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ALPINE 4 HOLDINGS, INC. - Annual Report: 2018 (Form 10-K)


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-K
 
[X]
ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the fiscal year ended December 31, 2018
   
[   ]
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
46-5482689
(State or Other Jurisdiction of Incorporation or Organization)
(I.R.S. Employer Identification No.)
 
 
2525 E Arizona Biltmore Circle Suite 237
 
Phoenix, AZ
85016
(Address of Principal Executive Offices)
(Zip Code)
 
Registrant’s telephone number, including area code: 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 every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes        No

Indicate by check mark 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
Accelerated filer
Non-accelerated filer
Smaller reporting company
   
Emerging Growth Company
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes        No
 
State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter.  As of June 30, 2018, 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 $2,257,363.
 
State the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date:  As of March 31, 2019, the issuer had 26,567,410 shares of its Class A common stock issued and outstanding and 5,000,000 shares of its Class B common stock issued and outstanding.


DOCUMENTS INCORPORATED BY REFERENCE

None.


ALPINE 4 TECHNOLOGIES LTD.
FISCAL YEAR ENDED DECEMBER 31, 2016
ANNUAL REPORT ON FORM 10-K

TABLE OF CONTENTS
 
PART I
 
Page
 
 
 
 
 
ITEM 1.
BUSINESS
3
 
       
ITEM 1A.
RISK FACTORS
9
 
       
ITEM 1B.
UNRESOLVED STAFF COMMENTS
15
 
       
ITEM 2.
PROPERTIES
15
 
       
ITEM 3.
LEGAL PROCEEDINGS
15
 
       
ITEM 4.
MINE SAFETY DISCLOSURES
16
 
       
PART II
     
       
ITEM 5.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
16
 
       
ITEM 6.
SELECTED FINANCIAL DATA
20
 
       
ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
20
 
       
ITEM 7A.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
24
 
       
ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
24
 
       
ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES
24
 
       
ITEM 9A.
CONTROLS AND PROCEDURES
24  
       
ITEM 9B.
OTHER INFORMATION
25  
       
PART III
     
       
ITEM 10.
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
26  
       
ITEM 11.
EXECUTIVE COMPENSATION
28  
       
ITEM 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
28  
       
ITEM 13.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
30  
       
ITEM 14.
PRINCIPAL ACCOUNTING FEES AND SERVICES
30  
       
PART IV
     
       
ITEM 15.
EXHIBITS, FINANCIAL STATEMENT SCHEDULES
30  
       
SIGNATURES
  60  


2


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. (“Alpine 4,” the “Company,” “we,” or “our”) was incorporated under the laws of the State of Delaware on April 22, 2014.  The Company was formed to serve as a vehicle to effect an asset acquisition, merger, exchange of capital stock, or other business combination with a domestic or foreign business.  As of the date this Report was filed, the Company was a holding company that owned five operating subsidiaries: ALTIA, LLC; Quality Circuit Assembly, Inc.; American Precision Fabricators, Inc.; Morris Sheet Metal, Corp; and JTD Spiral, Inc. (As discussed in more detail below, we previously had an additional subsidiary, Venture West Energy Services (formerly Horizon Well Testing, LLC). However, as of December 31, 2018, we discontinued operations on this company and in February 2019 filed for Chapter 7 bankruptcy.

3

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.
 
Driver, Stabilizer, Facilitator (DSF)
 
At the heart of our acquisition model is our focus on what we call DSF, which stands for Driver, Stabilizer, Facilitator.

Driver are companies that are in emerging markets or technologies, have large upside potential for revenue and profits, and a large market opportunity to access.  These types of acquisitions are typically small, brand new companies that need structure that can support their growth.
 
Stabilizers are companies that have returning or “sticky” customers and consistent revenue, and that can provide solid net profit returns to Alpine 4.
 
Facilitators are our “secret sauce.”  We believe that our greatest competitive advantage is our highly diversified business structure combined with a collaborative business culture that helps drive out competition in our markets by bringing resources, planning, technology and capacity that our competitors do not have.
 
The following diagram shows how we view our various subsidiaries as drivers, facilitators, and stabilizers:
 

 

At Alpine 4, we understand 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.

4

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 and $150 million.  In this target rich environment, we believe that 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 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, may be offered to external customers.

Diversification

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

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

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

In April 2018, Alpine 4 acquired 100% of American Precision Fabricators (APF) Additional information relating to our acquisition of APF can be found in our Current Report on Form 8-K, filed with the SEC on April 10th 2018.

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

5

As of the date of the filing of this Annual Report, our subsidiaries and product groups consisted of the following:

Subsidiaries & Product Groups

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

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

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

BrakeActive™ is a safety device that can improve a vehicle’s third brake light’s ability to greatly reduce or prevent a rear end collision by as much as 40%. According to a National Highway Traffic Safety Administration report issued in 2010, rear end collisions could be reduced by 90% if trailing vehicles had one additional second to react. The Company’s new programmable technology and device aims to provide this additional reaction time to trailing vehicles.
     
Quality Circuit Assembly (“QCA”) - Since 1988, QCA has been providing electronic contract manufacturing solutions delivered to its customers via strategic business partnerships. Our abilities encompass a wide variety of skills, beginning with prototype development and culminating in the ongoing manufacturing of a complete product or assembly. Turnkey solutions are tailored around each customer's specific requirements.  Conveniently located in San Jose, California, with close proximity to San Jose airport and all major carriers, QCA’s primary aim is to provide contract-manufacturing solutions to market leading companies within the industrial, scientific, instrumentation, military, medical and green industries.
     
American Precision Fabricators (“APF”) – Based in Fort Smith, Arkansas, APF is a sheet metal fabricator that provides American made fabricated metal parts, assemblies and sub-assemblies to Original Equipment Manufacturers (“OEM”). The Company supplies several industries with fabricated parts that it creates in-house.  It offers several production capabilities with its state-of-the-art machinery.
     
Morris Sheet Metal (“MSM”) – Based in Fort Wayne, Indiana, MSM is a commercial sheet metal contractor and fabricator. MSM designs, fabricates, and installs dust collectors, commercial ductwork, kitchen hoods, industrial ventilation systems, machine guards, architectural work, water furnaces, and much more.
     
JTD Spiral (“JTD”) -  Based in Fort Wayne, Indiana, JTD is a sister company to MSM and provides specialized spiral duct work to MSM clientele.

Recent Developments

New Acquisitions

On January 9, 2019, Alpine 4 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 James Morris, Daniel Morris and Timothy Morris (each a "Seller," and collectively, the "Sellers").

The total consideration paid was $6,600,000 (the "Purchase Price"), which is the sum of the Cash Consideration paid at Closing, $3,150,000, and the Promissory Note Consideration, consisting of consist of a Secured Promissory Note to James Morris in the amount of $1,033,333.33 and a Secured Promissory Note to Timothy Morris in the amount of $1,033,333.33 and a Secured Promissory Note to  Daniel Morris in the amount of $1,033,333.33 (the "Primary Notes"), and a Secured Promissory Note to James Morris in the amount of $116,666.66 and a Secured Promissory Note to Timothy Morris in the amount of $116,666.66 and a Secured Promissory Note to  Daniel Morris in the amount of $116,666.66 (the "Supplemental Notes").  Additional information about the acquisitions and the transactions can be found in a Current Report filed by the Company on January 11, 2019.
6

Pursuant to the SPA, on January 1, 2019, Alpine 4 took effective control of MSM and JTD.

Based in Fort Wayne, Indiana, MSM is commercial sheet metal contractor and fabricator. MSM designs, fabricates, and installs dust collectors, commercial ductwork, kitchen hoods, industrial ventilation systems, machine guards, architectural work, water furnaces, and much more.
   
Based in Fort Wayne, Indiana, JTD is a sister company to MSM and provides specialized spiral duct work to MSM clientele.

Convertible Notes

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 also issued 499,999 shares to the lender with this note.  As of the date of this filing this note has been paid off.

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%. As of the date of this filing this note has been paid off.

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.  As of the date of this filing this note has been paid off.

On April 5, 2018, the Company entered into convertible promissory notes for an aggregate principal amount of $450,000 as part of the consideration for the acquisition of APF.  The convertible notes are due in full in 36 months and bear interest at 4.25% per annum, and are convertible into shares of Class A common stock after 6 months from the issuance date at a rate of $1 per share.

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.  As of the date of this filing this note has been paid off.

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.
7

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 January 21, 2019, as amended, 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.  As of the date of this filing this note has been paid off.


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. As of the date of this filing this note has been paid off.

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. As of the date of this filing this note has been paid off.

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.

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.

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.  As of December 31, 2018 this note is past due.

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.

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.

Issuance of Options

On July 31, 2017, the Company issued options to purchase 488,500 shares of the Company's Class A common stock to 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 four years, and the exercise price of the options granted is $0.13, which was the last closing bid price of the Company's common stock as traded on the OTCQB Market. In addition, during 2018, the Company issued an additional 1,064,000 options to purchase shares of the Company’s Class A common stock at exercise prices ranging from $0.05 to $0.10.

The options were issued without registration under the 1933 Act in reliance on Section 4(a)(2) of the 1933 Act and the rules and regulations promulgated thereunder.
8

Employees

As of the date of this Report, we had 156 full-time and 3 part-time employees. We believe that our relationship with our employees is good. Other than as disclosed in this Report or previously filed with the SEC, we have no employment agreements with our employees.

ITEM 1A.   RISK FACTORS

Because of the following factors, as well as other factors affecting the Company's financial condition and operating results, past financial performance should not be considered to be a reliable indicator of future performance, and investors should not use historical trends to anticipate results or trends in future periods.

Risks Associated With Our Business and Operations

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

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

We cannot predict if investors will find our common stock less attractive to the extent we rely on the exemptions available to emerging growth companies. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may be more volatile.
 
In addition, Section 107 of the JOBS Act also provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. An emerging growth company can therefore delay the adoption of certain accounting standards until those standards would otherwise apply to private companies.

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

However, we are choosing to "opt out" of such extended transition period, and as a result, we will comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for non-emerging growth companies. Section 107 of the JOBS Act provides that our decision to opt out of the extended transition period for complying with new or revised accounting standards is irrevocable.
9

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

Alpine 4 has incurred net losses of $28,520,094 since inception through December 31, 2018.  This net loss was primarily driven in 2015 by stock issuance to employees and the ceasing of business operations for its subsidiary Venture West Energy Services, LLC.  Because we have yet to attain profitable operations, in their report on our financial statements for the period ended December 31, 2018, our independent auditors included an explanatory paragraph regarding their substantial doubt about our ability to continue as a going concern.  While management believes Alpine 4 will have net operating gains beginning in 2019, 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.

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

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

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

Significant time and management resources are required to ensure compliance with public company reporting and other obligations. Taking steps to comply with these requirements will increase our costs and require additional management resources, and does not ensure that we will be able to satisfy them.
 
We are a publicly reporting company.  As a public company, we are required to comply with applicable provisions of the Sarbanes-Oxley Act of 2002, as well as other federal securities laws, and rules and regulations promulgated by the SEC and the various exchanges and trading facilities where our common stock may trade, which result in significant legal, accounting, administrative and other costs and expenses. These rules and requirements impose certain corporate governance requirements relating to director independence, distributing annual and interim reports, stockholder meetings, approvals and voting, soliciting proxies, conflicts of interest, and codes of conduct, depending on where our shares trade. Our management and other personnel will need to devote a substantial amount of time to ensure that we comply with all applicable requirements.
10

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

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

Alpine 4 expects to acquire two additional companies in 2019, which management believes will result in significant growth in projected annualized revenue by the end of 2019.  However, there is no guarantee that it will be successful in realizing future revenue growth from its acquisition model.  As such, Alpine 4 is highly dependent on suitable candidates to acquire which the supply of those candidates cannot be guaranteed and is driven from the market for M&A.  If Alpine 4 is unable to locate or identify suitable acquisition candidates, or to enter into transactions with such candidates, or if Alpine 4 is unable to integrate the acquired businesses, Alpine 4 may not be able to grow its revenues to the extent anticipated, or at all.

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

Alpine 4 is relying on a small number of key individuals to implement its business and operations and, in particular, the professional expertise and services of Kent B. Wilson, our President, Chief Executive Officer, and Secretary,  and 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.  If he chooses not to serve as an officer or if he is unable to perform his duties, this could have an adverse effect on Company business operations, financial condition and operating results if we are unable to replace Mr. Wilson or Mr. 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.
11

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:

The competitive environment in the industries in which our subsidiaries operate that may force us to reduce prices below the optimal pricing level or increase promotional spending;
   
Our ability to anticipate changes in consumer preferences and to meet customers' needs for our products in a timely cost effective manner; and
   
Our ability to establish, maintain and eventually grow market share in these competitive environments.

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

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

12

Our ability to execute our business plan also depends on other factors, including:
 
ability to keep satisfied vendor relationships
   
hiring and training qualified personnel in local markets;
   
managing marketing and development costs at affordable levels;
   
cost and availability of labor;
   
the availability of, and our ability to obtain, adequate supplies of ingredients that meet our quality standards; and
   
securing required governmental approvals in a timely manner when necessary.

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 100,000,000 shares of Class A common stock, and 5,000,000 shares of Class B common stock. As of the date of this Annual Report, we had 28,507,853 shares of Class A common stock outstanding, and 5,000,000 shares of Class B common stock outstanding. Accordingly, we may issue up to an additional 71,492,144 shares of Class A common stock, and may not issue any additional 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.

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.

13

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.

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.
14

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.

ITEM 1B.   UNRESOLVED STAFF COMMENTS.

Not applicable to Smaller Reporting Companies.

ITEM 2.  PROPERTIES.

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

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

Venture West Energy Services, LLC rent a property 6504 SW 29th, Bldg B Oklahoma City, OK 73179.  The monthly rent obligation is approximately $4,500 per month.

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

ITEM 3.  LEGAL PROCEEDINGS.

Kevin Cannon et al. v. Alpine 4 Technologies Ltd., Jeff Hail, et al, Arizona Superior Court, Maricopa County, Cas No. CV2017-055699.  On October 4, 2017, Kevin Cannon and Michelle Hanby, individually and on behalf of It’s a Date LLC and Brake Plus NWA, Inc., filed a lawsuit in the Arizona Superior Court, Maricopa County, against the Company and several other defendants, including Jeff Hail, the Company’s Sr. Vice President. The claim against the Company alleged tortious interference of contract by the Company. The Company brought a motion to dismiss the Complaint for failure to state a claim on which relief could be granted. The Court permitted the plaintiffs to amend their complaint, which they did. The Company has filed another motion dismiss the Complaint for failure to state a claim on which relief could be granted. Following negotiations with the plaintiffs, the Company and the plaintiffs moved for dismissal of the Company. On January 28, 2019, the court dismissed all claims against the Company with prejudice.
15


ITEM 4.  MINE SAFETY DISCLOSURES.

Not applicable.

PART II

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

MARKET PRICES AND DIVIDEND DATA

Stock Prices

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

The following table shows the range of high and low sales price information for our Class A common stock as quoted on the OTC Markets for the calendar years 2017 and 2018 and for the first quarter of 2019.  Our Class A common stock was accepted for trading beginning on December 19, 2016.  The quotations below reflect inter-dealer prices, without retail mark-up, mark-down or commissions and may not represent actual transactions.

Calendar Year

 
 
2019
   
2018
   
2017
 
 
 
High
   
Low
   
High
   
Low
   
High
   
Low
 
 
                                   
First Quarter
 
$
0.05
   
$
0.0269
   
$
0.34
   
$
0.123
   
$
14.00
   
$
2.40
 
Second Quarter
                 
$
0.20
   
$
0.050
   
$
2.54
   
$
0.12
 
Third Quarter
                 
$
0.18
   
$
0.068
   
$
0.25
   
$
0.09
 
Fourth Quarter
                 
$
0.05
   
$
0.115
   
$
0.46
   
$
0.098
 

The high and low sales prices for our Class A common stock on March 29, 2019, were $0.027  and $0.0269, respectively.  

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

Shareholders

As of March 31, 2019, Alpine 4 had 389 shareholders of record.  This number does not include an indeterminate number of stockholders whose shares are held by brokers in street name. The holders of our common stock are entitled to one vote for each share held of record on all matters submitted to a vote of stockholders. Holders of our common stock have no preemptive rights and no right to convert their common stock into any other securities. There are no redemption or sinking fund provisions applicable to our common stock.
 
Dividends

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

Director Independence

Alpine 4 is not required by any outside organization (such as a stock exchange or trading facility) to have independent directors.
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Securities Authorized for Issuance under Equity Compensation Plans

 Adoption of 2016 Stock Option and Stock Award Plan

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

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

Equity Compensation Plan Information

Plan category
 
Number of
securities to
be issued upon exercise of outstanding
options,
warrants
and rights
   
Weighted-
average
exercise price
of outstanding options,
warrants
and rights
   
Number of
securities
remaining
available for
future issuance under equity compensation
plans (excluding securities
reflected in column (a))
 
 
 
(a)
   
(b)
   
(c)
 
Equity compensation plans approved by security holders
   
1,790,000
   
$
0.19
     
210,000
 
Equity compensation plans not approved by security holders
                       
Total
   
1,790,000
   
$
0.19
     
210,000
 

Recent Sales of Unregistered Securities

Issuances in 2018

Issuance of Convertible Notes

On January 5, 2018, the Company entered into a variable convertible note for $64,000.  The note is due July 5, 2018 and bears interest at 10% per annum.  The note is immediately convertible into 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 the ten days prior to conversion.  As of the date of this filing this note has been paid off.

On April 3, 2018, the Company entered into a variable convertible note with an unrelated lender for $85,000.  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.  As of the date of this filing this note has been paid off.

On April 5, 2018, the Company entered into a variable convertible note with an unrelated lender for $128,000.  The note is due December 18, 2018 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 40% to the average of the three lowest trading closing prices of the stock for ten days prior to conversion.  As of the date of this filing this note has been paid off.

17

On April 9, 2018, the Company entered into a variable convertible note for $124,199.  The note is due January 9, 2019 and bears interest at 12% 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 the ten days prior to conversion.  As of the date of this filing this note has been paid off.

On April 9, 2018, the Company entered into a variable convertible note for $37,800.  The note is due January 9, 2019 and bears interest at 12% 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 the ten days prior to conversion.

The convertible notes issued between January and April 2018 were issued without registration under the 1933 Act in reliance on Section 4(a)(2) of the 1933 Act and the rules and regulations promulgated thereunder.

Convertible Notes

On October 4, 2017, the Company entered into a convertible note with an unrelated lender 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 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 October 5, 2017.  The prepayment penalty is equal to 20% to 25% of the outstanding note amount depending on when prepaid. As of the date of this filing this note has been paid off.
18

On October 11, 2017, the Company entered into a convertible note with an unrelated lender for $58,500 with net proceeds of $55,500.  The note is due July 20, 2018 and bears interest at 12% per annum.  After 180 days, the note is convertible to the Company's 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 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 when prepaid. As of the date of this filing this note has been paid off.

On November 2, 2017, the Company entered into a variable convertible note with unrelated 3rd party 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 can prepay the convertible note up to 180 days from November 2, 2017 with a $750 prepayment penalty. As of the date of this filing this note has been paid off.

On November 1, 2017, in contemplation of entering into the November 2, 2017 note, the Company released 150,000 shares of the 500,000 returnable shares (see Note 8 – Other items Related to Equity).  The shares were consideration for the second note dated November 2, 2017, and as such will be accounted for as a discount associated with that note.

On November 28, 2017, the Company entered into a variable convertible note with unrelated third party for $105,000.  The note is due June 15, 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 November 28, 2018 with a $750 prepayment penalty. As of the date of this filing this note has been paid off.

The convertible notes issued between October and December 2017 were issued without registration under the 1933 Act in reliance on Section 4(a)(2) of the 1933 Act and the rules and regulations promulgated thereunder.

Other Equity transaction

On November 1, 2017, the Company entered into an agreement with the investor relations firm RedChip Companies Inc. ("RedChip").  The agreement is for six months with a review after 90 days.  The Company will pay RedChip $2,500 per month for months 1-3 and $5,000 per month for months 4-6.  For the first 90 days of service the Company issued 275,000 shares of the Company's Class A common shares which are restricted pursuant to the provisions of Rule 144.  For the second 90 days of service the Company will issue 125,000 shares for the Company's Class A common shares which are restricted pursuant to the provisions of Rule 144.

The shares of common stock were issued and will be without registration under the 1933 Act in reliance on Section 4(a)(2) of the 1933 Act and the rules and regulations promulgated thereunder.
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Issuance of Equity Securities in Venture West/Horizon Transaction

In connection with the acquisition of Venture West Energy Services (“VWES”) (formerly Horizon Well Testing, L.L.C.), described in more detail above under “Recent Developments,” Alpine 4 purchased all of the outstanding stock of VWES (the “VWES Stock”) from Alan Martin (the “Seller”).  The purchase price paid by Alpine 4 for the VWES 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 VWES .  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 VWES .  The VWES 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 4’s 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 VWES transaction did not involve a public offering.

Stock Options to Employees

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 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..

On April 10, 2018, the Company issued 85,000 options to purchase shares of the Company’s Class A common stock to APF employees. The options were issued pursuant to the Plan.  The options granted vest and the exercise price of the options granted was $0.10, which was the last closing bid price of the Company’s common stock as traded on the OTC QB Market.  The options vest quarterly over four years.

On May 16, 2018, the Company issued 704,000 options to purchase shares of the Company’s Class A common stock to VWES employees. The options were issued pursuant to the Plan.  The options granted vest and the exercise price of the options granted was $0.05, which was the last closing bid price of the Company’s common stock as traded on the OTC QB Market.  The options vest quarterly over four years.

On December 31, 2018, the Company issued 275,000 options to purchase shares of the Company’s Class A common stock to two employees. The options were issued pursuant to the Plan.  The options granted vest and the exercise price of the options granted was $0.05, which was the last closing bid price of the Company’s common stock as traded on the OTC QB Market.  The options vest quarterly over four years.

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.

Purchases of Equity Securities by the Company and Affiliated Purchasers

During the fourth quarter of 2018, there were no purchases of the Company’s equity securities by the Company or affiliated purchasers

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.
20

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

As of the date of this Report, the Company was a holding company that owned five operating subsidiaries: ALTIA, LLC; Quality Circuit Assembly, Inc.; American Precision Fabricators, Inc.; Morris Sheet Metal, Corp; and JTD Spiral, Inc. (As discussed in more detail below, we previously had an additional subsidiary, Venture West Energy Services (formerly Horizon Well Testing, LLC). However, as of December 31, 2018, we discontinued operations on this company.)

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 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, may be offered to external customers.
 

21

Business Seasonality and Product Introductions

Following the acquisition of the Quality Circuit Assembly, Inc., VWES and APF, the Company expects to experience higher net sales in its third and fourth 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 $28,520,094 as of December 31, 2018.  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.  Our net operating losses increase the difficulty in meeting such goals and there can be no assurances that such methods will prove successful.  Our financial statements contain additional note disclosures describing the management's assessment of our ability to continue as a going concern.
 
The management of Alpine 4 understands basis for including a going concern in this filing.  However, the management points out that over the past 4 years, Alpine 4 has consistently been able to operate under the current working capital environment and the going concern is nothing new or a recent event.    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, VWES, 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.

Results of Operations

The following are the results of our operations for the year ended December 31, 2018 as compared to 2017.

   
Year Ended December 31,
2018
   
Year Ended December 31,
2017
   
$ Change
 
                   
Revenue
 
$
14,261,794
   
$
8,318,016
   
$
5,943,778
 
Cost of revenue
   
9,440,998
     
5,907,421
     
3,533,577
 
Gross Profit
   
4,820,796
     
2,410,595
     
2,410,201
 
                         
Operating expenses:
                       
General and administrative expenses
   
5,470,148
     
2,814,111
     
2,656,037
 
Total operating expenses
   
5,470,148
     
2,814,111
     
2,656,037
 
Loss from operations
   
(649,352
)
   
(403,516
)
   
(245,836
)
                         
Other expenses
                       
Interest expense
   
3,121,201
     
1,262,493
     
1,858,708
 
Change in value of derivative liabilities
   
(604,219
)
   
126,054
     
(730,273
)
Gain on extinguishment of debt
   
(6,305
)
   
0
     
(6,305
)
Other (income)
   
(119,737
)
   
(246,895
)
   
127,158
 
Total other expenses
   
2,390,940
     
1,141,652
     
1,249,288
 
                         
Loss before income tax
   
(3,040,292
)
   
(1,545,168
)
   
(1,495,124
)
                         
Income tax expense
   
(43,399
)
   
(258,392
)
   
214,993
 
                         
Loss from continuing operations
   
(2,996,893
)
   
(1,286,776
)
   
(1,710,117
)
                         
Discontinue operations
   
(4,911,124
)
   
(1,710,644
)
   
(3,200,480
)
                         
Net loss
 
$
(7,908,017
)
 
$
(2,997,420
)
 
$
(4,910,597
)

Revenue

Our revenues for the year ended December 31, 2018, increased by $5,943,778 as compared to the year ended December 31, 2017.  In 2018, the increase in revenue is related to $2,744,022 for QCA, $3,104,791 for APF which did not exist in 2017, and $94,965 relating to the 6th Sense Auto and Brake Active services of ALTIA.  The increase in revenue was driven by the continued growth of QCA through the acquisition of new customers and expanded business with existing customers, as well as the acquisition of APF.  We expect our revenue to continue to grow during the next year.

Cost of revenue

Our cost of revenue for the year ended December 31, 2018, increased by $3,533,577 as compared to the year ended December 31, 2017.  In 2018, the increase in our cost of revenue related to $1,602,387 for QCA, $2,026,716 for APF which did not exist in 2017, and $(95,526) for ALTIA services and other.  The increase in cost of revenue among all the different segments was the result of the increase in revenues.  We expect our cost of revenue to increase over the next year as our revenue increases.

Operating expenses

Our operating expenses for the year ended December 31, 2018, increased by $2,656,037 as compared to the year ended December 31, 2017.  The increase consisted primarily of an increase to general and administrative expenses of was the result of increased operating activity resulting from the acquisition of APF during the second quarter of 2018 which did not exist in 2017.

Other expenses

Other expenses for the year ended December 31, 2018, increased by $1,249,288 as compared to 2017. This increase was primarily due to an increase in interest expense due to the issuance of new convertible debentures offset by the change in the fair value of our derivative liability.

Discontinued operations

In December 2018, we decided to shut down the operations of our VWES subsidiary.  In February 2019, VWES filed for Chapter 7 bankruptcy.
 
VWES has been presented as discontinued operations in the accompanying consolidated financial statements.
22

 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:
 
   
Years Ended
 
   
December 31,
   
December 31,
 
   
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
)

Liquidity and Capital Resources

We have financed our operations since inception from the sale of common stock, capital contributions from stockholders and from the issuance of notes payable and convertible notes payable.  We expect to continue to finance our operations from our current operating cash flow and by the selling shares of our common stock and or debt instruments.

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

The Company also may elect to seek bank financing or to engage in debt financing through a placement agent.  If the Company is unable to raise sufficient capital from operations or through sales of its securities or other means, we may need to delay implementation of our business plans.

Contractual Obligations

Our significant contractual obligations as of December 31, 2018, were as follows:

   
Payments due by Period
 
   
Less than
One Year
   
One to
Three Years
   
Three to
Five Years
   
More Than
Five Years
   
Total
 
Capital lease obligations
   
817,181
     
1,685,667
     
1,740,779
     
8,763,471
     
13,007,098
 
Operating lease obligations
   
274,118
     
573,154
     
-
     
-
     
847,272
 
Notes payable, related parties
   
132,000
     
-
     
-
     
-
     
132,000
 
Notes payable, non-related parties
   
3,645,603
     
4,450,566
     
66,875
     
-
     
8,163,044
 
Convertible notes payable
   
3,587,587
     
450,000
     
-
     
-
     
4,037,587
 
Total
   
8,456,489
     
7,159,387
     
1,807,654
     
8,763,471
     
26,187,001
 

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.

23

Critical Accounting Policies and Estimates

Our financial statements have been prepared in accordance with accounting principles generally accepted in the United States, which require that we make certain assumptions and estimates that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of net revenue and expenses during each reporting period.  On an ongoing basis, management evaluates its estimates, including those related to collection of receivables, impairment of goodwill, contingencies, calculation of derivative liabilities and income taxes. Management bases its estimates and judgments on historical experiences and on various other factors believed to be reasonable under the circumstances. Actual results under circumstances and conditions different than those assumed could result in material differences from the estimated amounts in the financial statements. 
 
For a summary of our critical accounting policies, refer to Note 2 of our consolidated financial statements included under Item 8 – Financial Statements in this Form 10-K.

ITEM 7A.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not required for Smaller Reporting Companies.

ITEM 8.   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

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

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

None.
 
ITEM 9A.  CONTROLS AND PROCEDURES

1. Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) promulgated under the Exchange Act, as of December 31, 2018.  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

There were no changes in our internal control over financial reporting that occurred during the fourth quarter ended December 31, 2018 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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:
24


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, 2018.

Areas of material weakness include:

inadequate segregation of duties
   
inadequate control activities and monitoring processes over financial reporting

4. Inherent Limitations on Effectiveness of Controls

Generally, disclosure controls and procedures are designed to provide reasonable assurance of achieving their objectives.  Nevertheless, an internal control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system reflects the fact that there are resource constraints, and the benefits of controls are considered relative to their costs. As noted above, we have determined that our disclosure controls and procedures and our internal controls over financial reporting were not effective as of December 31, 2018.  Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the internal control. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, control may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate.

ITEM 9B.   OTHER INFORMATION

None.
25

PART III
 
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.

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

Name
Age
Officer/Position
Board Member/Position
Kent B. Wilson
45
President, Chief Executive Officer
Director
Charles Winters
40
N/A
Chairman of the Board
Scott Edwards
62
N/A
Director
Ian Kantrowitz
36
N/A
Director
Jeffrey Hail
55
Sr. Vice President
 

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 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.

Biographical Information for Scott Edwards

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

Biographical Information for Ian Kantrowitz

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

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

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

Biographical Information for Jeff Hail

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

In the private sector, Mr. Hail experienced success by starting a number different companies and building them to be the leaders in their niche sectors from both electronics manufacturing to e-commerce.  As a result, he brings a broad-based experience level with the operational aspects of running a business in today’s realm.
26

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

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

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

As of the date of this 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, 2018, 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 2018:

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
1
1
None
Charles Winters, Director
0
1
1
Scott Edwards, Director
1
1
None
Ian Kantrowitz, Director
2
2
None
 
27

ITEM 11. EXECUTIVE COMPENSATION.
 
Summary Compensation Table
 

Outstanding Equity Awards

David Schmitt, the Company’s CFO through December 31, 2017, was granted 400,000 options on April 7, 2017 with a vesting period of 4 years and an exercise price of $0.90.  The options had a fair value of $311,563 on the date of grant as calculated under ASC 718.  Of the options included in this grant, 350,000 forfeited as of December 31, 2017.  Mr. Schmitt was also granted 100,000 options on July 31, 2017 with a vesting period of 4 years and an exercise price of $0.13.  The options had a fair value of $12,850 on the date of grant as calculated under ASC 718.  Of the options included in this grant, 93,750 forfeited as of December 31, 2017.

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
     
26,000
   
$
0
   
$
0
   
$
0
   
$
0
   
$
26,000
 
Kent Wilson
 
$
0
     
44,200
   
$
0
   
$
0
   
$
0
   
$
0
   
$
44,200
 
Charles Winters
 
$
0
     
26,000
   
$
0
   
$
0
   
$
0
   
$
0
   
$
26,000
 
Scott Edwards
 
$
0
     
7,800
   
$
0
   
$
0
   
$
0
   
$
0
   
$
7,800
 

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

The following table sets forth certain information regarding beneficial ownership of Alpine 4 Class A and Class B common stock as of March 31, 2019, (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:

28,507,853, shares of Alpine 4 Class A common stock outstanding as of March 31, 2019
 
 
5,000,000 shares of Alpine 4 Class B common stock outstanding as of March 31, 2019.

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.
28


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)
 
 
                             
Kent B. Wilson, Chief Executive Officer,  Director(4)
   
2,401,689
     
1,850,000
     
9.40
%
   
37.00
%
   
27.67
%
Jeff Hail, Chief Operating Officer
   
541,000
     
350,000
     
2.12
%
   
7.00
%
   
5.35
%
Scott Edwards, Director (5)
   
252,000
     
350,000
     
0.99
%
   
7.00
%
   
4.97
%
Charles Winters, Director (6)
   
709,800
     
700,000
     
2.78
%
   
14.00
%
   
10.21
%
Ian Kantrowitz, Director (7)
   
847,371
     
700,000
     
3.32
%
   
14.00
%
   
10.39
%
Richard Evans
515 W. Coliseum Blvd
Ft. Wayne, IN 46808
   
3,270,000
     
0
     
12.80
%
   
0
%
   
4.33
%
All Officers and Directors As a Group (5 persons)
   
4,751,860
     
3,950,000
     
18.61
%
   
79.00
%
   
58.58
%

(1)
Except as otherwise indicated, the address of the stockholder is: Alpine 4 Technologies Ltd., 2525 E Arizona Biltmore Cir, Suite 237, Phoenix AZ 85016.
(2)
The percentages listed in the table are based on 28,507,853 shares of Alpine 4 Class A common stock outstanding as of March 31, 2019.
(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 2,401,689 shares of Class A common stock, and 1,850,000 shares of Class B common stock, which represents an aggregate of 20,901,689 votes, or approximately 27.67% 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 350,000 shares of Alpine 4 Class B Common Stock which together with the Class A Common Stock will represent an aggregate of 3,752,000 votes, or approximately 4.97 % 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 700,000 shares of Alpine 4 Class B Common Stock which together with the Class A Common Stock will represent an aggregate of 7,709,800 votes, or approximately 10.21% 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 700,000 shares of Alpine 4 Class B Common Stock which together with the Class A Common Stock will represent an aggregate of 7,847,371 votes, or approximately 10.39% of the voting power.
(8)
Mr. Jeff Hail owned as of the date of this Report 541,000 shares of Class A Common Stock.  Additionally, Mr. Hail owned 350,000 shares of Alpine 4 Class B Common Stock which together with the Class A Common Stock will represent an aggregate of 4,041,000 votes, or approximately 5.35% of the voting power.

29

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

Related Party Transactions

The Company has outstanding notes payable due to related parties totaling $132,000 at December 31, 2018.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.

Malone Bailey

Set below are aggregate fees billed by Malone Bailey for professional services rendered for the year ended December 31, 2018.

Audit Fees

The fees for the audit and review services billed and to be billed by Malone Bailey for the period from January 1, 2018, to December 31, 2018 were $228,766.

Audit Related Fees

The fees for the audit related services billed and to be billed by Malone Bailey for the period from January 1, 2018, to December 31, 2018 were $0.

Tax Fees

The fees for the tax related services billed and to be billed by Malone Bailey for the period from January 1, 2018, to December 31, 2018 were $0.

Set forth below are the aggregate fees billed by Malone Bailey for professional services rendered for the year ended December 31, 2017.

Audit Fees

The fees for the audit and review services billed and to be billed by Malone Bailey for the period from January 1, 2017, to December 31, 2017 were $116,000.

Audit Related Fees

The fees for the audit related services billed and to be billed by Malone Bailey for the period from January 1, 2017, to December 31, 2017 were $0.

Tax Fees

The fees for the tax related services billed and to be billed by Malone Bailey for the period from January 1, 2017, to December 31, 2017 were $0.

PART IV

ITEM 15.  EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

15(a)(1). Financial Statements.

The following consolidated financial statements, and related notes and Report of Independent Registered Public Accounting Firm are filed as part of this Annual Report:
30

ALPINE 4 TECHNOLOGIES, LTD.
Consolidated Financial Statements
 
Contents

 
Page
Financial Statements:
 
   
Report of Independent Registered Public Accounting Firm
32
   
Consolidated Balance Sheets as of December 31, 2018 and 2017
33
 
 
Consolidated Statements of Operations for the Years Ended December 31, 2018 and 2017
34
 
 
Consolidated Statements of Stockholders' Deficit for the Years Ended December 31, 2018 and 2017
35
 
 
Consolidated Statements of Cash Flows for the Years Ended December 31, 2018 and 2017
36
 
 
Notes to Consolidated Financial Statements
37

31


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 
To the Board of Directors and Stockholders of
Alpine 4 Technologies, Ltd.
Phoenix, Arizona
 
Opinion on the Financial Statements
 
We have audited the accompanying consolidated balance sheets of Alpine 4 Technologies, Ltd. and its subsidiaries (collectively, the “Company”) as of December 31, 2018 and 2017, and the related consolidated statements of operations, stockholders’ deficit, and cash flows for the years then ended, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2018 and 2017, and the results of their operations and their cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

Going Concern Matter

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

Basis for Opinion

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

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

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

/s/ MaloneBailey, LLP
www.malonebailey.com
We have served as the Company's auditor since 2015.
Houston, Texas
April 22, 2019
32


ALPINE 4 TECHNOLOGIES, LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

   
December 31,
   
December 31,
 
   
2018
   
2017
 
             
ASSETS
           
             
CURRENT ASSETS:
           
Cash
 
$
207,205
   
$
128,512
 
Accounts receivable
   
2,610,354
     
1,560,480
 
Inventory
   
2,175,795
     
1,212,546
 
Capitalized contract costs
   
64,234
     
-
 
Prepaid expenses and other current assets
   
222,200
     
154,385
 
Assets of discontinued operations
   
121,296
     
574,174
 
Total current assets
   
5,401,084
     
3,630,097
 
                 
Property and equipment, net
   
7,990,556
     
5,023,758
 
Intangible asset, net
   
677,210
     
752,622
 
Goodwill
   
3,193,861
     
1,963,761
 
Other non-current assets
   
290,238
     
258,238
 
Assets of discontinued operations
   
387,727
     
4,342,474
 
                 
 TOTAL ASSETS
 
$
17,940,676
   
$
15,970,950
 
                 
LIABILITIES, REDEEMABLE COMMON STOCK AND STOCKHOLDERS' DEFICIT
               
                 
CURRENT LIABILITIES:
               
Accounts payable
 
$
3,102,970
   
$
1,367,989
 
Accrued expenses
   
1,254,853
     
739,645
 
Deferred revenue
   
25,287
     
64,918
 
Derivative liabilities
   
1,892,321
     
271,588
 
Deposits
   
12,509
     
12,509
 
Notes payable, current portion
   
3,645,603
     
1,814,689
 
Notes payable, related parties, current portion
   
132,000
     
43,500
 
Convertible notes payable, current portion, net of discount of $942,852 and $79,630
   
2,644,735
     
2,302,620
 
Financing lease obligation, current portion
   
105,458
     
24,590
 
Net liabilities of discontinued operations
   
2,752,447
     
3,344,974
 
 Total current liabilities
   
15,568,183
     
9,987,022
 
                 
Notes payable, net of current portion
   
4,517,441
     
-
 
Convertible notes payable, net of current portion
   
450,000
     
1,660,106
 
Financing lease obligations, net of current portion
   
8,295,176
     
6,560,112
 
Deferred revenue
   
-
     
43
 
Deferred tax liability
   
608,304
     
181,703
 
                 
TOTAL LIABILITIES
   
29,439,104
     
18,388,986
 
                 
REDEEMABLE COMMON STOCK
               
Class A Common stock, $0.0001 par value, 0 and 379,403 shares issued and outstanding at December 31, 2018 and 2017
   
-
     
1,439,725
 
                 
STOCKHOLDERS' DEFICIT:
               
Preferred stock, $0.0001 par value, 10,000,000 shares authorized, none issued and outstanding at December 31, 2018 and 2017
   
-
     
-
 
Class A Common stock, $0.0001 par value, 100,000,000 shares authorized, 26,567,410 and 23,222,087 shares issued and outstanding at December 31, 2018 and 2017
   
2,575
     
2,322
 
Class B Common stock, $0.0001 par value, 5,000,000 shares authorized, 5,000,000 and 1,600,000 shares issued and outstanding at December 31, 2018 and 2017
   
500
     
160
 
Additional paid-in capital
   
17,018,591
     
16,573,632
 
Accumulated deficit
   
(28,520,094
)
   
(20,433,875
)
Total stockholders' deficit
   
(11,498,428
)
   
(3,857,761
)
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT
 
$
17,940,676
   
$
15,970,950
 

The accompanying notes are an integral part of these consolidated financial statements.
33


ALPINE 4 TECHNOLOGIES, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS

   
Years Ended
December 31,
 
   
2018
   
2017
 
             
Revenue
 
$
14,261,794
   
$
8,318,016
 
Cost of revenue
   
9,440,998
     
5,907,421
 
Gross Profit
   
4,820,796
     
2,410,595
 
                 
Operating expenses:
               
General and administrative expenses
   
5,470,148
     
2,814,111
 
                 
Total operating expenses
   
5,470,148
     
2,814,111
 
Loss from operations
   
(649,352
)
   
(403,516
)
                 
Other expenses
               
Interest expense
   
(3,121,201
)
   
(1,262,493
)
Change in value of derivative liability
   
604,219
     
(126,054
)
Gain on extinguishment of debt
   
6,305
     
-
 
Other income
   
119,737
     
246,895
 
Total other expenses
   
(2,390,940
)
   
(1,141,652
)
                 
Loss before income tax
   
(3,040,292
)
   
(1,545,168
)
                 
Income tax (benefit)
   
(43,399
)
   
(258,392
)
                 
Loss from continuing operations
   
(2,996,893
)
   
(1,286,776
)
                 
Discontinued operations:
               
Loss from discontinued operations
   
(4,911,124
)
   
(1,710,644
)
Total discontinued operations
   
(4,911,124
)
   
(1,710,644
)
                 
Net loss
 
$
(7,908,017
)
 
$
(2,997,420
)
                 
Weighted average shares outstanding :
               
Basic
   
28,447,969
     
23,858,031
 
Diluted
   
28,447,969
     
23,858,031
 
                 
Basic and Diluted Loss per shares
               
Continuing operations
 
$
(0.11
)
 
$
(0.06
)
Discontinued operations
   
(0.17
)
 
$
(0.07
)
  
 
$
(0.28
)
   
(0.13
)

The accompanying notes are an integral part of these consolidated financial statements.
34


ALPINE 4 TECHNOLOGIES, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT

                           
Additional
         
Total
 
   
Class A Common Stock
   
Class B Common Stock
   
Paid-in
   
Accumulated
   
Stockholders'
 
   
Shares
   
Amount
   
Shares
   
Amount
   
Capital
   
Deficit
   
Deficit
 
Balance, December 31, 2016
   
21,474,481
   
$
2,148
     
1,600,000
   
$
160
   
$
16,228,106
   
$
(17,436,455
)
 
$
(1,206,041
)
                                                         
Issuance of shares of common stock for cash
   
132,209
     
13
                     
39,987
             
40,000
 
Issuance of shares of common stock to consultants for services
   
578,640
     
57
                     
62,027
             
62,084
 
Issuance of shares of common stock for convertible note payable and accrued interest
   
886,757
     
89
                     
99,484
             
99,573
 
Issuance shares for discount on convertible note payable
   
150,000
     
15
                     
16,485
             
16,500
 
Reclassification of derivative liability
                                   
(252,633
)
           
(252,633
)
Derivative liability resolution
                                   
222,099
             
222,099
 
Issuance of warrants for acquisition of VWES
                                   
40,941
             
40,941
 
Share-based compensation expense
                                   
87,136
             
87,136
 
Beneficial conversation feature associated with convertible notes
                                   
30,000
             
30,000
 
Net loss
                                           
(2,997,420
)
   
(2,997,420
)
                                                         
Balance, December 31, 2017
   
23,222,087
     
2,322
     
1,600,000
     
160
     
16,573,632
     
(20,433,875
)
   
(3,857,761
)
                                                         
Adoption of ASC 606
                                           
(178,202
)
   
(178,202
)
Issuance of shares for discount/inducement on convertible note payable
   
1,849,999
      104
                     
65,910
             
66,014
 
Issuance of shares of common stock for modification of debt
   
100,000
     
10
                     
14,990
             
15,000
 
Issuance of shares of common stock for convertible note payable and accrued interest
   
1,015,921
      101
                      54,086
              54,187
 
Reclassification of shares from mezzanine
   
379,403
     
38
                     
(38
)
           
-
 
Change in fair value of warrant modification
                                   
4,310
             
4,310
 
Shares issued for employee compensation
                   
3,400,000
     
340
     
176,460
             
176,800
 
Derivative liability resolution
                                   
58,018
             
58,018
 
Share-based compensation expense
                                   
71,223
             
71,223
 
Net loss
                                           
(7,908,017
)
   
(7,908,017
)
                                                         
Balance, December 31, 2018
   
26,567,410
   
$
2,575
     
5,000,000
   
$
500
   
$
17,018,591
   
$
(28,520,094
)
 
$
(11,498,428
)

The accompanying notes are an integral part of these consolidated financial statements.
35


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.
 
36


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
 

37

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.
38

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
 

39

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

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.
40

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 6th Sense Auto service.  The Company accounts for its revenue by deferring the total contract amount and recognizing the amounts over the monthly subscription period, ranging from 12 to 36 months.  

QCA
QCA is a contract manufacturer and recognizes revenue when the products have been built and control has been transferred to the customer.  If a deposit for product or service is received prior to completion, the payment is recorded to deferred revenue until such point the product or services meets our revenue recognition policy.  Management assesses the materiality and likelihood of warranty work and returns, and records reserves as needed.  For all periods presented, management determined that the warranty and returns would be immaterial.

APF
APF is a contract manufacturer and recognizes revenue when the products have been built and control has been transferred to the customer.  If a deposit for product or service is received prior to completion, the payment is recorded to deferred revenue until such point the product or services meets our revenue recognition policy.  Management assesses the materiality and likelihood of warranty work and returns, and records reserves as needed.  For all periods presented, management determined that the warranty and returns would be immaterial.

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.
41

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.
42

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.

43

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
 
44

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
 


45


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
 



46


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.
   
-
     
-
 


47

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
 


48

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.


49

 
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
   
$
-
 

50

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.
51

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
 

52

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
)

53

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
 
 

54


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
         


55

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.
56

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
)

57

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.
58

15(a)(2). Financial Statement Schedules.

None.

15(a)(3). Exhibits.

EXHIBIT INDEX
 
Exhibit
Number

 
Description
   
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.
59

 SIGNATURES

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