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ALPINE 4 HOLDINGS, INC. - Quarter Report: 2018 March (Form 10-Q)


U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
 

[X]           QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2018

[   ]           TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
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.)
 
 
4742 N. 24th Street Suite 300
 
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)

Indicate by check mark whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes        No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes        No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth 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
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(1) of the Exchange Act. 

State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date:  As of May 15, 2018, the issuer had 24,617,856 shares of its Class A common stock issued and outstanding and 1,600,000 shares of its Class B common stock issued and outstanding.

TABLE OF CONTENTS
 
PART I
 
Page
 
 
 
Item 1.
Financial Statements
3
 
 
 
Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations
23
 
 
 
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
 
 
 
 
Item 4.
Controls and Procedures
28
 
 
 
PART II
 
 
 
 
 
Item 1.
Legal Proceedings
28
 
 
 
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
29
 
 
 
Item 3.
Defaults Upon Senior Securities
29
 
 
 
Item 5.
Other Information
 
 
 
 
Item 6.
Exhibits
29
 
 
 
 
Signatures
30
 

2

 
PART I - FINANCIAL INFORMATION
 

Item 1.  Financial Statements.
 
ALPINE 4 TECHNOLOGIES, LTD. and SUBSIDIARIES
 
CONSOLIDATED BALANCE SHEETS
 
   
   
March 31,
2018
   
December 31,
2017
 
   
(Unaudited)
     (As adjusted)  
ASSETS
           
             
CURRENT ASSETS:
           
  Cash
 
$
165,407
   
$
128,512
 
 Accounts receivable, net
   
2,686,391
     
2,067,081
 
 Inventory
   
1,485,220
     
1,212,546
 
 Capitalized contract costs
   
95,864
     
-
 
 Prepaid expenses and other current assets
   
206,574
     
221,958
 
 Total current assets
   
4,639,456
     
3,630,097
 
                 
 Property and equipment, net
   
8,289,015
     
9,198,387
 
 Intangible asset, net
   
733,770
     
752,622
 
 Goodwill
   
2,131,606
     
2,131,606
 
 Other non-current assets
   
287,942
     
258,238
 
 Total non-current assets
   
11,442,333
     
12,340,853
 
                 
 TOTAL ASSETS
 
$
16,081,789
   
$
15,970,950
 
                 
 LIABILITIES AND STOCKHOLDERS' DEFICIT
               
                 
 CURRENT LIABILITIES:
               
 Accounts payable
 
$
2,371,153
   
$
1,980,995
 
 Accrued expenses
   
1,083,947
     
1,049,185
 
 Deferred revenue
   
323,635
     
64,918
 
 Derivative liabilities
   
233,125
     
271,588
 
 Deposits
   
12,509
     
12,509
 
 Notes payable, current portion
   
4,395,232
     
3,893,617
 
 Notes payable, related parties, current portion
   
185,500
     
387,000
 
 Convertible notes payable, current portion, net of discount of $107,417 and $79,630
   
863,179
     
2,302,620
 
 Financing lease obligation, current portion
   
28,572
     
24,590
 
 Total current liabilities
   
9,496,852
     
9,987,022
 
                 
 NON-CURRENT LIABILITIES:
               
 Notes payable, net of current portion
   
2,700,000
     
-
 
 Convertible notes payable, net of current portion
   
1,616,233
     
1,660,106
 
 Financing lease obligation, net of curent portion
   
6,550,810
     
6,560,112
 
 Deferred revenue
   
57
     
43
 
 Deferred tax liability
   
181,703
     
181,703
 
 Total non-current liabilities
   
11,048,803
     
8,401,964
 
                 
 TOTAL LIABILITIES
   
20,545,655
     
18,388,986
 
                 
 REDEEMABLE COMMON STOCK
               
 Class A Common stock, $0.0001 par value, 0 and 379,403 shares issued and outstanding at March 31, 2018 (unaudited) and December 31, 2017, respectively
   
-
     
1,439,725
 
                 
 STOCKHOLDERS' DEFICIT:
               
 Preferred stock, $0.0001 par value, 10,000,000 shares authorized, none issued and outstanding
   
-
     
-
 
 Class A Common stock, $0.0001 par value, 100,000,000 shares authorized, 24,154,823 and 23,222,087 shares issued and outstanding at March 31, 2018 (unaudited) and December 31, 2017, respectively
   
2,415
     
2,322
 
 Class B Common stock, $0.0001 par value, 5,000,000 shares authorized, 1,600,000 shares issued and outstanding at March 31, 2018 (unaudited) and December 31, 2017, respectively
   
160
     
160
 
 Additional paid-in capital
   
16,806,714
     
16,573,632
 
 Accumulated deficit
   
(21,273,155
)
   
(20,433,875
)
 Total stockholders' deficit
   
(4,463,866
)
   
(3,857,761
)
 TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT
 
$
16,081,789
   
$
15,970,950
 

The accompanying notes are an integral part of these unaudited consolidated financial statements.
3

ALPINE 4 TECHNOLOGIES, LTD. and SUBSIDIARIES
 
CONSOLIDATED STATEMENTS OF OPERATIONS
 
(Unaudited)
 
             
             
   
Three Months
Ended
March 31,
2018
   
Three Months
 Ended
March 31,
2017
 
             
Revenue
 
$
3,632,408
   
$
2,493,241
 
Cost of revenue (exclusive of depreciation)
   
2,751,325
     
1,877,619
 
Gross Profit
   
881,083
     
615,622
 
                 
Operating expenses:
               
General and administrative expenses
   
849,148
     
812,767
 
Depreciation
   
173,300
     
162,113
 
Amortization
   
18,853
     
18,853
 
Loss on sale of property and equipment    
356,933 
       
     Total operating expenses
   
1,398,234
     
993,733
 
Loss from operations
   
(517,151
)
   
(378,111
)
                 
Other expenses
               
Interest expense
   
352,495
     
289,608
 
Change in value of derivative liabilities
   
(6,415
)
   
-
 
Gain on extinguishment of debt
   
(136,300
)
   
-
 
Other (income)
   
(65,853
)
   
(79,812
)
Total other expenses
   
143,927
     
209,796
 
                 
Loss before income tax
   
(661,078
)
   
(587,907
)
                 
Income tax expense (benefit)
   
-
     
46
 
                 
Net loss
 
$
(661,078
)
 
$
(587,953
)
                 
Weighted average shares outstanding :
               
Basic
   
25,328,907
     
23,441,191
 
Diluted
   
25,328,907
     
23,441,191
 
                 
Loss per share
               
Basic
 
$
(0.03
)
 
$
(0.03
)
Diluted
 
$
(0.03
)
 
$
(0.03
)
 

The accompanying notes are an integral part of these unaudited consolidated financial statements.
4

ALPINE 4 TECHNOLOGIES, LTD. and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited) 
 
   
Three Months
Ended
March 31,
2018
   
Three Months
Ended
March 31,
2017
 
OPERATING ACTIVITIES:
           
Net loss
 
$
(661,078
)
 
$
(587,953
)
Adjustments to reconcile net loss to net cash used in operating activities:
               
Depreciation
   
173,300
     
162,113
 
Amortization
   
18,853
     
18,853
 
Change in value of derivative liabilities
   
(6,415
)
   
-
 
Gain on extinguishment of debt
   
(136,300
)
   
-
 
Loss on sale of property and equipment
   
356,933
     
-
 
Employee stock compensation
   
15,840
     
-
 
Stock issued for services
   
-
     
19,125
 
Amortization of debt issuance
   
22,000
     
-
 
Amortization of debt discounts
   
122,590
     
11,349
 
Change in current assets and liabilities:
               
Accounts receivable
   
(619,310
)
   
(449,877
)
Inventory
   
(272,674
)
   
(60,638
)
Capitalized contract costs
   
5,670
     
-
 
Prepaids
   
15,384
     
(27,854
)
Other non-current assets
   
(29,704
)
   
-
 
Accounts payable
   
390,158
     
107,656
 
Accrued expenses
   
124,643
     
306,273
 
Deferred tax
   
-
     
(304
)
Deferred revenue
   
(21,005
)
   
(12,536
)
Net cash used in operating activities
   
(501,115
)
   
(513,793
)
                 
INVESTING ACTIVITIES:
               
Capital expenditures
   
(23,516
)
   
(133,331
)
Proceeds from sale of property and equipment
   
229,257
     
-
 
Acquisition, net of cash acquired
   
-
     
(1,937,616
)
Net cash provided by (used in) investing activities
   
205,741
     
(2,070,947
)
                 
FINANCING ACTIVITIES:
               
Proceeds from issuances of notes payable, related party
   
110,000
     
71,500
 
Proceeds from issuances of notes payable, non-related party
   
149,000
     
1,902,392
 
Repayments of notes payable, non-related party
   
(43,636
)
   
(54,783
)
Proceeds from line of credit, net
   
96,251
     
383,142
 
Repayments of notes payable, related party
   
(11,500
)
   
(104,500
)
Proceeds from convertible notes payable
   
320,000
     
30,000
 
Repayments of convertible notes
   
(282,526
)
   
(8,796
)
Proceeds from the sale of common stock
   
-
     
15,000
 
Cash paid on financing lease obligation
   
(5,320
)
   
(5,526
)
Net cash provided by financing activities
   
332,269
     
2,228,429
 
                 
NET INCREASE (DECREASE) IN CASH AND RESTRICTED CASH
   
36,895
     
(356,311
)
                 
CASH AND RESTRICTED CASH, BEGINNING BALANCE
   
335,823
     
839,764
 
                 
CASH AND RESTRICTED CASH, ENDING BALANCE
 
$
372,718
   
$
483,453
 
                 
CASH PAID FOR:
               
Interest
 
$
266,023
   
$
217,791
 
Income taxes
 
$
-
   
$
-
 
                 
SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING ACTIVITIES:
               
Common stock issued for convertible note payable and accrued interest
 
$
15,600
   
$
36,963
 
Common stock issued for convertible note discount
 
$
56,666
   
$
-
 
Debt discount due to derivative liabilities
 
$
93,711
   
$
-
 
Derivative liability resolution
 
$
125,759
   
$
-
 
Issuance of convertible note for acquisition of VWES
 
$
-
   
$
1,500,000
 
Issuance of note payable for acquisition of VWES
 
$
-
   
$
300,000
 
Issuance of warrants for acquisition of VWES
 
$
-
   
$
40,941
 
Issuance of redeemable common stock for acquisition of VWES
 
$
-
   
$
1,439,725
 
Debt discount from convertible note payable
 
$
-
   
$
30,000
 


The accompanying notes are an integral part of these unaudited consolidated financial statements.
5

Alpine 4 Technologies Ltd.
Notes to Unaudited Consolidated Financial Statements
For the Three Months Ended March 31, 2018
(Unaudited)

Note 1 – Organization and Basis of Presentation
The unaudited financial statements were prepared by Alpine 4 Technologies Ltd. (the "Company"), pursuant to the rules and regulations of the Securities Exchange Commission ("SEC"). The information furnished herein reflects all adjustments (consisting of normal recurring accruals and adjustments) which are, in the opinion of management, necessary to fairly present the operating results for the respective periods. Certain information and footnote disclosures normally present in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP") were omitted pursuant to such rules and regulations. These financial statements should be read in conjunction with the audited financial statements and footnotes included in the Company's Annual Report on Form 10-K filed with the SEC on April 17, 2018. The results for the three months ended March 31, 2018, are not necessarily indicative of the results to be expected for the year ending December 31, 2018.
Description of Business

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 12).

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 March 31, 2018, and December 31, 2017.  Significant intercompany balances and transactions have been eliminated.

Basis of presentation

The accompanying financial statements present the balance sheets, statements of operations, stockholders' deficit and cash flows of the Company. The financial statements have been prepared in accordance with U.S. GAAP.

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.

6

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 March 31, 2018, and December 31, 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 statement of cash flows.

 
 
March 31,
2018
(Unaudited)
   
December 31,
2017
 
Cash
 
$
165,407
   
$
128,512
 
Restricted cash included in other non-current assets
   
207,311
     
207,311
 
Total cash and restricted cash shown in statement of cash flows
 
$
372,718
   
$
335,823
 


Major Customers

The Company had two customers that made up 21% and 20%, respectively, of accounts receivable as of March 31, 2018.  The Company had two customers that made up 41% and 13%, respectively, of accounts receivable as of December 31, 2017.

For the three months ended March 31, 2018, the Company had two customers that made up 22% and 15%, respectively, of total revenues.  For the three months ended March 31, 2017, the Company had four customers that collectively made up approximately 60% 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 March 31, 2018 (unaudited), and December 31, 2017, allowance for bad debt was $18,710.

Inventory

Inventory is valued at the lower of the inventory's cost (weighted average basis) or market. Management compares the cost of inventory with its market value and an allowance is made to write down inventory to market value, if lower.  Inventory is segregated into four areas, raw materials, WIP, finished goods, and In-Transit.  Below is a breakdown of how much inventory was in each area as of March 31, 2018 (unaudited), and December 31, 2017:
7

   
March 31,
 2018
 (Unaudited)
   
December 31,
2017
 
Raw materials
 
$
759,589
   
$
577,259
 
WIP
   
512,432
     
440,586
 
Finished goods
   
213,199
     
161,310
 
In Transit
   
-
     
33,391
 
   
$
1,485,220
   
$
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.

Property and equipment consisted of the following as of March 31, 2018 (unaudited), and December 31, 2017:

 
 
March 31,
2018
(Unaudited)
   
December 31,
2017
 
Automobiles and trucks
 
$
552,322
   
$
1,208,935
 
Machinery and equipment
   
4,470,850
     
4,454,466
 
Office furniture and fixtures
   
7,056
     
7,056
 
Building
   
3,895,000
     
3,945,952
 
Land
   
-
     
126,347
 
Leasehold improvements
   
294,524
     
294,524
 
Less: Accumulated depreciation
   
(930,737
)
   
(838,893
)
 
 
$
8,289,015
   
$
9,198,387
 

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

8

Intangible assets consisted of the following as of March 31, 2018 (unaudited), and December 31, 2017:

 
 
March 31,
2018
(Unaudited)
   
December 31,
2017
 
Software
 
$
278,474
   
$
278,474
 
Noncompete
   
100,000
     
100,000
 
Customer lists
   
531,187
     
531,187
 
Less: Accumulated amortization
   
(175,891
)
   
(157,039
)
 
 
$
733,770
   
$
752,622
 

Other long-term assets consisted of the following as of March 31, 2018 (unaudited), and December 31, 2017:

 
 
March 31,
2018
(Unaudited)
   
December 31,
2017
 
Restricted Cash
 
$
207,311
   
$
207,311
 
Deposits
   
56,631
     
50,927
 
Other
   
24,000
     
-
 
   
$
287,942
   
$
258,238
 

Restricted cash consists of deposit account collateralizing letters of credit in favor of the counterparty in our lease financing obligation.  Changes in restricted cash are reflected as financing activities because the cash is being used in conjunction with financing activities.

Impairment of 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.

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 March 31, 2018, and December 31, 2017, the reporting units with goodwill were QCA and VWES.
 
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.

9

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.

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 quarter ended March 31, 2018 was a net increase of $15,888 to revenue and a net increase of $5,670 to cost of revenue an increase of as a result of applying ASC Topic 606.  The impact to the consolidated statement of operations for the quarter ended March 31, 2017 was not significant.

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.

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.

VWES
VWES performs water transfer services and well testing for the oil and gas industry.  Revenue is recognized over time as services under the contracts are completed. 

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. 
 
10

Stock-based compensation
 
The Company accounts for equity instruments issued in exchange for the receipt of goods or services from other than employees in accordance with FASB ASC 718-10, "Compensation – Stock Compensation," and the conclusions reached by FASB ASC 505-50, "Equity – Equity-Based Payments to Non-Employees." Costs are measured at the estimated fair market value of the consideration received or the estimated fair value of the equity instruments issued, whichever is more reliably measurable. The value of equity instruments issued for consideration other than employee services is determined on the earliest of a performance commitment is reached or completion of performance by the provider of goods or services as defined by FASB ASC 505-50.

Income taxes

The Company records income taxes under the asset and liability method, whereby deferred tax assets and liabilities are recognized based on the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, and attributable to operating loss and tax credit carry forwards. Accounting standards regarding income taxes requires a reduction of the carrying amounts of deferred tax assets by a valuation allowance, if based on the available evidence, it is more likely than not that such assets will not be realized. Accordingly, the need to establish valuation allowances for deferred tax assets is assessed at each reporting period based on a more-likely-than-not realization threshold. This assessment considers, among other matters, the nature, frequency and severity of current and cumulative losses, forecasts of future profitability, the duration of statutory carry forward periods, the Company's experience with operating loss and tax credit carry forwards not expiring unused, and tax planning alternatives.

The Company recorded valuation allowances on the net deferred tax assets.  Management will reassess the realization of deferred tax assets based on the accounting standards for income taxes each reporting period. To the extent that the financial results of operations improve, and it becomes more likely than not that the deferred tax assets are realizable, the Company will be able to reduce the valuation allowance.

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.

11

Related Party Disclosure

FASB ASC 850, "Related Party Disclosures," requires companies to include in their financial statements disclosures of material related party transactions. The Company discloses all material related party transactions. Related parties are defined to include any principal owner, director or executive officer of the Company and any immediate family members of a principal owner, director or executive officer.

Recent Accounting Pronouncements

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). The guidance in ASU No. 2016-02 supersedes the lease recognition requirements in ASC Topic 840, Leases (FAS 13). ASU 2016-02 requires an entity to recognize assets and liabilities arising from a lease for both financing and operating leases, along with additional qualitative and quantitative disclosures. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, with early adoption permitted. The Company is currently evaluating the effect this standard will have on its financial statements.

Other recent accounting pronouncements issued by the FASB, including its Emerging Issues Task Force, the American Institute of Certified Public Accountants, and the Securities and Exchange Commission did not or are not believed by management to have a material impact on the Company's present or future financial statements.
 
Note 3 – Going Concern

The accompanying financial statements have been prepared on a going concern basis. The working capital of the Company is currently negative and causes doubt of the ability for the Company to continue. The Company requires capital for its operational and marketing activities.  The Company's ability to raise additional capital through the future issuances of common stock is unknown. The obtainment of additional financing, the successful development of the Company's plan of operations, and its 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.

In order to mitigate the risk related with this uncertainty, the Company has a three-fold plan to resolve these risks.  First, the acquisition of QCA has allowed for an increased level of cash flow to the Company.  Second, the Company has acquired VWES and 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 March 31, 2018, the future minimum capital lease and financing transaction payments, net of amortization of debt issuance costs, were as follows:

12

Fiscal Year
     
2018 (remainder of)
 
$
441,263
 
2019
   
599,382
 
2020
   
614,366
 
2021
   
629,725
 
2022
   
645,468
 
Thereafter
   
7,315,821
 
Total
   
10,246,025
 
Less: Current capital leases and financing transaction
   
(28,572
)
Less: imputed interest
   
(3,666,643
)
Non-current capital leases and financing transaction
 
$
6,550,810
 

The money received from the sale of the building was used to purchase Quality Circuit Assembly.  Because this is a financing transaction, the sale is recorded under "financing lease obligation" on the Balance Sheet and amortized over the 15-year term of the lease.

The term of the lease has been extended through September 30, 2032 at a monthly rate of approximately $69,000.  These payments are reflected in the table above.

A letter of credit of $1,000,000 is to be provided to landlord, of which $207,311 had been satisfied as of March 31, 2018.

Operating Leases

The Company has two non-cancellable operating leases as of March 31, 2018 for its locations in San Jose, California and Oklahoma City, Oklahoma.  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.  VWES also rents certain equipment on a temporary basis to perform its services.

The five-year minimum rent payments for each location are as follows

Fiscal Year
 
San Jose,
CA
   
Oklahoma
 City,
OK
   
Total
 
2018 (remainder of)
 
$
199,601
   
$
45,000
   
$
244,601
 
2019
   
274,118
     
35,000
     
309,118
 
2020
   
282,342
     
-
     
282,342
 
2021
   
290,812
     
-
     
290,812
 
Thereafter
   
-
     
-
     
-
 
Total
 
$
1,046,873
   
$
80,000
   
$
1,126,873
 

Rent expense for the three months ended March 31, 2018 and 2017 amounted to $458,575 and $93,300, respectively.

13

Note 5 – Notes Payable

During the year ended December 31, 2017, VWES secured a line of credit with a third-party lender, Crestmark.  The line of credit is collateralized by VWES's outstanding accounts receivable, up to 85% with maximum draws of $2,000,000 and a variable interest rate.  The Company also secured a five-year fixed rate (10.14%) term loan with Crestmark Equipment Finance for $1,872,392 which is collateralized by VWES's equipment.  Both are guaranteed by the Company.

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 three months ended March 31, 2018.  During the three months ended March 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 (see Note 9).  The note is secured by the assets of VWES and bears interest at 7% per annum and is due in semi-annual payments of $150,000 commencing on June 1, 2018, through June 1, 2020.
 
The outstanding balances for the loans were as follows:


March 31, 2018 (Unaudited)
 
Alpine 4
   
QCA
   
VWES
   
Total
 
Lines of credit
 
$
-
   
$
1,878,572
   
$
229,795
   
$
2,108,367
 
Equipment loans
   
-
     
139,329
     
1,698,536
     
1,837,865
 
Short-term notes
   
449,000
     
-
     
-
     
449,000
 
Total current
 
$
449,000
   
$
2,017,901
   
$
1,928,331
   
$
4,395,232
 
Long-term
   
2,700,000
     
-
     
-
     
2,700,000
 
Total notes payable
 
$
3,149,000
   
$
2,017,901
   
$
1,928,331
   
$
7,095,232
 
                                 
                                 
                                 
December 31, 2017
 
Alpine 4
   
QCA
   
VWES
   
Total
 
Lines of credit
 
$
-
   
$
1,657,611
   
$
354,505
   
$
2,012,116
 
Equipment loans
   
-
     
147,079
     
1,724,422
     
1,871,501
 
Term notes
   
10,000
     
-
     
-
     
10,000
 
Total current
 
$
10,000
   
$
1,804,690
   
$
2,078,927
   
$
3,893,617
 
Long-term
   
-
     
-
     
-
     
-
 
Total notes payable
 
$
10,000
   
$
1,804,690
   
$
2,078,927
   
$
3,893,617
 


Future scheduled maturities of outstanding notes payable to third parties are as follows:
 
   
Year Ended
 
   
December 31,
 
       
2018 (remainder of)
   
4,395,232
 
2019
   
300,000
 
2020
   
2,400,000
 
Total
   
7,095,232
 

14

 
Note 6 – Notes Payable, Related Parties
 
At March 31, 2018 (unaudited), and December 31, 2017, notes payable due to related parties consisted of the following:

 
   
March 31,
2018
 (Unaudited)
   
December 31,
2017
 
Notes payable; non-interest bearing; due upon demand; unsecured
 
$
4,500
   
$
4,500
 
                 
Note payable; bearing interest at 3.33% per month for the first 90 days and 2.22% per month thereafter; due May 26, 2017; unsecured
   
43,500
     
43,500
 
                 
Note payable; bearing interest at 8% per annum; due June 30, 2017; unsecured
   
7,500
     
7,500
 
                 
Note payable to the seller of VWES; bearing interest at 1% per annum; due July 31, 2017; secured by assets of VWES.  The amount was extinguished and replaced by Amended and Restated Secured Promissory Note on February 22, 2018 (see Note 9).
   
-
     
300,000
 
                 
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
     
20,000
 
                 
Series of notes payable, bearing interest at 15% per annum, with maturity dates from April 2018 to May 2018, unsecured
   
110,000
     
-
 
                 
Total notes payable - related parties
 
$
185,500
   
$
387,000
 
 
The above notes which are in default as of March 31, 2018, were due on demand by the lender as of the date of this Report.
 
Note 7 – Convertible Notes Payable

At March 31, 2018 (unaudited) and December 31, 2017, convertible notes payable consisted of the following:
15

 
   
March 31,
2018
(Unaudited)
   
December 31,
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 exersice 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.
   
1,785,329
     
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 exersice price of $1 per share.
   
10,000
     
30,000
 
                 
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
     
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
     
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
     
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
     
105,000
 
                 
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. 
   
150,000
     
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.  After 180 days, the note is 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.
   
150,000
     
-
 
                 
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 penalry ranging from 15% to 40%.
   
128,000
     
-
 
                 
Total convertible notes payable
   
2,586,829
     
4,042,356
 
                 
Less: discount on convertible notes payable
   
(107,417
)
   
(79,630
)
                 
Total convertible notes payable, net of discount
   
2,479,412
     
3,962,726
 
                 
Less: current portion of convertible notes payable
   
(863,179
)
   
(2,302,620
)
                 
Long-term portion of convertible notes payable
 
$
1,616,233
   
$
1,660,106
 
 
16

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 three months ended March 31, 2018 and 2017 amounted to $122,590 and $11,349, respectively, and is recorded as interest expense in the accompanying consolidated statements of operations.  The unamortized discount balance for these notes was $107,417 as of March 31, 2018, which is expected to be amortized in 2018.

Future scheduled maturities of outstanding convertible notes payable are as follows:

   
Year Ended
 
   
December 31,
 
       
2018 (remainder of)
 
$
927,246
 
2019
   
1,659,583
 
Total
 
$
2,586,829
 


Note 8 – Stockholders' Equity

Preferred Stock

The Company is authorized to issue 10,000,000 shares of $.0001 par value preferred stock. As of March 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 three months ended March 31, 2018:

Issued 333,333 shares of its Class A common stock on January 10, 2018 in connection with a convertible note payable.  The value of the shares issued amounted to $56,666 and has been recorded as a discount to the note payable.
   
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 (see Note 9).
 
Redeemable Common Stock
 
During the quarter ended March 31, 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.

17

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 summarizes the stock option activity for the three months ended March 31, 2018:

 
             
Weighted-
 
 
       
Weighted-
   
Average
 
 
       
Average
   
Remaining
 
 
       
Exercise
   
Contractual
 
     Options      Price      Life (Years)  
 
                 
Outstanding at December 31, 2017
   
782,250
   
$
0.42
     
9.44
 
Granted
   
-
     
-
         
Forfeited
   
-
     
-
         
Exercised
   
-
     
-
         
Outstanding at March 31, 2018 (unaudited)
   
782,250
   
$
0.42
     
9.19
 
                       
Vested and expected to vestat March 31, 2018 (unaudited)
   
782,250
   
$
0.42
     
9.19
 
 
                       
Exercisable at March 31, 2018 (unaudited)
   
158,875
   
$
0.60
     
9.12
 
 
The following table summarizes information about options outstanding and exercisable as of March 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
 
                                 
$
0.13
     
394,750
     
9.59
   
$
0.13
     
43,750
   
$
0.13
 
 
0.26
     
114,000
     
9.34
     
0.26
     
21,375
     
0.26
 
 
0.90
     
273,500
     
9.27
     
0.90
     
93,750
     
0.90
 
         
782,250
                     
158,875
         


During the three months ended March 31, 2018 and 2017, stock option expense amounted to $15,840 and $0, respectively.  Unrecognized stock option expense as of March 31, 2018 amounted to $198,407, which will be recognized over a period extending through September 2021. 

Warrants

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 three months ended March 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.

18

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.
 
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
 

Pro forma information is not provided because the results after December 31, 2016 are post-acquisition.

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 are 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 in full on or before June 1, 2018, the balance due will 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 till be discounted by $200,000.
19


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 three months ended March 31, 2018.

Note 10 – Industry Segments

This summary presents the Company's segments, QCA and VWES, for the three months ended March 31, 2018 and 2017: 

   
Three Months Ended March 31, 2018
 
               
Unallocated
       
               
and
   
Total
 
   
QCA
   
VWES
   
Eliminations
   
Consolidated
 
Revenue, external customers
 
$
2,445,893
   
$
1,025,927
   
$
160,588
   
$
3,632,408
 
Segment gross profit
   
725,524
     
156,086
     
(527
)
   
881,083
 
Segment depreciation and amortization
   
72,610
     
111,210
     
8,333
     
192,153
 
Segment interest expense
   
150,986
     
15,157
     
186,352
     
352,495
 
Segment net income (loss)
   
191,117
     
(439,776
)
   
(412,419
)
   
(661,078
)
Purchase and acquisition of long-lived assets
   
-
     
23,516
     
-
     
23,516
 


   
Three Months Ended March 31, 2017
 
               
Unallocated
       
               
and
   
Total
 
   
QCA
   
VWES
   
Eliminations
   
Consolidated
 
Revenue, external customers
 
$
1,678,841
   
$
775,780
   
$
38,620
   
$
2,493,241
 
Revenue, company segments
   
26,837
     
-
     
(26,837
)
   
-
 
Segment gross profit
   
526,283
     
67,516
     
21,823
     
615,622
 
Segment depreciation and amortization
   
72,095
     
100,538
     
8,333
     
180,966
 
Segment interest expense
   
167,733
     
71,933
     
49,942
     
289,608
 
Segment net income (loss)
   
(110,316
)
   
(263,434
)
   
(214,203
)
   
(587,953
)


   
As of March 31, 2018
 
               
Unallocated
       
               
and
   
Total
 
   
QCA
   
VWES
   
Eliminations
   
Consolidated
 
Accounts receivable, net
 
$
1,881,412
   
$
796,945
   
$
8,034
   
$
2,686,391
 
Goodwill
   
1,963,761
     
167,845
     
-
     
2,131,606
 
Total assets
   
11,141,204
     
4,390,044
     
550,541
     
16,081,789
 
 
20

Note 11 – 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. 

During the three months ended March 31, 2018, the Company had new convertible notes which became convertible that resulted in an additional $205,341 initial derivative fair value, which was recorded as a derivative liability and a discount to the note payable, of which $111,630 was immediately recorded as a derivative expense due to the value of the derivative liability exceeding the book value of the note payable.  In addition, the Company paid off or settled existing convertible notes which resulted in a reduction of the derivative liability and an increase to additional paid-in capital of $125,759.

As of December 31, 2017, the fair value of the derivative liability amounted to $271,588.  As of March 31, 2018, the fair value of the derivative liability amounted to $233,125.  The change in value of the derivative liabilities for the three months ended March 31, 2018 in the accompanying statements of operations amounted to a gain of $6,415.

The valuation of our embedded derivatives is determined by using the Black-Scholes Option Pricing Model.  As such, our derivative liabilities have been classified as Level 3.

The Company estimated the fair value of the derivative liabilities using the Black-Scholes Option Pricing Model and the following key assumptions during the three months ended March 31, 2018.

Expected dividend yield
 
 
0
%
Weighted average expected volatility
 
 
200
%
Weighted average risk-free interest rate
 
 
2.38
%
Expected terms (years)
 
.09 to 2.9
 

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.
21


If the inputs used to measure the financial assets and liabilities fall within more than one level described above, the categorization is based on the lowest level of input that is significant to the fair value measurement of the instrument.

The following table provides a summary of the fair value of our derivative liabilities as of March 31, 2018 (unaudited), and December 31, 2017:

 
Fair value measurement
 on a recurring basis
 
 
Level 1
 
Level 2
 
Level 3
 
As of March 31, 2018
           
Liabilities
           
Derivatives
 
$
-
   
$
-
   
$
233,125
 
 
                       
As of December 31, 2017
                       
Liabilities
                       
Derivatives
 
$
-
   
$
-
   
$
271,588
 

The below table presents the change in the fair value of the derivative liabilities during the three months ended March 31, 2018:

Fair value as of December 31, 2017
 
$
271,588
 
New derivative liabilities from embedded conversion features, net
   
93,711
 
Resolution of derivative liabilities
   
(125,759
)
Gain on change in fair value of derivatives
   
(6,415
)
Fair value as of March 31, 2018 (unaudited)
 
$
233,125
 

Note 12 – Subsequent Events

Issuance of Additional Convertible Notes Payable
 
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.  In connection with this variable convertible note, the Company issued 386,363 shares of its Class A common stock.
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.  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.  The warrants are vested immediately and have a 3-year contractual life.

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.

22

Execution of Securities Purchase Agreement; Acquisition of APF Well Testing

On April 5, 2018, the Company announced that it had entered into a Securities Purchase Agreement (the "SPA") with American Precision Fabricators, Inc., an Arkansas corporation ("APF"), 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 "Transaction").

The total purchase price of $4,500,000, consisted of three components, the Cash Consideration, the Note Consideration, and the Convertible Note Consideration, as follows:

·
The Cash Consideration paid was $2,100,000, which was paid to Sellers at closing, $1,407,000 to Gallbach and $693,000 to Davis.
   
·
The Note Consideration consisted of two secured promissory notes (the "Notes") in the aggregate principal amount of $1,950,000 secured pursuant to a Guarantee and Security Agreement (the "Security Agreement").  The 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 Notes are due 10 years from the issuance date and have no monthly payments for the first 24 months, at which point a balloon payment is due.  The Notes bear interest at 4.25% per annum.
   
·
The Convertible Note Consideration consisted of two secured convertible promissory notes (the "Convertible Notes") in the aggregate principal amount of $450,000, secured pursuant to the Security Agreement.  The Convertible Notes are due in full in 36 months and bear interest at 4.25% per annum, and are convertible at any time into shares of Class A common stock at a rate of $1.00 per share.

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 of the Transaction 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 were used to fund the Cash Consideration.  The Company is assessing the accounting for the sale-leaseback.

Item 2. 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.

23

Overview and Highlights

Company Background

Alpine 4 Technologies Ltd. ("we" or the "Company") was incorporated under the laws of the State of Delaware on April 22, 2014.  The Company was formed to serve as a vehicle to affect an asset acquisition, merger, exchange of capital stock, or other business combination with a domestic or foreign business.  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.

Business Strategy

Alpine 4's strategy is to provide Fortune 500-level execution strategies in its subsidiary companies and market segments to businesses and companies that have the most to benefit from this access.

Alpine 4 feels this opportunity exists in smaller middle market operating companies with revenues between $5 to $150 million.  In this target rich environment, businesses generally sell at more reasonable multiples, presenting greater opportunities for operational and strategic improvements and have greater potential for growth.   Implementation of our strategy within our holdings is accomplished by the offering of strategic and tactical MBA-level training and development, delivered via the following modules:

-
Alpine 4 Mini MBA program; and
   
-
An Alpine 4 developed ERP (Enterprise Resource Planning system) and collaboration system called SPECTRUMebos.  SPECTRUMebos is what we are defining as an Enterprise Business Operating System (ebos).  This system will combine the key technology software components of Accounting and Financial Reporting, an Enterprise Resource Planning System (ERP), a Document Management System (DMS), a Business Intelligence (BI) platform and a Customer Resource Management (CRM) hub which will be tethered to management reporting and collaboration toolsets. Management believes that these tools will help drive real-time information in two directions: first, to the front lines by empowering customer-facing stakeholders; and second, back to management for planning, problem solving, and integration.   Management believes that SPECTRUMebos will be the technology "secret sauce" in managing our portfolio of companies and, in time, may be offered to external customers.
 
All great strategies must have trades offs. Therefore, Alpine 4 avoids companies that have unionized employees, businesses that have more than $150 million in revenue and companies that reside in highly regulated business industries.

Business Seasonality and Product Introductions

Following the acquisition of the Quality Circuit Assembly, Inc. and VWES and with the newly acquired dealership pilot and contract for ALTIA, LLC, the Company expects to experience higher net sales in its second and third quarters compared to other quarters in its fiscal year.   Each company has varying seasonality to their sales and will be reflected in the financial statements.

Going Concern

The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company has incurred losses since inception and had accumulated a deficit of $21,273,155 as of March 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.
24


In order to mitigate the risk related with this uncertainty, the Company plans to issue additional shares of common stock for cash and services during the next 12 months and obtain additional funding from the issuance of convertible debt.

Results of Operations

The following are the results of our operations for the three months ended March 31, 2018, as compared to the three months ended March 31, 2017.

   
Three Months
 Ended
March 31,
2018
   
Three Months
 Ended
March 31,
2017
   
$ Change
 
                   
Revenue
 
$
3,632,408
   
$
2,493,241
   
$
1,139,167
 
Cost of revenue (exclusive of depreciation)
   
2,751,325
     
1,877,619
     
873,706
 
Gross Profit
   
881,083
     
615,622
     
265,461
 
                         
Operating expenses:
                       
General and administrative expenses
   
849,148
     
812,767
     
36,381
 
Depreciation
   
173,300
     
162,113
     
11,187
 
Amortization
   
18,853
     
18,853
     
-
 
Loss on sale of property and equipment    
356,933
      -      
356,933
 
     Total operating expenses
   
1,398,234
     
993,733
     
404,501
 
Income (loss) from operations
   
(517,151
)
   
(378,111
)
   
139,040
 
                         
Other expenses
                       
Interest expense
   
352,495
     
289,608
     
62,887
 
Change in value of derivative liabilities
   
(6,415
)
   
-
     
(6,415
)
Gain on extinguishment of debt
   
(136,300
)
   
-
     
(136,300
)
Other (income)
   
(65,853
)
   
(79,812
)
   
13,959
 
     Total other expenses
   
143,927
     
209,796
     
(65,869
)
                         
Loss before income tax
   
(661,078
)
   
(587,907
)
   
(73,171
)
                         
Income tax expense (benefit)
   
-
     
46
     
(46
)
                         
Net loss
 
$
(661,078
)
 
$
(587,953
)
 
$
(73,125
)


Revenue

Our revenues for the three months ended March 31, 2018, increased by $1,139,167 as compared to the three months ended March 31, 2017.  In 2018, the increase in revenue related to $767,052 for QCA, $250,147 for VWES and $121,968 relating to the 6th Sense Auto and Brake Active services of ALTIA.  The increase in revenue was driven by the continued growth of QCA and VWES through the acquisition of new customers and expanded business with existing customers.  We expect our revenue to continue to grow over the remainder of the year.  In addition, revenue is expected to increase through the acquisition of new companies.

Cost of revenue

Our cost of revenue for the year ended March 31, 2018, increased by $873,706 as compared to the three months ended March 31, 2017.  In 2018, the increase in our cost of revenue related to $567,811 for QCA, $161,577 for VWES and $144,318 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.

25

Operating expenses

Our operating expenses for the three months ended March 31, 2018, increased by $404,501 as compared to the three months ended March 31, 2017.  This increase was primarily due to a loss from the sale of property and equipment of $356,933 for the three months ended March 31, 2018, which was a one-time event that did not exist in the prior year.  The increase also included an increase to general and administrative expenses of $36,381 which was the result of increased operating activity during the first quarter of 2018.

Other expenses

Other expenses for the three months ended March 31, 2018, decreased by $65,869 as compared to 2017. This increase was primarily due a gain on extinguishment of debt of $136,300 resulting from the modification of debt in February 2018 and a gain on change in fair value of derivatives of $6,415 that did not exist in the prior year, offset by higher interest expense of $62,887.
Liquidity and Capital Resources

We have financed our operations since inception from the sale of common stock, capital contributions from stockholders and from the issuance of notes payable and convertible notes payable.  We expect to continue to finance our operations by selling shares of our common stock and by generating income from the sale of our products.  As noted above, management's expectations of growth in revenues is based on management's contacts within the automobile dealership industry, and the anticipated increase in interest in Alpine 4's products and services as Alpine 4 increases its advertising and brand and product/service awareness campaigns.  Additionally, management anticipates that the new campaigns will result in the Company's adding new dealerships in 2018.

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

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

Contractual Obligations

Our significant contractual obligations as of March 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
 
Notes payable, related parties
 
$
185,500
   
$
-
   
$
-
   
$
-
   
$
185,500
 
Notes payable, non-related parties
   
4,395,232
     
2,700,000
     
-
     
-
     
7,095,232
 
Convertible notes payable
   
970,596
     
1,616,233
     
-
     
-
     
2,586,829
 
Total
 
$
5,551,328
   
$
4,316,233
   
$
-
   
$
-
   
$
9,867,561
 


26

Off-Balance Sheet Arrangements

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

Critical Accounting Policies and Estimates

Our 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 unaudited consolidated financial statements included under Item 1 – Financial Statements in this Form 10-Q.

Recent Developments

Acquisition of American Precision Fabricators, Inc.

On April 5, 2018, the Company announced that it had entered into a Securities Purchase Agreement (the "SPA") with American Precision Fabricators, Inc., an Arkansas corporation ("APF"), 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 "Transaction").

The total purchase price of $4,500,000, consisted of three components, the Cash Consideration, the Note Consideration, and the Convertible Note Consideration, as follows:

·
The Cash Consideration paid was $2,100,000, which was paid to Sellers at closing, $1,407,000 to Gallbach and $693,000 to Davis.
   
·
The Note Consideration consisted of two secured promissory notes (the "Notes") in the aggregate principal amount of $1,950,000 secured pursuant to a Guarantee and Security Agreement (the "Security Agreement").  The 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 Notes are due 10 years from the issuance date and have no monthly payments for the first 24 months, at which point a balloon payment is due.  The Notes bear interest at 4.25% per annum.
   
·
The Convertible Note Consideration consisted of two secured convertible promissory notes (the "Convertible Notes") in the aggregate principal amount of $450,000, secured pursuant to the Security Agreement.  The Convertible Notes are due in full in 36 months and bear interest at 4.25% per annum, and are convertible at any time into shares of Class A common stock at a rate of $1.00 per share.

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 of the Transaction 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.

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Item 4. Controls and Procedures.
 
Evaluation of Disclosure Controls and Procedures
 
As required by Rule 13a-15 under the Securities Exchange Act of 1934, we have carried out an evaluation of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this quarterly report, March 31, 2018. This evaluation was carried out under the supervision and with the participation of our management, including our Chief Executive Officer.
 
Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission's rules and forms. Disclosure controls and procedures include controls and procedures designed to ensure that information required to be disclosed in our company's reports filed under the Securities Exchange Act of 1934 is accumulated and communicated to management, including our Chief Executive Officer, to allow timely decisions regarding required disclosure.
 
Based upon that evaluation, we have concluded that our disclosure controls and procedures were ineffective as of the end of the period covered by this report due to the following material weaknesses in our internal control over financial reporting, many of which are indicative of many small companies with small staff: (i) as of December 31, 2017, our CFO David Schmitt resigned from his position for personal reasons, (ii) inadequate segregation of duties and effective risk assessment; (iii) inadequate control activities and monitoring processes; and (iv) failure in the process for identification and disclosure of related party transactions; and (v) insufficient written policies and procedures for accounting and financial reporting with respect to the requirements and application of both U.S. GAAP and SEC guidelines.
 
We plan to take steps to enhance and improve the design of our internal control over financial reporting. During the period covered by this quarterly report on Form 10-Q, we have not been able to remediate the material weaknesses identified above. To remediate such weaknesses, we hope to implement the following changes during our fiscal year ending December 31, 2018: (i) appoint additional qualified personnel to address inadequate segregation of duties and ineffective risk management; and (ii) adopt sufficient written policies and procedures for accounting and financial reporting. The remediation efforts set out in (i) and (ii) are largely dependent upon our securing additional financing to cover the costs of implementing the changes required. If we are unsuccessful in securing such funds, remediation efforts may be adversely affected in a material manner.

Changes in Internal Control over Financial Reporting

Other than the December 31, 2017, resignation of David Schmitt as our CFO as noted above, there were no changes in our internal control over financial reporting during the quarter ended March 31, 2018, that have materially affected or are reasonably likely to materially affect, our internal control over financial reporting.

PART II - OTHER INFORMATION
 
Item 1.    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 alleges 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. The Court denied the motion to dismiss. As of the date of this Report, discovery had not commenced. The Company disputes the claim against it and intends to defend vigorously against the lawsuit.

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Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds.

During the quarter ended March 31, 2018, the Company issued 333,333 shares of its restricted Class A common stock in connection with the issuance of convertible notes payable, 100,000 shares with the modification of outstanding debt, and 120,000 shares for note conversions.  

The shares of Class A common stock 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.

Item 3.   Defaults Upon Senior Securities.

None
 
Item 6.   Exhibits.

3.1
Certificate of Incorporation (previously filed with the Commission as an exhibit to the Company's Form 10 and incorporated herein by reference)
 
 
3.2
Bylaws (previously filed with the Commission as an exhibit to the Company's Form 10 and incorporated herein by reference)
 
 
3.3
 
 
3.4
 
 
10.13
 
 
10.14
 
 
10.15
 
 
10.16
 
 
10.17
   
31
Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
 
 
32
Certification of the Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 
 
101.INS*
XBRL Instance Document
 
 
101.SCH*
XBRL Taxonomy Extension Schema Document
 
 
101.CAL*
XBRL Taxonomy Extension Calculation Linkbase Document
 
 
101.LAB*
XBRL Taxonomy Extension Label Linkbase Document
 
 
101.PRE*
XBRL Taxonomy Extension Presentation Linkbase Document
 
 
101.DEF*
XBRL Taxonomy Extension Definition Linkbase Definition

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SIGNATURES
 
In accordance with the requirements of the Exchange Act, the Registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 
Alpine 4 Technologies Ltd.
 
 
Dated: May 15, 2018
 
 
 
By: /s/ Kent B. Wilson
 
Kent B. Wilson
 
Chief Executive Officer, Chief Financial Officer,
President and Director (Principal Executive Officer, Principal Accounting Officer)
 
 
 
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