ALPINE 4 HOLDINGS, INC. - Quarter Report: 2019 March (Form 10-Q)

U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended March 31, 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: 855-777-0077 ext 801

(Former name, former address and former fiscal year, if changed since last report)

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

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company.

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	Smaller reporting company	☒
Emerging growth company	☒

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(1) of the Exchange Act. ☒

State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date: As of May 20, 2019, the issuer had 29,310,056 shares of its Class A common stock issued and outstanding and 5,000,000 shares of its Class B common stock issued and outstanding.

TABLE OF CONTENTS

PART I		Page

Item 1.	Financial Statements	3

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	27

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	30

Item 4.	Controls and Procedures	30

PART II

Item 1.	Legal Proceedings	31

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	31

Item 3.	Defaults Upon Senior Securities	31

Item 5.	Other Information	31

Item 6.	Exhibits	32

	Signatures	33

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements.

Alpine 4 Technologies Ltd.

Consolidated Balance Sheets

	March 31,			December 31,
	2019			2018
	(unaudited)
ASSETS

CURRENT ASSETS:
Cash	$	189,728		$	207,205
Accounts receivable		4,938,998			2,610,354
Inventory		3,028,305			2,175,795
Capitalized contract costs		64,234			64,234
Prepaid expenses and other current assets		900,436			222,200
Assets of discontinued operations		-			121,296
Total current assets		9,121,701			5,401,084

Property and equipment, net		12,140,827			7,990,556
Intangible asset, net		658,357			677,210
Right of use assets, net		633,258			-
Goodwill		3,919,145			3,193,861
Other non-current assets		346,655			290,238
Assets of discontinued operations		-			387,727

TOTAL ASSETS	$	26,819,943		$	17,940,676

LIABILITIES, REDEEMABLE COMMON STOCK AND STOCKHOLDERS' DEFICIT

CURRENT LIABILITIES:
Accounts payable	$	3,332,374		$	3,102,970
Accrued expenses		2,155,593			1,254,853
Deferred revenue		4,920			25,287
Derivative liabilities		2,092,199			1,892,321
Deposits		12,509			12,509
Notes payable, current portion		5,482,358			3,645,603
Notes payable, related parties, current portion		132,000			132,000
Convertible notes payable, current portion, net of discount of $648,302 and $942,852		2,845,066			2,644,735
Financing lease obligation, current portion		215,117			105,458
Operating lease obligation, current portion		194,054
Acquisition contingency		500,000			-
Net liabilities of discontinued operations		-			2,752,447
Total current liabilities		16,966,190			15,568,183

Notes payable, net of current portion		7,480,436			4,517,441
Convertible notes payable, net of current portion		200,000			450,000
Financing lease obligations, net of current portion		11,577,804			8,295,176
Opertaing lease obligations, net of current portion		439,204			-
Deferred tax liability		608,304			608,304

TOTAL LIABILITIES		37,271,938			29,439,104

STOCKHOLDERS' DEFICIT:
Preferred stock, $0.0001 par value, 10,000,000 shares authorized, none issued and outstanding at March 31, 2019 and December 31, 2018		-			-
Class A Common stock, $0.0001 par value, 100,000,000 shares authorized, 28,237,510 and 26,567,410 shares issued and outstanding at March 31, 2019 and December 31, 2018		2,824			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 March 31, 2019 and December 31, 2018		500			500
Additional paid-in capital		17,075,264			17,018,509
Accumulated deficit		(27,530,583	)		(28,520,094	)
Total stockholders' deficit		(10,451,995	)		(11,498,428	)
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT	$	26,819,943		$	17,940,676

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

Alpine 4 Technologies Ltd.

Consolidated Statements of Operations

(Unaudited)

	Three Months Ended March 31,
	2019			2018

Revenue	$	7,125,989		$	2,606,481
Cost of revenue		5,008,456			1,943,574
Gross Profit		2,117,533			662,907

Operating expenses:
General and administrative expenses		2,466,502			627,439

Total operating expenses		2,466,502			627,439
Income (loss) from operations		(348,969	)		35,468

Other expenses
Interest expense		(1,031,630	)		(337,338	)
Change in value of derivative liability		(107,871	)		6,415
Gain on extinguishment of debt		-			6,305
Other income		58,132			67,848
Total other expenses		(1,081,369	)		(256,770	)

Loss before income tax		(1,430,338	)		(221,302	)

Income tax (benefit)		-			-

Loss from continuing operations		(1,430,338	)		(221,302	)

Discontinued operations:
Loss from operations of discontinued operations		(95,179	)		(439,776	)
Gain on disposition of discontinued operations		2,515,028			-
Total discontinued operations		2,419,849			(439,776	)

Net income (loss)	$	989,511		$	(661,078	)

Weighted average shares outstanding :
Basic		30,782,076			25,328,907
Diluted		30,782,076			25,328,907

Basic income (loss) per shares
Continuing operations	$	(0.05	)	$	(0.01	)
Discontinued operations		0.08		$	(0.02	)
	$	0.03			(0.03	)

Diluted income (loss) per shares
Continuing operations	$	(0.05	)	$	(0.01	)
Discontinued operations		0.08		$	(0.02	)
	$	0.03			(0.03	)

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

Alpine 4 Technologies Ltd.

Consolidated Statements of Stockholders’ Deficit

(Unaudited)

											Additional						Total
	Class A Common Stock				Class B Common Stock						Paid-in			Accumulated			Stockholders'
	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 loss		-		-		-				-		-			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	)


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	)

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

Alpine 4 Technologies Ltd.

Consolidated Statements of Cash Flows

(Unaudited)

	Three Months Ended March 31,
	2019			2018

OPERATING ACTIVITIES:
Net income (loss)	$	989,511		$	(661,078	)
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Depreciation		234,444			173,300
Amortization		18,853			18,853
Gain on extinguishment of debt		-			(136,300	)
Loss on disposal of fixed assets		-			356,933
Change in value of derivative liabilities		107,871			(6,415	)
Employee stock compensation		19,341			15,840
Amortization of debt issuance costs					22,000
Amortization of debt discounts		397,550			122,590
Gain on disposal of discontinued operations		(2,515,028	)		-
Operating lease expense		43,686			-
Change in current assets and liabilities:
Accounts receivable		(815,437	)		(619,310	)
Inventory		(520,361	)		(272,674	)
Capitalized contracts costs		-			5,670
Prepaid expenses and other assets		160,834			(14,320	)
Accounts payable		56,824			390,158
Accrued expenses		860,066			124,643
Operating lease liability		(43,686	)		-
Deferred revenue		(20,367	)		(21,005	)
Net cash used in operating activities		(1,025,899	)		(501,115	)

INVESTING ACTIVITIES:
Capital expenditures		(20,417	)		(23,516	)
Proceeds from insurance claim on automobiles and trucks		-			229,257
Cash paid for acquisition, net of cash acquired		(1,967,606	)		-
Net cash provided by (used in) financing activities		(1,988,023	)		205,741


FINANCING ACTIVITIES:
Proceeds from issuances of notes payable, related party		-			110,000
Proceeds from issuances of notes payable, non-related party		537,500			149,000
Proceeds from issuances of convertible notes payable		103,000			320,000
Proceeds from financing lease		3,267,000			-
Repayments of notes payable, related party		-			(11,500	)
Repayments of notes payable, non-related party		(1,214,257	)		(43,636	)
Repayments of convertible notes payable		(441,699	)		(282,526	)
Proceeds from line of credit, net		931,224			96,251
Cash paid on financing lease obligations		(186,323	)		(5,320	)

Net cash provided by financing activities		2,996,445			332,269

NET INCREASE (DECREASE) IN CASH AND RESTRICTED CASH		(17,477	)		36,895

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

CASH AND RESTRICTED CASH, ENDING BALANCE	$	397,039		$	372,718

CASH PAID FOR:
Interest	$	1,277,225		$	266,023
Income taxes	$	-		$	-

SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING ACTIVITIES:
Common stock issued for convertible note payable and accrued interest	$	26,588		$	15,600
Common stock issued for convertible note discount	$	-		$	56,666
Issuance of note payable for acquisition	$	3,450,000		$	-
Debt discount due to derivative liabilities	$	103,000		$	93,711
ROU asset and operating lease obligation recognized upon adoption of Topic 842	$	676,944		$	-
Resolution of derivative liability	$	10,993		$	125,759

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 Three months ended March 31, 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 three months ended March 31, 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 March 31, 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 March 31, 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.

	March 31,			December 31,
	2019			2018
Cash		$	189,728		$	207,205
Restricted cash included in other non-current assets			207,311			207,311
Total cash and restricted cash shown in the consolidated statements of cash flows		$	397,039		$	414,516

Major Customers

The Company had two customers that made up 20% and 11%, respectively, of accounts receivable as of March 31, 2019. The Company had two customers that made up 29 % and 27% , respectively, of accounts receivable as of December 31, 2018.

For the three months ended March 31, 2019, the Company had two customers that made up 24% and 10%, respectively, of total revenues. For the three months ended March 31, 2018, the Company had two customers that made up 22% and 15%, respectively, of total revenues.

Accounts Receivable

The Company maintains reserves for potential credit losses on accounts receivable. Management reviews the composition of accounts receivable and analyzes historical bad debts, customer concentrations, customer credit worthiness, current economic trends and changes in customer payment patterns to evaluate the adequacy of these reserves. Reserves are recorded primarily on a specific identification basis. As of March 31, 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, WIP and finished goods. Below is a breakdown of how much inventory was in each area as of March 31, 2019 and December 31, 2018:

	March 31,		December 31,
	2019		2018
Raw materials	$	1,200,513	$	676,621
WIP		11,441		-
Finished goods		1,816,351		1,499,174
	$	3,028,305	$	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 March 31, 2019 and December 31, 2018:

	March 31,			December 31,
	2019			2018
Automobiles and trucks	$	155,179		$	155,179
Machinery and equipment		3,666,202			2,548,855
Office furniture and fixtures		111,338			109,619
Building		9,062,000			5,795,000
Leasehold improvements		270,924			261,608
Less: Accumulated depreciation		(1,124,816	)		(879,705	)
	$	12,140,827		$	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 List	15 years
Non-compete agreements	15 years
Software development	5 years

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

	March 31,			December 31,
	2019			2018
Software	$	278,474		$	278,474
Noncompete		100,000			100,000
Customer lists		531,187			531,187
Less: Accumulated amortization		(251,304	)		(232,451	)
	$	658,357		$	677,210

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

Twelve Months Ending March 31,
2020			79,960
2021			79,960
2022			79,960
2023			46,361
2024			46,361
Thereafter			325,755
Total			658,357

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

	March 31,		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 March 31, 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 payable and lines of credit. The carrying amounts 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 6 th Sense Auto service. The Company accounts for its revenue by deferring the total contract amount and recognizing the amounts over the monthly subscription period, ranging from 12 to 36 months.

QCA

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

APF

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

Earnings (loss) per share

Basic earnings (loss) per common share is computed by dividing net income (loss) available to common shareholders by the weighted-average number of shares of common stock outstanding during the period. Diluted earnings per common share is computed by dividing income available to common shareholders by the weighted-average number of shares of common stock outstanding during the period increased to include the number of additional shares of common stock that would have been outstanding if potentially dilutive securities had been issued. The only potentially dilutive securities outstanding during the periods presented were the convertible debentures, but they are anti-dilutive due to the net loss from continuing operations incurred.

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 $676,944. 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, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. However, 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 issue additional shares of common stock for cash and services during the next 12 months and has engaged professional service firms to provide advisory services in connection with that capital raise.

Note 4 – Leases

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 March 31, 2019, the future minimum financing and operating lease payments, net of amortization of debt issuance costs, were as follows:

	Finance			Operating
Twelve Months Ended March 31,	Leases			Leases
2020	$	1,193,304		$	276,174
2021		1,218,878			284,459
2022		1,236,942			218,109
2023		1,262,047			-
2024		1,258,457			-
Thereafter		12,473,408			-
Total		18,643,036			778,742
Less: imputed interest		(6,850,115	)		(145,484	)

		11,792,921			633,258
Less: current lease obligation		(215,117	)		(194,054	)
Non-current capital leases obligations	$	11,577,804		$	439,204

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 March 31, 2019.

Operating Leases

The table below presents the lease related assets and liabilities recorded on the Company’s consolidated balance sheets as of March 31, 2019:

	Classification on Balance Sheet	March 31, 2019
Assets
Operating lease assets	Operating lease right of use assets	$	633,258
Total lease assets		$	633,258

Liabilities
Current liabilities
Operating lease liability	Current operating lease liability	$	194,054
Noncurrent liabilities
Operating lease liability	Long-term operating lease liability		439,204
Total lease liability		$	633,258

The lease expense for the three months ended March 31, 2019 was $70,606. The cash paid under operating leases during the three months ended March 31, 2019 was $68,530. At March 31, 2019, the weighted average remaining lease terms were 2.8 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 bears interest at 7% per annum and is due in semi-annual payments of $150,000 commencing on June 1, 2018, through June 1, 2020.

On April 5, 2018, the Company issued two secured promissory notes in the aggregate principal amount of $1,950,000 (“Secured APF Notes”) as part of the consideration for the purchase of APF (see Note 9). The Secured APF Notes are secured by the equipment, customer accounts and intellectual property of the Company, and all of the products and proceeds from any of the assets of APF. The Secured APF Notes bear interest at 4.25% per annum and have aggregate monthly payments of $19,975 for the first 23 months, with a balloon payment due in April 2020 for the remaining principal and interest outstanding.

On May 3, 2018, the Company entered into an equipment note with a lender for total borrowings of $630,750, which is secured by the equipment of APF. The note bears interest at 11.75% per annum and is payable in weekly payments of $3,795 commencing on the loan date through May 4, 2022.

In connection with the Morris acquisition, the Company issued three promissory notes for an aggregate of $3,100,000. The notes bear interest at 4.25% per annum, require a 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:

	March 31,		December 31,
	2019		2018
Lines of credit, current portion	$	3,435,665	$	2,504,440
Equipment loans, current portion		281,698		260,301
Term notes, current portion		1,764,995		880,862
Total current		5,482,358		3,645,603
Long-term portion		7,480,436		4,517,441
Total notes payable	$	12,962,794	$	8,163,044

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

Twelve Months Ending March 31,
2020	$	5,482,358
2021		4,448,139
2022		2,839,130
2023		113,183
2024		79,984
Total	$	12,962,794

Note 6 – Notes Payable, Related Parties

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

	March 31,		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 15% per annum, with maturity dates from April 2018 to July 2018, unsecured		120,000		120,000
Total notes payable - related parties	$	132,000	$	132,000

The above notes which are in default as of March 31, 2019, were due on demand by the lenders as of the date of this Report.

Note 7 – Convertible Notes Payable

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

	March 31,			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 an exercise price of $1 per share. The notes are currently past due.	$	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. The outstanding principal and interest balances are convertible after 12 months into Class A common stock at the option of the debt holder at a conversion price of $10 per share.		1,602,588			1,654,588
Convertible notes payable issued in January 2017, bearing interest at a rate 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. The note is currently past due.		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.		-			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. The note is currently past due.		37,800			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 January 21, 2019, as amended, and bears interest at 10% per annum. The note is immediately convertible into shares of the Company's Class A common stock at a discount of 42% to the average of the two lowest trading closing prices of the stock for ten days prior to conversion. The Company issued 850,000 shares of Class A common stock to the note holder which are returnable if no event of default has occurred and the note is paid in full within 180 days of the note date. The note is currently past due.		159,480			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. This note is currently past due.		337,500			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.		89,000			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. This note is currently past due.		79,000			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.		670,000			670,000
On December 7, 2018, the Company entered into a variable convertible note for $130,000 with net proceeds of $122,200. The note is due September 7, 2019 and bears interest at 12% per annum. The note is immediately convertible into shares of the Company's Class A common stock at a discount of 40% to the lowest trading closing prices of the stock for 20 days prior to conversion.		130,000			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.		103,000			-
Total convertible notes payable		3,693,368			4,037,587
Less: discount on convertible notes payable		(648,302	)		(942,852	)
Total convertible notes payable, net of discount		3,045,066			3,094,735
Less: current portion of convertible notes payable		(2,845,066	)		(2,644,735	)
Long-term portion of convertible notes payable	$	200,000		$	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 three months ended March 31, 2019 and 2018 amounted to $397,550 and $122,590, respectively, and is recorded as interest expense in the accompanying consolidated statements of operations. The unamortized discount balance for these notes was $648,302 as of March 31, 2019, which is expected to be amortized over the next 12 months.

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

Twelve Months Ending March 31,
2020	$	3,493,368
2021		200,000
Total	$	3,693,368

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
Repayment of notes		(441,699	)
Conversion of notes payable to common stock		(5,520	)
Discount from beneficial conversion feature		(103,000	)
Amortization of debt discounts		397,550
Balance outstanding, March 31, 2019	$	3,045,066

Note 8 – Stockholders' Equity

Preferred Stock

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

Common Stock

Pursuant to the Second Amended and Restated Certificate of Incorporation, the Company is authorized to issue two classes of common stock: Class A common stock, which has one vote per share, and Class B common stock, which has ten votes per share. Any holder of Class B common stock may convert his or her shares at any time into shares of Class A common stock on a share-for-share basis. Otherwise the rights of the two classes of common stock will be identical.

The Company had the following transactions in its common stock during the three months ended March 31, 2019:

•	Issued 1,670,000 shares of Class A common stock for the conversion of $5,520 of outstanding convertible notes payable and $21,068 of accrued interest.

Stock Options

The Company has issued stock options to purchase shares of the Company’s Class A common stock issued pursuant to the Company's 2016 Stock Option and Stock Award Plan (the "Plan"). The Company uses the Black-Scholes option pricing model to estimate the fair value of stock-based awards on the date of grant and on each modification date.

The following summarizes the stock option activity for the three months ended March 31, 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 March 31, 2019		1,790,000		$	0.19		8.85		$	-

Vested and expected to vest at March 31, 2019		1,790,000		$	0.19		8.85		$	-

Exercisable at March 31, 2019		503,844		$	0.32		8.42		$	-

The following table summarizes information about options outstanding and exercisable as of March 31, 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		9.38		$	0.05		149,187		$	0.05
		0.10		85,000		9.28			0.10		15,938			0.10
		0.13		388,500		8.59			0.13		169,969			0.13
		0.26		114,000		8.34			0.26		57,000			0.26
		0.90		223,500		8.27			0.90		111,750			0.90
				1,790,000							503,844

During the three months ended March 31, 2019 and 2018, stock option expense amounted to $19,341 and $15,840, respectively. Unrecognized stock option expense as of March 31, 2019 amounted to $185,479, 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 March 31, 2019, the Company had 277,001 warrants outstanding with a weighted average exercise price of $1.01 and a weighted average remaining life of 1.98 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		332,149
Prepaid expenses and other current assets		858,456
Property and equipment		4,214,965
Goodwill		725,284
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

If 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 (see Note 7). At the closing date, the Company and the Sellers agreed to a reduction of the purchase price of $123,250, resulting from a net working capital adjustment which was deducted from the cash consideration due to the Sellers. As a result, the total purchase price of APF was $4,376,750.

The following are the unaudited pro forma results of operations for the three months ended March 31, 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.

	Three Months Ended March 31,
	2019			2018
Sales	$	7,125,989		$	6,067,998
Cost of goods sold		5,008,456			4,986,963
Gross profit		2,117,533			1,081,035
Operating expenses		2,466,502			1,420,752
Loss from operations		(348,969	)		(339,717	)
Net loss from continuing operations		(1,430,338	)		(520,109	)
Loss per share		(0.05	)		(0.02	)

Note 10 – Industry Segments

This summary presents the Company's segments, QCA, APF and Morris for the three months ended March 31, 2019 and 2018:

	Three Months Ended March 31,
	2019				2018

Revenue
QCA		$	2,477,542			$	2,445,893
APF			1,708,992				-
Morris			2,870,797				-
Unallocated and eliminations			68,658				160,588
		$	7,125,989			$	2,606,481

Gross profit
QCA		$	658,394			$	725,524
APF			700,200				-
Morris			721,166				-
Unallocated and eliminations			37,773				(62,617	)
		$	2,117,533			$	662,907

Income (loss) from operations
QCA		$	(479	)		$	(184,255	)
APF			411,402				-
Morris			21,293				-
Unallocated and eliminations			(781,185	)			219,723
		$	(348,969	)		$	35,468

Depreciation and amortization
QCA		$	84,397			$	72,611
APF			68,708				-
Morris			91,859				-
Unallocated and eliminations			8,333				119,542
		$	253,297			$	192,153

Interest Expenses
QCA		$	180,582			$	150,986
APF			-				-
Morris			45,831				-
Unallocated and eliminations			805,217				186,352
		$	1,031,630			$	337,338

Net income (loss)
QCA		$	(130,442	)		$	(101,117	)
APF			411,402				-
Morris			(17,413	)			-
Unallocated and eliminations			(1,693,885	)			(120,185	)
		$	(1,430,338	)		$	(221,302	)

	As of				As of
	March 31,				December 31,
	2019				2018
Total Assets
QCA		$	13,414,313			$	10,767,883
APF			11,758,356				6,159,098
Morris			11,222,604				-
Unallocated and eliminations			(9,575,330	)			1,013,695
		$	26,819,943			$	17,940,676

Goodwill
QCA		$	1,963,761			$	1,963,761
APF			1,230,100				1,230,100
Morris			725,284				-
Unallocated and eliminations			-				-
		$	3,919,145			$	3,193,861

Accounts receivable, net
QCA		$	1,666,839			$	1,649,701
APF			1,522,709				958,153
Morris			1,716,950				-
Unallocated and eliminations			32,500				2,500
		$	4,938,998			$	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 March 31, 2019 and December 31, 2018:

	March 31,			December 31,
	2019			2018

Risk free rate		2.44	%		1.89	%
Volatility		238%-414	%		200	%
Expected terms (years)	0.5 to 2.0			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 March 31, 2019 and December 31, 2018:

	Fair Value			Fair Value Measurements at
	As of			March 31, 2019
Description	March 31, 2019			Using Fair Value Hierarchy
				Level 1			Level 2			Level 3
Conversion feature on convertible notes		$	2,092,199		$	-		$	-		$	2,092,199

	Fair Value			Fair Value Measurements at
	As of			December 31, 2018
Description	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 three months ended March 31, 2019:

Derivative liability balance, December 31, 2018	$	1,892,321
Issuance of derivative liability during the period		103,000
Derivative liability resolution		(10,993	)
Change in derivative liability during the period		107,871
Derivative liability balance, March 31, 2019	$	2,092,199

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 three months ended March 31, 2019 and 2018 as discontinued operations and are summarized below:

	Three Months Ended March 31,
	2019			2018
Revenue	$	-		$	1,025,927
Cost of revenue		-			869,841
Gross Profit		-			156,086
Operating expenses		95,179			708,705
Loss from operations		(95,179	)		(552,619	)
Other income (expenses)		-			112,843
Net loss	$	(95,179	)	$	(439,776	)

The assets and liabilities of the discontinued operations at December 31, 2018 and 2017 are summarized below:

	March 31,		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 since the assets were used to reduce the liabilities and any remaining liabilities were discharged by the Court. The discharge of the remaining liabilities resulted in a gain on the disposition of discontinued operations of $2,515,028.

Note 13 – Subsequent Events

Subsequent to March 31, 2019, the Company issued 1,072,646 shares of common stock for the conversion of $15,000 of convertible notes and $5,980 of accrued interest.

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

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

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

-	Alpine 4 Mini MBA program; and

-	An Alpine 4 developed ERP (Enterprise Resource Planning system) and collaboration system called SPECTRUMebos. SPECTRUMebos is what we are defining as an Enterprise Business Operating System (ebos). This system will combine the key technology software components of Accounting and Financial Reporting, an Enterprise Resource Planning System (ERP), a Document Management System (DMS), a Business Intelligence (BI) platform and a Customer Resource Management (CRM) hub which will be tethered to management reporting and collaboration toolsets. Management believes that these tools will help drive real-time information in two directions: first, to the front lines by empowering customer-facing stakeholders; and second, back to management for planning, problem solving, and integration. Management believes that SPECTRUMebos will be the technology "secret sauce" in managing our portfolio of companies and, in time, may be offered to external customers.

Business Seasonality and Product Introductions

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

Going Concern

The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company has incurred losses since inception and had accumulated a deficit of $27,530,583 as of March 31, 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 plans to issue additional shares of common stock for cash and services during the next 12 months and has engaged professional service firms to provide advisory services in connection with that capital raise.

Results of Operations

The following are the results of our operations for the three months ended March 31, 2019, as compared to the three months ended March 31, 2018.

	Three Months Ended March 31, 2019			Three Months Ended March 31, 2018			$ Change

Revenue	$	7,125,989		$	2,606,481		$	4,519,508
Cost of revenue		5,008,456			1,943,574			3,064,882
Gross Profit		2,117,533			662,907			1,454,626

Operating expenses:
General and administrative expenses		2,466,502			627,439			1,839,063
Total operating expenses		2,466,502			627,439			1,839,063
Loss from operations		(348,969	)		35,468			(384,437	)

Other expenses
Interest expense		1,031,630			337,338			694,292
Change in value of derivative liabilities		107,871			(6,415	)		114,286
Gain on extinguishment of debt		-			(6,305	)		6,305
Other (income)		(58,132	)		(67,848	)		9,716
Total other expenses		1,081,369			256,770			824,599

Loss before income tax		(1,430,338	)		(221,302	)		(1,209,036	)

Income tax expense		-			-			-

Loss from continuing operations		(1,430,338	)		(221,302	)		(1,209,036	)

Discontinued operations		2,419,849			(439,776	)		2,859,625

Net loss	$	989,511		$	(661,078	)	$	1,650,589

Revenue

Our revenues for the three months ended March 31, 2019, increased by $4,519,508 as compared to the three months ended March 31, 2018. In 2019, the increase in revenue related to $31,649 for QCA, $1,708,992 for APF (acquired in April 2018), and $2,870,797 for Morris (acquired in January 2019) and a decrease of 91,930 relating to the 6^th Sense Auto and Brake Active services of ALTIA. The increase in revenue was driven by the continued growth of QCA and 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 three months ended March 31, 2019, increased by $3,064,882 as compared to the three months ended March 31, 2018. In 2018, the increase in our cost of revenue related to $36,688 for QCA, $1,008,792 for APF (acquired in April 2018), and $2,149,631 for Morris (acquired in January 2019) and a decrease of 130,229 relating to the 6^th 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 three months ended March 31, 2019, increased by $1,839,063 as compared to the three months ended March 31, 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 three months ended March 31, 2019, increased by $824,599 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.

	Three Months Ended March 31,
	2019			2018
Revenue	$	-		$	1,025,927
Cost of revenue		-			869,841
Gross Profit		-			156,086
Operating expenses		95,179			708,705
Loss from operations		(95,179	)		(552,619	)
Other income (expenses)		-			112,843
Net loss	$	(95,179	)	$	(439,776	)

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.

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. Quantitative 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, March 31, 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 March 31, 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 March 31, 2019, the Company issued 1,670,000 shares of its restricted Class A common stock for note conversions.

The shares of Class A and Class B 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.

None

Item 6. Exhibits.

3.1	Certificate of Incorporation (previously filed with the Commission as an exhibit to the Company's Form 10 and incorporated herein by reference)

3.2	Bylaws (previously filed with the Commission as an exhibit to the Company's Form 10 and incorporated herein by reference)

3.3	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: May 20, 2019

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