ALPINE 4 HOLDINGS, INC. - Quarter Report: 2019 September (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 September 30, 2019

[ ] 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.)

2525 E Arizona Biltmore Circle, Suite 237
Phoenix, AZ	85016
(Address of Principal Executive Offices)	(Zip Code)

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

(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 November 18, 2019, the issuer had 99,770,161 shares of its Class A common stock issued and outstanding; 5,000,000 shares of its Class B common stock issued and outstanding and 9,910,200 shares of its Class C 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	26

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	33

Item 4.	Controls and Procedures	33

PART II

Item 1.	Legal Proceedings	34

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	34

Item 3.	Defaults Upon Senior Securities	34

Item 5.	Other Information	34

Item 6.	Exhibits	34

	Signatures	35

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements.

ALPINE 4 TECHNOLOGIES, LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

	September 30,			December 31,
	2019			2018
	(unaudited)
ASSETS

CURRENT ASSETS:
Cash	$	251,019		$	207,205
Accounts receivable		4,631,642			2,610,354
Inventory		3,107,885			2,175,795
Capitalized contract costs		64,234			64,234
Prepaid expenses and other current assets		1,117,719			222,200
Assets of discontinued operations		-			121,296
Total current assets		9,172,499			5,401,084

Property and equipment, net		11,693,599			7,990,556
Intangible asset, net		1,331,723			677,210
Right of use assets, net		721,004			-
Goodwill		3,007,453			3,193,861
Other non-current assets		346,655			290,238
Assets of discontinued operations		-			387,727

TOTAL ASSETS	$	26,272,933		$	17,940,676

LIABILITIES AND STOCKHOLDERS' DEFICIT

CURRENT LIABILITIES:
Accounts payable	$	3,777,733		$	3,102,970
Accrued expenses		2,846,355			1,254,853
Deferred revenue		-			25,287
Derivative liabilities		1,850,947			1,892,321
Deposits		12,509			12,509
Notes payable, current portion		6,629,858			3,585,603
Notes payable, related parties, current portion		401,820			192,000
Convertible notes payable, current portion, net of discount of $113,741 and $942,852		1,787,943			2,644,735
Financing lease obligation, current portion		234,682			105,458
Operating lease obligation, current portion		254,535			-
Acquisition contingency		500,000			-
Net liabilities of discontinued operations		-			2,752,447
Total current liabilities		18,296,382			15,568,183

Notes payable, net of current portion		5,521,502			4,517,441
Convertible notes payable, net of current portion		1,122,688			450,000
Financing lease obligations, net of current portion		11,455,105			8,295,176
Operating lease obligations, net of current portion		474,473			-
Deferred tax liability		608,304			608,304

TOTAL LIABILITIES		37,478,454			29,439,104

STOCKHOLDERS' DEFICIT:
Preferred stock, $0.0001 par value, 10,000,000 shares authorized, none issued and outstanding at September 30, 2019 and December 31, 2018		-			-
Class A Common stock, $0.0001 par value, 100,000,000 shares authorized, 95,370,161 and 26,567,410 shares issued and outstanding at September 30, 2019 and December 31, 2018		9,537			2,657
Class B Common stock, $0.0001 par value, 5,000,000 shares authorized, 5,000,000 and 5,000,000 shares issued and outstanding at September 30, 2019 and December 31, 2018		500			500
Class C Common stock, $0.0001 par value, 10,000,000 shares authorized, 9,870,200 shares issued and outstanding at September 30, 2019		987			-
Additional paid-in capital		18,557,801			17,018,509
Accumulated deficit		(29,774,346	)		(28,520,094	)
Total stockholders' deficit		(11,205,521	)		(11,498,428	)
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT	$	26,272,933		$	17,940,676

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

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

	Three Months ended September 30,						Nine Months Ended September 30,
	2019			2018			2019			2018

Revenue	$	7,088,182		$	4,342,203		$	20,690,014		$	10,570,032
Cost of revenue		5,311,323			2,119,913			15,542,194			6,478,090
Gross Profit		1,776,859			2,222,290			5,147,820			4,091,942

Operating expenses:
General and administrative expenses		1,739,867			2,387,092			5,509,996			4,255,035

Total operating expenses		1,739,867			2,387,092			5,509,996			4,255,035
Income (loss) from operations		36,992			(164,802	)		(362,176	)		(163,093	)

Other income (expenses)
Interest expense		(698,844	)		(701,114	)		(2,736,968	)		(1,642,562	)
Change in value of derivative liability		3,389,116			(1,012,743	)		(689,369	)		(766,718	)
Gain on extinguishment of debt		-			-			-			6,305
Other income		77,918			55,949			206,681			173,608
Total other income (expenses)		2,768,190			(1,657,908	)		(3,219,656	)		(2,229,367	)

Loss before income tax		2,805,182			(1,822,710	)		(3,581,832	)		(2,392,460	)

Income tax (benefit)		-			-			-			-

Income (loss) from continuing operations		2,805,182			(1,822,710	)		(3,581,832	)		(2,392,460	)

Discontinued operations:
Loss from operations of discontinued operations		-			(1,051,916	)		(95,179	)		(1,720,538	)
Gain on disposition of discontinued operations		-			-			2,515,028			-
Total discontinued operations		-			(1,051,916	)		2,419,849			(1,720,538	)

Net income (loss)	$	2,805,182		$	(2,874,626	)	$	(1,161,983	)	$	(4,112,998	)

Weighted average shares outstanding :
Basic		101,810,802			30,358,570			62,450,846			27,813,506
Diluted		237,269,687			30,358,570			62,450,846			27,813,506

Basic Income (loss) per share
Continuing operations	$	0.03		$	(0.06	)	$	(0.06	)	$	(0.09	)
Discontinued operations		-		$	(0.03	)		0.04		$	(0.06	)
	$	0.03			(0.09	)	$	(0.02	)		(0.15	)

Diluted income (loss) per share
Continuing operations	$	(0.00	)	$	(0.06	)	$	(0.06	)	$	(0.09	)
Discontinued operations		-		$	(0.03	)		0.04		$	(0.06	)
	$	(0.00	)		(0.09	)	$	(0.02	)		(0.15	)

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

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

	Class A Common Stock				Class B Common Stock							Class C Common Stock				Additional Paid-in			Accumulated			Total Stockholders'
	Shares		Amount		Shares			Amount				Shares		Amount		Capital			Deficit			Deficit
Balance, December 31, 2018		26,567,410	$	2,657		5,000,000			$	500			-	$	-	$	17,018,509		$	(28,520,094	)	$	(11,498,428	)

Issuance of shares of common stock for convertible note payable and accrued interest		1,670,000		167													26,421						26,588
Derivative liability resolution																	10,993						10,993
Share-based compensation expense																	19,341						19,341
Net income for the three months																				989,511			989,511

Balance, March 31, 2019		28,237,410		2,824		5,000,000				500			-		-		17,075,264			(27,530,583	)		(10,451,995	)

Issuance of shares of common stock for convertible note payable and accrued interest		33,975,924		3,398													232,551						235,949
Derivative liability resolution																	332,703						332,703
Share-based compensation expense																	19,556						19,556
Net loss for the three months																				(4,956,676	)		(4,956,676	)

Balance, June 30, 2019		62,213,334		6,222		5,000,000				500			-		-		17,660,074			(32,487,259	)		(14,820,463	)

Issuance of shares of common stock for convertible note payable and accrued interest		32,956,827		3,295													258,004						261,299
Issuance of shares of common stock for dividend													7,097,594		710		91,559			(92,269	)		-
Conversion of Class B to Class A		200,000		20		(200,000	)			(20	)												-
Issuance of shares of common stock for services						200,000				20			2,772,606		277		38,347						38,644
Derivative liability resolution																	490,047						490,047
Share-based compensation expense																	19,770						19,770
Net loss for the three months																				2,805,182			2,805,182

Balance, September 30, 2019		95,370,161	$	9,537		5,000,000			$	500			9,870,200	$	987	$	18,557,801		$	(29,774,346	)	$	(11,205,521	)

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 of common stock for convertible note payable and accrued interest		120,000		12													15,588						15,600
Issuance of common stock for modification of debt		100,000		10													14,990						15,000
Issuance of shares for debt discount		333,333		33													56,633						56,666
Reclassification of shares from mezzanine		379,403		38													(38	)					-
Derivative liability resolution																	125,759						125,759
Stock-based compensation expense																	15,840						15,840
Change in fair value of warrant modification																	4,310						4,310
Net loss for the three months																				(661,078	)		(661,078	)

Balance, March 31, 2018		24,154,823		2,415		1,600,000				160			-		-		16,806,714			(21,273,155	)		(4,463,866	)

Issuance of shares of common stock for convertible note payable and accrued interest		713,033		72													16,762						16,834
Derivative liability resolution																	(182,425	)					(182,425	)
Stock-based compensation expense																	17,555						17,555
Shares issued for employee compensation						3,400,000				340							176,460						176,800
Net loss for the three months																				(577,294	)		(577,294	)

Balance, June 30, 2018		24,867,856	$	2,487		5,000,000			$	500			-	$	-	$	16,835,066		$	(21,850,449	)	$	(5,012,396	)

Issuance of shares of common stock for convertible note payable and accrued interest		669,251		66													33,604						33,670
Derivative liability resolution																	58,018						58,018
Stock-based compensation expense																	18,914						18,914
Net loss for the three months																				(2,874,626	)		(2,874,626	)

Balance, September 30, 2018		25,537,107	$	2,553		5,000,000			$	500			-	$	-	$	16,945,602		$	(24,725,075	)	$	(7,776,420	)

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

ALPINE 4 TECHNOLOGIES, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)

	Nine Months Ended September 30,
	2019			2018

OPERATING ACTIVITIES:
Net income (loss)	$	(1,161,983	)	$	(4,112,998	)
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Depreciation		710,133			690,743
Amortization		135,487			48,225
Gain on extinguishment of debt		-			(136,300	)
Loss on disposal of fixed assets		-			414,204
Change in value of derivative liabilities		689,369			766,718
Stock issued for services		38,644			176,800
Employee stock compensation		58,667			52,309
Amortization of debt discounts		932,111			701,850
Gain on disposal of discontinued operations		(2,515,028	)		-
Issuance of convertible debentures for penalty interest		128,777			-
Operating lease expense		170,409			-
Change in current assets and liabilities:
Accounts receivable		(508,081	)		(727,643	)
Inventory		(478,249	)		(506,277	)
Capitalized contracts costs		-			37,300
Prepaid expenses and other assets		(56,449	)		171,006
Accounts payable		346,378			583,299
Accrued expenses		1,596,304			606,234
Operating lease liability		(162,405	)		-
Deferred revenue		(25,287	)		(276,703	)
Net cash used in operating activities		(101,203	)		(1,511,233	)

INVESTING ACTIVITIES:
Capital expenditures		(48,878	)		(71,268	)
Proceeds from insurance claim on automobiles and trucks		-			260,467
Cash paid for acquisitions, net of cash acquired		(1,967,606	)		(1,976,750	)
Net cash used in investing activities		(2,016,484	)		(1,787,551	)


FINANCING ACTIVITIES:
Proceeds from issuances of notes payable, related party		282,320			125,000
Proceeds from issuances of notes payable, non-related party		500,000			924,750
Proceeds from issuances of convertible notes payable		103,000			1,399,250
Proceeds from financing lease		3,267,000			1,900,000
Repayments of notes payable, related party		(72,500	)		(31,500	)
Repayments of notes payable, non-related party		(1,579,013	)		(777,727	)
Repayments of convertible notes payable		(787,700	)		(937,959	)
Proceeds from line of credit, net		582,046			1,072,327
Cash paid on financing lease obligations		(133,652	)		(166,627	)
					-
Net cash provided by financing activities		2,161,501			3,507,514

NET INCREASE IN CASH AND RESTRICTED CASH		43,814			208,730

CASH AND RESTRICTED CASH, BEGINNING BALANCE		414,516			335,823

CASH AND RESTRICTED CASH, ENDING BALANCE	$	458,330		$	544,553

CASH PAID FOR:
Interest	$	1,768,533		$	955,741
Income taxes	$	-		$	-

SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING ACTIVITIES:
Common stock issued for convertible note payable and accrued interest	$	523,836		$	63,773
Issuance of convertible payable for acquisition	$	-		$	450,000
Issuance of note payable for acquisition	$	3,450,000		$	1,950,000
Debt discount due to derivative liabilities	$	103,000		$	1,262,970
Notes payable and redeemable common stock restructuring	$	-		$	3,197,538
Release of derivative liability	$	833,743		$	58,018
Capital leases	$	-		$	247,000
ROU asset and operating lease obligation recognized upon adoption of Topic 842	$	891,413		$	-
Goodwill adjustment to intangible asset for APF acquisition	$	790,000		$	-
Class C common stock issued for dividend	$	92,269		$	-

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

Alpine 4 Technologies Ltd.

Notes to Unaudited Consolidated Financial Statements

For the Nine months ended September 30, 2019

(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 22, 2019. The results for the nine months ended September 30, 2019, are not necessarily indicative of the results to be expected for the year ending December 31, 2019.

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 five companies (ALTIA, LLC; Quality Circuit Assembly, Inc. ("QCA"); Venture West Energy Services (“VWES”) (formerly Horizon Well Testing, LLC, currently filed for Chapter 7 bankruptcy); American Precision Fabricators, Inc., an Arkansas corporation (“APF”) and Morris. Effective January 1, 2019, the Company purchased Morris Sheet Metal Corp., an Indiana corporation, JTD Spiral, Inc. a wholly owned subsidiary of MSM, an Indiana corporation, Morris Enterprises LLC, an Indiana limited liability company and Morris Transportation LLC, an Indiana limited liability company (collectively “Morris”) (see Note 9).

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 September 30, 2019, and December 31, 2018. 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.

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 September 30, 2019, and December 31, 2018, 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.

	September 30,		December 31,
	2019		2018
Cash	$	251,019	$	207,205
Restricted cash included in other non-current assets		207,311		207,311
Total cash and restricted cash shown in statement of cash flows	$	458,330	$	414,516

Major Customers

The Company had three customers that made up 21%, 16% and 13%, respectively, of accounts receivable as of September 30, 2019. The Company had two customers that made up 29 % and 27%, respectively, of accounts receivable as of December 31, 2018.

For the nine months ended September 30, 2019, the Company had two customers that made up 14% and 11%, respectively, of total revenues. For the nine months ended September 30, 2018, the Company had one customer that made up 23% 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 September 30, 2019, and December 31, 2018, 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 three areas, raw materials, work in progress (WIP) and finished goods. Below is a breakdown of how much inventory was in each area as of September 30, 2019 and December 31, 2018:

	September 30,		December 31,
	2019		2018
Raw materials	$	1,460,091	$	676,621
WIP		7,558		-
Finished goods		1,640,236		1,499,174
	$	3,107,885	$	2,175,795

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 September 30, 2019 and December 31, 2018:

	September 30,			December 31,
	2019			2018
Automobiles and trucks	$	155,179		$	155,179
Machinery and equipment		3,654,717			2,548,855
Office furniture and fixtures		114,867			109,619
Building		9,062,000			5,795,000
Leasehold improvements		307,341			261,608
Less: Accumulated depreciation		(1,600,505	)		(879,705	)
	$	11,693,599		$	7,990,556

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 lists	15 years
Non-compete agreements	15 years
Software development	5 years

Intangible assets consisted of the following as of September 30, 2019 and December 31, 2018:

	September 30,			December 31,
	2019			2018
Software	$	278,474		$	278,474
Noncompete		100,000			100,000
Customer lists		1,321,187			531,187
Less: Accumulated amortization		(367,938	)		(232,451	)
	$	1,331,723		$	677,210

Expected amortization expense of intangible assets over the next 5 years and thereafter is as follows:

Twelve Months Ending September 30,
2020	$	132,627
2021		132,627
2022		132,627
2023		99,028
2024		99,028
Thereafter		735,786
Total	$	1,331,723

Other long-term assets consisted of the following as of September 30, 2019 and December 31, 2018:

	September 30,		December 31,
	2019		2018
Restricted Cash	$	207,311	$	207,311
Deposits		105,927		50,927
Other		33,417		32,000
	$	346,655	$	290,238

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.

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 September 30, 2019, and December 31, 2018, the reporting units with goodwill were QCA, APF and Morris.

The Company used qualitative factors according to ASC 350-20-35-3 to determine whether it is more likely than not that the fair value of goodwill is less than its carrying amount. Based on the qualitative criteria the company believes there not to be any triggers for potential impairment of goodwill and therefore the Company has recorded no impairment of goodwill in any period presented.

Fair Value Measurement

The Company's financial instruments consist of cash and cash equivalents, accounts receivable, accounts payable, accrued expenses, convertible notes, notes and line of credit. The carrying amount of these financial instruments approximates fair value due either to length of maturity or interest rates that approximate prevailing market rates unless otherwise disclosed in these financial statements. 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 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.

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.

Morris

Morris is a mechanical contractor and recognizes revenue when the services have been performed 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 for the three and nine months ended September 30, 2018 and the nine months ended September 30, 2019 due to the net loss incurred. The following table illustrates the computation of basic and diluted EPS for the three and nine months ended September 30, 2019 and 2018:

	For the Three Months ended September 30, 2019										For the Three Months ended September 30, 2018
	Net Income (Loss)				Shares		Per Share Amount				Net Income (Loss)				Shares		Per Share Amount
Basic EPS
Income (loss) available to stockholders		$	2,805,182			101,810,802		$	0.03			$	(2,874,626	)		30,358,570		$	(0.09	)
Effect of Dilutive Securities
Convertible debt			(3,468,509	)		135,458,885			-							-			-
Dilute EPS
Income (loss) available to stockholders plus assumed conversions		$	(663,327	)		237,269,687		$	(0.00	)		$	(2,874,626	)		30,962,398		$	(0.09	)

	For the Nine Months ended September 30, 2019								For the Nine Months ended September 30, 2018
	Net Income (Loss)			Shares		Per Share Amount			Net Income (Loss)			Shares		Per Share Amount
Basic EPS
Income (loss) available to stockholders	$	(1,161,983	)		62,450,846	$	(0.02	)	$	(4,112,998	)		27,813,506	$	(0.15	)
Effect of Dilutive Securities
Convertible debt							-								-
Dilute EPS
Income (loss) available to stockholders plus assumed conversions	$	(1,161,983	)		62,450,846	$	(0.02	)	$	(4,112,998	)		27,813,506	$	(0.15	)

Stock-based compensation

The Company accounts for equity instruments issued in exchange for the receipt of goods or services in accordance with ASC 718-10, Compensation – Stock Compensation. Costs are measured at the estimated fair market value of the consideration received or the estimated fair value of the equity instruments issued, whichever is more reliably measurable.

Income taxes

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

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

Significant judgment is required in evaluating the Company's tax positions and determining its provision for income taxes. During the ordinary course of business, there are many transactions and calculations for which the ultimate tax determination is uncertain. Accounting standards regarding uncertainty in income taxes provides a two-step approach to recognizing and measuring uncertain tax positions. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount which is more than 50% likely, based solely on the technical merits, of being sustained on examinations. The Company considers many factors when evaluating and estimating its tax positions and tax benefits, which may require periodic adjustments, and which may not accurately anticipate actual outcomes.

Embedded Conversion Features

The Company evaluates embedded conversion features within convertible debt under ASC 815 Derivatives and Hedging to determine whether the embedded conversion feature(s) should be bifurcated from the host instrument and accounted for as a derivative at fair value with changes in fair value recorded in earnings. If the conversion feature does not require derivative treatment under ASC 815, the instrument is evaluated under ASC 470-20 Debt with Conversion and Other Options for consideration of any beneficial conversion features.

Related Party Disclosure

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

Recent Accounting Pronouncements

In June 2018, the FASB issued ASU 2018-07, Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting, which simplifies the accounting for share-based payments granted to nonemployees for goods and services and aligns most of the guidance on such payments to nonemployees with the requirements for share-based payments granted to employees. ASU 2018-07 is effective on January 1, 2019. The adoption of this ASU did not have any impact on the Company’s financial statements and disclosures.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). ASU 2016-02 requires lessees to recognize lease assets and lease liabilities on the balance sheet and requires expanded disclosures about leasing arrangements. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018 and interim periods in fiscal years beginning after December 15, 2018, with early adoption permitted. ASU 2016-02 and additional ASUs are now codified as ASC 842, Leases. ASC 842 supersedes the lease accounting guidance in ASC 840 Leases, and requires lessees to recognize a lease liability and a corresponding lease asset for virtually all lease contracts. It also requires additional disclosures about leasing arrangements. The Company adopted ASC 842 on January 1, 2019 and used the modified retrospective transition approach and did not restate its comparative periods. The Company elected to utilize the “package” of three expedients, as defined in ASC 842, which retain the lease classification and initial direct costs for any leases that existed prior to adoption of the standard. As of the date of implementation on January 1, 2019, the impact of the adoption of ASC 842 resulted in the recognition of a right of use asset and lease payable obligation on the Company’s consolidated balance sheets of $891,413. As the right of use asset and the lease payable obligation were the same upon adoption of ASC 842, there was no cumulative effect impact on the Company’s accumulated deficit.

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 Company has recurring losses and a working capital deficit. These factors raise substantial doubt as to the Company’s ability to continue as a going concern. 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 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 the going concern uncertainty, the Company has a three-fold plan to resolve these risks. First, the acquisitions of QCA, APF and Morris have allowed for an increased level of cash flow to the Company. Second, the Company is considering other potential acquisition targets that, like QCA and Morris, should increase income and cash flow to the Company. Third, the Company plans to seek new non-convertible debt agreements to fund any deficits in cash requirements.

Note 4 – Leases

The Company determines whether a contract is or contains a lease at inception of the contract and whether that lease meets the classification criteria of a finance or operating lease. When available, the Company uses the rate implicit in the lease to discount lease payments to present value; however, most of the Company’s leases do not provide a readily determinable implicit rate. Therefore, the Company must discount lease payments based on an estimate of its incremental borrowing rate.

As of September 30, 2019, the future minimum financing and operating lease payments, net of amortization of debt issuance costs, were as follows:

	Finance			Operating
Twelve Months Ended September 30,	Leases			Leases
2020	$	1,206,080		$	346,998
2021		1,228,708			356,757
2022		1,248,696			142,116
2023		1,269,248			40,950
2024		1,251,104			-
Thereafter		11,843,097			-
Total		18,046,933			886,821
Less: current lease obligation		(234,682	)		(254,535	)
Less: imputed interest		(6,357,146	)		(157,813	)
Non-current capital leases obligations	$	11,455,105		$	474,473

Finance Leases

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 September 30, 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. In order to fund a portion of the acquisition price, the Company simultaneously entered into a sale leaseback transaction with a third-party lender whereby the building acquired from APF was sold for $1,900,000, and leased back to the company for a period of 15 years at a monthly rate of $15,833, subject to an annual increase of 2% throughout the term of the lease. The Company had no gain or loss resulting from the sale of the property, and the resulting lease qualifies as a capital lease. As a result, the Company has capitalized the cost of the building and the resulting capital lease obligation liability of $1,900,000. The payments related to this lease are reflected in the table above.

On January 1, 2019, the Company acquired Morris. In order to fund a portion of the acquisition price, the Company simultaneously entered into a sale leaseback transaction with a third-party lender whereby the building acquired from Morris was sold for $3,267,000, and leased back to the company for a period of 15 years at a monthly rate of $27,500, subject to an annual increase of 2% throughout the term of the lease. The transaction did not qualify as a sale and leaseback transaction under Topic 842 and as such was accounted for as a financing lease. The payments related to this lease are reflected in the table above.

A letter of credit of $1,000,000 is to be provided to the landlord in the above QCA financing lease obligation, of which $207,311 had been satisfied as of September 30, 2019.

Operating Leases

The table below presents the lease related assets and liabilities recorded on the Company’s consolidated balance sheet as of September 30, 2019:

	Classification on Balance Sheet	September 30, 2019
Assets
Operating lease assets	Operating lease right of use assets	$	721,004
Total lease assets		$	721,004

Liabilities
Current liabilities
Operating lease liability	Current operating lease liability	$	254,535
Noncurrent liabilities
Operating lease liability	Long-term operating lease liability		474,473
Total lease liability		$	729,008

The lease expense for the nine months ended September 30, 2019 was $170,409. The cash paid under operating leases during the nine months ended September 30, 2019 was $162,405. At September 30, 2019, the weighted average remaining lease terms were 2.62 years and the weighted average discount rate was 15%

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.

On February 22, 2018, the Company issued a $3,000,000 note payable under the Amended and Restated Secured Promissory Note with the seller of VWES. The note is secured by the assets of VWES and bears interest at 7% per annum and is due in semi-annual payments of $150,000 commencing on June 1, 2018, through June 1, 2020. The remaining principal and accrued interest is due on the 3 year anniversary.

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.

In connection with the Morris acquisition in January 2019, the Company issued three promissory notes for an aggregate of $3,100,000. The notes bear interest at 4.25% per annum, require monthly payment for the first 35 months of $31,755 with any remaining principal and accrued interest due on the 3 year-anniversary. The Company also issued three supplemental notes payable for an aggregate of $350,000. The notes bear interest at 4.25% per annum and are due on the 1-year anniversary.

The outstanding balances for the loans were as follows:

	September 30,		December 31,
	2019		2018
Lines of credit, current portion	$	3,086,487	$	2,504,440
Equipment loans, current portion		234,659		260,301
Term notes, current portion		3,308,712		820,862
Total current		6,629,858		3,585,603
Long-term portion		5,521,502		4,517,441
Total notes payable	$	12,151,360	$	8,103,044

Future scheduled maturities of outstanding notes payable from related parties are as follows:

Twelve Months Ending September 30,
2020	$	6,629,858
2021		2,752,639
2022		2,648,863
2023		80,000
2024		40,000
Total	$	12,151,360

Note 6 – Notes Payable, Related Parties

At September 30, 2019 and December 31, 2018, notes payable due to related parties consisted of the following:

	September 30,		December 31,
	2019		2018
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
Series of notes payable, bearing interest at rates from 10% to 20% per annum, with maturity dates from April 2018 to July 2020, unsecured		389,820		180,000
Total notes payable - related parties	$	401,820	$	192,000

The above notes which are in default as of September 30, 2019, were due on demand by the lenders as of the date of this Report.

Note 7 – Convertible Notes Payable

At September 30, 2019 and December 31, 2018, convertible notes payable consisted of the following:

	September 30,			December 31,
	2019			2018
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 exercise prices ranging from $0.10 to $1 per share.	$	25,000		$	25,000

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. On August 11, 2019, the Company extended the due date of one of the notes to December 31, 2022. 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 $1 per share.		1,429,587			1,654,588

Convertible note 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			10,000

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 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			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.		500			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.		68,757			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.		116,480			165,000

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.		198,348			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.		49,000			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.		511,700			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. This convertible note is past due.		98,000			130,000

On February 5, 2019, the Company entered into a variable convertible note for $103,000 with net proceeds of $103,000. The note is due November 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. This convertible note is past due.		67,000			-

Total convertible notes payable		3,024,372			4,037,587

Less: discount on convertible notes payable		(113,741	)		(942,852	)

Total convertible notes payable, net of discount		2,910,631			3,094,735

Less: current portion of convertible notes payable		(1,787,943	)		(2,644,735	)

Long-term portion of convertible notes payable	$	1,122,688		$	450,000

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 nine months ended September 30, 2019 and 2018 amounted to $932,111 and $701,850, respectively, and is recorded as interest expense in the accompanying consolidated statements of operations. The unamortized discount balance for these notes was $113,741 as of September 30, 2019, 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, 2018	$	3,094,735
Issuance of convertible notes payable for cash		103,000
Issuance of convertible notes payable for penalty interest		128,777
Repayment of notes		(787,700	)
Conversion of notes payable to common stock		(457,292	)
Discount from derivative liability		(103,000	)
Amortization of debt discounts		932,111
Balance outstanding, September 30, 2019	$	2,910,631

Note 8 – Stockholders' Equity

Preferred Stock

The Company is authorized to issue 10,000,000 shares of $.0001 par value preferred stock. As of September 30, 2019 and December 31, 2018, no shares of preferred stock were outstanding.

Common Stock

Pursuant to the Amended and Restated Certificate of Incorporation, the Company is authorized to issue three classes of common stock: Class A common stock, which has one vote per share, Class B common stock, which has ten votes per share and Class C common stock, which has five 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 voting rights of the two classes of common stock will be identical. Any holder of Class C common stock may convert 25% of his or her shares at any time after the 3^rd to 6^th anniversary into shares of Class A common stock on a share-for-share basis. Otherwise the voting rights of the two classes of common stock will be identical.

The Company had the following transactions in its common stock during the nine months ended September 30, 2019:

•	issued 68,602,751 shares of Class A common stock for the conversion of $457,292 of outstanding convertible notes payable and $66,544 of accrued interest;

•	issued 7,097,595 shares of Class C common stock as a dividend to the Class A common stockholders.

•	issued 200,000 shares of Class B common stock and 2,772,606 shares of Class C common stock to officer, directors and employees for services rendered valued at $38,644.

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 nine months ended September 30, 2019:

					Weighted-
			Weighted-		Average
			Average		Remaining		Aggregate
			Exercise		Contractual		Intrinsic
	Options		Price		Life (Years)		Value

Outstanding at December 31, 2018		1,790,000	$	0.19		9.10	$	-
Granted		-
Forfeited		-
Exercised		-
Outstanding at September 30, 2019		1,790,000	$	0.19		8.60	$	-

Vested and expected to vest at September 30, 2019		1,790,000	$	0.19		8.35	$	-

Exercisable at September 30, 2019		727,594	$	0.26		8.12	$	-

The following table summarizes information about options outstanding and exercisable as of September 30, 2019:

		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		9.13	$	0.05		271,563	$	0.05
	0.10		85,000		9.04		0.10		21,250		0.10
	0.13		388,500		8.34		0.13		194,250		0.13
	0.26		114,000		8.10		0.26		64,125		0.26
	0.90		223,500		8.02		0.90		125,719		0.90
			1,790,000						676,907

During the nine months ended September 30, 2019 and 2018, stock option expense amounted to $58,667 and $52,309, respectively. Unrecognized stock option expense as of September 30, 2019 amounted to $142,170, 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 September 30, 2019, the Company had 277,001 warrants outstanding with a weighted average exercise price of $1.01 and a weighted average remaining life of 1.48 years.

Note 9 – Business Combination

Morris

On January 9, 2019, (with an effective date of January 1, 2019) the Company entered into a Securities Purchase Agreement (the "SPA") with Morris Sheet Metal Corp., an Indiana corporation, JTD Spiral, Inc. a wholly owned subsidiary of MSM, an Indiana corporation, Morris Enterprises LLC, an Indiana limited liability company and Morris Transportation LLC, an Indiana limited liability company.

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. 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
Cash	$	192,300
Accounts receivable		1,498,591
Inventory		453,841
Prepaid expenses and other current assets		858,456
Property and equipment		4,214,965
Goodwill		603,592
Accounts payable		(234,236	)
Accrued expenses		(443,908	)
Notes payable		(1,033,695	)
	$	6,109,906

The purchase price was paid as follows:

Cash		2,159,906
Seller notes		3,450,000
Acquisition contingency		500,000
	$	6,109,906

One year after the closing date, the sellers will calculate monthly the 85/25 requirement to meet the Construction Industry Exemption for the Withdraw Liability (WDL). If the calculations verify Morris Sheet Metal Corp. and/or JTD Spiral, Inc. met the Exemption requirement for six consecutive months the Company will pay the sellers a $500,000 success fee. The Company anticipates that this contingency will be met and it will be obligated to pay the additional $500,000.

Simultaneous with the purchase of Morris, a building, owned by Morris 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 $3,267,000 were used to fund the cash consideration to the sellers. The building and the lease is being treated as a financing lease (see Note 4).

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. 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. During the period ended June 30, 2019, the Company finalized the purchase price allocation. As a result the Company took a charge to earnings during the three months ended June 30, 2019 for $65,833 for amortization on the customer list from the purchase date to June 30, 2019.

	Purchase Allocation
Accounts receivable	$	945,050
Inventory		675,074
Prepaid expenses and other current assets		250,040
Property and equipment		3,300,000
Customer list		790,000
Goodwill		440,100
Accounts payable		(1,234,328	)
Accrued expenses		(154,186	)
Line of credit		(165,000	)
Deferred tax liability		(470,000	)
	$	4,376,750

The following are the unaudited pro forma results of operations for the nine months ended September 30, 2019 and 2018, as if Morris and APF had been acquired on January 1, 2018. 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.

	Nine Months Ended September 30,
	2019			2018
Sales	$	20,690,014		$	19,812,607
Cost of goods sold		15,542,194			14,202,405
Gross profit		5,147,820			5,610,202
Operating expenses		5,509,996			5,675,248
Loss from operations		(362,176	)		(65,046	)
Net loss from continuing operations		(3,581,832	)		(2,121,185	)
Loss per share		(0.06	)		(0.08	)

N ote 10 – Industry Segments

This summary presents the Company's segments, QCA, APF and Morris for the three and nine months ended September 30, 2019 and 2018:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2019			2018			2019			2018

Revenue
QCA	$	2,252,997		$	2,910,462		$	7,056,674		$	7,856,208
APF		966,735			1,200,529			3,925,190			2,162,126
Morris		3,820,472			-			9,561,843			-
Unallocated and eliminations		47,978			231,212			146,307			551,698
	$	7,088,182		$	4,342,203		$	20,690,014		$	10,570,032

Gross profit
QCA	$	711,053		$	1,233,038		$	2,083,729		$	2,915,421
APF		294,722			713,047			1,180,619			816,688
Morris		702,675			-			1,747,619			-
Unallocated and eliminations		68,409			276,205			135,853			359,833
	$	1,776,859		$	2,222,290		$	5,147,820		$	4,091,942

Income (loss) from operations
QCA	$	111,832		$	452,793		$	179,707		$	1,184,664
APF		110,454			(256,068	)		561,990			(404,148	)
Morris		423,083			-			507,162			-
Unallocated and eliminations		(608,377	)		(361,527	)		(1,611,035	)		(943,609	)
	$	36,992		$	(164,802	)	$	(362,176	)	$	(163,093	)

Depreciation and amortization
QCA	$	84,398		$	75,755		$	253,192		$	220,976
APF		82,514			95,817			286,119			191,634
Morris		95,342			-			281,310			-
Unallocated and eliminations		8,333			52,965			24,999			278,133
	$	270,587		$	224,537		$	845,620		$	690,743

Interest Expenses
QCA	$	180,014		$	170,785		$	538,252		$	469,368
APF		94,562			39,443			263,071			68,149
Morris		150,138			-			302,724			-
Unallocated and eliminations		274,130			490,886			1,632,921			1,105,045
	$	698,844		$	701,114		$	2,736,968		$	1,642,562

Net income (loss)
QCA	$	9,736		$	337,956		$	(156,877	)	$	888,904
APF		15,892			(295,511	)		298,919			(472,297	)
Morris		272,945			-			209,063			-
Unallocated and eliminations		2,506,609			(1,865,155	)		(3,932,937	)		(2,809,067	)
	$	2,805,182		$	(1,822,710	)	$	(3,581,832	)	$	(2,392,460	)

	As of			As of
	September 30,			December 31,
	2019			2018
Total Assets
QCA	$	13,152,517		$	10,767,883
APF		11,254,397			6,159,098
Morris		15,929,389			-
Unallocated and eliminations		(14,063,370	)		1,013,695
	$	26,272,933		$	17,940,676

Goodwill
QCA	$	1,963,761		$	1,963,761
APF		440,100			1,230,100
Morris		603,592			-
Unallocated and eliminations		-			-
	$	3,007,453		$	3,193,861

Accounts receivable, net
QCA	$	1,531,514		$	1,649,701
APF		1,003,589			958,153
Morris		2,066,789			-
Unallocated and eliminations		29,750			2,500
	$	4,631,642		$	2,610,354

Note 11 – Derivative Liabilities and Fair Value Measurements

Derivative liabilities

The Company has issued convertible notes payable that were evaluated under the guidance in 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 3.

The Company estimated the fair value of the derivative liabilities using the Black-Scholes Option Pricing Model and the following key assumptions at September 30, 2019 and December 31, 2018:

		September 30,			December 31,
		2019			2018

Risk free rate	2.03% to 2.51%					1.89	%
Volatility			231% - 321	%		200	%
Expected terms (years)		0.5 to 1.51			1.3 to 2.53
Dividend rate			0	%		0	%

Fair value measurements

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. 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. 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.

The following table provides a summary of the fair value of our derivative liabilities as of September 30, 2019 and December 31, 2018:

Description	Fair Value As of September 30, 2019		Fair Value Measurements at September 30, 2019 Using Fair Value Hierarchy
			Level 1		Level 2		Level 3
Conversion feature on convertible notes	$	1,850,947	$	-	$	-	$	1,850,947


Description	Fair Value As of December 31, 2018		Fair Value Measurements at December 31, 2018 Using Fair Value Hierarchy
			Level 1		Level 2		Level 3
Conversion feature on convertible notes	$	1,892,321	$	-	$	-	$	1,892,321

The below table presents the change in the fair value of the derivative liabilities during the nine months ended September 30, 2019:

Derivative liability balance, December 31, 2018	$	1,892,321
Issuance of derivative liability during the period		103,000
Derivative liability resolution		(833,743	)
Change in derivative liability during the period		689,369
Derivative liability balance, September 30, 2019	$	1,850,947

Note 12 – 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 nine months ended September 30, 2019 and 2018 as discontinued operations and are summarized below:

	Nine Months Ended September 30,
	2019			2018
Revenue	$	-		$	2,938,441
Cost of revenue		-			2,489,273
Gross Profit		-			449,168
Operating expenses		95,179			2,267,843
Loss from operations		(95,179	)		(1,818,675	)
Other income (expenses)		-			98,137
Net loss	$	(95,179	)	$	(1,720,538	)

The assets and liabilities of the discontinued operations at September 30, 2019 and December 31, 2018 are summarized below:

	September 30,		December 31,
	2019		2018

Current assets	$	-	$	121,296
Property and equipment		-		387,727
Total assets	$	-	$	509,023

Current liabilities	$	-	$	2,493,049
Notes payable - related party		-		43,500
Notes payable		-		215,898
Total liabilities	$	-	$	2,752,447

As of March 31, 2019, VWES’ bankruptcy was completed and the Company removed all the assets and liabilities of VWES resulting in a gain on the disposition of discontinued operations of $2,515,028.

Note 13 – Subsequent Events

Subsequent to September 30, 2019, the Company agreed to settle with convertible note holders and issued 4,400,000 shares of Class A common stock upon the conversion of convertible debts (see below). In addition, the Company entered into agreement with convertible note holders as follows:

Convertible note with total balance owing, including all interest and penalties of $167,990. The Company and the noteholder agreed that note would be settled over a 13-week period beginning on August 12, 2019, with 13 weekly payments of $4,000 per week and a final lump-sum payment of $115,990.

Convertible note with total balance owing, including all interest and penalties of, $651,292. The Company and the noteholder entered into a settlement agreement, pursuant to which the parties agreed that note would be settled with a cash payment by the Company of $300,000, paid on November 8, 2019; a $350,000 fixed-price, one-year convertible note with an interest rate of 15%, convertible at a price per share of $0.15, The holder of the note had previously submitted a conversion notice on August 5, 2019, for 4,500,000 shares. The noteholder and the Company agreed to amend the conversion notice to 2,000,000 shares, which will be issued to the noteholder as a good faith issuance.

Convertible notes with the first note having an original balance of $337,500 and was settled for 12 monthly payments of $18,000 starting on December 27, 2019. The second note having an original balance of $220,000 and has been settled for 12 monthly payments of $17,000 starting on December 27, 2019. The note holder also issued a new Senior Secured Promissory Note in the principal amount of $600,000, with the following terms: term of two years; a fixed conversion price of $0.15 and a 15% interest rate. The note holder had previously submitted a conversion notice seeking the issuance of 4,550,000 shares of the Company’s Class A common stock in connection with the note for $337,500. The note holder and the Company agreed to amend the conversion notice to 2,400,000 shares which will be issued to the noteholder as a good faith issuance.

Convertible note with total balance owing, including all interest and penalties of $252,870. The Company and the noteholder agreed that note would be settled with a cash payment of $80,000 paid on November 12, 2019 and the issuance of two new notes in the principal amounts of $35,000 and $137,870 with the following terms: term of one year; a fixed conversion price of $0.15 cents and a 15% interest rate and the future issuance of 300,000 Class A Common Shares and 30,000 Class C Common Stock.

Subsequent to September 30, 2019, the Company issued 10,000 shares of Class C common stock to a contractor for services rendered.

On November 6, 2019, the Company, completed its acquisition of Deluxe Sheet Metal, Inc., an Indiana corporation (“DSM”), DSM Holding, LLC, an Indiana limited liability company (“DHL”), Lonewolf Enterprises, LLC, an Indiana limited liability company (“LWE”), and Kevin Smith (the “Seller”). Pursuant to a securities purchase agreement (the “SPA”) among the Company, DSM, DHL, LWE, and the Seller, the Company acquired all of the outstanding capital stock of DSM, all of the outstanding LLC membership interests of DHL, and certain real estate and improvements thereto from LWE (the “LWE Real Estate”) for the consideration and on the terms and subject to the conditions set forth in the SPA.

The total purchase price was $8,400,000 (the “Purchase Price”), which is the sum of the cash paid at closing (the “Cash Consideration”), by wire transfer of immediately available funds to the accounts designated by Seller, and promissory notes (the “Promissory Note Consideration”), also delivered at closing.

The Cash Consideration consisted of $6,003,657, plus the addition of working capital, less any Long-Term Liability (as defined in the SPA) of DSM and DHL satisfied at Closing, as set forth in the SPA, but not less certain liabilities, as set forth in the SPA. Additionally, the Note Consideration consisted of a secured promissory note issued in favor of Seller only, by the Company, DSM, and DHL and shall consist of (i) a Secured Promissory Note to Kevin M. Smith in the amount of $1,900,000.00 (“Note 2”), and (ii) a Secured Promissory Note to Kevin M. Smith in the amount of $496,343.00 (“Note 1” and collectively, the “Notes”), in the form set forth in an exhibit to the SPA, secured by a subordinated security interest in the assets listed in a related security agreement (the “Security Agreement”) (discussed below). The parties to the SPA agreed that the Company has the right to change the senior lender from time to time while Notes remain unpaid so long as at all times, there is no breach or default or Event of Default under the Notes, the SPA, or the other transaction documents.

The Company, DSM, and DHL collectively issued the Notes to the Seller. The terms of the Notes are as follows: Note 1 is in the amount of $1,900,000 accrues at 4.25% interest, and Note 2 is in the amount of $496,343 and accrues interest at a rate of 8.75%, and each included a loan fee of $5,000. Note 2 has an amortization rate of 10 years with a balloon payment due 36 months. Note 1 is due January 25, 2020, and the obligations of the Company, DSM, and DHL under the Notes are secured by a subordinated security interest granted pursuant to the security agreement entered into by the parties.

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.

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. 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.

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

What We Do:

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

It is our mandate to grow Alpine 4 into a leading, multi-faceted holding company with diverse subsidiary holdings with products and services that not only benefit from one another as a whole, but also have the benefit of independence. This type of corporate structure is about having our subsidiaries prosper through strong onsite leadership while working synergistically with other Alpine 4 holdings. The essence of our business model is based around acquiring B2B companies in a broad spectrum of industries via our acquisition strategy of DSF (Drivers, Stabilizer, Facilitator). Our DSF business model (which I will discuss more below) offers our shareholders an opportunity to own small-cap businesses that hold defensible positions in their individual market space. Further, Alpine 4’s greatest opportunity for growth exists in the smaller to middle-market operating companies with revenues between $5 to $150 million annually. In this target-rich environment, businesses generally sell at more reasonable multiples, presenting greater opportunities for operational and strategic improvements that have greater potential to enhance profit.

Driver, Stabilizer, Facilitator (DSF)

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

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

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

When you blend these categories into a longer-term view of the business landscape, you can then begin to see the value-driving force that makes this a truly purposeful and powerful business model. As I stated earlier, our greatest competitive advantage is our highly diversified business structure combined with a collaborative business culture, that helps drive out competition in our markets by bringing; resources, planning, technology and capacity that our competitors simply don’t have. DSF reshapes the environment each subsidiary operates in by sharing and exploiting the resources each company has, thus giving them a competitive advantage that their peers don’t have.

How We Do It:

Optimization vs. Asset Producing

The process to purchase a perspective company can be long and arduous. During our due diligence period, we are validating and determining three major points, not just the historical record of the company we are buying. Those three major points are what we call the “What is, What Should Be and What Will Be”.

•	“The What Is” (TWI). TWI is the defining point of where a company is holistically in a myriad of metrics; Sales, Finance, Ease of Operations, Ownership and Customer Relations to name a few. Subsequently, this is usually the point where most acquirers stop in their due diligence. We look to define this position not just from a number’s standpoint, but also how does this perspective map out to a larger picture of culture and business environment.

•	“The What Should Be” (TWSB). TWSB is the validation point of inflection where we use many data inputs to assess if TWI is out of the norm with competitors, and does that data show the potential for improvement.

•	“The What Will Be” (TWWB). TWWB is how we seek to identify the net results or what we call Kinetic Profit (KP) between the TWI and TWSB. The keywords are Kinetic Profit. KP is the profit waiting to be achieved by some form of action or as we call it, the Optimization Phase of acquiring a new company.

Optimization: During the Optimization Phase, we seek to root up employees with in-depth training on various topics. Usually, these training sessions include; Profit and Expense Control, Production Planning, Breakeven Analysis and Profit Engineering to name a few. But the end game is to guide these companies to: become net profitable with the new debt burden placed on them post-acquisition, mitigate the loss of sales due to acquisition attrition (we typically plan on 10% of our customers leaving simply due to old ownership not being involved in the company any longer), potential replacement of employees that no longer wish to be employed post-acquisition and other ancillary issues that may arise. The Optimization Phase usually takes 12-18 months post-acquisition and a company can fall back into Optimization if it is stagnant or regresses in its training.

Asset Producing: Asset Producing is the ideal point where we want our subsidiaries to be. To become Asset Producing, subsidiary management must have completed prescribed training formats, proven they understand the KPI’s that run their respective departments and finally, the subsidiaries they manage must have posted a net profit for 3 consecutive months.

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 $29,774,346 as of September 30, 2019. 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, APF and Morris have allowed for an increased level of cash flow to the Company. Second, the Company is considering other potential acquisition targets that, like QCA and Morris, should increase income and cash flow to the Company. Third, the Company is exploring debt options that can supplement on going cash needs.

Results of Operations

The following are the results of our operations for the three months ended September 30, 2019, as compared to the three months ended September 30, 2018.

	Three Months Ended September 30, 2019			Three Months Ended September 30, 2018			$ Change

Revenue	$	7,088,182		$	4,342,203		$	2,745,979
Cost of revenue		5,311,323			2,119,913			3,191,410
Gross Profit		1,776,859			2,222,290			(445,431	)

Operating expenses:
General and administrative expenses		1,739,867			2,387,092			(647,225	)
Total operating expenses		1,739,867			2,387,092			(647,225	)
Income (loss) from operations		36,992			(164,802	)		201,794

Other income (expenses)
Interest expense		698,844			701,114			(2,270	)
Change in value of derivative liabilities		(3,389,116	)		1,012,743			(4,401,859	)
Other (income)		(77,918	)		(55,949	)		(21,969	)
Total other income (expenses)		(2,768,190	)		1,657,908			(4,426,098	)

Loss before income tax		2,805,182			(1,822,710	)		4,627,892

Income tax expense		-			-			-

Income (loss) from continuing operations		2,805,182			(1,822,710	)		4,627,892

Discontinue operations		-			(1,051,916	)		1,051,916

Net income (loss)	$	2,805,182		$	(2,874,626	)	$	5,679,808

Revenue

Our revenues for the three months ended September 30, 2019, increased by $2,745,979 as compared to the three months ended September 30, 2018. In 2019, the increase in revenue related to, $3,820,472 for Morris (acquired in January 2019) offset by a decrease of $233,794 for APF; $183,234 relating to the 6th Sense Auto and Brake Active services of ALTIA and $657,465 for QCA. The increase in revenue was driven by the acquisition of Morris. We expect our revenue to continue to grow over the remainder of the year.

Cost of revenue

Our cost of revenue for the three months ended September 30, 2019, increased by $3,191,410 as compared to the three months ended September 30, 2018. In 2019, the increase in our cost of revenue related to $3,117,797 for Morris (acquired in January 2019); $184,531 for APF and $24,562 relating to the 6th Sense Auto and Brake Active services of ALTIA; offset by a decrease of $135,480 for QCA. The increase in cost of revenue is principally the result of the increase in revenues as described above. We expect our cost of revenue to increase over the next year as our revenue increases.

Operating expenses

Our operating expenses for the three months ended September 30, 2019, decreased by $647,225 as compared to the three months ended September 30, 2018. The decrease consisted primarily a decrease in general and administrative expenses at APF offset by additional general and administrative expenses associated with the operations of Morris which were acquired in January 2019.

Other income (expenses)

Other income (expenses) for the three months ended September 30, 2019, increased by $4,426,098 as compared to 2018. This increase was primarily due to the change in the value of the 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.

The operating results for VWES have been presented in the accompanying consolidated statement of operations for the three months ended September 30, 2019 and 2018 as discontinued operations and are summarized below:

	Three Months Ended September 30,
	2019		2018
Revenue	$	-	$	452,966
Cost of revenue		-		369,222
Gross Profit		-		83,744
Operating expenses		-		1,169,913
Loss from operations		-		(1,086,169	)
Other income (expenses)		-		34,253
Net loss	$	-	$	(1,051,916	)

As of September 30, 2019, VWES’ bankruptcy was completed and the Company removed all the assets and liabilities of VWES resulting in a gain on the disposition of discontinued operations of $2,515,028.

The following are the results of our operations for the nine months ended September 30, 2019, as compared to the nine months ended September 30, 2018.

	Nine Months Ended September 30, 2019			Nine Months Ended September 30, 2018			$ Change

Revenue	$	20,690,014		$	10,570,032		$	10,119,982
Cost of revenue		15,542,194			6,478,090			9,064,104
Gross Profit		5,147,820			4,091,942			1,055,878

Operating expenses:
General and administrative expenses		5,509,996			4,255,035			1,254,961
Total operating expenses		5,509,996			4,255,035			1,254,961
Loss from operations		(362,176	)		(163,093	)		(199,083	)

Other expenses
Interest expense		2,736,968			1,642,562			1,094,406
Change in value of derivative liabilities		689,369			766,718			(77,349	)
Gain on extinguishment of debt		-			(6,305	)		6,305
Other (income)		(206,681	)		(173,608	)		(33,073	)
Total other expenses		3,219,656			2,229,367			990,289

Loss before income tax		(3,581,832	)		(2,392,460	)		(1,189,372	)

Income tax expense		-			-			-

Loss from continuing operations		(3,581,832	)		(2,392,460	)		(1,189,372	)

Discontinue operations		2,419,849			(1,720,538	)		4,140,387

Net loss	$	(1,161,983	)	$	(4,112,998	)	$	2,951,015

Revenue

Our revenues for the nine months ended September 30, 2019, increased by $10,119,982 as compared to the nine months ended September 30, 2018. In 2019, the increase in revenue related to, $1,763,064 for APF (acquired in April 2018), and $9,561,843 for Morris (acquired in January 2019) offset by a decrease of $405,391 relating to the 6th Sense Auto and Brake Active services of ALTIA and $799,534 for QCA. The increase in revenue was driven by the acquisitions of APF and Morris. We expect our revenue to continue to grow over the remainder of the year.

Cost of revenue

Our cost of revenue for the nine months ended September 30, 2019, increased by $9,064,104 as compared to the nine months ended September 30, 2018. In 2019, the increase in our cost of revenue related to $32,158 for QCA, $1,399,133 for APF (acquired in April 2018), and $7,814,224 for Morris (acquired in January 2019) offset by a decrease of $181,411 relating to the 6th Sense Auto and Brake Active services of ALTIA. The increase in cost of revenue among all the different segments was the result of the increase in revenues as described above. We expect our cost of revenue to increase over the next year as our revenue increases.

Operating expenses

Our operating expenses for the nine months ended September 30, 2019, increased by $1,254,961 as compared to the nine months ended September 30, 2018. The increase consisted primarily of an increase to general and administrative expenses associated with the operations of APF and Morris which were acquired in April 2018 and January 2019, respectively.

Other expenses

Other expenses for the nine months ended September 30, 2019, increased by $990,289 as compared to 2018. This increase was primarily due to the increase in interest expense due to the increase in outstanding debt in 2019 compared to 2018 and the amortization of debt discounts.

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.

	Nine Months Ended September 30,
	2019			2018
Revenue	$	-		$	2,938,441
Cost of revenue		-			2,489,273
Gross Profit		-			449,168
Operating expenses		95,179			2,267,843
Loss from operations		(95,179	)		(1,818,675	)
Other income (expenses)		-			98,137
Net loss	$	(95,179	)	$	(1,720,538	)

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.

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.

Item 3. Qualitative and Qualitative Disclosures About Market Risk.

As a Smaller Reporting Company, the Company is not required to include the disclosure under this Item.

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, September 30, 2019. 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) inadequate segregation of duties and effective risk assessment; and (ii) inadequate control activities and monitoring processes over financial reporting.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting during the quarter ended September 30, 2019, 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 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.

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

During the quarter ended September 30, 2019, the Company issued 32,956,827 shares of its restricted Class A common stock for note conversions and issued 200,000 shares of Class B common stock and 2,772,606 shares of Class C common stock to officer, directors and employees for services rendered.

The shares of Class A, Class B and Class C 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 5. Other Information

Not Applicable

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	Certificate of Amendment to Certificate of Incorporation (previously filed with the Commission as an exhibit to the Company's Form 8-K on July 18, 2014, and incorporated herein by reference)

3.4	Certificate of Amendment to Certificate of Incorporation (previously filed with the Commission as an exhibit to the Company's Form 8-K on July 18, 2014, and incorporated herein by reference)

10.13	APF Securities Agreement (incorporated by reference to Alpine 4's Current Report on Form 8-K filed with the Commission on April 9, 2018)

10.14	Secured Promissory Notes (incorporated by reference to Alpine 4's Current Report on Form 8-K filed with the Commission on April 9, 2018)

10.15	Secured Convertible Notes (incorporated by reference to Alpine 4's Current Report on Form 8-K filed with the Commission on April 9, 2018)

10.16	Security Agreement (incorporated by reference to Alpine 4's Current Report on Form 8-K filed with the Commission on April 9, 2018)

10.17	Consulting Services Agreement (incorporated by reference to Alpine 4's Current Report on Form 8-K filed with the Commission on April 9, 2018)

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

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: November 19, 2019

	By: /s/ Kent B. Wilson
	Kent B. Wilson
	Chief Executive Officer, Chief Financial Officer, President and Director (Principal Executive Officer, Principal Accounting Officer)