 days. As of December 31, 2018 and 2017, the Company had no cash equivalents.
The following table provides a reconciliation of cash and restricted cash reported within the accompanying
consolidated balance sheets that sum to the total of the same such amounts shown in the consolidated statements of cash flows.
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2018
|
|
|
2017
|
|
Cash
|
|
$
|
207,205
|
|
|
$
|
128,512
|
|
Restricted cash included in other non-current assets
|
|
|
207,311
|
|
|
|
207,311
|
|
Total cash and restricted cash shown in consolidated statements of cash flows
|
|
$
|
414,516
|
|
|
$
|
335,823
|
|
ALPINE 4 TECHNOLOGIES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2018 and 2017
Major Customers
The Company had two customers that made up 29
% and 27%
, respectively, of accounts receivable as of December 31, 2018. The Company had two customers that made up 41% and 13%, respectively, of accounts receivable as of December 31, 2017.
For the years ended December 31, 2018, the Company had two customer that made up
29%
and 13% of total revenues. For the years ended December 31, 2017, the Company had one customer that made up approximately 36% of total revenues.
Accounts Receivable
The Company maintains reserves for potential credit losses on accounts receivable. Management reviews the
composition of accounts receivable and analyzes historical bad debts, customer concentrations, customer credit worthiness, current economic trends and changes in customer payment patterns to evaluate the adequacy of these reserves. Reserves are
recorded primarily on a specific identification basis. As of December 31, 2018 and 2017, allowance for bad debt was $0 and $0, respectively.
Inventory
Inventory is valued at the lower of the inventory's cost (weighted average basis) or net realizable value.
Management compares the cost of inventory with its net realizable value and an allowance is made to write down inventory to net realizable value, if lower. Inventory is segregated into four areas, raw materials, WIP, finished goods, and
In-Transit. Below is a breakdown of how much inventory was in each area as of December 31, 2018 and 2017:
|
|
2018
|
|
|
2017
|
|
Raw materials
|
|
$
|
676,621
|
|
|
$
|
577,259
|
|
WIP
|
|
|
-
|
|
|
|
440,586
|
|
Finished goods
|
|
|
1,499,174
|
|
|
|
161,310
|
|
In Transit
|
|
|
-
|
|
|
|
33,391
|
|
|
|
$
|
2,175,795
|
|
|
$
|
1,212,546
|
|
Property and Equipment
Property and equipment are carried at cost less depreciation. Depreciation and amortization are provided
principally on the straight-line method over the estimated useful lives of the assets, which range from ten years to 39 years as follows:
Automobiles & Trucks
|
10 to 20 years
|
Buildings
|
39 years
|
Leasehold Improvements
|
15 years or time remaining on lease (whichever is shorter)
|
Equipment
|
10 years
|
Maintenance and repair costs are charged against income as incurred. Significant improvements or
betterments are capitalized and depreciated over the estimated life of the asset.
ALPINE 4 TECHNOLOGIES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2018 and 2017
Property and equipment consisted of the following as of December 31, 2018 and 2017:
|
|
2018
|
|
|
2017
|
|
Automobiles and trucks
|
|
$
|
155,179
|
|
|
$
|
-
|
|
Machinery and equipment
|
|
|
2,548,855
|
|
|
|
1,276,779
|
|
Office furniture and fixtures
|
|
|
109,619
|
|
|
|
7,056
|
|
Building
|
|
|
5,795,000
|
|
|
|
3,895,000
|
|
Leasehold improvements
|
|
|
261,608
|
|
|
|
261,608
|
|
Less: Accumulated depreciation
|
|
|
(879,705
|
)
|
|
|
(416,685
|
)
|
|
|
$
|
7,990,556
|
|
|
$
|
5,023,758
|
|
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
|
15 years
|
Software development
|
5 years
|
Intangible assets consisted of the following as of December 31, 2018 and 2017:
|
|
2018
|
|
|
2017
|
|
Software
|
|
$
|
278,474
|
|
|
$
|
278,474
|
|
Noncompete
|
|
|
100,000
|
|
|
|
100,000
|
|
Customer lists
|
|
|
531,187
|
|
|
|
531,187
|
|
Less: Accumulated amortization
|
|
|
(232,451
|
)
|
|
|
(157,039
|
)
|
|
|
$
|
677,210
|
|
|
$
|
752,622
|
|
Expected amortization expense of intangible assets over the next 5 years and thereafter is as
follows.
Year Ending
December 31,
|
|
|
|
2019
|
|
|
79,960
|
|
2020
|
|
|
79,960
|
|
2021
|
|
|
79,960
|
|
2022
|
|
|
46,361
|
|
2023
|
|
|
46,361
|
|
Thereafter
|
|
|
344,608
|
|
Total
|
|
|
677,210
|
|
ALPINE 4 TECHNOLOGIES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2018 and 2017
Other Long-Term Assets
Other long-term assets consisted of the following as of December 31, 2018 and 2017:
|
|
2018
|
|
|
2017
|
|
Restricted Cash
|
|
$
|
207,311
|
|
|
$
|
207,311
|
|
Deposits
|
|
|
50,927
|
|
|
|
50,927
|
|
Other
|
|
|
32,000
|
|
|
|
-
|
|
|
|
$
|
290,238
|
|
|
$
|
258,238
|
|
Restricted cash consists of deposit account collateralizing letters of credit in favor of the counterparty
in our lease financing obligation.
Impairment of Long-Lived
Assets
The Company accounts for long-lived assets in accordance with the provisions of Financial Accounting Standards Board
("FASB") Accounting Standards Codification ("ASC") Topic 360,
Accounting for the Impairment of Long-Lived Assets
. This statement requires that
long-lived assets and certain identifiable intangibles be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. An impairment loss would be recognized when the
estimated future cash flows from the use of the asset are less than the carrying amount of that asset. During all periods presented, there have been no impairment losses, except to the impairment loss of $1,596,537 for the year ended December 31,
2018 related to the discontinued operation.
Goodwill
In financial reporting, goodwill is not amortized, but is tested for impairment annually or whenever
events or changes in circumstances indicate that the carrying amount may not be recoverable. Events that result in an impairment review include significant changes in the business climate, declines in our operating results, or an expectation
that the carrying amount may not be recoverable. We assess potential impairment by considering present economic conditions as well as future expectations. All assessments of goodwill impairment are conducted at the individual reporting unit
level. As of December 31, 2018 and 2017, the reporting units with goodwill were QCA
and APF
.
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, except to the impairment of goodwill of $167,845 for the year ended December 31, 2018 related to the discontinued operation.
Fair Value Measurement
The Company's financial instruments consist of cash and cash equivalents, accounts receivable, accounts
payable, accrued expenses, convertible notes, notes and line of credit. The carrying amount of these financial instruments approximates fair value due either to length of maturity or interest rates that approximate prevailing market rates unless
otherwise disclosed in these financial statements. For additional information, please see Note 11 – Derivative Liabilities and Fair Value Measurements.
Redeemable Common Stock
As discussed in Note 9 below, 379,403 shares of the Company's Class A common stock that were issued as
consideration for the VWES acquisition contain a redemption feature which allows for the redemption of common stock at the option of the holder. In accordance with ASC 480, redemption provisions not solely within the control of the Company require
the security to be classified outside of permanent equity. Accordingly, at December 31, 2017, 379,403 shares of Class A common stock were classified outside of permanent equity at its redemption value. During the year ended December 31, 2018,
the shares were redeemed and classified as permanent equity.
Revenue Recognition
On January 1, 2018, the Company adopted ASC Topic 606,
Revenue from Contracts with Customers
using the modified retrospective method applied to those contracts which were not completed as of January 1, 2018. Results for reporting periods
beginning after January 1, 2018 are presented under ASC Topic 606, while prior period amounts are not adjusted and continue to be reported in accordance with the historic accounting under ASC Topic 605.
The Company recorded a net increase to its opening accumulated deficit of
$178,202 as of January 1, 2018 due to the cumulative impact of adopting ASC Topic 606, with the impact related to recognition of revenue and costs relating to the sales of the 6
th
Sense Auto service. Under the new revenue standard,
sales of the Company’s 6
th
Sense Auto service, which includes a hardware and a monthly subscription component, are required to be treated as a single performance obligation and recognized over time. As a result, the deferred revenue
increased by $279,736 and capitalized contract costs increased by $101,534. The impact to the consolidated statement of operations for the year ended December 31, 2018 was a net increase of $279,736 to revenue and a net increase of $101,534 to
cost of revenue as a result of applying ASC Topic 606.
Revenues under ASC Topic 606 are recognized when the promised goods or services
are transferred to customers, in an amount that reflects the consideration to which the Company expects to be entitled to in exchange for those goods or services. The following is a summary of the revenue recognition policy for each of the
Company’s subsidiaries.
ALPINE 4 TECHNOLOGIES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2018 and 2017
ALTIA
Revenues recorded by ALTIA relate primarily to the Company’s 6
th
Sense Auto service. The
Company accounts for its revenue by deferring the total contract amount and recognizing the amounts over the monthly subscription period, ranging from 12 to 36 months.
QCA
QCA is a contract manufacturer and recognizes revenue when the products have been built and control has
been transferred to the customer. If a deposit for product or service is received prior to completion, the payment is recorded to deferred revenue until such point the product or services meets our revenue recognition policy. Management assesses
the materiality and likelihood of warranty work and returns, and records reserves as needed. For all periods presented, management determined that the warranty and returns would be immaterial.
APF is a contract manufacturer and recognizes revenue when the products have been built and control has
been transferred to the customer. If a deposit for product or service is received prior to completion, the payment is recorded to deferred revenue until such point the product or services meets our revenue recognition policy. Management assesses
the materiality and likelihood of warranty work and returns, and records reserves as needed. For all periods presented, management determined that the warranty and returns would be immaterial.
Earnings (loss) per share
Basic earnings (loss) per common share is computed by dividing net income (loss) available to common
shareholders by the weighted-average number of shares of common stock outstanding during the period. Diluted earnings per common share is computed by dividing income available to common shareholders by the weighted-average number of shares of
common stock outstanding during the period increased to include the number of additional shares of common stock that would have been outstanding if potentially dilutive securities had been issued. The only potentially dilutive securities
outstanding during the periods presented were the convertible debentures, but they are anti-dilutive due to the net loss incurred.
Stock-based compensation
The Company accounts for equity instruments issued in exchange for the receipt of goods or services from other than employees
in accordance with ASC 718-10, Compensation – Stock Compensation, and the conclusions reached by 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 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.
ALPINE 4 TECHNOLOGIES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2018 and 2017
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
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 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 does not expect the adoption of this ASU to have a material impact 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 ultimate transition to the attainment of profitable operations are necessary for the Company to
continue operations. The ability to successfully resolve these factors raise substantial doubt about the Company's ability to continue as a going concern. The financial statements of the Company do not include any adjustments that may result from
the outcome of these aforementioned uncertainties.
ALPINE 4 TECHNOLOGIES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2018 and 2017
In order to mitigate the risk related with the going concern uncertainty, the Company has a three-fold plan to resolve these risks. First, the acquisitions
of QCA, and APF have allowed for an increased level of cash flow to the Company. Second, the Company is considering other potential acquisition targets that, like QCA, should increase income and cash flow to the Company. Third, the Company plans
to issue additional shares of common stock for cash and services during the next 12 months and has engaged professional service firms to provide advisory services in connection with that capital raise.
Note 4 – Leases
As of December 31, 2018, the future minimum capital lease and financing transaction payments, net of
amortization of debt issuance costs, were as follows:
Year
Ending December 31,
|
|
|
|
2019
|
|
|
817,181
|
|
2020
|
|
|
836,022
|
|
2021
|
|
|
849,645
|
|
2022
|
|
|
865,351
|
|
2023
|
|
|
875,428
|
|
Thereafter
|
|
|
8,763,471
|
|
Total
|
|
|
13,007,098
|
|
Less: Current capital leases and financing transaction
|
|
|
(105,458
|
)
|
Less: imputed interest
|
|
|
(4,606,464
|
)
|
Non-current capital leases and financing transaction
|
|
$
|
8,295,176
|
|
In 2016, the Company sold a building and used the money to purchase QCA. Because this is a financing
transaction, the sale is recorded under "financing lease obligation" on the accompanying consolidated balance sheet and amortized over the 15-year term of the lease. The term of the lease has been extended through December 31, 2032 at a monthly
rate of approximately $69,000. These payments are reflected in the table above.
On April 5, 2018, the Company acquired APF (see Note 9). In order to fund a portion of the acquisition
price, the Company simultaneously entered into a sale leaseback transaction with a third-party lender whereby the building acquired from APF was sold for $1,900,000, and leased back to the company for a period of 15 years at a monthly rate of
$15,833, subject to an annual increase of 2% throughout the term of the lease. The Company had no gain or loss resulting from the sale of the property, and the resulting lease qualifies as a capital lease. As a result, the Company has capitalized
the cost of the building and the resulting capital lease obligation liability of $1,900,000. The resulting capital lease obligation liability of $1,763,903 as of December 31, 2018 is reflected in financing lease obligation in the accompanying
consolidated balance sheets. The payments related to this lease are reflected in the table above.
Operating Leases
The Company has two non-cancellable operating leases as of December 31, 2018 for its locations in San Jose,
California. Approximate monthly rent obligations for these locations amount to $21,500 and $5,000 respectively. The Company also has an office it leases in Phoenix, Arizona on a month-to-month basis.
ALPINE 4 TECHNOLOGIES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2018 and 2017
The five-year minimum rent payments for each location are as follows:
Year Ending December 31,
|
|
|
|
2019
|
|
$
|
274,118
|
|
2020
|
|
|
282,342
|
|
2021
|
|
|
290,812
|
|
Thereafter
|
|
|
-
|
|
Total
|
|
$
|
847,272
|
|
Rent expense for the years ended December 31, 2018 and 2017 amounted to $447,595 and $468,673, respectively.
Note 5 – Notes Payable
In May 2018, APF also secured a line of credit with Crestmark, providing for borrowings up to $1,000,000
at a variable interest rate, collateralized by APF’s outstanding accounts receivable.
As of December 31, 2017, the Company had an outstanding term loan with a 30% interest rate of $10,000
which was repaid during the year ended December 31, 2018. During the years ended December 31, 2018, the Company borrowed an aggregate total of $149,000 in additional short-term notes payable bearing interest at 15% per annum with maturity dates of
three months from the date of issuance.
On February 22, 2018, the Company issued a $3,000,000 note payable under the Amended and Restated Secured
Promissory Note with the seller of VWES. The note is secured by the assets of VWES and bears interest at 7% per annum and is due in semi-annual payments of $150,000 commencing on June 1, 2018, through June 1, 2020.
On April 5, 2018, the Company issued two secured promissory notes in the aggregate principal amount of
$1,950,000 (“Secured APF Notes”) as part of the consideration for the purchase of APF (see Note 9). The Secured APF Notes are secured by the equipment, customer accounts and intellectual property of the Company, and all of the products and
proceeds from any of the assets of APF. The Secured APF Notes bear interest at 4.25% per annum and have aggregate monthly payments of $19,975 for the first 23 months, with a balloon payment due in April 2020 for the remaining principal and
interest outstanding.
On May 3, 2018, the Company entered into an equipment note with a lender for total borrowings of
$630,750, which is secured by the equipment of APF. The note bears interest at 11.75% per annum and is payable in weekly payments of $3,795 commencing on the loan date through May 4, 2022.
The outstanding balances for the loans as of December 31, 2018 and 2017 were as follows:
|
|
2018
|
|
|
2017
|
|
Lines of credit, current portion
|
|
$
|
2,504,440
|
|
|
$
|
1,657,610
|
|
Equipment loans, current portion
|
|
|
260,301
|
|
|
|
147,079
|
|
Term notes, current portion
|
|
|
880,862
|
|
|
|
10,000
|
|
Total current
|
|
|
3,645,603
|
|
|
|
1,814,689
|
|
Long-term portion
|
|
|
4,517,441
|
|
|
|
-
|
|
Total notes payable
|
|
$
|
8,163,044
|
|
|
$
|
1,814,689
|
|
Future scheduled maturities of outstanding notes payable from related parties are as follows:
Year
Ending December 31,
|
|
|
|
2019
|
|
$
|
3,645,603
|
|
2020
|
|
|
4,271,959
|
|
2021
|
|
|
178,607
|
|
2022
|
|
|
66,875
|
|
Total
|
|
$
|
8,163,044
|
|
ALPINE 4 TECHNOLOGIES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2018 and 2017
Note 6 – Notes Payable, Related Parties
At December 31, 2018 and 2017, notes payable due to related parties consisted of the following:
|
|
2018
|
|
|
2017
|
|
Notes payable; non-interest bearing; due upon demand; unsecured
|
|
$
|
4,500
|
|
|
$
|
4,500
|
|
|
|
|
|
|
|
|
|
|
Note payable; bearing interest at 8% per annum; due June 30, 2017; unsecured
|
|
|
7,500
|
|
|
|
7,500
|
|
|
|
|
|
|
|
|
|
|
Note payable; bearing at 30% per annum; due March 3, 2018; unsecured
|
|
|
-
|
|
|
|
11,500
|
|
|
|
|
|
|
|
|
|
|
Note payable; bearing at 20% per annum; due April 28, 2018; unsecured
|
|
|
-
|
|
|
|
20,000
|
|
|
|
|
|
|
|
|
|
|
Series of notes payable, bearing interest at rates from 10% to 15% per annum, with maturity dates
from April 2018 to July 2018, unsecured
|
|
|
120,000
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Total notes payable - related parties
|
|
$
|
132,000
|
|
|
$
|
43,500
|
|
The above notes which are in default as of December 31, 2018, were due on demand by the lenders as of
the date of this Report.
Note 7 – Convertible Notes Payable
At December 31, 2018 and 2017, convertible notes payable consisted of the following:
|
|
2018
|
|
|
2017
|
|
Series of convertible notes payable issued prior to December 31, 2016, bearing interest at rates
of 8% - 20% per annum, with due dates ranging from April 2016 through October 2017. The outstanding principal and interest balances are convertible into shares of Class A common stock at the option of the debt holder at an exercise price
of $1 per share.
|
|
$
|
25,000
|
|
|
$
|
40,000
|
|
|
|
|
|
|
|
|
|
|
Secured convertible notes payable issued to the sellers of QCA on April 1, 2016 for an aggregate
of $2,000,000, bearing interest at 5% per annum, due in monthly payments starting on July 1, 2016 and due in full on July 1, 2019. The outstanding principal and interest balances are convertible after 12 months into Class A common stock at
the option of the debt holder at a conversion price of $10 per share.
|
|
|
1,654,588
|
|
|
|
1,827,108
|
|
|
|
|
|
|
|
|
|
|
Secured convertible note payable issued to the seller of VWES on January 1, 2017 for an aggregate
of $1,500,000, bearing interest at 5% per annum, due in full on July 1, 2018. The outstanding principal and interest balances are convertible after 12 months into Class A common stock at the option of the debt holder at a conversion price
of $8.50 per share. The amount was extinguished and replaced by the Amended and Restated Secured Promissory Note (see Note 9).
|
|
|
-
|
|
|
|
1,500,000
|
|
|
|
|
|
|
|
|
|
|
Series of convertible notes payable issued in January 2017, bearing interest at rates of 10% per
annum, and due in January 2018. The outstanding principal and interest balances are convertible into shares of Class A common stock at the option of the debt holder at an exercise price of $1 per share.
|
|
|
10,000
|
|
|
|
30,000
|
|
ALPINE 4 TECHNOLOGIES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2018 and 2017
On July 13, 2017, the Company entered into a variable convertible note for $43,000 with net
proceeds of $40,000. The note is due April 30, 2018 and bears interest at 12% per annum. After 180 days, the note is convertible into shares of Class A common stock at a discount of 38% to the average of the three lowest trading closing
prices of the stock for ten days prior to conversion. The Company can prepay the note up to 180 days prior to the due date, with the prepayment penalty ranging from 10% to 27% depending on when prepaid.
|
|
|
-
|
|
|
|
43,000
|
|
|
|
|
|
|
|
|
|
|
On July 19, 2017, the Company entered into a variable convertible note for $115,000 with net
proceeds of $107,000. The note is due January 21, 2018 and bears interest at 10% per annum. The note is immediately convertible to the Company's Class A common stock at a discount of 35% to the average of the three lowest trading closing
prices of the stock for ten days prior to conversion. The Company can prepay the convertible note up to 180 days from July 19, 2017. The Company issued 500,000 shares of Class A common stock to the note holder which are returnable if no
event of default has occurred and the note is paid in full within 180 days of the note date. Management had determined that it was probable that the Company would meet the conditions under the note and therefore the shares and the cost of
issuance were not recorded. During the three months ended March 31, 2018, the Company repaid the note and the shares were returned.
|
|
|
-
|
|
|
|
72,748
|
|
|
|
|
|
|
|
|
|
|
On September 5, 2017, the Company entered into a variable convertible note for $105,000 with net
proceeds of $100,000. The note is due September 5, 2018 and bears interest at 10% per annum. After 180 days, the note is convertible to the Company's Class A common stock at a discount of 35% to the average of the three lowest trading
closing prices of the stock for ten days prior to conversion. The Company can prepay the convertible note up to 180 days from September 5, 2017. The prepayment penalty is equal to 10% to 25% of the outstanding note amount depending on the
prepayment date.
|
|
|
-
|
|
|
|
105,000
|
|
|
|
|
|
|
|
|
|
|
On October 4, 2017, the Company entered into a variable convertible note for $60,000 with net
proceeds of $55,000. The note is due July 4, 2018 and bears interest at 12% per annum. After 180 days, the note is convertible into shares of Class A common stock at a discount of 35% of the lowest trading price during the previous ten
days prior to conversion. The Company can prepay the convertible note up to 180 days from October 4, 2017. The prepayment penalty is equal to 10% to 25% of the outstanding note amount depending on the prepayment date.
|
|
|
-
|
|
|
|
60,000
|
|
|
|
|
|
|
|
|
|
|
On October 11, 2017, the Company entered into a variable convertible note for $58,500 with net
proceeds of $55,500. The note is due on July 20, 2018 and bears interest at 12% per annum. After 180 days, the note is convertible into shares of Class A common stock at a discount of 38% of the average of the three lowest trading prices
of the stock for ten days prior to conversion. The Company can prepay the convertible note up to 180 days from October 11, 2017. The prepayment penalty is equal to 10% to 27% of the outstanding note amount depending on the prepayment
date.
|
|
|
-
|
|
|
|
58,500
|
|
|
|
|
|
|
|
|
|
|
On November 2, 2017, the Company entered into a variable convertible note for $115,000 with net
proceeds of $107,000. The note is due May 2, 2018 and bears interest at 10% per annum. The note is immediately convertible to the Company's Class A common stock at a discount of 35% to the average of the three lowest trading closing
prices of the stock for ten days prior to conversion. The Company issued 150,000 shares to the lender with this note, which has been recorded as a discount.
|
|
|
-
|
|
|
|
115,000
|
|
|
|
|
|
|
|
|
|
|
On November 28, 2017, the Company entered into a variable convertible note for $105,000 with net
proceeds of $100,000. The note is due November 28, 2018 and bears interest at 10% per annum. After 180 days, the note is convertible into shares of Class A common stock at a discount of 35% of the average of the three lowest trading price
during the previous ten days prior to conversion. The Company can prepay the convertible note up to 180 days from November 28, 2017. The prepayment penalty is equal to 10% to 25% of the outstanding note amount depending on the prepayment
date.
|
|
|
-
|
|
|
|
105,000
|
|
ALPINE 4 TECHNOLOGIES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2018 and 2017
On December 6, 2017, the Company entered into a variable convertible note for $86,000 with net
proceeds of $79,000. Additional borrowings of $64,000 were received under this convertible note in January 2018. The note is due June 6, 2018 and bears interest at 10% per annum. After 180 days at the maturity date, the note is
convertible to the Company's Class A common stock at a discount of 35% to the average of the three lowest trading closing prices of the stock for ten days prior to conversion.
|
|
|
-
|
|
|
|
86,000
|
|
|
|
|
|
|
|
|
|
|
On January 10, 2018, the Company entered into a variable convertible note for $150,000 with net
proceeds of $135,000. The note is due October 1, 2018 and bears interest at 12% per annum. The note is immediately convertible into shares of Class A common stock at the lesser of $0.16 per share or 60% of the lowest trading price the
previous 25 days prior to conversion. The Company can prepay the note within the first 90 days following January 10, 2018 with a prepayment penalty equal to 145% of the total outstanding balance. The Company issued 333,333 shares to the
lender with this note, which has been recorded as a discount.
|
|
|
95,000
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
On March 13, 2018, the Company entered into a variable convertible note for $128,000 with net
proceeds of $125,000. The note is due December 30, 2018 and bears interest at 12% per annum. After 180 days, the note is convertible into shares of Class A common stock at a discount of 42% of the average of the 2 lowest trading price the
previous 10 days prior to conversion. The Company can prepay the note at a penalty ranging from 15% to 40%.
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
On April 3, 2018, the Company entered into a variable convertible note for $85,000 with net
proceeds of $79,000. The note is due January 2, 2019 and bears interest at 10% per annum. The note is immediately convertible into shares of the Company's Class A common stock at a discount of 35% to the average of the three lowest
trading closing prices of the stock for ten days prior to conversion. In connection with this variable convertible note, the Company issued 386,363 shares of its Class A common stock, which has been recorded as a discount.
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
On April 5, 2018, the Company entered into convertible promissory notes for an aggregate principal
amount of $450,000 as part of the consideration for the acquisition of APF (see Note 9). The convertible notes are due in full in 36 months and bear interest at 4.25% per annum, and are convertible into shares of Class A common stock after
6 months from the issuance date at a rate of $1 per share.
|
|
|
450,000
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
On April 9, 2018, the Company entered into a variable convertible note for $124,199 with net
proceeds of $115,000. The note is due January 9, 2019 and bears interest at 12% per annum. After 180 days, the note is convertible into shares of the Company's Class A common stock at a discount of 35% to the average of the three lowest
trading closing prices of the stock for ten days prior to conversion. In connection with this variable convertible note, the Company issued 76,670 shares of its Class A common stock, along with warrants to purchase 153,340 shares of Class
A common stock at an exercise price of $1 per share which are immediately vested and have a 3 years contractual life. The value of the common stock and warrants have been recorded as a discount.
|
|
|
61,699
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
On April 9, 2018, the Company entered into a variable convertible note for $37,800 with net
proceeds of $35,000. The note is due January 9, 2019 and bears interest at 12% per annum. After 180 days, the note is convertible into shares of the Company's Class A common stock at a discount of 35% to the average of the three lowest
trading closing prices of the stock for ten days prior to conversion.
|
|
|
37,800
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
On June 4, 2018, the Company entered into a variable convertible note for $165,000
with net proceeds of $151,500. The note is due December 4, 2019 and bears interest at 10% per annum. The note is immediately convertible into shares of the Company's Class A common stock at a discount of 42% to the average of the two
lowest trading closing prices of the stock for ten days prior to conversion. The Company issued 850,000 shares of Class A common stock to the note holder which are returnable if no event of default has occurred and the note is paid in full
within 180 days of the note date.
|
|
|
165,000
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
On July 16, 2018, the Company entered into a variable convertible note for $220,000 with net
proceeds of $214,000. The note is due July 16, 2019 and bears interest at 10% per annum. The note is immediately convertible into shares of the Company's Class A common stock at a discount of 35% to the average of the three lowest trading
closing prices of the stock for ten days prior to conversion.
|
|
|
-
|
|
|
|
-
|
|
ALPINE 4 TECHNOLOGIES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2018 and 2017
On July 18, 2018, the Company entered into a variable convertible note for $88,000 with net
proceeds of $88,000. The note is due April 30, 2019 and bears interest at 12% per annum. The note is immediately convertible into shares of the Company's Class A common stock at a discount of 42% to the average of the two lowest trading
closing prices of the stock for ten days prior to conversion.
|
|
|
88,000
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
On August 30, 2018, the Company entered into a variable convertible note for $337,500 with net
proceeds of $303,750. The note is due February 28, 2019 and bears interest at 10% per annum. The note is immediately convertible into shares of the Company's Class A common stock at a discount of 42% to the average of the two lowest
trading closing prices of the stock for ten days prior to conversion.
|
|
|
337,500
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
On September 27, 2018, the Company entered into a variable convertible note for $93,000 with net
proceeds of $93,000. The note is due July 15, 2019 and bears interest at 12% per annum. The note is immediately convertible into shares of the Company's Class A common stock at a discount of 42% to the average of the two lowest trading
closing prices of the stock for ten days prior to conversion.
|
|
|
93,000
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
On October 23, 2018, the Company entered into a variable convertible note for $220,000 with net
proceeds of $198,000. The note is due December 14,2018 and bears interest at 10% per annum. The note is immediately convertible into shares of the Company's Class A common stock at a discount of 42% to the average of the two lowest
trading closing prices of the stock for ten days prior to conversion.
|
|
|
220,000
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
On November 12, 2018, the Company entered into a variable convertible note for $670,000 with net
proceeds of $636,000. The note is due November 12, 2019 and bears interest at 10% per annum. The note is immediately convertible into shares of the Company's Class A common stock at a discount of 35% to the average of the three lowest
trading closing prices of the stock for ten days prior to conversion.
|
|
|
670,000
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
On December 7, 2018, the Company entered into a variable convertible note for $130,000 with net
proceeds of $122,200. The note is due September 7, 2019 and bears interest at 12% per annum. The note is immediately convertible into shares of the Company's Class A common stock at a discount of 40% to the lowest trading closing prices
of the stock for 20 days prior to conversion.
|
|
|
130,000
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Total convertible notes payable
|
|
|
4,037,587
|
|
|
|
4,042,356
|
|
Less: discount on convertible notes payable
|
|
|
(942,852
|
)
|
|
|
(79,630
|
)
|
Total convertible notes payable, net of discount
|
|
|
3,094,735
|
|
|
|
3,962,726
|
|
Less: current portion of convertible notes payable
|
|
|
(2,644,735
|
)
|
|
|
(2,302,620
|
)
|
Long-term portion of convertible notes payable
|
|
$
|
450,000
|
|
|
$
|
1,660,106
|
|
The discounts on convertible notes payable arise from stock issued with notes payable, beneficial conversion features,
as well as conversion features of certain convertible notes being treated as derivative liabilities (see Note 11). The discounts are being amortized over the terms of the convertible notes payable. Amortization of debt discounts during the years
ended December 31, 2018 and 2017 amounted to $1,428,954 and $89,292, respectively, and is recorded as interest expense in the accompanying consolidated statements of operations. The unamortized discount balance for these notes was $942,852 as of
December 31, 2018, which is expected to be amortized over the next 12 months.
A summary of the activity in the Company's convertible notes payable is provided below:
Balance outstanding, December 31, 2016
|
|
$
|
2,007,557
|
|
Issuance of convertible notes payable for acquisition of VWES
|
|
|
1,500,000
|
|
Issuance of convertible notes payable for cash
|
|
|
836,000
|
|
Repayment of notes
|
|
|
(219,721
|
)
|
Conversion of notes payable to common stock
|
|
|
(88,902
|
)
|
Discount from issuance of common stock
|
|
|
(16,500
|
)
|
Discount from beneficial conversion feature
|
|
|
(30,000
|
)
|
Discount from derivative liabilities
|
|
|
(115,000
|
)
|
Amortization of debt discounts
|
|
|
89,292
|
|
Balance outstanding, December 31, 2017
|
|
|
3,962,726
|
|
Issuance of convertible notes payable for acquisition of APF
|
|
|
450,000
|
|
Issuance of convertible notes payable for cash
|
|
|
2,355,950
|
|
Issuance for debt discounts
|
|
|
147,341
|
|
Extinguishment of convertible note
|
|
|
(1,500,000
|
)
|
Repayment of notes
|
|
|
(1,417,133
|
)
|
Conversion of notes payable to common stock
|
|
|
(50,133
|
)
|
Discount from beneficial conversion feature
|
|
|
(2,282,970
|
)
|
Amortization of debt discounts
|
|
|
1,428,954
|
|
Balance outstanding, December 31, 2018
|
|
$
|
3,094,735
|
|
ALPINE 4 TECHNOLOGIES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2018 and 2017
Note 8 – Stockholders' Equity
Preferred Stock
The Company is authorized to issue 10,000,000 shares of $.0001 par value preferred stock. As of December
31, 2018 and December 31, 2017, no shares of preferred stock were outstanding.
Common Stock
Pursuant to the Second Amended and Restated Certificate of Incorporation, the Company is authorized to
issue two classes of common stock: Class A common stock, which has one vote per share, and Class B common stock, which has ten votes per share. Any holder of Class B common stock may convert his or her shares at any time into shares of Class A
common stock on a share-for-share basis. Otherwise the rights of the two classes of common stock will be identical.
The Company had the following transactions in its common stock during the year ended December 31, 2018:
•
|
Issued 499,999 shares of its Class A common stock in connection with a convertible note payable.
The note payable had an embedded conversion option that was a derivative, and the residual amount after allocating proceeds to the derivative was $0. Accordingly, no discount was recognized.
|
|
|
•
|
Issued 120,000 shares of its Class A common stock in connection with the conversion of convertible
notes payable and accrued interest with a value of $15,600.
|
|
|
•
|
Issued 100,000 shares of the Company's Class A common stock related to the Amended Agreement with
the seller of VWES.
|
|
|
•
|
Issued 76,670 shares of Class A common stock in connection with a convertible note payable. The
value of the shares amounted to $9,584 and has been recorded as a discount to the note payable.
|
|
|
•
|
Issued 3,400,000 shares of Class B common stock to various employees, officers and board members
as compensation. The value of the shares amounted to $176,800 and has been recorded as a component of general and administrative expenses for the year ended December 31, 2018.
|
|
|
•
|
Issued 250,000 shares of Class A common stock for the conversion of $7,250 of outstanding
convertible notes payable.
|
|
|
•
|
Issued 23,330 shares of Class A common stock with debt valued at $2,333.
|
|
|
•
|
Issued 274,295 shares of Class A common stock for the conversion of $14,000 of outstanding
convertible notes payable.
|
|
|
•
|
Issued 195,924 shares of Class A common stock for the conversion of $10,000 of outstanding
convertible notes payable.
|
|
|
•
|
Issued 175,702 shares of Class A common stock for the conversion of $3,883 of outstanding
convertible notes payable and $3,454 of accrued interest.
|
|
|
•
|
Issued 1,250,000 shares of Class A common stock as an inducement to investors to entering into
convertible note agreements.
|
ALPINE 4 TECHNOLOGIES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2018 and 2017
The Company had the following transactions in its common stock during the year ended December 31, 2017:
•
|
Issued 578,640 shares of its Class A common stock for services. Total expense for the shares
issued for services was $62,084;
|
|
|
•
|
Issued 886,757 shares of its Class A common stock in connection with the conversion of convertible
notes payable and accrued interest with a value of $99,573;
|
|
|
•
|
Issued 132,209 shares of the Company's restricted Class A common stock in private placement
transactions to investors, in exchange for capital raised of $40,000; and
|
|
|
•
|
Issued 150,000 Class A common stock to a lender valued at $16,500.
|
Redeemable Common Stock
During 2017, the Company issued 379,403 shares of its Class A common stock in connection with the purchase
of VWES. Of these shares, 260,000 shares were redeemable at $4.25 per share at three different redemption periods: 130,000 shares at 12 months, 65,000 shares at 18 months and 65,000 shares at 24 months from the closing date of the purchase of
VWES. Additionally, 119,403 shares were redeemable at $3.35 per share at 12 months from the closing date of the purchase of VWES. These shares were valued at the redemption value of $1,439,725. The redemption right on these shares was cancelled
in connection with the Amended Agreement entered on February 22, 2018 (see Note 9).
Due to the nature of the issuance of stock for the VWES acquisition, it was historically recorded outside
of permanent equity. Subsequent to February 22, 2018 after the cancellation of the redemption rights, the stock was reclassified to equity in the accompanying consolidated balance sheet.
Stock Options
The Company has issued stock options to purchase shares of the Company’s Class A common stock issued pursuant to the
Company's 2016 Stock Option and Stock Award Plan (the "Plan"). The Company uses the Black-Scholes option pricing model to estimate the fair value of stock-based awards on the date of grant and on each modification date. The following key assumptions
during the years ended December 31, 2018 and 2017:
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
Risk free rate
|
|
|
2.38
|
%
|
|
|
2.38
|
%
|
Volatility
|
|
|
200
|
%
|
|
|
200
|
%
|
Expected terms (years)
|
|
|
6.25
|
|
|
|
6.25
|
|
Dividend rate
|
|
|
0
|
%
|
|
|
0
|
%
|
The following summarizes the stock option activity for the years ended December 31, 2018:
|
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Remaining
|
|
|
Aggregate
|
|
|
|
|
|
|
Exercise
|
|
|
Contractual
|
|
|
Intrinsic
|
|
|
|
Options
|
|
|
Price
|
|
|
Life (Years)
|
|
|
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2016
|
|
|
-
|
|
|
$
|
0.00
|
|
|
|
|
|
|
|
Granted
|
|
|
1,344,000
|
|
|
|
0.57
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(561,750
|
)
|
|
|
0.77
|
|
|
|
|
|
|
|
Outstanding at December 31, 2017
|
|
|
782,250
|
|
|
$
|
0.42
|
|
|
|
9.44
|
|
|
$
|
-
|
|
Granted
|
|
|
1,064,000
|
|
|
|
0.07
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(56,250
|
)
|
|
|
0.81
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
-
|
|
|
|
0.00
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2018
|
|
|
1,790,000
|
|
|
$
|
0.19
|
|
|
|
9.10
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested and expected to vest
at December 31, 2018
|
|
|
1,790,000
|
|
|
$
|
0.19
|
|
|
|
9.10
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at December 31, 2018
|
|
|
391,969
|
|
|
$
|
0.32
|
|
|
|
8.67
|
|
|
$
|
-
|
|
ALPINE 4 TECHNOLOGIES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2018 and 2017
The following table summarizes information about options outstanding and exercisable as of December 31, 2018:
|
|
|
Options Outstanding
|
|
|
Options Exercisable
|
|
|
|
|
|
|
|
Weighted
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
Average
|
|
|
Average
|
|
|
|
|
|
Average
|
|
Exercise
|
|
|
Number
|
|
|
Remaining
|
|
|
Exercise
|
|
|
Number
|
|
|
Exercise
|
|
Price
|
|
|
of Shares
|
|
|
Life (Years)
|
|
|
Price
|
|
|
of Shares
|
|
|
Price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
0.05
|
|
|
|
979,000
|
|
|
|
9.38
|
|
|
$
|
0.05
|
|
|
|
88,000
|
|
|
$
|
0.05
|
|
|
0.10
|
|
|
|
85,000
|
|
|
|
9.28
|
|
|
|
0.10
|
|
|
|
10,625
|
|
|
|
0.10
|
|
|
0.13
|
|
|
|
388,500
|
|
|
|
8.59
|
|
|
|
0.13
|
|
|
|
145,688
|
|
|
|
0.13
|
|
|
0.26
|
|
|
|
114,000
|
|
|
|
8.34
|
|
|
|
0.26
|
|
|
|
49,875
|
|
|
|
0.26
|
|
|
0.90
|
|
|
|
223,500
|
|
|
|
8.27
|
|
|
|
0.90
|
|
|
|
97,781
|
|
|
|
0.90
|
|
|
|
|
|
|
1,790,000
|
|
|
|
|
|
|
|
|
|
|
|
391,969
|
|
|
|
|
|
During the years ended December 31, 2018 and 2017, stock option expense amounted to $71,223
and $87,136, respectively. Unrecognized stock option expense as of December 31, 2018 amounted to $199,812, which will be recognized over a period extending through December 2022.
Warrants
On April 9, 2018, the Company granted 153,340 warrants in connection with the issuance of a convertible note payable.
The warrants have a 3 year contractual life, an exercise price of $1 per share and are vested immediately.
On January 1, 2017, the Company granted 75,000 warrants to the seller of VWES. The warrants have a 3 year
contractual life, an exercise price of $4.25 per share and are vested immediately. The warrants were accounted for as part of the purchase price of the acquisition of VWES. On February 22, 2018, in connection with the Amended Agreement (see Note
9), the warrants were cancelled and replaced with 75,000 new warrants with an exercise price of $1 per share that were vested immediately and have a contractual life of 3 years.
During the year ended December 31, 2017, the Company granted an aggregate total of 2,001 warrants to
individuals. These warrants all have a 3 year contractual life, an exercise price of $2.00 per share and are vested immediately.
As of December 31, 2018, the Company had 230,341 warrants outstanding with a weighted average exercise price of $1.01
and a weighted average remaining life of 2.23 years.
Note 9 – Business Combinations
Venture West Energy Services
Effective January 1, 2017, the Company purchased 100% of the outstanding interests of Venture West
Energy Services (“VWES”) (formerly Horizon Well Testing, LLC).
Alpine 4 purchased 100% of the outstanding interests of
VWES
for $2,200,000 cash, two notes payable ($1,500,000 and $300,000), 379,403 shares of Alpine 4's Class A common stock, valued at $1,439,725, and 75,000 warrants, to
purchase one share of Alpine 4 Class A common stock, valued at $40,941. The $300,000 note bears interest at 1% and was payable in full by July 31, 2017 (see Note 6). The $1,500,000 note is a convertible note with an option to convert at $8.50
into Alpine 4's Class A common stock. The $1,500,000 note bears interest at 5% per annum and has a balloon payment due on the 18-month anniversary of the closing of the purchase. There were also post-closing adjustments of $25,232.
ALPINE 4 TECHNOLOGIES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2018 and 2017
A summary of the purchase price allocation at fair value is below.
|
|
Purchase
Allocation
|
|
Cash
|
|
$
|
262,384
|
|
Accounts Receivable, net
|
|
|
245,833
|
|
Property, Plant & Equipment
|
|
|
4,804,458
|
|
Intangibles
|
|
|
-
|
|
Goodwill
|
|
|
167,845
|
|
Accrued Expenses
|
|
|
(25,086
|
)
|
Total consideration
|
|
$
|
5,455,434
|
|
On February 22, 2018, the Company entered into an Amended Agreement with the seller of VWES. Per the
terms of the Amended Agreement, the two notes payable initially issued to the seller of VWES on January 1, 2017, for $1,500,000 and $300,000 were cancelled, along with the redemption rights associated with 379,403 shares the Company’s Class A
common stock and 75,000 warrants, and replaced with a new Amended and Restated Secured Promissory Note for $3,000,000 (see Note 5). The new note is due in semi-annual payments of $150,000 commencing on June 1, 2018, through June 1, 2020 and bears
interest at 7% per annum. If the note is paid was full on or before June 1, 2018, the balance due would be discounted by $500,000. If the note is paid in full after June 1, 2018, and on or before December 1, 2018, the balance due will be
discounted by $450,000. If the note is paid in full after December 1, 2018, and on or before June 1, 2019, the balance due will be discounted by $350,000. If the note is paid in full after June 1, 2019, and on or before December 1, 2019, the
balance due will be discounted by $250,000. If the note is paid in full after December 1, 2019, and on or before June 1, 2020, the balance due will be discounted by $200,000.
In connection with the Amended Agreement, the Company also issued an additional 100,000 shares of Class A
common stock to the seller of VWES valued at $15,000, and granted new warrants effective February 22, 2018 to purchase 75,000 shares of common stock with an exercise price of $1.00 per share valued at $9,142 using the Black-Sholes model. The
warrants are immediately vested and have a contractual life of 3 years. The Company also agreed to return the land and building acquired in the acquisition of VWES to the seller. The land and building had an aggregate book value as of February
22, 2018 of $173,396, which approximated its fair value.
The Company compared the value of the extinguished debt, returned land and building and cancelled stock
and warrants to the value of the new Amended and Restated Secured Promissory Note and new instruments issued as of February 22, 2018. The difference of $136,300 was reflected as a gain on extinguishment of debt during the accompanying consolidated
statements of operations for the year ended December 31, 2018.
The following is a summary of the non-cash items given as consideration to the seller of VEWS in
connection with the Amended and Restated Secured Promissory Note, which is reflected in the supplemental disclosure of non-cash financing activities in the accompanying consolidated statement of cash flows for the year ended December 31, 2018.
|
|
Non-Cash
|
|
|
|
Consideration
|
|
Note payable
|
|
$
|
3,000,000
|
|
Common stock
|
|
|
15,000
|
|
Warrants
|
|
|
9,142
|
|
Land and building
|
|
|
173,396
|
|
Total
|
|
$
|
3,197,538
|
|
ALPINE 4 TECHNOLOGIES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2018 and 2017
American Precision Fabricators (“APF”)
On April 5, 2018, the Company announced that it had entered into a Securities Purchase Agreement (the
"SPA") with APF, an Arkansas corporation, and Andy Galbach ("Galbach") and Clarence Carl Davis, Jr. ("Davis"), the owners of APF (the "Sellers"). Pursuant to the SPA, the Company acquired 100% of the outstanding shares in APF.
The total purchase price of APF from the SPA amounted to $4,500,000, which consisted of aggregate cash
consideration paid to the Sellers of $2,100,000, an aggregate of $1,950,000 of secured promissory notes due to the Sellers (see Note 5), and an aggregate of $450,000 of convertible promissory notes due to the Sellers (see Note 7). At the closing
date, the Company and the Sellers agreed to a reduction of the purchase price of $123,250, resulting from a net working capital adjustment which was deducted from the cash consideration due to the Sellers. As a result, the total purchase price of
APF was $4,376,750.
A summary of the purchase price allocation at fair value is below. The business combination accounting is not yet
complete and the amounts assigned to assets acquired and liabilities assumed are provisional. The Company is still in the process of obtaining and assessing documentation of the contracts for customer relationships. Therefore, this may result in
future adjustments to the provisional amounts as new information is obtained about facts and circumstances that existed at the acquisition date.
|
|
Purchase
Allocation
|
|
Accounts receivable
|
|
$
|
945,050
|
|
Inventory
|
|
|
675,074
|
|
Prepaid expenses and other current assets
|
|
|
250,040
|
|
Property and equipment
|
|
|
3,300,000
|
|
Goodwill
|
|
|
1,230,100
|
|
Accounts payable
|
|
|
(1,234,328
|
)
|
Accrued expenses
|
|
|
(154,186
|
)
|
Line of credit
|
|
|
(165,000
|
)
|
Deferred tax liability
|
|
|
(470,000
|
)
|
|
|
$
|
4,376,750
|
|
In connection with the SPA, and as consideration for the Company to enter into the SPA, APF
and Galbach entered into a Consulting Services Agreement (the "Consulting Agreement"), pursuant to which Galbach agreed for a period of 90 days following the closing date to provide strategic management services to APF, meet with APF's new
management, and provide his knowledge in customer relations, trade and service implementation, and other business disciplines. Additionally, APF agreed to reimburse Galbach for his expenses incurred by Galbach in connection with providing the
services under the Consulting Agreement.
Simultaneous with the purchase of APF, a building, owned by APF prior to the acquisition, was sold in a
sale-leaseback transaction agreement, whereby the building was leased from the buyer for 15 years. The proceeds from the sale-leaseback of $1,900,000 were used to fund the cash consideration to the sellers. The building and the lease is being
treated as a capital lease (see Note 4).
The following are the unaudited pro forma results of operations for the three and years ended December 31,
2018 and 2017, as if APF had been acquired on January 1, 2017. The pro forma results include estimates and assumptions which management believes are reasonable. However, pro forma results do include any anticipated cost savings or other effects
of the planned integration of these entities, and are not necessarily indicative of the results that would have occurred if the business combination had been in effect on the dates indicated.
|
|
Pro Forma
Combined Financials
(Unaudited)
|
|
|
|
Year Ended December 31,
2018
|
|
|
Year Ended December 31,
2017
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
15,407,012
|
|
|
$
|
11,995,811
|
|
|
|
|
|
|
|
|
|
|
Net Loss from continuing operations
|
|
$
|
(3,189,893
|
)
|
|
$
|
(1,649,423
|
)
|
|
|
|
|
|
|
|
|
|
Net loss per shares from continuing operations
|
|
$
|
(0.12
|
)
|
|
$
|
(0.07
|
)
|
ALPINE 4 TECHNOLOGIES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2018 and 2017
Note 10 – Income Taxes
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of
assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. A full valuation allowance is established against the remaining net deferred tax assets as of December 31, 2018 and 2017 based on estimates of
recoverability. The Company determined that such a valuation allowance was necessary given the current and expected near term losses and the uncertainty with respect to its ability to generate sufficient profits from its new business model. The
Tax Cuts and Jobs Act was signed into law on December 22, 2017, and reduced the corporate income tax rate from 34% to 21%. The Company's deferred tax assets, liabilities, and valuation allowance have been adjusted to reflect the impact of the new
tax law.
The following is a reconciliation of the difference between the effective and statutory income tax rates
for years ended December 31:
|
|
2018
|
|
|
2017
|
|
|
|
Amount
|
|
|
Percent
|
|
|
Amount
|
|
|
Percent
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal statutory rates
|
|
$
|
(1,660,684
|
)
|
|
|
21.0
|
%
|
|
$
|
(1,106,976
|
)
|
|
|
34.0
|
%
|
State income taxes
|
|
|
(474,481
|
)
|
|
|
6.0
|
%
|
|
|
(367,525
|
)
|
|
|
11.3
|
%
|
Permanent differences
|
|
|
890,348
|
|
|
|
-11.3
|
%
|
|
|
4,103
|
|
|
|
-0.1
|
%
|
Impact of change in tax rate
|
|
|
-
|
|
|
|
|
|
|
|
727,566
|
|
|
|
22.3
|
%
|
Other
|
|
|
-
|
|
|
|
|
|
|
|
(27,282
|
)
|
|
|
0.9
|
%
|
Valuation allowance against net deferred tax assets
|
|
|
1,201,418
|
|
|
|
-15.2
|
%
|
|
|
511,722
|
|
|
|
-14.9
|
%
|
Effective rate
|
|
$
|
(43,399
|
)
|
|
|
0.5
|
%
|
|
$
|
(258,392
|
)
|
|
|
53.5
|
%
|
At December 31, 2018 and December 31, 2017, the significant components of the
deferred tax assets are summarized below:
|
|
2018
|
|
|
2017
|
|
Deferred income tax asset
|
|
|
|
|
|
|
Net operation loss carryforwards
|
|
$
|
2,607,105
|
|
|
$
|
1,253,964
|
|
Total deferred income tax asset
|
|
|
2,607,105
|
|
|
|
1,253,964
|
|
Less: valuation allowance
|
|
|
(2,607,105
|
)
|
|
|
(1,253,964
|
)
|
Total deferred income tax asset
|
|
$
|
-
|
|
|
$
|
-
|
|
At December 31, 2018 and December 31, 2017, the significant components of the deferred tax liabilities are summarized below:
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
Deferred income tax liabilities:
|
|
|
|
|
|
|
Book to tax differences in intangible assets
|
|
|
608,304
|
|
|
|
181,703
|
|
Total deferred income tax asset
|
|
$
|
608,304
|
|
|
$
|
181,703
|
|
ALPINE 4 TECHNOLOGIES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2018 and 2017
The deferred tax liability is mostly made up of the difference between book and tax values for property
and equipment and intangible assets.
The Company has recorded as of December 31, 2018 and 2017 a valuation allowance of $2,607,105 and $1,253,964,
respectively, as management believes that it is more likely than not that the deferred tax assets will not be realized in future years. Management has based its assessment on the Company's lack of profitable operating history.
The Company annually conducts an analysis of its tax positions and has concluded that it had no uncertain
tax positions as of December 31, 2018.
The Company has net operating loss carry-forwards of approximately $9.8 million. Such amounts are subject to IRS code
section 382 limitations and begin to expire in 2029. The tax years from 2015 - 2018 are still subject to audit.
Note 11 – Industry Segments
This summary presents the Company's segments, QCA and APF for the years ended December 31, 2018 and 2017:
|
Year Ended December 31, 2018
|
|
|
|
|
|
|
Unallocated
|
|
|
|
|
|
|
|
|
and
|
|
Total
|
|
|
QCA
|
|
APF
|
|
Eliminations
|
|
Consolidated
|
|
Revenue
|
|
$
|
10,513,743
|
|
|
|
3,104,791
|
|
|
$
|
643,260
|
|
|
$
|
14,261,794
|
|
Segment gross profit
|
|
|
3,293,86
|
|
|
|
1,078,075
|
|
|
|
449,535
|
|
|
|
4,820,796
|
|
Segment depreciation and amortization
|
|
|
299,328
|
|
|
|
200,247
|
|
|
|
33,333
|
|
|
|
532,908
|
|
Segment interest expense
|
|
|
734,033
|
|
|
|
153,107
|
|
|
|
2,234,061
|
|
|
|
3,121,201
|
|
Segment net income (loss)
|
|
|
390,158
|
|
|
|
(455,125
|
)
|
|
|
(2,931,926
|
)
|
|
|
(2,996,893
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2018
|
|
|
|
|
|
|
|
|
|
|
Unallocated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and
|
|
Total
|
|
|
QCA
|
|
APF
|
|
Eliminations
|
|
Consolidated
|
|
Accounts receivable, net
|
|
$
|
1,649,701
|
|
|
$
|
958,153
|
|
|
$
|
2,500
|
|
|
$
|
2,610,354
|
|
Goodwill
|
|
|
1,963,761
|
|
|
|
1,230,100
|
|
|
|
-
|
|
|
|
3,193,861
|
|
Total assets
|
|
|
10,767,883
|
|
|
|
6,159,098
|
|
|
|
1,013,695
|
|
|
|
17,940,676
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2017
|
|
|
|
|
|
|
|
|
|
|
Unallocated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and
|
|
Total
|
|
|
|
|
|
|
QCA
|
|
Eliminations
|
|
Consolidated
|
|
|
|
|
|
Revenue
|
|
$
|
7,809,813
|
|
|
$
|
508,203
|
|
|
$
|
8,318,016
|
|
|
|
|
|
Segment gross profit
|
|
|
2,191,078
|
|
|
|
219,517
|
|
|
|
2,410,595
|
|
|
|
|
|
Segment depreciation and amortization
|
|
|
289,746
|
|
|
|
50,001
|
|
|
|
339,747
|
|
|
|
|
|
Segment interest expense
|
|
|
730,096
|
|
|
|
532,397
|
|
|
|
1,262,493
|
|
|
|
|
|
Segment net income (loss)
|
|
|
327,511
|
|
|
|
(1,614,287
|
)
|
|
|
(1,286,776
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2017
|
|
|
|
|
|
|
|
|
|
|
Unallocated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and
|
|
Total
|
|
|
|
|
|
|
QCA
|
|
Eliminations
|
|
Consolidated
|
|
|
|
|
|
Accounts receivable, net
|
|
$
|
1,545,422
|
|
|
$
|
15,058
|
|
|
$
|
1,560,480
|
|
|
|
|
|
Goodwill
|
|
|
1,963,761
|
|
|
|
-
|
|
|
|
1,963,761
|
|
|
|
|
|
Total assets
|
|
|
10,569,893
|
|
|
|
5,401,057
|
|
|
|
15,970,950
|
|
|
|
|
|
ALPINE 4 TECHNOLOGIES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2018 and 2017
Note 12 – Derivative Liabilities and Fair Value Measurements
Derivative liabilities
The Company has issued convertible notes payable that were evaluated under the guidance in FASB ASC
815-40, Derivatives and Hedging, and were determined to have characteristics of derivative liabilities. As a result of the characteristics of these notes, the conversion options relating to previously issued convertible debt and outstanding Class
A common stock warrants were also required to be accounted for as derivative liabilities under ASC 815. Under this guidance, this derivative liability is marked-to-market at each reporting period with the non-cash gain or loss recorded in the
period as a gain or loss on derivatives.
The valuation of our embedded derivatives is determined by using the Black-Scholes Option Pricing Model.
As such, our derivative liabilities have been classified as Level 2.
The Company estimated the fair value of the derivative liabilities using the Black-Scholes Option Pricing
Model and the following key assumptions during the years ended December 31, 2018 and 2017:
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
Risk free rate
|
|
|
2.63
|
%
|
|
|
2.38
|
%
|
Volatility
|
|
|
200
|
%
|
|
|
200
|
%
|
Expected terms (years)
|
|
0.5 to 3.0
|
|
|
0.5 to 2.67
|
|
Dividend rate
|
|
|
0
|
%
|
|
|
0
|
%
|
Fair value measurements
FASB ASC 820,
Fair Value Measurements and Disclosures
, defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or
liability in an orderly transaction between market participants on the measurement date. FASB ASC 820 also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable
inputs when measuring fair value. FASB ASC 820 describes three levels of inputs that may be used to measure fair value:
Level 1
– Quoted prices in active markets for identical assets or liabilities.
Level 2
– Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or
liabilities.
Level 3
– Unobservable inputs that are supported by little or no market activity and that are financial instruments whose values are determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for
which the determination of fair value requires significant judgment or estimation.
If the inputs used to measure the financial assets and liabilities fall within more than one level
described above, the categorization is based on the lowest level of input that is significant to the fair value measurement of the instrument.
ALPINE 4 TECHNOLOGIES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2018 and 2017
The following table provides a summary of the fair value of our derivative liabilities as of December 31,
2018 and 2017:
|
|
Fair Value
As of
|
|
|
Fair Value Measurements at
|
|
|
|
December 31,
|
|
|
December 31, 2018
|
|
Description
|
|
2018
|
|
|
Using Fair Value Hierarchy
|
|
|
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Conversion feature on convertible notes
|
|
$
|
1,892,321
|
|
|
$
|
-
|
|
|
$
|
1,892,321
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value
As of
December 31,
|
|
|
Fair Value Measurements at
December 31, 2017
|
|
Description
|
|
2017
|
|
|
Using Fair Value Hierarchy
|
|
|
|
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Conversion feature on convertible notes
|
|
$
|
271,588
|
|
|
$
|
-
|
|
|
$
|
271,588
|
|
|
$
|
-
|
|
The below table presents the change in the fair value of the derivative liabilities during the years ended
December 31, 2018:
Derivative liability balance, December 31, 2016
|
|
$
|
-
|
|
Issuance of derivative liability during the period
|
|
|
367,633
|
|
Derivative liability resolution
|
|
|
(222,099
|
)
|
Change in derivative liability during the period
|
|
|
126,054
|
|
Derivative liability balance, December 31, 2017
|
|
|
271,588
|
|
Issuance of derivative liability during the period
|
|
|
2,282,970
|
|
Derivative liability resolution
|
|
|
(58,018
|
)
|
Change in derivative liability during the period
|
|
|
(604,219
|
)
|
Derivative liability balance, December 31, 2018
|
|
$
|
1,892,321
|
|
Note 13 – Discontinued Operations
In December 2018, the Company decided to shut down the operations of its VWES subsidiary. In February
2019, VWES filed for Chapter 7 bankruptcy.
VWES has been presented as discontinued operations in the accompanying consolidated financial statements.
The operating results for VWES have been presented in the accompanying consolidated statement of operations for the years
ended December 31, 2018 and 2017 as discontinued operations and are summarized below:
|
|
2018
|
|
|
2017
|
|
Revenue
|
|
$
|
3,040,458
|
|
|
$
|
1,773,474
|
|
Cost of revenue
|
|
|
2,974,313
|
|
|
|
2,288,815
|
|
Gross Profit
|
|
|
66,145
|
|
|
|
(515,341
|
)
|
Operating expenses
|
|
|
5,045,078
|
|
|
|
890,856
|
|
Loss from operations
|
|
|
(4,978,933
|
)
|
|
|
(1,406,197
|
)
|
Other income (expenses)
|
|
|
67,809
|
|
|
|
(304,447
|
)
|
Net loss
|
|
$
|
(4,911,124
|
)
|
|
$
|
(1,710,644
|
)
|
ALPINE 4 TECHNOLOGIES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2018 and 2017
The assets and liabilities of the discontinued operations at December 31, 2018 and 2017 are summarized below:
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
Current assets
|
|
$
|
121,296
|
|
|
$
|
574,174
|
|
Property and equipment
|
|
|
387,727
|
|
|
|
4,174,629
|
|
Goodwill
|
|
|
-
|
|
|
|
167,845
|
|
Total assets
|
|
|
509,023
|
|
|
|
4,916,648
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
2,493,049
|
|
|
|
922,276
|
|
Notes payable - related party
|
|
|
43,500
|
|
|
|
343,500
|
|
Notes payable
|
|
|
215,898
|
|
|
|
2,079,198
|
|
Total liabilities
|
|
|
2,752,447
|
|
|
|
3,344,974
|
|
Note 14 – Subsequent Events
On January 9, 2019, the Company, announced that it had entered into a Securities Purchase Agreement (the
"SPA") with Morris Sheet Metal Corp., an Indiana corporation (" MSM "), JTD Spiral, Inc. a wholly owned subsidiary of MSM, an Indiana corporation (" JTD Spiral "), Morris Enterprises LLC, an Indiana limited liability company ("Morris Enterprises ")
and Morris Transportation LLC, an Indiana limited liability company (" Morris Transportation " and, with MSM, JTD Spiral, and Morris Enterprises, and James Morris, Daniel Morris and Timothy Morris. The purchase price was $6,600,000 consisting of
$3,150,000 in cash and the remainder financed with a seller note.
15(a)(2). Financial Statement Schedules.
None.
15(a)(3). Exhibits.
EXHIBIT INDEX
|
|
|
|
|
2.1
|
|
Asset Purchase and Share Exchange Agreement (included as Annex A to the joint proxy
statement/prospectus forming part of Alpine 4’s registration statement, previously filed with the SEC).
|
|
|
3.1
|
|
|
|
|
3.2
|
|
|
|
|
|
3.3
|
|
|
|
|
|
3.4
|
|
|
|
|
|
3.5
|
|
|
|
|
|
3.6
|
|
|
|
|
4.1
|
|
|
|
|
10.1
|
|
|
|
|
|
10.2
|
|
|
|
|
|
10.7
|
|
|
|
|
|
10.8
|
|
|
|
|
|
10.9
|
|
|
|
|
|
10.11
|
|
|
|
|
|
10.12
|
|
|
|
|
|
10.13
|
|
|
|
|
|
10.14
|
|
|
|
|
|
10.15
|
|
|
|
|
|
10.16
|
|
|
|
|
|
10.17
|
|
|
|
|
|
31.1
|
|
|
|
|
|
32.1
|
|
|
|
|
|
101 INS
|
|
XBRL Instance Document*
|
|
|
|
101 SCH
|
|
XBRL Schema Document*
|
|
|
|
101 CAL
|
|
XBRL Calculation Linkbase Document*
|
|
|
|
101 DEF
|
|
XBRL Definition Linkbase Document*
|
|
|
|
101 LAB
|
|
XBRL Labels Linkbase Document*
|
|
|
|
101 PRE
|
|
XBRL Presentation Linkbase Document*
|
*The XBRL related information in Exhibit 101 shall not be deemed "filed" for purposes of Section 18 of
the Securities Exchange Act of 1934, as amended, or otherwise subject to liability of that section and shall not be incorporated by reference into any filing or other document pursuant to the Securities Act of 1933, as amended, except as shall be
expressly set forth by specific reference in such filing or document.
Pursuant to the requirements of section 13 or 15 (d) of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.
ALPINE 4 TECHNOLOGIES LTD.
Date: April 22, 2019
|
By:
|
/s/ Kent B. Wilson
|
|
Name:
|
Kent B. Wilson
|
|
|
Title: Chief Executive Officer, Chief Financial Officer (Principal Executive Officer, Principal
Financial and Accounting Officer), President, and Director
|
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by
the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
/s/ Kent B. Wilson
Kent B. Wilson
|
Chief Executive Officer, Chief Financial Officer, President, Director
|
April 22, 2019
|
|
|
|
/s/ Scott Edwards
Scott Edwards
|
|
April 22, 2019
|
|
|
|
/s/ Charles
Winters
Charles Winters
|
Chairman of the Board
|
April 22, 2019
|
|
|
|
/s/ Ian Kantrowitz
Ian Kantrowitz
|
Director
|
April 22, 2019
|
60