There are no restrictions on the transfer of the Class A common stock, other than restrictions required by federal and state securities laws.
- | from a Class B Stockholder to any other Class B Stockholder who is a natural person to certain Permitted Entities, and from any of the Permitted Entities back to such Class B Stockholder and/or any other Permitted Entity established by or for such Class B Stockholder: |
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| o | Certain trusts; |
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| o | An Individual Retirement Account, as defined in Section 408(a) of the Internal Revenue Code, or certain pensions, profit sharing,
the total outstanding shares of Class B common stock bonus or other type of plans or trusts; |
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| o | Certain entities, including a corporation over which such Class B Stockholder has voting control; a partnership over which such Class B Stockholder has voting control; a limited liability company over which such Class B Stockholder has voting control; |
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- | by a Class B Stockholder that is a partnership, or a nominee for a partnership, or a limited liability company, which partnership or limited liability company beneficially held more than five percent (5%) of the total outstanding shares of Class B Common Stock as of the transfer to certain persons listed in the Amendment; |
Additionally, each share of Class B Common Stockcommon stock held of record by a Class B Stockholder who is a natural person, or by such Class B Stockholder’s Permitted Entities, shall automatically, without any further action, convert into one (1) fully paid and non-assessable share of Class A Common Stockcommon stock upon the death of such Class B Stockholder.
Shares of Class B Common Stockcommon stock that are converted into shares of Class A Common Stockcommon stock as provided in this section shall be retired and may not be reissued.
Class C Common
Upon the Transfer (as defined in the Amendment) of any share of Class C Common Stockcommon stock other than a Transfer:
•from a Class C Stockholder to any other Class C Stockholder who is a natural person to certain Permitted Entities, and from any of the Permitted Entities back to such Class C Stockholder and/or any other Permitted Entity established by or for such Class C Stockholder:
◦Certain trusts;
- | from a Class C Stockholder to any other Class C Stockholder who is a natural person to certain Permitted Entities, and from any of the Permitted Entities back to such Class C Stockholder and/or any other Permitted Entity established by or for such Class C Stockholder: |
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| o | Certain trusts; |
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| o | An Individual Retirement Account, as defined in Section 408(a) of the Internal Revenue Code, or certain pensions, profit sharing, stock bonus or other type of plans or trusts; |
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| o | Certain entities, including a corporation over which such Class C Stockholder has voting control; a partnership over which such Class C Stockholder has voting control; a limited liability company over which such Class C Stockholder has voting control; |
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- | by a Class C Stockholder that is a partnership, or a nominee for a partnership, or a limited liability company, which partnership or limited liability company beneficially held more than five percent (5%) of the total outstanding shares of Class C Common Stock as of the transfer to certain persons listed in the Amendment; |
◦An Individual Retirement Account, as defined in Section 408(a) of the Internal Revenue Code, or certain pensions, profit sharing, stock bonus or other type of plans or trusts;
◦Certain entities, including a corporation over which such Class C Stockholder has voting control; a partnership over which such Class C Stockholder has voting control; a limited liability company over which such Class C Stockholder has voting control;
•by a Class C Stockholder that is a partnership, or a nominee for a partnership, or a limited liability company, which partnership or limited liability company beneficially held more than five percent (5%) of the total outstanding shares of Class C common stock as of the transfer to certain persons listed in the Amendment;
the Initial Conversion Date shall be deemed to be reset, and shall be the third anniversary of such Transfer, and the Conversion Schedule shall be reset and calculated from the reset Initial Conversion Date.
Additionally, each share of Class C Common Stockcommon stock held of record by a Class C Stockholder who is a natural person, or by such Class C Stockholder’s Permitted Entities, shall automatically, without any further action, convert into one (1) fully paid and non-assessable share of Class A Common Stock upon the death of such Class C Stockholder.
The transfer agent and registrar for our Class A and Class C common stock is VStock Transfer, LLC. The transfer agent’s address is 18 Lafayette Place, Woodmere, NY 11598, and its telephone number is 212.828.8436.
Preferred Stock
We are authorized by our Certificate of Incorporation to issue one or more series of preferred stock, and our Board of Directors is authorized to determine the rights, preferences, and terms of any such series without being required to seek approval of the shareholders. This is often referred to as having “blank check” preferred stock rights.
As of the date of this Prospectus,prospectus, we had one series of preferred stock outstanding, our Series B Convertible Preferred Stock (the “Series B Preferred Stock”).
The terms of the Series B Preferred Stock include the following:
- | | Number of shares: The Company designated 100 shares of Series B Preferred Stock. |
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- | | The Stated Value of the Series B Preferred Stock is $1.00 per share. |
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- | | No dividends will accrue. |
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- | | Voting Rights |
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| o | If at least one share of Series B Preferred Stock is issued and outstanding, then the total aggregate issued shares of Series B Preferred Stock at any given time, regardless of their number, shall have that number of votes (identical in every other respect to the voting rights of the holders of all classes of Common Stock or series of preferred stock entitled to vote at any regular or special meeting of stockholders) equal to two hundred percent (200%) of the total voting power of all holders of the Company’s common and preferred stock then outstanding, but not including the Series B Preferred Stock. |
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| o | If more than one share of Series B Preferred Stock is issued and outstanding at any time, then each individual share of Series B Preferred Stock shall have the voting rights equal to: |
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| ◾ | Two hundred percent (200%) of the total voting power of all holders of the Company’s common and preferred stock then outstanding, but not including the Series B Preferred Stock |
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| | Divided by: |
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| ◾ | the number of shares of Series B Preferred Stock issued and outstanding at the time of voting. |
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- | | Liquidation |
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| o | Upon any liquidation, dissolution or winding-up of the Company, whether voluntary or involuntary (a "Liquidation"), the Holders of the Series B Preferred Stock are entitled to receive out of the assets of the Company for each share of Series B Preferred Stock then held by the Holder an amount equal to the Stated Value, and all other amounts in respect thereof then due and payable before any distribution or payment shall be made to the holders of any Junior Securities. |
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- | | Conversion: The Series B Preferred Stock shall be convertible into shares of the Company's Class A Common Stock only as follows: |
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| o | In the event that the Holder of Series B Preferred Stock ceases to be a director of the Company, upon such director's resignation or removal from the board by any means, the shares of Series B Preferred Stock held by such resigning or removed director shall convert automatically into that same number of shares of Class A Common Stock (i.e. on a one-for-one share basis). |
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| o | Shares of Series B Preferred Stock converted into Class A Common Stock, canceled, or redeemed, shall be canceled and shall have the status of authorized but unissued shares of undesignated preferred stock. |
•Number of shares: The Company designated 100 shares of Series B Preferred Stock.
•The Stated Value of the Series B Preferred Stock is $1.00 per share.•No dividends will accrue.
•Voting Rights
◦If at least one share of Series B Preferred Stock is issued and outstanding, then the total aggregate issued shares of Series B Preferred Stock at any given time, regardless of their number, shall have that number of votes (identical in every other respect to the voting rights of the holders of all classes of common stock or series of preferred stock entitled to vote at any regular or special meeting of stockholders) equal to two hundred percent (200%) of the total voting power of all holders of the Company’s common and preferred stock then outstanding, but not including the Series B Preferred Stock.
◦If more than one share of Series B Preferred Stock is issued and outstanding at any time, then each individual share of Series B Preferred Stock shall have the voting rights equal to:
–Two hundred percent (200%) of the total voting power of all holders of the Company’s common and preferred stock then outstanding, but not including the Series B Preferred Stock
•Divided by:
◦the number of shares of Series B Preferred Stock issued and outstanding at the time of voting.
•Liquidation
◦Upon any liquidation, dissolution or winding-up of the Company, whether voluntary or involuntary (a "Liquidation"), the Holders of the Series B Preferred Stock are entitled to receive out of the assets of the Company for each share of Series B Preferred Stock then held by the Holder an amount equal to the Stated Value, and all other amounts in respect thereof then due and payable before any distribution or payment shall be made to the holders of any Junior Securities.
•Conversion: The Series B Preferred Stock shall be convertible into shares of the Company's Class A common stock only as follows:
◦In the event that the Holder of Series B Preferred Stock ceases to be a director of the Company, upon such director's resignation or removal from the board by any means, the shares of Series B Preferred Stock held by such resigning or removed director shall convert automatically into that same number of shares of Class A Common Stock (i.e. on a one-for-one share basis).
◦Shares of Series B Preferred Stock converted into Class A Common Stock, canceled, or redeemed, shall be canceled and shall have the status of authorized but unissued shares of undesignated preferred stock.
As of the date of this Prospectus,prospectus, we had 53 shares of Series B Preferred Stock outstanding, held by the members of our Board of Directors.
Dividend Policy
We have never declared or paid any cash dividends on our capital stock, and we do not currently intend to pay any cash dividends on our common stock for the foreseeable future. We expect to retain future earnings, if any, to fund the development and growth of our business. Any future determination to pay dividends on our common stock will be at the discretion of our board of directors and will depend upon, among other factors, our financial condition, operating results, current and anticipated cash needs, plans for expansion and other factors that our board of directors may deem relevant.
Anti-Takeover Provisions of Our Charter Documents and Delaware Law
Some provisions of our Charter, our Bylaws and Delaware law could make it more difficult to acquire our company by means of a tender offer, a proxy contest, or otherwise.
Our Bylaws establish advance notice procedures with respect to stockholder proposals and the nomination of candidates for election as directors, other than nominations made by or at the direction of our board of directors or a committee of our board of directors. These procedures provide that notice of stockholder proposals must be timely given in writing to our corporate secretary prior to the meeting at which the action is to be taken. Generally, for a proposal to be timely submitted for consideration at an annual meeting, notice must be delivered to our secretary not less than 90 days nor more than 120 days prior to the first anniversary date of the annual meeting for the preceding
year. Our Bylaws specify the requirements as to form and content of all stockholders’ notices. These provisions might preclude our stockholders from bringing matters before our annual meeting of stockholders or from making nominations for directors at our annual meeting of stockholders if the proper procedures are not followed.
Our Charter and Bylaws both provide that vacancies on our board of directors, including newly created directorships, may be filled only by a majority vote of directors then in office, and directors so chosen shall hold office for a term expiring at the next annual meeting of stockholders or until such director’s successor shall have been duly elected and qualified. Accordingly, the board of directors could prevent any stockholder from filling the new directorships with such stockholder’s own nominee.
Additionally, as noted, our Charter provides our Board with “blank check” preferred stock authority, by which means the Board of Directors may designate a new series of preferred stock, and determine the rights and preferences, including voting rights, without the need to seek approval from our shareholders.
Delaware Anti-Takeover Law
We are subject to Section 203 of the Delaware General Corporation Law which contains anti-takeover provisions. In general, Section 203 prohibits a publicly held Delaware corporation from engaging in a business combination with an interested stockholder for a period of three years following the date that the person became an interested stockholder, unless the business combination or the transaction in which the person became an interested stockholder is approved in a prescribed manner. Generally, a business combination includes a merger, asset or stock sale or another transaction resulting in a financial benefit to the interested stockholder. An interested stockholder is a person who, together with affiliates and associates, owns 15% or more of the corporation’s voting stock. The existence of this provision may have an anti-takeover effect with respect to transactions that are not approved in advance by our board of directors, including discouraging attempts that might result in a premium over the market price for the shares of common stock held by stockholders.
No Cumulative Voting
Under Delaware law, cumulative voting for the election of directors is not permitted unless a corporation’s certificate of incorporation authorizes cumulative voting. Our Charter does not provide for cumulative voting in the election of directors. Cumulative voting allows a minority stockholder to vote a portion or all of its shares for one or more candidates for seats on our board of directors. Without cumulative voting, a minority stockholder will not be able to gain as many seats on our board of directors based on the number of shares of our stock the stockholder holds as compared to the number of seats the stockholder would be able to gain if cumulative voting were permitted. The absence of cumulative voting makes it more difficult for a minority stockholder to gain a seat on our board of directors to influence our board’s decision regarding a takeover.
Stockholder Action by Written Consent
Delaware law generally provides that the affirmative vote of a majority of the shares entitled to vote on such matter is required to amend a corporation’s certificate of incorporation or bylaws, unless a corporation’s certificate of incorporation or bylaws requires a greater percentage. Our Charter permits our board of directors to amend or repeal most provisions of our Bylaws by majority vote. Generally, our Charter may be amended by holders of a majority of the voting power of the then outstanding shares of our capital stock entitled to vote. The stockholder vote or consent with respect to an amendment of our Charter or Bylaws would be in addition to any separate class vote that might in the future be required under the terms of any series of preferred stock that might be outstanding at the time such a proposed amendment were submitted to stockholders. Delaware law and the provisions of our Bylaws generally permit stockholders owning the requisite percentage of shares of common stock necessary to approve an amendment to our Charter and Bylaws to act by written consent in lieu of a meeting of our stockholders.
Limitation of Liability and Indemnification of Officers and Directors
Our Bylaws provide indemnification, including advancement of expenses, to the fullest extent permitted under applicable law to any person made or threatened to be made a party to any threatened, pending, or completed action, suit, or proceeding, whether civil, criminal, administrative, or investigative by reason of the fact that such person is
or was a director or officer of the company, or is or was serving at our request as a director or officer of another corporation, partnership, joint venture, trust, or other enterprise, including service with respect to an employee benefit plan. In addition, our Charter provides that our directors will not be personally liable to us or our stockholders for monetary damages for breaches of their fiduciary duty as directors, unless they violated their duty of loyalty to us or our shareholders, acted in bad faith, knowingly or intentionally violated the law, authorized illegal dividends or redemptions or derived an improper personal benefit from their action as directors. This provision does not limit or eliminate our rights or the rights of any stockholder to seek nonmonetary relief such as an injunction or rescission in the event of a breach of a director’s duty of care. In addition, this provision does not limit the directors’ responsibilities under Delaware law or any other laws, such as the federal securities laws. We have obtained insurance that insures our directors and officers against certain losses, and which insures us against our obligations to indemnify the directors and officers. We also have entered into indemnification agreements with our directors and executive officers.
SELLING STOCKHOLDER
PLAN OF DISTRIBUTION
We are offering up to [ ] Units, based on an assumed public offering price of $[ ] per Unit, which represents the closing price of our Class A common stock on Nasdaq on August ___, 2023, gross proceeds of up to approximately $[ ] million before deduction of placement agent commissions and offering expenses, in a best-efforts offering. There is no minimum amount of proceeds that is a condition of closing of this offering. The actual amount of gross proceeds, if any, in this offering could vary substantially from the gross proceeds from the sale of the maximum amount of securities being offered in this prospectus.
A.G.P./Alliance Global Partners has agreed to act as our exclusive placement agent in connection with this offering subject to the terms and conditions of a placement agency agreement dated July 11, 2023. The placement agent is not purchasing or selling any of the securities offered by this prospectus, nor is it required to arrange the purchase or sale of any specific number or dollar amount of securities, but it has agreed to use its reasonable best efforts to arrange for the sale of all of the securities offered hereby. Therefore, we will enter into a securities purchase agreement directly with the institutional investors, at the investors option, who purchase our securities in this offering. Investors who do not enter into a securities purchase agreement shall rely solely on this prospectus in connection with the purchase of our securities in this offering.
We will deliver the securities being issued to the investors upon receipt of investor funds for the purchase of the securities offered pursuant to this prospectus. We expect to deliver the securities being offered pursuant to this prospectus on or about August __, 2023.
We have agreed to indemnify the placement agent and specified other persons against specified liabilities, including liabilities under the Securities Act, and to contribute to payments the placement agent may be required to make in respect thereof.
Fees and Expenses
This prospectus relatesoffering is being conducted on a reasonable best efforts basis and the placement agent has no obligation to buy any of the securities from us or to arrange for the purchase or sale of any specific number or dollar amount of securities. We have agreed to pay the placement agent fees set forth in the table below.
| | | | | | | | | | | | | | | | | |
| Per Unit (including Class A common stock) | | Per Unit (including Pre-Funded Warrants) | | Total |
Public Offering Price(1) | $ | | $ | | $ |
Placement Agent Fees(2) | $ | | $ | | $ |
Proceeds to Company (before expenses) (3) | $ | | $ | | $ |
__________________
(1)The combined public offering price is $[ ] per share of Class A common stock and accompanying Warrant and $[ ] per Pre-Funded Warrant and accompanying Warrant.
(2)Represents a cash fee equal to seven percent (7.0%) of the aggregate purchase price paid by investors in this offering. We have also agreed to reimburse the Placement Agent for its accountable offering-related legal expenses in an amount up to $100,000 and pay the Placement Agent a non-accountable expense allowance of $10,000.
(3)The amount of offering proceeds to us presented in this table assumes No Pre-Funded Warrants are issued in lieu of shares of Class A common stock and does not give effect to any exercise of the Warrants.
We have agreed to pay to the possibleplacement agent a cash fee equal to 7% of the aggregate gross proceeds raised in this offering.
We have also agreed to reimburse the placement agent at closing for legal and other expenses incurred by the placement agent in connection with this offering in an amount equal to $100,000 and for certain non-accountable expenses, up to $10,000. We estimate the total expenses payable by us for this offering, excluding the placement agent fees and expenses, will be approximately $200,000.
The placement agent may be deemed to be an underwriter within the meaning of Section 2(a)(11) of the Securities Act, and any commissions received by it and any profit realized on the resale of the shares sold by it while acting as principal might be deemed to be underwriting discounts or commissions under the Securities Act. As an underwriter, the Placement Agent would be required to comply with the requirements of the Securities Act and the Exchange Act, including, without limitation, Rule 415(a)(4) under the Securities Act and Rule 10b-5 and Regulation M under the Exchange Act. These rules and regulations may limit the timing of purchases and sales of shares by the Placement Agent acting as principal. Under these rules and regulations, the Placement Agent:
•may not engage in any stabilization activity in connection with our securities; and
•may not bid for or purchase any of our securities or attempt to induce any person to purchase any of our securities, other than as permitted under the Exchange Act, until it has completed its participation in the distribution.
Listing
Our Class A common stock is listed on The Nasdaq Capital Market under the trading symbol “ALPP.” We do not plan to list the Pre-Funded Warrants or the Common Warrants on the Nasdaq Capital Market or any other securities exchange or trading market.
Lock-Up Agreements
We have agreed, subject to certain exceptions, not to offer, issue, sell, contract to sell, encumber, grant any option for the sale of or otherwise dispose of any of our Class A common stock or other securities convertible into or exercisable or exchangeable for our Class A common stock for a period of 30-days after this offering is completed without the prior written consent of the Placement Agent. We have also agreed, subject to certain exceptions, not to effect or enter into an agreement to effect any issuance by us or any of our subsidiaries of shares of our Class A common stock or other securities convertible into or exercisable or exchangeable for our Class A common stock involving a variable rate transaction for a period of 90-days. Additionally, each of our officers and directors as of the date of this prospectus have agreed, subject to certain exceptions, not to offer, issue, sell, contract to sell, encumber, grant any option for the sale of or otherwise dispose of any of our Class A common stock or other securities convertible into or exercisable or exchangeable for our Class A common stock for a period of 90-days after this offering is completed without the prior written consent of the Placement Agent.
Indemnification
We have agreed to indemnify the placement agent against certain liabilities, including liabilities under the Securities Act, and to contribute to payments that the placement agent may be required to make for these liabilities.
Determination of Offering Price and Exercise Price
The actual public offering price of the securities we are offering, and the exercise price of the Warrants included in the Units and the Pre-Funded Warrants that we are offering, will be negotiated between us and the investors in the offering based on the trading of our common stock prior to the offering, amongst other things. Other factors considered in determining the public offering price of the securities we are offering, as well as the exercise price of the Warrants included in the Units and the Pre-Funded Warrants that we are offering, will include the stage of development of our business, our business plans for the future and the extend to which they have been implemented, an assessment of our management, the general conditions of the securities markets at the time of the offering and such other factors as are deemed relevant.
The public offering price of the securities we are offering was negotiated between us and the investors, in consultation with the placement agent based on the trading of our shares of Class A common stock prior to the offering, among other things. Other factors considered in determining the public offering price of the securities we are offering include our history and prospects, the industry in which we operate, our past and present operating results, the stage of development of our business, our business plans for the future and the extent to which they have
been implemented, the previous experience of our executive officers, general conditions of the securities markets at the time of the offering and such other factors as were deemed relevant.
Regulation M
The placement agent may be deemed to be an underwriter within the meaning of Section2(a)(11) of the Securities Act, and any commissions received by it and any profit realized on the resale of the shares sold by it while acting as principal might be deemed to be underwriting discounts or commissions under the Securities Act. As an underwriter, the placement agent would be required to comply with the requirements of the Securities Act and the Exchange Act, including, without limitation, Rule415(a)(4)under the Securities Act and Rule10b-5 and Regulation M under the Exchange Act. These rules and regulations may limit the timing of purchases and sales of securities by the placement agent acting as principal. Under these rules and regulations, the placement agent:
may not engage in any stabilization activity in connection with our securities; and may not bid for or purchase any of our securities or attempt to induce any person to purchase any of our securities, other than as permitted under the Exchange Act, until it has completed its participation in the distribution.
Discretionary Accounts
The placement agent does not intend to confirm sales of the securities offered hereby to any accounts over which it has discretionary authority.
Other Activities and Relationships
The placement agent and certain of its affiliates are full service financial institutions engaged in various activities, which may include securities trading, commercial and investment banking, financial advisory, investment management, investment research, principal investment, hedging, financing and brokerage activities. The placement agent and certain of its affiliates have, from time to time, performed, and may in the future perform, various commercial and investment banking and financial advisory services for us and our affiliates, for which they received or will receive customary fees and expenses.
In the ordinary course of their various business activities, the placement agent and certain of its affiliates may make or hold a broad array of investments and actively trade debt and equity securities (or related derivative securities) and financial instruments (including bank loans) for their own account and for the accounts of their customers, and such investment and securities activities may involve securities and/or instruments issued by us and our affiliates. If the placement agent or its affiliates enter into a lending relationship with us, they will routinely hedge their credit exposure to us consistent with their customary risk management policies. The placement agent and its affiliates may hedge such exposure by entering into transactions that consist of either the purchase of credit default swaps or the creation of short positions in our securities or the securities of our affiliates, including potentially the shares of Class A common stock offered hereby. Any such short positions could adversely affect future trading prices of the shares of Class A common stock offered hereby. The placement agent and certain of its affiliates may also communicate independent investment recommendations, market color or trading ideas and/or publish or express independent research views in respect of such securities or instruments and may at any time hold, or recommend to clients that they acquire, long and/or short positions in such securities and instruments.
SHARES TO BE OFFERED BY THE SELLING STOCKHOLDERS
In addition to the Units being offered by the Company, this registration statement registers the resale of certain shares of our Class A common stock by three Selling Shareholders: Armistice Capital Master Fund, Ltd. (“Armistice”); Mast Hill Fund L.P., a Delaware limited partnership (“Mast Hill”); and J.H. Darbie & Co. (“JH Darbie”).
Shares Registered for Resale by Armistice
This registration statement registers the resale of up to _________ shares of Class A common stock which were issued to Armistice in July 2022, as well as up to _________ shares of Class A common stock issuable upon exercise of the Warrants that were issued to Armistice.
July 2022 Offering of Shares and Warrants
On July 11, 2022, we entered into a securities purchase agreement with Armistice and other investors, pursuant to which we agreed to offer and sell to Armistice, in a registered direct offering, _________ shares of our Class A common stock (the “2022 Armistice Shares”) and warrants to purchase up to 1,630,435 Shares of Class A common stock (the “2022 Armistice Warrants”).
The 2022 Armistice Shares, the 2022 Armistice Warrants, and the shares of common stock issuable upon exercise of the 2022 Armistice Warrants (the “2022 Armistice Warrant Shares”) were offered by us pursuant to an effective shelf registration statement on Form S-3 (No. 333-252539), which was declared effective by the SEC on February 10, 2021, and a corresponding prospectus supplement, dated July 11, 2022.
The exercise price and number of 2022 Armistice Warrant Shares were subject to adjustment in the event of any stock dividend or split, reverse stock split, recapitalization, reorganization or similar transaction, as described in the 2022 Armistice Warrants, and the number of 2022 Armistice Warrant Shares and the exercise price were adjusted in connection with the Reverse Split that took effect on May 15, 2023.
November 2021 Offering of Shares and Warrants
On November 23, 2021, the Company entered into a securities purchase agreement with certain purchasers, pursuant to which the Company will sell to the Purchasers in a registered direct offering, an aggregate of 1,071,429 shares of Class A common stock and warrants to purchase up to 535,715 shares of Class A common stock underlying the Warrants, for aggregate gross proceeds to the Company of $24,000,000.
In connection with the November 23, 2021 transaction, we issued warrants to purchase up to 89,286 shares of Class A common stock to an investor which subsequently assigned the warrants (the “2021 Armistice Warrants”) to Armistice.
The exercise price and number of 2021 Armistice Warrant Shares also were subject to adjustment in the event of any stock dividend, or split, reverse stock split, recapitalization, reorganization or similar transaction, as described in the 2021 Armistice Warrants, and the number of 2021 Armistice Warrant Shares and the exercise price were adjusted in connection with the Reverse Split that took effect on May 15, 2023.
We are registering the resale by Armistice of the selling stockholder, Lincoln Park,1,719,721 shares of Class A common stock issuable upon exercise of the 2022 Armistice Warrants and the 2021 Armistice Warrants in order to permit Armistice to offer the shares for resale from time to time. Except for its participation in our financing that closed on July 13, 2022, Armistice has not had any material relationship with us within the past three years.
Shares Registered for Resale by Mast Hill
On June 29, 2023, the Company entered into a securities purchase agreement with Mast Hill, pursuant to which the Company issued and sold to Mast Hill a senior convertible promissory note in the aggregate principal amount of $1,670,000 (the “Senior Note”), convertible into shares (the “Conversion Shares”) of the Company’s Class A common stock (the “Common Stock”), pursuant to the terms, conditions, and limitations set forth in the Senior Note.
The Company also agreed to issue to Mast Hill (i) a common stock purchase warrant (the “Mast Hill Warrant”) to purchase 200,000 shares of Common Stock (the “MH Warrant Shares”), (ii) 67,400 shares of Common Stock (the “MH First Commitment Shares”), and 1,200,000 shares of Common Stock (the “MH Second Commitment Shares”). Under the Transaction Agreement, the MH Second Commitment Shares will be returned to the Company upon the Company’s full performance of certain specified obligations under the Mast Hill transaction agreements, but will become non-returnable should certain events of default occur as defined under the terms of the Mast Hill transaction agreements.
We are registering the resale by Mast Hill of the 1,467,400 shares of Class A common stock, consisting of the MH Warrant Shares, the MH First Commitment Shares, and the MH Second Commitment Shares in order to permit Mast Hill to offer the shares for resale from time to time. Except for its participation in our financing that closed on June 29, 2023, Mast Hill has not had any material relationship with us within the past three years.
Shares Registered for Resale by JH Darbie
JH Darbie served as the finder in connection with the offer and sale of the Note to Mast Hill. JH Darbie received a warrant (the “JH Darbie Warrant”) to purchase 3,579 shares of the Company’s Common stock (the “JH Darbie Warrant Shares”).
We are registering the resale by JH Darbie of the JH Darbie Warrant Shares in order to permit JH Darbie to offer the shares for resale from time to time. Except for its participation in our financing that closed on June 29, 2023, JH Darbie has not had any material relationship with us within the past three years.
The table below lists the Selling Stockholders and other information regarding the beneficial ownership of the shares of common stock by such Selling Stockholders. The second column lists the number of shares of common stock that have been or may be issued to Lincoln Park pursuant tobeneficially owned by the Purchase Agreement. We are filing the registration statementSelling Stockholders, as of which this prospectus forms a part pursuant to the provisionsAugust ___, 2023, assuming exercise of all of the Registration Rights Agreement, which we entered into with Lincoln Parkwarrants held by such Selling Stockholders on January 16, 2020, concurrently with our execution of the Purchase Agreement, in which we agreedsuch date, without regard to provide certain registration rights with respect to sales by Lincoln Park ofany limitations on exercises. The third column lists the shares of our common stock that have been or may be issued to Lincoln Park under the Purchase Agreement.
Lincoln Park, as the selling stockholder, may, from time to time, offer and sell pursuant tobeing offered by this prospectus by the Selling Stockholders.
This prospectus generally covers the resale of the maximum number of shares of common stock issuable upon exercise of the Mast Hill Warrants and JH Darbie Warrants (collectively, the “Warrants”), determined as if the outstanding Warrants were exercised in full as of the trading day immediately preceding the date this registration statement was initially filed with the SEC, each as of the trading day immediately preceding the applicable date of determination and all subject to adjustment as provided in the registration right agreement, without regard to any orlimitations on the exercise of the Warrants. The fourth column assumes the sale of all of the shares that weoffered by the Selling Stockholder pursuant to this prospectus.
Under the terms of the Warrants, the Selling Stockholders may not exercise their Warrants to the extent such exercise would cause such Selling Stockholder, together with its affiliates and attribution parties, to beneficially own a number of shares of common stock which would exceed 4.99% of our then outstanding common stock following such exercise, excluding for purposes of such determination shares of common stock issuable upon exercise of such Warrants which have sold ornot been exercised. The number of shares in the second and fourth columns do not reflect this limitation. The Selling Stockholders may sell to Lincoln Park under the Purchase Agreement. The selling stockholder may sellall, some all or none of their shares in this offering. See Plan of Distribution.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Selling Stockholder | | Number of Shares of Common Stock Owned Prior to Offering | | Maximum Number of Shares of Common Stock to be Sold Pursuant to this Prospectus | | Number of Shares of Common Stock Owned After the Offering | | Percentage of Common Stock Owned After the Offering (3) |
Armistice Capital Master Fund Ltd. (1)(2) | | | | | | | | % |
Mast Hill Fund L.P. (4)(5) | | | | | | | | % |
JH Darbie & Co. (6)(7) | | | | | | | | % |
__________________
(1)The securities are directly held by Armistice Capital Master Fund Ltd., a Cayman Islands exempted company (the Master Fund), and may be deemed to be beneficially owned by: (i) Armistice Capital, LLC (Armistice Capital), as the investment manager of the Master Fund; and (ii) Steven Boyd, as the Managing Member of Armistice Capital. The address of the Master Fund is c/o Armistice Capital, LLC, 510 Madison Avenue, 7th Floor, New York, NY 10022.
(2)The number of shares beneficially owned includes (i) ____________ shares of Class A common stock, and (ii) 1,719,721 shares of common stock issuable upon exercise of the 2022 Armistice Warrants and the 2021 Armistice Warrants. The warrants are subject to a beneficial ownership limitation of 4.99% or 9.99%, which such limitation restricts the Selling Stockholder from exercising that portion of the warrants that would result in the Selling Stockholder and its shares. Weaffiliates owning, after exercise, a number of shares of common stock in excess of the beneficial ownership limitation. The amounts and percentage in the table do not know how longgive effect to the selling stockholderbeneficial ownership limitations.
(3)Based on 24,224,657 shares of Class A common stock outstanding as of August 4, 2023, and assumes that following the offering all of the warrants will holdhave been exercised (such that _________ shares of common stock will be outstanding), and all of the shares before selling them,offered by the Selling Stockholder hereunder will have been sold.
(4)The securities listed in the table above are directly held by Mast Hill Fund L.P., a Delaware limited partnership, The address of Mast Hill is 48 Parker Road, Wellesley, MA 02482.
(5)The number of shares listed in the table above includes 200,000 MH Warrant Shares; 67,400 MH First Commitment Shares; and we currently have no agreements, arrangements or understandings with1,200,000 MH Second Commitment Shares. However, under the selling stockholder regardingMast Hill securities purchase agreement, the saleMH Second Commitment Shares will be returned to the Company upon the Company’s full performance of anycertain specified obligations under the securities purchase agreement, including repayment of the shares.Senior Note per the schedule set forth in the Senior Note, but will become non-returnable should certain events of default occur as defined under terms of the Mast Hill transaction agreements.
(6)The securities listed in the table above are directly held by JH Darbie & Co. The address of JH Darbie is 48 Wall Street, Suite 1206, New York, NY 10005.
(7)The followingshares listed in the table presents information regarding the selling stockholder andabove consists of the shares that it may offer and sell from time to time under this prospectus. The table is prepared based on information supplied to us by the selling stockholder, and reflects its holdings as of February 10, 2020. Neither Lincoln Park nor any of its affiliates has held a position or office, or had any other material relationship, with us or any of our predecessors or affiliates. Beneficial ownership is determined in accordance with Section 13(d)issuable upon exercise of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and Rule 13d-3 thereunder.JH Darbie Warrants.
Selling Stockholder | | Shares Beneficially Owned Before this Offering | | | Percentage of Outstanding Shares Beneficially Owned Before this Offering | | | Shares to be Sold in this Offering | | | Percentage of Outstanding Shares Beneficially Owned After this Offering | |
Lincoln Park Capital Fund, LLC (1) | | | 3,941,752(2 | ) | | | 3.56 | %(3) | | | 14,000,000 | (4) | | | *(5 | ) |
* Represents less than 1%
(1) | Josh Scheinfeld and Jonathan Cope, the Managing Members of Lincoln Park Capital, LLC, are deemed to be beneficial owners of all of the shares of common stock owned by Lincoln Park Capital Fund, LLC. Messrs. Cope and Scheinfeld have shared voting and investment power over the shares being offered under the prospectus filed with the SEC in connection with the transactions contemplated under the Purchase Agreement. Lincoln Park Capital, LLC is not a licensed broker dealer or an affiliate of a licensed broker dealer. |
| |
(2) | Represents 2,275,086 Commitment Shares of our common stock issued to Lincoln Park upon our execution of the Purchase Agreement as a fee for its commitment to purchase shares of our common stock under the Purchase Agreement, together with and 1,666,666 Initial Purchase Shares, all of which shares are covered by the registration statement that includes this prospectus. We have excluded from the number of shares beneficially owned by Lincoln Park prior to the offering all of the additional shares of common stock that Lincoln Park may be required to purchase pursuant to the Purchase Agreement, because the issuance of such shares is solely at our discretion and is subject to certain conditions, the satisfaction of all of which are outside of Lincoln Park’s control, including the registration statement of which this prospectus is a part becoming and remaining effective. Furthermore, under the terms of the Purchase Agreement, issuances and sales of shares of our common stock to Lincoln Park are subject to certain limitations on the amounts we may sell to Lincoln Park at any time, including the Beneficial Ownership Cap. See the description under the heading “Lincoln Park Transaction” for more information about the Purchase Agreement. |
| |
(3) | Based on 110,677,860 outstanding shares of our common stock as of February 10, 2020, which includes the 2,275,086 Commitment Shares and the and 1,666,666 Initial Purchase Shares we issued to Lincoln Park on January 16, 2020. |
| |
(4) | Although the Purchase Agreement provides that we may sell up to $10,000,000 of our common stock to Lincoln Park, only and,14,000,000 shares of our common stock are being offered under this prospectus, which represents: (i) 2,275,086 Commitment Shares issued to Lincoln Park upon our execution of the Purchase Agreement as consideration for its commitment to purchase shares of our common stock under the Purchase Agreement; (ii) and 1,666,666 Initial Purchase Shares; and (iii) an aggregate of and 10,058,248 shares of our common stock that may be sold by us to Lincoln Park at our discretion from time to time over a 36-month period commencing after the satisfaction of certain conditions set forth in the Purchase Agreement, including that the SEC has declared effective the registration statement that includes this prospectus. Depending on the price per share at which we sell our common stock to Lincoln Park pursuant to the Purchase Agreement, we may need to sell to Lincoln Park under the Purchase Agreement more shares of our common stock than are offered under this prospectus in order to receive aggregate gross proceeds equal to the $10,000,000 total commitment available to us under the Purchase Agreement. If we choose to do so, we must first register for resale under the Securities Act such additional shares. The number of shares ultimately offered for resale by Lincoln Park is dependent upon the number of shares we sell to Lincoln Park under the Purchase Agreement. |
| |
(5) | Assumes the sale of all shares of common stock registered pursuant to this prospectus, although the selling stockholder is under no obligation to sell any shares of common stock at this time. |
– SELLING STOCKHOLDERS
The common stock offered by this prospectus is being offered by the selling stockholder, Lincoln Park.three Selling Stockholders listed above. The common stock may be sold or distributed from time to time by the selling stockholderSelling Stockholders directly to one or more purchasers or through brokers, dealers, or underwriters who may act solely as agents at market prices prevailing at the time of sale, at prices related to the prevailing market prices, at negotiated prices, or at fixed prices, which may be changed. The sale of the common stock offered by this prospectus could be affected in one or more of the following methods:
•ordinary brokers’ transactions;
- | ordinary brokers’ transactions; |
| |
- | transactions involving cross or block trades; |
| |
- | through brokers, dealers, or underwriters who may act solely as agents; |
| |
- | “at the market” into an existing market for the common stock; |
| |
- | in other ways not involving market makers or established business markets, including direct sales to purchasers or sales effected through agents; |
| |
- | in privately negotiated transactions; or |
| |
- | any combination of the foregoing. |
•transactions involving cross or block trades;
•through brokers, dealers, or underwriters who may act solely as agents;
•“at the market” into an existing market for the common stock;
•in other ways not involving market makers or established business markets, including direct sales to purchasers or sales effected through agents;
•in privately negotiated transactions; or
•any combination of the foregoing.
In order to comply with the securities laws of certain states, if applicable, the shares may be sold only through registered or licensed brokers or dealers. In addition, in certain states, the shares may not be sold unless they have been registered or qualified for sale in the state or an exemption from the state’s registration or qualification requirement is available and complied with.
Lincoln Park is an “underwriter”The Selling Stockholders may be deemed to be “underwriters” within the meaning of Section 2(a)(11) of the Securities Act.
Lincoln Park has informed us that it intends toThe Selling Stockholders may use an unaffiliated broker-dealer to effectuate all sales, if any, of the common stock that it may purchase from us pursuant to the Purchase Agreement. Such sales will be made at prices and at terms then prevailing or at prices related to the then current market price. Each such unaffiliated broker-dealer will be an underwriter within the meaning of Section 2(a)(11) of the Securities Act. Lincoln Park has informed us that eachEach such broker-dealer will receive commissions from Lincoln Parkthe Selling Stockholders that will not exceed customary brokerage commissions.
Brokers, dealers, underwriters or agents participating in the distribution of the shares as agents may receive compensation in the form of commissions, discounts, or concessions from the selling stockholderSelling Stockholders and/or purchasers of the common stock for whom the broker-dealers may act as agent. The compensation paid to a particular broker-dealer may be less than or in excess of customary commissions. Neither we nor Lincoln Parkthe Selling Stockholders can presently estimate the amount of compensation that any agent will receive.
We know of no existing arrangements between Lincoln Parkthe Selling Stockholders or any other stockholder, broker, dealer, underwriter or agent relating to the sale or distribution of the shares offered by this prospectus. At the time a particular offer of shares is made, a prospectus supplement, if required, will be distributed that will set forth the names of any agents, underwriters or dealers and any compensation from the selling stockholder, and any other required information.
We will pay the expenses incident to the registration, offering, and sale of the shares to Lincoln Park. We have agreed to indemnify Lincoln Park and certain other persons against certain liabilities in connection with the offering of shares of common stock offered hereby, including liabilities arising under the Securities Act or, if such indemnity is unavailable, to contribute amounts required to be paid in respect of such liabilities. Lincoln Park has agreed to indemnify us against liabilities under the Securities Act that may arise from certain written information furnished to us by Lincoln Park specifically for use in this prospectus or, if such indemnity is unavailable, to contribute amounts required to be paid in respect of such liabilities.Lincoln Park has represented to us that at no time prior to the Purchase Agreement has Lincoln Park or its agents, representatives or affiliates engaged in or effected, in any manner whatsoever, directly or indirectly, any short sale (as such term is defined in Rule 200 of Regulation SHO of the Exchange Act) of our common stock or any hedging transaction, which establishes a net short position with respect to our common stock. Lincoln Park agreed that during the term of the Purchase Agreement, it, its agents, representatives or affiliates will not enter into or effect, directly or indirectly, any of the foregoing transactions.
We have advised Lincoln Park that it is required to comply with Regulation M promulgated under the Exchange Act. With certain exceptions, Regulation M precludes the selling stockholder, any affiliated purchasers, and any broker-dealer or other person who participates in the distribution from bidding for or purchasing, or attempting to induce any person to bid for or purchase any security which is the subject of the distribution until the entire distribution is complete. Regulation M also prohibits any bids or purchases made in order to stabilize the price of a security in connection with the distribution of that security. All of the foregoing may affect the marketability of the securities offered by this prospectus.
This offering will terminate on the earlier of (i) termination of the Purchase Agreement or (ii) the date that all shares offered by this prospectus have been sold by Lincoln Park.
Placement Agent Fee
Prior to our entry into the Purchase Agreement, we had engaged Alliance Global Partners (“A.G.P.”) as a placement agent to help us raise capital in connection with a private offering. A.G.P. introduced us to Lincoln Park, for which we agreed to pay A.G.P. a fee of 10% of the amount of the funds received from Lincoln Park. At the time of signing our agreement with A.G.P., we paid an advance of $12,000, which was to be applied to the 10% fee payable. In connection with execution of the Purchase Agreement, we sold the Initial Purchase Shares to Lincoln Park for $250,000, and were obligated to pay a fee of $25,000 to A.G.P., and we paid the remaining $13,000. Going forward, we are required to pay a placement agent fee of 10% to A.G.P. of all amounts received from Lincoln Park.
Our common stock is quoted on the OTCQBNasdaq Capital Markets under the symbol “ALPP.”
LEGAL MATTERS
The legal validity of the securities offered by this prospectus will be passed upon for us by Kirton McConkie, P.C., Salt Lake City, Utah.
EXPERTS
The auditedconsolidated financial statements of Alpine 4 Holdings, Inc. as of December 31, 2021 and for the fiscal yearsyear then ended, December 31, 2017, and December 31, 2018 and for each of the two years in the period ended December 31, 2018, appearing in this prospectus and the registration statement, have been audited by MaloneBailey, LLC,LLP, an independent registered public accounting firm, as set forth in their report thereon appearing elsewhere herein, and are included in reliance upon such report given on the authority of such firm as experts in accounting and auditing.
The consolidated financial statements of Alpine 4 Holdings, Inc. as of December 31, 2022 and for the year then ended have been audited by RSM US LLP, an independent registered public accounting firm, as stated in their report thereon (which report expresses an unqualified opinion and includes an explanatory paragraph relating to going concern), and included in this Prospectus and Registration Statement in reliance upon such report and upon the authority of such firm as experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We have filed a registration statement on Form S-1 under the Securities Act of 1933, as amended, relating to the shares of common stock being offered by this prospectus, and reference is made to such registration statement. This prospectus and it does not contain all information in the registration statement, as certain portions have been omitted in accordance with the rules and regulations of the Securities and Exchange Commission.
In addition, since our common stock is registered under the Securities Exchange Act of 1934, we are required to file annual, quarterly, and current reports, or other information with the SEC as provided by the Securities Exchange Act of 1934, as amended. Our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to reports filed or furnished pursuant to Sections 13(a) and 15(d) of the Securities Exchange Act of 1934, as amended, are available free of charge on the Investor Relations portion of our website, www.alpine4.com, as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. In addition, the SEC maintains an internet site that contains the reports, proxy and information statements, and other information we electronically file with or furnish to the SEC, located at http://www.sec.gov.
Information contained in, or that can be accessed through, our website is not a part of, and shall not be incorporated by reference into, this prospectus. We have included our website address in this prospectus solely as an inactive textual reference.
ALPINE 4 HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Financial Statements
Contents
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of |
Alpine 4 Technologies, Ltd. |
Phoenix, Arizona |
To the Stockholders and the Board of Directors of Alpine 4 Holdings, Inc. and Subsidiaries
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheetssheet of Alpine 4 Technologies, Ltd.Holdings, Inc. and its subsidiaries (collectively, the “Company”)(the Company) as of December 31, 2018 and 2017, and2022, the related consolidated statements of operations, changes in stockholders’ deficit,equity (deficit) and cash flows, for the yearsyear then ended, and the related notes (collectively, referred to as the “financial statements”)financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2018 and 2017,2022, and the results of theirits operations and theirits cash flows for the yearsyear then ended in conformity with accounting principles generally accepted in the United States of America.
Going Concern Matter
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 31A to the financial statements, the Company has suffered recurring losses from operations and has a net capital deficiency thatrecurring negative cash flows from operations. This raises substantial doubt about itsthe Company's ability to continue as a going concern. Management's plans in regard to these matters also are also described in Note 3.1A. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These financial statements are the responsibility of the Company’sCompany's management. Our responsibility is to express an opinion on the Company’sCompany's financial statements based on our audits.audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB")(PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our auditsaudit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our auditsaudit we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company'sCompany’s internal control over financial reporting. Accordingly, we express no such opinion.
Our auditsaudit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our auditsaudit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provideaudit provides a reasonable basis for our opinion.
/s/ RSM US LLP
We have served as the Company's auditor since 2022.
Phoenix, Arizona
May 5, 2023
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and Board of Directors of Alpine 4 Holdings, Inc and Subsidiaries
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheet of Alpine 4 Holdings, Inc. and its subsidiaries (collectively, the “Company”) as of December 31, 2021, and the related consolidated statement of operations, changes in stockholders’ equity, and cash flows for the year then ended, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and the results of their operations and their cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.
/s/ MaloneBailey, LLP
www.malonebailey.com
We have served as the Company's auditor since 2015.from 2015 to 2022.
Houston, Texas
April 22, 201913, 2022, except for the restatement discussed in Note 1 as to which the date is March 16, 2023.
ALPINE 4 TECHNOLOGIES, LTD.HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
| | | | | | | | | | | |
| December 31, 2022 | | December 31, 2021 |
ASSETS | | | |
CURRENT ASSETS: | | | |
Cash | $ | 2,673,541 | | | $ | 3,715,666 | |
| | | |
Accounts receivable, net | 17,139,944 | | | 11,875,176 | |
Contract assets | 1,402,788 | | | 877,904 | |
Inventory | 25,258,369 | | | 24,419,654 | |
Prepaid expenses and other current assets | 2,428,223 | | | 1,955,907 | |
Total current assets | 48,902,865 | | | 42,844,307 | |
| | | |
Property and equipment, net | 19,503,485 | | | 28,101,471 | |
Intangible assets, net | 36,282,609 | | | 39,180,664 | |
Right of use assets | 16,407,566 | | | 1,460,206 | |
Goodwill | 22,680,084 | | | 22,680,084 | |
Other non-current assets | 1,855,605 | | | 357,118 | |
TOTAL ASSETS | $ | 145,632,214 | | | $ | 134,623,850 | |
| | | |
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) | | | |
| | | |
CURRENT LIABILITIES: | | | |
Accounts payable | $ | 8,608,554 | | | $ | 7,744,957 | |
Accrued expenses | 6,749,890 | | | 5,074,006 | |
Contract liabilities | 5,284,285 | | | 6,359,449 | |
Notes payable, current portion | 3,201,136 | | | 5,690,524 | |
| | | |
| | | |
Line of credit, current portion | 7,426,814 | | | 4,473,489 | |
Financing lease obligation, current portion | 725,302 | | | 649,343 | |
Operating lease obligation, current portion | 1,318,885 | | | 428,596 | |
Total current liabilities | 33,314,866 | | | 30,420,364 | |
| | | |
Notes payable, net of current portion | 4,266,350 | | | 8,426,105 | |
| | | |
Line of credit, net of current portion | 7,215,520 | | | 5,640,051 | |
Financing lease obligations, net of current portion | 14,592,813 | | | 15,319,467 | |
Operating lease obligations, net of current portion | 15,262,494 | | | 1,066,562 | |
Series C and Series D preferred stock subject to redemption | — | | | 400,092 | |
Deferred tax liability | 988,150 | | | 1,861,165 | |
TOTAL LIABILITIES | 75,640,193 | | | 63,133,806 | |
| | | |
Commitment and contingencies (Note 11) | | | |
STOCKHOLDERS' EQUITY (DEFICIT): | | | |
Preferred stock, $0.0001 par value, 5,000,000 shares authorized | — | | | — | |
Series B preferred stock; $1.00 stated value; 100 shares authorized, 5 and 5 shares issued and outstanding at December 31, 2022 and 2021 | 5 | | | 5 | |
Class A Common stock, $0.0001 par value, 295,000,000 shares authorized, 178,425,932 and 161,798,817 shares issued and outstanding at December 31, 2022 and 2021 | 17,844 | | | 16,182 | |
Class B Common stock, $0.0001 par value, 10,000,000 shares authorized, 8,548,088 and 8,548,088 shares issued and outstanding at December 31, 2022 and 2021 | 854 | | | 854 | |
| | December 31, | | | December 31, | |
| | 2018 | | | 2017 | |
| | | | | | |
ASSETS | | | | | | |
| | | | | | |
CURRENT ASSETS: | | | | | | |
Cash | | $ | 207,205 | | | $ | 128,512 | |
Accounts receivable | | | 2,610,354 | | | | 1,560,480 | |
Inventory | | | 2,175,795 | | | | 1,212,546 | |
Capitalized contract costs | | | 64,234 | | | | - | |
Prepaid expenses and other current assets | | | 222,200 | | | | 154,385 | |
Assets of discontinued operations | | | 121,296 | | | | 574,174 | |
Total current assets | | | 5,401,084 | | | | 3,630,097 | |
| | | | | | | | |
Property and equipment, net | | | 7,990,556 | | | | 5,023,758 | |
Intangible asset, net | | | 677,210 | | | | 752,622 | |
Goodwill | | | 3,193,861 | | | | 1,963,761 | |
Other non-current assets | | | 290,238 | | | | 258,238 | |
Assets of discontinued operations | | | 387,727 | | | | 4,342,474 | |
| | | | | | | | |
TOTAL ASSETS | | $ | 17,940,676 | | | $ | 15,970,950 | |
| | | | | | | | |
LIABILITIES, REDEEMABLE COMMON STOCK AND STOCKHOLDERS' DEFICIT | | | | | | | | |
| | | | | | | | |
CURRENT LIABILITIES: | | | | | | | | |
Accounts payable | | $ | 3,102,970 | | | $ | 1,367,989 | |
Accrued expenses | | | 1,254,853 | | | | 739,645 | |
Deferred revenue | | | 25,287 | | | | 64,918 | |
Derivative liabilities | | | 1,892,321 | | | | 271,588 | |
Deposits | | | 12,509 | | | | 12,509 | |
Notes payable, current portion | | | 3,645,603 | | | | 1,814,689 | |
Notes payable, related parties, current portion | | | 132,000 | | | | 43,500 | |
Convertible notes payable, current portion, net of discount of $942,852 and $79,630 | | | 2,644,735 | | | | 2,302,620 | |
Financing lease obligation, current portion | | | 105,458 | | | | 24,590 | |
Net liabilities of discontinued operations | | | 2,752,447 | | | | 3,344,974 | |
Total current liabilities | | | 15,568,183 | | | | 9,987,022 | |
| | | | | | | | |
Notes payable, net of current portion | | | 4,517,441 | | | | - | |
Convertible notes payable, net of current portion | | | 450,000 | | | | 1,660,106 | |
Financing lease obligations, net of current portion | | | 8,295,176 | | | | 6,560,112 | |
Deferred revenue | | | - | | | | 43 | |
Deferred tax liability | | | 608,304 | | | | 181,703 | |
| | | | | | | | |
TOTAL LIABILITIES | | | 29,439,104 | | | | 18,388,986 | |
| | | | | | | | |
REDEEMABLE COMMON STOCK | | | | | | | | |
Class A Common stock, $0.0001 par value, 0 and 379,403 shares issued and outstanding at December 31, 2018 and 2017 | | | - | | | | 1,439,725 | |
| | | | | | | | |
STOCKHOLDERS' DEFICIT: | | | | | | | | |
Preferred stock, $0.0001 par value, 10,000,000 shares authorized, none issued and outstanding at December 31, 2018 and 2017 | | | - | | | | - | |
Class A Common stock, $0.0001 par value, 100,000,000 shares authorized, 26,567,410 and 23,222,087 shares issued and outstanding at December 31, 2018 and 2017 | | | 2,575 | | | | 2,322 | |
Class B Common stock, $0.0001 par value, 5,000,000 shares authorized, 5,000,000 and 1,600,000 shares issued and outstanding at December 31, 2018 and 2017 | | | 500 | | | | 160 | |
Additional paid-in capital | | | 17,018,591 | | | | 16,573,632 | |
Accumulated deficit | | | (28,520,094 | ) | | | (20,433,875 | ) |
Total stockholders' deficit | | | (11,498,428 | ) | | | (3,857,761 | ) |
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT | | $ | 17,940,676 | | | $ | 15,970,950 | |
| | | | | | | | | | | |
Class C Common stock, $0.0001 par value, 15,000,000 shares authorized, 12,238,232 and 12,500,200 shares issued and outstanding at December 31, 2022 and 2021 | 1,224 | | | 1,250 | |
Additional paid-in capital | 141,723,921 | | | 130,348,267 | |
Accumulated deficit | (71,751,827) | | | (58,876,514) | |
Total stockholders' equity (deficit) | 69,992,021 | | | 71,490,044 | |
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) | $ | 145,632,214 | | | $ | 134,623,850 | |
The accompanying notes are an integral part of these consolidated financial statements.
ALPINE 4 TECHNOLOGIES, LTD.HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
| | Years Ended December 31, | |
| | 2018 | | | 2017 | |
| | | | | | |
Revenue | | $ | 14,261,794 | | | $ | 8,318,016 | |
Cost of revenue | | | 9,440,998 | | | | 5,907,421 | |
Gross Profit | | | 4,820,796 | | | | 2,410,595 | |
| | | | | | | | |
Operating expenses: | | | | | | | | |
General and administrative expenses | | | 5,470,148 | | | | 2,814,111 | |
| | | | | | | | |
Total operating expenses | | | 5,470,148 | | | | 2,814,111 | |
Loss from operations | | | (649,352 | ) | | | (403,516 | ) |
| | | | | | | | |
Other expenses | | | | | | | | |
Interest expense | | | (3,121,201 | ) | | | (1,262,493 | ) |
Change in value of derivative liability | | | 604,219 | | | | (126,054 | ) |
Gain on extinguishment of debt | | | 6,305 | | | | - | |
Other income | | | 119,737 | | | | 246,895 | |
Total other expenses | | | (2,390,940 | ) | | | (1,141,652 | ) |
| | | | | | | | |
Loss before income tax | | | (3,040,292 | ) | | | (1,545,168 | ) |
| | | | | | | | |
Income tax (benefit) | | | (43,399 | ) | | | (258,392 | ) |
| | | | | | | | |
Loss from continuing operations | | | (2,996,893 | ) | | | (1,286,776 | ) |
| | | | | | | | |
Discontinued operations: | | | | | | | | |
Loss from discontinued operations | | | (4,911,124 | ) | | | (1,710,644 | ) |
Total discontinued operations | | | (4,911,124 | ) | | | (1,710,644 | ) |
| | | | | | | | |
Net loss | | $ | (7,908,017 | ) | | $ | (2,997,420 | ) |
| | | | | | | | |
Weighted average shares outstanding : | | | | | | | | |
Basic | | | 28,447,969 | | | | 23,858,031 | |
Diluted | | | 28,447,969 | | | | 23,858,031 | |
| | | | | | | | |
Basic and Diluted Loss per shares | | | | | | | | |
Continuing operations | | $ | (0.11 | ) | | $ | (0.06 | ) |
Discontinued operations | | | (0.17 | ) | | $ | (0.07 | ) |
| | $ | (0.28 | ) | | | (0.13 | ) |
| | | | | | | | | | | |
| Years Ended December 31, |
| 2022 | | 2021 |
| | | |
Revenues, net | $ | 104,563,002 | | | $ | 51,640,813 | |
Cost of revenues | 82,848,600 | | | 43,942,815 | |
Gross Profit | 21,714,402 | | | 7,697,998 | |
| | | |
Operating expenses: | | | |
General and administrative expenses | 37,531,794 | | | 27,987,920 | |
Research and development | 876,542 | | | 1,464,918 | |
Impairment loss of intangible asset and goodwill | — | | | 367,519 | |
Gain on sale of property | (5,938,150) | | | — | |
Total operating expenses | 32,470,186 | | | 29,820,357 | |
Loss from operations | (10,755,784) | | | (22,122,359) | |
| | | |
Other income (expenses) | | | |
Interest expense | (3,124,132) | | | (3,289,233) | |
| | | |
Gain on extinguishment of debt | — | | | 803,079 | |
Gain on forgiveness of debt | — | | | 3,896,108 | |
| | | |
Impairment loss on equity investment | — | | | (1,350,000) | |
Other income | 270,609 | | | 635,526 | |
Total other income (expenses) | (2,853,523) | | | 695,480 | |
| | | |
Loss before income tax | (13,609,307) | | | (21,426,879) | |
| | | |
Income tax (benefit) | (733,994) | | | (1,943,741) | |
| | | |
Net loss | $ | (12,875,313) | | | $ | (19,483,138) | |
| | | |
Weighted average shares outstanding: | | | |
Basic | 190,779,052 | | | 164,216,808 | |
Diluted | 190,779,052 | | | 164,216,808 | |
| | | |
Basic loss per share | $ | (0.07) | | | $ | (0.12) | |
| | | |
Diluted loss per share | $ | (0.07) | | | $ | (0.12) | |
The accompanying notes are an integral part of these consolidated financial statements.
ALPINE 4 TECHNOLOGIES, LTD.HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Series B Preferred Stock | | Series C Preferred Stock | | Series D Preferred Stock | | Class A Common Stock | | Class B Common Stock | | Class C Common Stock | | Additional Paid-in Capital | | Accumulated Deficit | | Total Stockholders' Equity (Deficit) |
| Shares | | Amount | | Shares | | Amount | | Shares | | Amount | | Shares | | Amount | | Shares | | Amount | | Shares | | Amount | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance, December 31, 2020 | 5 | | | $ | 5 | | | — | | | $ | — | | | — | | | $ | — | | | 126,363,158 | | | $ | 12,636 | | | 9,023,088 | | | $ | 902 | | | 14,162,267 | | | $ | 1,417 | | | $ | 25,144,136 | | | $ | (39,393,376) | | | $ | (14,234,280) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Issuance of shares of common stock for cash | — | | | — | | | — | | | — | | | — | | | — | | | 18,428,827 | | | 1,844 | | | — | | | — | | | — | | | — | | | 76,491,149 | | | — | | | 76,492,993 | |
Issuance of shares of common stock for convertible note payable and accrued interest | | | — | | | — | | | — | | | — | | | — | | | 7,384,018 | | | 740 | | | — | | | — | | | — | | | — | | | 1,886,156 | | | — | | | 1,886,896 | |
Conversion of Class C to Class A | — | | | — | | | — | | | — | | | — | | | — | | | 1,617,067 | | | 162 | | | — | | | — | | | (1,617,067) | | | (162) | | | — | | | — | | | — | |
Conversion of Class B to Class A | — | | | — | | | — | | | — | | | — | | | — | | | 475,000 | | | 48 | | | (475,000) | | | (48) | | | — | | | — | | | — | | | — | | | — | |
Repurchase of class C common stock | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (45,000) | | | (5) | | | (185,845) | | | — | | | (185,850) | |
Issuance of shares of common stock for compensation | — | | | — | | | — | | | — | | | — | | | — | | | 199,018 | | | 21 | | | — | | | — | | | — | | | — | | | 261,504 | | | — | | | 261,525 | |
Issuance of shares of common stock and warrants for acquisition | — | | | — | | | — | | | — | | | — | | | — | | | 4,922,471 | | | 492 | | | — | | | — | | | — | | | — | | | 15,066,719 | | | — | | | 15,067,211 | |
Conversion of series D preferred stock to Class A | — | | | — | | | — | | | — | | | — | | | — | | | 1,066,868 | | | 105 | | | — | | | — | | | — | | | — | | | 5,194,329 | | | — | | | 5,194,434 | |
Conversion of series C preferred stock to Class A | — | | | — | | | — | | | — | | | — | | | — | | | 1,342,390 | | | 134 | | | — | | | — | | | — | | | — | | | 6,361,153 | | | — | | | 6,361,287 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Share-based compensation expense | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 36,538 | | | — | | | 36,538 | |
Beneficial conversion feature on convertible notes | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 92,428 | | | — | | | 92,428 | |
Net loss | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (19,483,138) | | | (19,483,138) | |
Balance, December 31, 2021 | 5 | | | 5 | | | — | | | — | | | — | | | — | | | 161,798,817 | | | 16,182 | | | 8,548,088 | | | 854 | | | 12,500,200 | | | 1,250 | | | 130,348,267 | | | (58,876,514) | | | 71,490,044 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Issuance of shares of common stock for compensation | — | | | — | | | — | | | — | | | — | | | — | | | 211,236 | | | 22 | | | — | | | — | | | — | | | — | | | 231,555 | | | — | | | 231,577 | |
Exchange of shares of common stock for compensation | — | | | — | | | — | | | — | | | — | | | — | | | 37,500 | | | 4 | | | — | | | — | | | (37,500) | | | (4) | | | — | | | — | | | — | |
Conversion of Series D preferred stock to Class A | — | | | — | | | — | | | — | | | — | | | — | | | 63,907 | | | 7 | | | — | | | — | | | — | | | — | | | 365,463 | | | — | | | 365,470 | |
Conversion of Series C preferred stock to Class A | — | | | — | | | — | | | — | | | — | | | | | 8,245 | | | — | | | — | | | — | | | — | | | — | | | 34,622 | | | — | | | 34,622 | |
Conversion of Class C Common stock to Class A | — | | | — | | | — | | | — | | | — | | | — | | | 224,468 | | | 22 | | | — | | | — | | | (224,468) | | | (22) | | | — | | | — | | | — | |
Share-based compensation expense | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 473,159 | | | — | | | 473,159 | |
Shares issued from ATM | — | | | — | | | — | | | — | | | — | | | — | | | 1,589,005 | | | 159 | | | — | | | — | | | — | | | — | | | 1,097,303 | | | — | | | 1,097,462 | |
Issuance of shares of common stock for cash, net of offering costs | — | | | — | | | — | | | — | | | — | | | — | | | 14,492,754 | | | 1,448 | | | — | | | — | | | — | | | — | | | 9,173,552 | | | — | | | 9,175,000 | |
Net loss | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (12,875,313) | | | (12,875,313) | |
Balance, December 31, 2022 | 5 | | | $ | 5 | | | — | | | $ | — | | | — | | | $ | — | | | 178,425,932 | | | $ | 17,844 | | | 8,548,088 | | | $ | 854 | | | 12,238,232 | | | $ | 1,224 | | | 141,723,921 | | | $ | (71,751,827) | | | $ | 69,992,021 | |
ALPINE 4 HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICITCASH FLOWS
| | | | | | | | | | | |
| Years Ended December 31, |
| 2022 | | 2021 |
| | | |
OPERATING ACTIVITIES: | | | |
Net loss | $ | (12,875,313) | | | $ | (19,483,138) | |
Adjustments to reconcile net loss to | | | |
net cash used in operating activities: | | | |
Depreciation | 3,026,483 | | | 2,396,966 | |
Amortization | 3,148,055 | | | 1,757,393 | |
Gain on extinguishment of debt | — | | | (803,079) | |
Gain on forgiveness of debt | — | | | (3,896,108) | |
| | | |
| | | |
Amortization of preferred stock fair value | — | | | (545,509) | |
Income tax benefit | (733,994) | | | (1,943,741) | |
| | | |
| | | |
| | | |
Gain on sale of property | (5,938,150) | | | — | |
Bad debt expense | 202,761 | | | 3,028,757 | |
| | | |
| | | |
Employee stock compensation | 704,736 | | | 298,063 | |
Amortization of debt discounts | — | | | 1,436,052 | |
| | | |
Operating lease expense | 1,006,683 | | | 412,898 | |
Impairment loss on equity investment | — | | | 1,350,000 | |
Impairment loss of intangible asset and goodwill | — | | | 367,519 | |
Write off of inventory | 691,061 | | | 237,192 | |
Change in current assets and liabilities: | | | |
Accounts receivable | (5,467,529) | | | (4,235,353) | |
Inventory | (1,529,776) | | | (6,795,719) | |
Contract assets | (524,884) | | | (160,483) | |
Prepaid expenses and other assets | (1,970,803) | | | (87,950) | |
Accounts payable | 724,576 | | | 725,596 | |
Accrued expenses | 1,675,884 | | | 614,399 | |
Contract liabilities | (1,075,164) | | | 332,032 | |
Operating lease liability | (642,822) | | | (429,529) | |
| | | |
| | | |
Net cash used in operating activities | (19,578,196) | | | (25,423,742) | |
| | | |
INVESTING ACTIVITIES: | | | |
Capital expenditures | (1,067,157) | | | (3,571,253) | |
Proceeds from sale of asset | 140,710 | | | — | |
Proceeds from sale of building | 12,454,943 | | | — | |
Cash paid in international technology agreement | (250,000) | | | — | |
Cash paid for acquisitions | — | | | (37,324,035) | |
Cash paid for equity investment | — | | | (350,000) | |
Cash assumed in acquisition | — | | | 81,442 | |
Net cash used in investing activities | 11,278,496 | | | (41,163,846) | |
| | | |
| | | |
FINANCING ACTIVITIES: | | | |
Proceeds from the sale of common stock | 11,097,462 | | | 76,492,993 | |
Proceeds from issuances of notes payable, non-related party | 500,000 | | | 16,078 | |
| | | | | | | | | | | | | | Additional | | | | | | Total | |
| | Class A Common Stock | | | Class B Common Stock | | | Paid-in | | | Accumulated | | | Stockholders' | |
| | Shares | | | Amount | | | Shares | | | Amount | | | Capital | | | Deficit | | | Deficit | |
Balance, December 31, 2016 | | | 21,474,481 | | | $ | 2,148 | | | | 1,600,000 | | | $ | 160 | | | $ | 16,228,106 | | | $ | (17,436,455 | ) | | $ | (1,206,041 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Issuance of shares of common stock for cash | | | 132,209 | | | | 13 | | | | | | | | | | | | 39,987 | | | | | | | | 40,000 | |
Issuance of shares of common stock to consultants for services | | | 578,640 | | | | 57 | | | | | | | | | | | | 62,027 | | | | | | | | 62,084 | |
Issuance of shares of common stock for convertible note payable and accrued interest | | | 886,757 | | | | 89 | | | | | | | | | | | | 99,484 | | | | | | | | 99,573 | |
Issuance shares for discount on convertible note payable | | | 150,000 | | | | 15 | | | | | | | | | | | | 16,485 | | | | | | | | 16,500 | |
Reclassification of derivative liability | | | | | | | | | | | | | | | | | | | (252,633 | ) | | | | | | | (252,633 | ) |
Derivative liability resolution | | | | | | | | | | | | | | | | | | | 222,099 | | | | | | | | 222,099 | |
Issuance of warrants for acquisition of VWES | | | | | | | | | | | | | | | | | | | 40,941 | | | | | | | | 40,941 | |
Share-based compensation expense | | | | | | | | | | | | | | | | | | | 87,136 | | | | | | | | 87,136 | |
Beneficial conversation feature associated with convertible notes | | | | | | | | | | | | | | | | | | | 30,000 | | | | | | | | 30,000 | |
Net loss | | | | | | | | | | | | | | | | | | | | | | | (2,997,420 | ) | | | (2,997,420 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance, December 31, 2017 | | | 23,222,087 | | | | 2,322 | | | | 1,600,000 | | | | 160 | | | | 16,573,632 | | | | (20,433,875 | ) | | | (3,857,761 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Adoption of ASC 606 | | | | | | | | | | | | | | | | | | | | | | | (178,202 | ) | | | (178,202 | ) |
Issuance of shares for discount/inducement on convertible note payable | | | 1,849,999 | | | | 104 | | | | | | | | | | | | 65,910 | | | | | | | | 66,014 | |
Issuance of shares of common stock for modification of debt | | | 100,000 | | | | 10 | | | | | | | | | | | | 14,990 | | | | | | | | 15,000 | |
Issuance of shares of common stock for convertible note payable and accrued interest | | | 1,015,921 | | | | 101 | | | | | | | | | | | | 54,086 | | | | | | | | 54,187 | |
Reclassification of shares from mezzanine | | | 379,403 | | | | 38 | | | | | | | | | | | | (38 | ) | | | | | | | - | |
Change in fair value of warrant modification | | | | | | | | | | | | | | | | | | | 4,310 | | | | | | | | 4,310 | |
Shares issued for employee compensation | | | | | | | | | | | 3,400,000 | | | | 340 | | | | 176,460 | | | | | | | | 176,800 | |
Derivative liability resolution | | | | | | | | | | | | | | | | | | | 58,018 | | | | | | | | 58,018 | |
Share-based compensation expense | | | | | | | | | | | | | | | | | | | 71,223 | | | | | | | | 71,223 | |
Net loss | | | | | | | | | | | | | | | | | | | | | | | (7,908,017 | ) | | | (7,908,017 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance, December 31, 2018 | | | 26,567,410 | | | $ | 2,575 | | | | 5,000,000 | | | $ | 500 | | | $ | 17,018,591 | | | $ | (28,520,094 | ) | | $ | (11,498,428 | ) |
| | | | | | | | | | | |
Proceeds from issuances of convertible notes payable | — | | | 408,000 | |
Net proceeds from lines of credit | 4,795,213 | | | 2,575,552 | |
Cash paid for debt issuance costs | (266,419) | | | — | |
Cash paid for equity issuance costs | (825,000) | | | — | |
Repurchase of common stock | — | | | (185,850) | |
Repayment of mortgage | (4,642,043) | | | — | |
Repayments of notes payable, related party | — | | | (238,651) | |
Repayments of notes payable, non-related parties | (2,750,943) | | | (7,161,807) | |
Repayments of convertible notes payable | — | | | (1,688,464) | |
| | | |
Cash paid on financing lease obligations | (650,695) | | | (637,180) | |
Net cash provided by financing activities | 7,257,575 | | | 69,580,671 | |
| | | |
| | | |
NET INCREASE (DECREASE) IN CASH | (1,042,125) | | | 2,993,083 | |
| | | |
CASH , BEGINNING BALANCE | 3,715,666 | | | 722,583 | |
| | | |
CASH, ENDING BALANCE | $ | 2,673,541 | | | $ | 3,715,666 | |
| | | |
CASH PAID FOR: | | | |
Interest | $ | 2,231,600 | | | $ | 1,973,818 | |
Income taxes | $ | — | | | $ | 54,058 | |
| | | |
SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING AND INVESTING ACTIVITIES: | | | |
| | | |
Common stock issued for convertible note payable and accrued interest | $ | — | | | $ | 1,886,896 | |
| | | |
| | | |
ROU asset and operating lease obligation recognized under Topic 842 | $ | 15,729,043 | | | $ | 95,029 | |
| | | |
Equipment purchased on financing lease | $ | 243,843 | | | $ | — | |
| | | |
| | | |
| | | |
Beneficial conversion feature on convertible notes | $ | — | | | $ | 92,428 | |
| | | |
Common stock issued for acquisition | $ | — | | | $ | 15,067,211 | |
Remeasurement of finance lease liability | $ | — | | | $ | 279,287 | |
Mortgage on property purchase | $ | — | | | $ | 4,680,000 | |
Accounts receivable converted to equity investment | $ | — | | | $ | 1,000,000 | |
Issuance of shares of series D preferred stock for acquisition | $ | — | | | $ | 6,653,309 | |
Notes payable issued to the Sellers for the purchase of DTI | $ | — | | | $ | 2,000,000 | |
Conversion of series D preferred stock for common stock | $ | — | | | $ | 136 | |
Conversion of series C preferred stock for common stock | $ | — | | | $ | 171 | |
The accompanying notes are an integral part of these consolidated financial statements.
Note 1 - 4Restatement of Consolidated Financial Statements
ALPINE 4 TECHNOLOGIES, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
| | Years Ended December 31, | |
| | 2018 | | | 2017 | |
| | | | | | |
OPERATING ACTIVITIES: | | | | | | |
Net loss | | $ | (7,908,017 | ) | | $ | (2,997,420 | ) |
Adjustments to reconcile net loss to net cash used in operating activities: | | | | | | | | |
Depreciation | | | 871,847 | | | | 671,423 | |
Amortization | | | 75,412 | | | | 92,080 | |
Gain on extinguishment of debt | | | (136,300 | ) | | | | |
Loss on disposal of fixed assets | | | 536,772 | | | | 18,841 | |
Change in value of derivative liabilities | | | (604,219 | ) | | | 126,054 | |
Employee stock compensation | | | 71,223 | | | | 87,136 | |
Stock issued for services | | | 176,800 | | | | 62,084 | |
Amortization of debt issuance | | | 213,354 | | | | 50,500 | |
Amortization of debt discounts | | | 1,428,954 | | | | 89,292 | |
Impairment of assets | | | 1,764,382 | | | | - | |
Change in current assets and liabilities: | | | | | | | | |
Accounts receivable | | | 398,371 | | | | (506,436 | ) |
Inventory | | | (348,194 | ) | | | (282,432 | ) |
Capitalized contracts costs | | | 37,300 | | | | | |
Prepaid expenses and other assets | | | 159,927 | | | | (120,379 | ) |
Accounts payable | | | 1,441,304 | | | | 546,825 | |
Accrued expenses | | | 929,323 | | | | 723,733 | |
Income tax payable | | | | | | | (20,123 | ) |
Deferred tax | | | (43,399 | ) | | | (105,450 | ) |
Deferred revenue | | | (319,410 | ) | | | 52,425 | |
Net cash used in operating activities | | | (1,254,570 | ) | | | (1,511,847 | ) |
| | | | | | | | |
INVESTING ACTIVITIES: | | | | | | | | |
Capital expenditures | | | (271,516 | ) | | | (192,805 | ) |
Proceeds from insurance claim on automobiles and trucks | | | - | | | | 237,732 | |
Proceeds from the sale of fixed assets | | | 318,879 | | | | - | |
Acquisition, net of cash acquired | | | (1,976,750 | ) | | | (1,937,616 | ) |
Net cash used in investing activities | | | (1,929,387 | ) | | | (1,892,689 | ) |
| | | | | | | | |
| | | | | | | | |
FINANCING ACTIVITIES: | | | | | | | | |
Proceeds from issuances of notes payable, related party | | | 145,000 | | | | 105,500 | |
Proceeds from issuances of notes payable, non-related party | | | 924,750 | | | | 1,952,390 | |
Proceeds from issuances of convertible notes payable | | | 2,355,950 | | | | 785,500 | |
Proceeds from sale of common stock | | | - | | | | 40,000 | |
Proceeds from sale leaseback transaction | | | 1,900,000 | | | | - | |
Repayments of notes payable, related party | | | (56,500 | ) | | | (223,500 | ) |
Repayments of notes payable, non-related party | | | (741,079 | ) | | | (247,084 | ) |
Repayments of convertible notes payable | | | (1,417,133 | ) | | | (219,721 | ) |
Proceeds from line of credit, net | | | 327,325 | | | | 709,201 | |
Cash paid on financing lease obligations | | | (175,663 | ) | | | (1,691 | ) |
| | | | | | | | |
Net cash provided by financing activities | | | 3,262,650 | | | | 2,900,595 | |
| | | | | | | | |
NET INCREASE (DECREASE) IN CASH AND RESTRICTED CASH | | | 78,693 | | | | (503,941 | ) |
| | | | | | | | |
CASH AND RESTRICTED CASH, BEGINNING BALANCE | | | 335,823 | | | | 839,764 | |
| | | | | | | | |
CASH AND RESTRICTED CASH, ENDING BALANCE | | $ | 414,516 | | | $ | 335,823 | |
| | | | | | | | |
CASH PAID FOR: | | | | | | | | |
Interest | | $ | 1,162,149 | | | $ | 1,219,080 | |
Income taxes | | $ | - | | | $ | 2,167 | |
| | | | | | | | |
SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING ACTIVITIES: | | | | | |
Common stock issued for convertible note payable and accrued interest | | $ | 54,187 | | | $ | 99,573 | |
Common stock issued for convertible note discount | | $ | 11,917 | | | $ | 16,500 | |
Issuance of convertible note for acquisition | | $ | 450,000 | | | $ | 1,500,000 | |
Issuance of note payable for acquisition | | $ | 1,950,000 | | | $ | 300,000 | |
Issuance of warrants for acquisition | | $ | - | | | $ | 40,941 | |
Issuance of redeemable common stock for acquisition | | $ | - | | | $ | 1,439,725 | |
Debt discount from convertible note payable | | $ | - | | | $ | 30,000 | |
Debt discount due to derivative liabilities | | $ | 2,282,970 | | | $ | 115,000 | |
Reclassification of warrants embedded conversion option as derivative liability | | $ | - | | | $ | 252,633 | |
Notes payable and redeemable common stock restructuring | | $ | 3,197,538 | | | $ | - | |
Capital leases | | $ | 247,000 | | | $ | - | |
Proceeds from sale of assets offset directly against debt | | $ | 1,141,588 | | | $ | - | |
Release of derivative liability | | $ | 58,018 | | | $ | - | |
The accompanying notes are an integralAs more fully discussed in the Form 10-K/A filed on March 17, 2023, the Company restated its consolidated financial statements as of December 31, 2021 and 2020, and for the years then ended to correct errors related to purchase accounting impacting income taxes related to the deferred tax liabilities for certain acquisitions the Company made in 2020 and 2021, the classification of the Series C and Series D preferred shares issued in connection with these acquisitions, errors in the valuation of certain assets acquired for one of the acquisitions in 2021, and errors in the recording of forgiveness of PPP loans that were assumed as part of these consolidated financial statements.certain acquisitions in 2020 and 2021.
ALPINE 4 TECHNOLOGIES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2018 and 2017
Note 11A – Organization and Basis of Presentation
The CompanyAlpine 4 Holdings, Inc. (together with its subsidiaries, the “Company,” “we,” or “our”), was incorporated under the laws of the State of Delaware on April 22, 2014. The Company was formed to serve as a vehicle to affect an asset acquisition, merger, exchange of capital stock, or other business combination with a domestic or foreign business. TheOn March 2, 2021, the Company is a technology holding company owning four companies (ALTIA, LLC;changed its name from Alpine 4 Technologies Ltd. to Alpine 4 Holdings, Inc.
Effective April 1, 2016, the Company purchased all of the outstanding capital stock of Quality Circuit Assembly, Inc. ("QCA", a California corporation (“QCA”); Venture West Energy Services.
Effective January 1, 2019, the Company purchased all of the outstanding capital stock of Morris Sheet Metal Corp., an Indiana corporation (“VWES”MSM”) (formerly Horizon Well Testing, LLC);, JTD Spiral, Inc. a wholly owned subsidiary of MSM, an Indiana corporation, Morris Enterprises LLC, an Indiana limited liability company and American Precision Fabricators,Morris Transportation LLC, an Indiana limited liability company (collectively “Morris” or “MSM”).
Effective November 6, 2019, the Company purchased all of the outstanding capital stock and units of Deluxe Sheet Metal, Inc., an ArkansasIndiana corporation, (“APF”and DSM Holding, LLC, an Indiana limited liability company, and purchased certain real estate from Lonewolf Enterprises, LLC, an Indiana limited liability company (collectively “Deluxe”).
Effective February 21, 2020, the Company purchased all of the outstanding units of Excel Fabrication, LLC., an Idaho limited liability company (“Excel”).
Effective December 15, 2020, the Company purchased the assets of Impossible Aerospace Corporation, a Delaware corporation (“IA”).
Effective February 8, 2021, the Company purchased the assets of Vayu (US), Inc., a Delaware corporation (“Vayu”).
On AprilMay 5, 2018,2021, the Company acquired all of the outstanding shares of stock of Thermal Dynamics, Inc., a Delaware corporation (“TDI”).
On May 10, 2021, the Company acquired all of the outstanding membership interests of KAI Enterprises, LLC, a Florida limited liability company, the sole asset of which was all of the outstanding membership interests of Alternative Laboratories, LLC, a Delaware limited liability company (“Alt Labs”).
On October 20, 2021, the Company acquired 100% of the outstanding shares of APF (see Note 9)Identified Technologies Corporation, a Delaware corporation (“Identified Technologies”).
On November 29, 2021, the Company, and a newly formed and wholly owned subsidiary of the Company named ALPP Acquisition Corporation 3, Inc. (“AC3”), entered into a merger agreement with ElecJet Corp., (“ElecJet”) and the three ElecJet shareholders. Pursuant to the agreement, AC3 merged with and into ElecJet with ElecJet being the surviving entity following the merger.
On December 9, 2021, the Company, and A4 Technologies, Inc., a wholly owned subsidiary of the Company (“A4 Technologies”), entered into a Membership Interest Purchase Agreement with DTI Services Limited Liability Company (doing business as RCA Commercial Electronics), (“DTI”), Direct Tech Sales LLC, (also having an assumed business name of RCA Commercial Electronics), (“Direct Tech”), PMI Group, LLC, (“PMI”), Continu.Us, LLC, (“Continu.Us”), Solas Ray, LLC, (“Solas”), and the individual owners of the interests of the various entities. DTI, Direct Tech, PMI, Continu.Us, and Solas were each referred to in the Membership Interest Purchase Agreement collectively as “RCA.” Pursuant to the MIPA, the Company acquired all of the outstanding membership interests of RCA.
In Q1 2022, the Company formed Global Autonomous Corporation (“GAC”) with several key employees and consultants. The Company owns 71.43% of the outstanding shares of stock of GAC, which has remained consistent throughout the year. There was no assignment of assets or other financial activity on the entity during the current year.
As of the date of this Report, the Company was a holding company owning, directly or indirectly, fourteen companies:
•A4 Corporate Services, LLC;
•ALTIA, LLC;
•Quality Circuit Assembly, Inc.;
•Morris Sheet Metal, Corp;
•JTD Spiral, Inc.;
•Excel Construction Services, LLC;
•SPECTRUMebos, Inc.;
•Vayu (US)
•Thermal Dynamics International, Inc.;
•Alternative Laboratories, LLC.;
•Identified Technologies, Corp.;
•ElecJet Corp.;
•DTI Services Limited Liability Company (doing business as RCA Commercial Electronics); and
•Global Autonomous Corporation,
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 generally accepted accounting principles in the United States (“U.S. GAAP.GAAP”).
Liquidity
The Company’s financial statements are prepared in accordance with U.S. GAAP applicable to a going concern, which contemplates realization of assets and the satisfaction of liabilities in the normal course of business within one year after the date the consolidated financial statements are issued.
In accordance with Financial Accounting Standards Board (the “FASB”), Accounting Standards Update (“ASU”) No. 2014-15, Presentation of Financial Statements - Going Concern (Subtopic 205-40), our management evaluates whether there are conditions or events, considered in aggregate, that raise substantial doubt about our
ability to continue as a going concern within one year after the date that the financial statements are issued (further detail in the going concern sub-section below).
As shown in the accompanying consolidated financial statements, the Company has incurred significant recurring losses and negative cash flows from operations. These factors raise substantial doubt about the Company’s ability to continue as a going concern. While the Company experienced a loss for the year ended December 31, 2022, of $12.9 million, and had a negative cash flow used in operations of $19.6 million, this was an improvement over the same period last year, for the year ended December 31, 2021, when there was a net loss of $19.5 million had a negative cash flow used in operations of $25.4 million.
As of December 31, 2022, the Company has positive working capital of approximately $15.6 million. The Company has also secured bank financing totaling $33.0 million ($33.0 million in Lines of Credit including $0.5 million in capital expenditures lines of credit availability) of which $3.8 million was available and unused at December 31, 2022. There are two lines of credit that are set to mature during 2023. These two line of credits total $8.0 million, of which $7.5 million was used as of December 31, 2022, and are shown as a current liability on the consolidated balance sheet.
The Company plans to continue to generate additional revenue (and improve cash flows from operations) partly from the acquisitions of the six operating companies, which closed in 2021, combined with improved gross profit performance from the existing operating companies. The Company also plans to continue to raise funds through debt financing and the sale of shares through its planned at-the-market offering.
Going Concern
The accompanying financial statements have been prepared on a going concern basis. While the working capital deficiency of prior years has improved, and working capital of the Company is currently positive, continued operating losses causes doubt as to the ability of the Company to continue. 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 profitable operations are necessary for the Company to continue. The uncertainty that exists with these factors raises substantial doubt about the Company's ability to continue as a going concern. The financial statements of the Company do not include any adjustments that may result from the outcome of these aforementioned uncertainties.
In order to mitigate the risk related to the going concern uncertainty, the Company has a three-fold plan to resolve these risks. First, the operating subsidiaries of QCA, TDI, IDT and RCA plan to expand their revenues and profits yielding increased cash flow in those operating segments. This plan will allow for an increased level of cash flow to the Company. Second, the Company has expanded its credit facilities at the subsidiary level over the past 12 months to allow for greater borrowing accessibility if needed for the expansion of product lines and sales opportunities and plans to extend or refinance any lines of credit coming due over the next 12 months in order to provide additional financing. Finally, operating companies hard hit by the supply-chain related price increases such as MSM, Alt Labs, and Excel Construction have begun to experience an easing in the procurement and cost overruns of limited product supply. This subsequently has added to increased cash flow to those entities and less reliance on the Company to fund those activities. Although this plan is in place to mitigate the risk related to the going concern uncertainty, substantial doubt remains due to uncertainty around the growth projections and lack of control of many of the factors included in the Company’s plan.
Note 2 - Summary of Significant Accounting Policies
Principles of consolidation
The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries as of December 31, 20182022 and 2017.2021. Significant intercompany balances and transactions have been eliminated.
Use of estimates
The preparation ofconsolidated financial statements are prepared in conformityaccordance with generally accepted accounting principles in the United States, or U.S. GAAPGAAP. Preparation of these financial statements requires the Companyus to make estimates and judgmentsassumptions that affect the reported amounts of assets, and liabilities, revenuesrevenue, costs and expenses and related disclosures of contingent assets and liabilities. Thesedisclosures. The Company bases its estimates and judgments are based on historical information, information that is currently available to the Companyexperience and on various other assumptions that the Companyit believes to be reasonable underreasonable. In many instances, the circumstances.Company could have reasonably used different accounting estimates and in other instances changes in the accounting estimates are reasonably likely to occur from period to period. This applies in particular to useful lives of long-lived assets, reserves for accounts receivable and inventory, valuation allowance for deferred tax assets, fair values assigned to intangible assets acquired, and impairment of long-lived assets. Actual results could differ significantly from thoseour estimates. To the extent that there are material differences between these estimates and actual results, the Company’s future financial statement presentation, financial condition, results of operations and cash flows will be affected.
Reclassification
Certain prior year amounts have been reclassified to conform to the current period presentation. These reclassifications had no impact on net earnings and financial position.
Advertising
Advertising costs are expensed when incurred. All advertising takes place at the time of expense. We have no long-term contracts for advertising. Advertising expense for all periods presented were not significant.
Cash
Cash and cash equivalents consist of cash and short-term investments with original maturities of less than 90 days. As of December 31, 20182022, and 2017,2021, the Company had no cash equivalents.
The FDIC insures up to $250,000 per account with any excess amount in each account being uninsured. Total bank balances were approximately $3.2 million and $3.5 million, respectively as of December 31, 2022 and December 31, 2021. Of this amount, approximately $2.0 million and $2.0 million, respectively, were uninsured. All uninsured amounts are held with J.P. Morgan Chase.
The following table provides a reconciliation of cash and restricted cash reported within the accompanying consolidated balance sheets that sum to the total of the same such amounts shown in the consolidated statements of cash flows.
| December 31, | | December 31, | |
| 2018 | | 2017 | |
Cash | | $ | 207,205 | | | $ | 128,512 | |
Restricted cash included in other non-current assets | | | 207,311 | | | | 207,311 | |
Total cash and restricted cash shown in consolidated statements of cash flows | | $ | 414,516 | | | $ | 335,823 | |
Major Customers
The Company had twono customers that made up 29% and 27%, respectively,over 10% of accounts receivable as of December 31, 2018. The Company had two customers that made up 41%2022, and 13%, respectively, of accounts receivable as of December 31, 2017.
2021.
For the yearsyear ended December 31, 2018, the Company had two customer that made up 29% and 13% of total revenues. For the years ended December 31, 2017,2022, the Company had one customer that made up approximately 36%14% of total revenues.Company revenues within the A4 Technology - RCA segment. This customer had an accounts receivable balance of $1.2 million as December 31, 2022. For the year ended December 31, 2021, the Company had two customers that each made up 11% of total Company revenues with the A4 Manufacturing - QCA segment and A4 Manufacturing - Alt Labs segment. The customer within A4 Manufacturing - QCA segment had an accounts receivable balance of $1.0 million as of December 31, 2021. The customer within A4 Manufacturing - Alt Labs segment had an accounts receivable balance of $0, as of December 31, 2021, as the account receivable related to this customer was written off as bad debt expense noted in the section below.
For the year ended December 31, 2022, the Company had 9% of total revenues made up of government contracts.
Major Vendors
For the year ended December 31, 2022, there was one vendor that made up 14% of total Company purchases within the A4 Technology - RCA segment.. For the year ended December 31, 2021, there were no vendors that made up at least 10% of total purchases within the Company.
Accounts Receivable,
net
The Company maintains reserves for potential credit losses on accounts receivable. Management reviews the composition of accounts receivable and analyzes historical bad debts, customer concentrations, customer credit worthiness, current economic trends and changes in customer payment patterns to evaluate the adequacy of these
reserves. Reserves are recorded primarily on a specific identification basis. As of December 31, 20182022 and 2017,2021, allowance for bad debt was $0$52,531 and $0,$199,936, respectively.
Inventory
During the years ended December 31, 2022 and 2021, the Company wrote off $202,761 and $3,028,757, respectively to bad debts expense.
Inventory
Inventory for all subsidiaries is valued at the lower of the inventory's cost (weighted average basis) or net realizable value.weighted average. 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 fourthree areas, raw materials, WIP,work-in-process and finished goods, and In-Transit. Below is a breakdown of how much inventory was in each areagoods. Inventory as of December 31, 20182022 and 2017:2021 consisted of:
| | 2018 | | | 2017 | |
Raw materials | | $ | 676,621 | | | $ | 577,259 | |
WIP | | | - | | | | 440,586 | |
Finished goods | | | 1,499,174 | | | | 161,310 | |
In Transit | | | - | | | | 33,391 | |
| | $ | 2,175,795 | | | $ | 1,212,546 | |
| | | | | | | | | | | |
| December 31, 2022 | | December 31, 2021 |
Raw materials | $ | 9,116,824 | | | $ | 8,253,104 | |
Work in process | 3,165,876 | | | 2,480,979 | |
Finished goods | 12,975,669 | | | 13,685,571 | |
| | | |
| | | |
Inventory | $ | 25,258,369 | | | $ | 24,419,654 | |
Property and Equipment,
net
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 tenfive years to 39 years as follows:
| | | | | |
Automobiles & Trucksand trucks | 105 to 207 years |
BuildingsMachinery and equipment | 3910 years |
Leasehold ImprovementsOffice furniture and fixtures | 155 years or time remaining on lease (whichever is shorter) |
EquipmentBuildings and improvements | 1039 years |
Maintenance and repair costs are charged against incomeexpensed 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 December 31, 20182022 and 2017:2021:
| | | | | | | | | | | |
| December 31, 2022 | | December 31, 2021 |
Automobiles and trucks | $ | 1,056,551 | | | $ | 1,251,187 | |
Machinery and equipment | 9,864,846 | | | 8,876,402 | |
Office furniture and fixtures | 186,464 | | | 167,581 | |
Buildings and improvements | 16,696,926 | | | 23,630,250 | |
Total Property and equipment | 27,804,787 | | | 33,925,420 | |
Less: Accumulated depreciation | (8,301,302) | | | (5,823,949) | |
Property and equipment, net | $ | 19,503,485 | | | $ | 28,101,471 | |
| | 2018 | | | 2017 | |
Automobiles and trucks | | $ | 155,179 | | | $ | - | |
Machinery and equipment | | | 2,548,855 | | | | 1,276,779 | |
Office furniture and fixtures | | | 109,619 | | | | 7,056 | |
Building | | | 5,795,000 | | | | 3,895,000 | |
Leasehold improvements | | | 261,608 | | | | 261,608 | |
Less: Accumulated depreciation | | | (879,705 | ) | | | (416,685 | ) |
| | $ | 7,990,556 | | | $ | 5,023,758 | |
Included in Buildings and improvements in the above table are two buildings of $9,000,000 and $2,000,000 related to sale leaseback transactions. (See Note 3)
The Company recorded depreciation expense of $3,026,483 and $2,396,966 in 2022 and 2021, respectively.
Purchased Intangibles and Other Long-Lived Assets, net
The Company amortizes intangible assets with finite lives over their estimated useful lives, which range between fiveone and fifteenseventeen years as follows:
Customer List | 15 | | | | |
Software | 5 years |
Non-compete agreements | 1-15 years |
Non-compete agreementsCustomer list | 153-16 years |
Software developmentPatents, trademarks, and licenses | 53-17 years |
Proprietary technology | 15 years |
Intangible assets consisted of the following as of December 31, 20182022 and 2017:2021:
| | 2018 | | | 2017 | |
Software | | $ | 278,474 | | | $ | 278,474 | |
Noncompete | | | 100,000 | | | | 100,000 | |
Customer lists | | | 531,187 | | | | 531,187 | |
Less: Accumulated amortization | | | (232,451 | ) | | | (157,039 | ) |
| | $ | 677,210 | | | $ | 752,622 | |
| | | | | | | | | | | | | | | | | | | | |
Cost | | Weighted Average Amortization Period | | December 31, 2022 | | December 31, 2021 |
Software | | 2.0 years | | $ | 128,474 | | | $ | 128,474 | |
Non-compete agreement | | 6.3 years | | 1,426,276 | | | 1,378,772 | |
Customer list | | 11.9 years | | 13,011,187 | | | 13,011,187 | |
Patents, trademarks, and licenses | | 13.9 years | | 7,127,408 | | | 7,174,912 | |
Proprietary technology | | 13.5 years | | 19,866,743 | | | 19,616,743 | |
| | 12.9 years | | 41,560,088 | | | 41,310,088 | |
| | | | | | |
Accumulated amortization | | | | | | |
Software | | | | $ | (77,084) | | | $ | (64,757) | |
Non-compete agreement | | | | (478,510) | | | (210,465) | |
Customer list | | | | (1,711,327) | | | (1,112,797) | |
Patents, trademarks, and licenses | | | | (962,258) | | | (8,444) | |
Proprietary technology | | | | (2,048,300) | | | (732,961) | |
| | | | (5,277,479) | | | (2,129,424) | |
Intangibles assets, net | | | | $ | 36,282,609 | | | $ | 39,180,664 | |
Expected amortization expense of intangible assets over the next 5 years and thereafter is as follows.follows:
Year Ending December 31, | | | |
2019 | | | 79,960 | |
2020 | | | 79,960 | |
2021 | | | 79,960 | |
2022 | | | 46,361 | |
2023 | | | 46,361 | |
Thereafter | | | 344,608 | |
Total | | | 677,210 | |
| | | | | | | | |
Years Ending December 31, | | |
2023 | | $ | 3,152,048 | |
2024 | | 3,152,048 | |
2025 | | 2,919,686 | |
2026 | | 2,900,686 | |
2027 | | 2,762,686 | |
Thereafter | | 21,395,455 | |
Total | | $ | 36,282,609 | |
The Company recorded amortization expense of $3,148,055 and $1,757,393 in 2022 and 2021, respectively.
Other Long-Term Assets
Other long-term assets consisted of the following as of December 31, 20182022 and 2017:2021:
| | 2018 | | | 2017 | |
Restricted Cash | | $ | 207,311 | | | $ | 207,311 | |
Deposits | | | 50,927 | | | | 50,927 | |
Other | | | 32,000 | | | | - | |
| | $ | 290,238 | | | $ | 258,238 | |
| | | | | | | | | | | |
| December 31, 2022 | | December 31, 2021 |
Deposits | $ | 578,545 | | | $ | 149,517 | |
Other | 1,277,060 | | | 207,601 | |
| $ | 1,855,605 | | | $ | 357,118 | |
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,the third quarter of 2022, there have been no impairment losses, exceptwas a triggering event related to the customer list for Alt Labs which required an analysis to be performed. This analysis was performed in conjunction with a third-party valuation expert. As a result of the analysis, it was determined that the value of the estimated future cash flows were greater than the carrying value of the reporting unit's assets. No impairment loss of $1,596,537 forwas recognized during the year ended December 31, 2018 related2022.
During the year ended December 31, 2021, due to the discontinued operation.significant impact of COVID-19, the Company determined that the customer list for Excel was impaired and took a charge to earnings of $359,890.
Goodwill
Goodwill
In financial reporting, goodwill is not amortized, but is tested for impairment annually or whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Events that result in an impairment review include significant changes in the business climate, declines in our operating results, or an expectation that the carrying amount may not be recoverable. We assess potential impairment by considering present economic conditions as well as future expectations. All assessments of goodwill impairment are conducted at the individual reporting unit level. As of December 31, 20182022 and 2017,2021, the reporting units with goodwill were QCA, Morris, Alt Labs, TDI, Identified Technology, ElecJet, and APF.RCA.
The Company used qualitative factors according to ASC 350-20-35-3 to determine whether it is more likely than not that the fair value of goodwill is less than its carrying amount. Based on the qualitative criteria the company believes there not to be any triggers for potential impairment of goodwill and therefore the Company has recorded no impairment of goodwill in any period presented, except to the impairment of goodwill of $167,845 forDuring the year ended December 31, 2018 related2021, the Company determined that the goodwill for Excel was impaired and took a charge to earnings of $7,629. During the discontinued operation.
2022 fourth quarter, we conducted our annual goodwill impairment test and no impairment charges were recorded. The estimated fair values of all our reporting units exceeded their carrying amounts. Based on the analysis, the ElecJet reporting unit is considered an at-risk reporting unit. Our methods and assumptions were consistent with those discussed below in the Fair Value Measurement subsection. This reporting unit is primarily considered at-risk as it is a start-up subsidiary with minimal to no revenue to offset its research & development expenses. The DCF model includes revenue growth assumptions of us executing large new customer and/or supplier agreements within the next two years and then steadily increasing revenue at a more normalized rate thereafter. If we fail to execute these customer and/or supplier arrangements, this would negatively impact the key growth assumptions.
Leases
The Company accounts for its leases under ASC 842, Leases (“ASC 842”). Under this guidance, arrangements meeting the definition of a lease are classified as operating or financing leases, and are recorded on the consolidated balance sheet as both a right of use asset and lease liability, calculated by discounting fixed lease payments over the lease term at the rate implicit in the lease or the Company’s incremental borrowing rate. Lease liabilities are increased by interest and reduced by payments each period, and the right of use asset is amortized over the lease
term. For operating leases, interest on the lease liability and the amortization of the right of use asset result in straight-line rent expense over the lease term. The Company excludes short-term leases having initial terms of 12 months or less as an accounting policy election and recognizes rent expense on a straight-line basis over the lease term.
Fair Value Measurement
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.
We apply the provisions of fair value measurement to various nonrecurring measurements for our financial and nonfinancial assets and liabilities. The Company's financial instruments consist of cash and cash equivalents, accounts receivable, accounts payable, accrued expenses, convertible notes, notes payable and linelines of credit. The carrying amount of these financial instruments approximates fair value due either to length of maturity or interest rates that approximate prevailing market rates unless otherwise disclosed in these financial statements. For additional information, please see Note 11 – Derivative Liabilities and Fair Value Measurements.
Redeemable Common Stock
As discussed in Note 9 below, 379,403 sharesWe calculate the estimated fair value of a reporting unit using a combination of the Company's Class A common stockincome and market approaches. For the income approach, we use a discounted cash flow models developed in connection with our third-party valuation specialists that include the following assumptions, among others: projections of revenues, expenses, and related cash flows based on assumed long-term growth rates; and estimated discount rates. For the market approach, we use analyses based primarily on market comparables. We base these assumptions on historical data and experience, industry projections, and general economic conditions.
The carrying value of long-term debt approximates fair value since the related rates of interest approximate current market rates. As of December 31, 2022 and 2021, the Company had no financial assets or liabilities that were issuedrequired to be fair valued on a recurring basis as considerationall of our financial assets and liabilities were Level 1.
Equity Investments
The Company’s equity investments consisted of investment in one private company in which the Company does not have the ability to exercise significant influence over their operating and financial activities. This investment is carried at cost as there is no market for the VWES acquisition containmembership units, accordingly, no quoted market price is available. The investment is tested for impairment, at least annually, and more frequently upon the occurrences of certain events. As of December 31, 2021, in accordance with the ASC 321 guidelines, the Company recognized a redemption feature which allowsloss on impairment for the redemptionentire value of common stock at the option$1,350,000. The current book value for this investment as of the holder. In accordance with ASC 480, redemption provisions not solely within the control of the Company require the security to be classified outside of permanent equity. Accordingly, at December 31, 2017, 379,403 shares2022 is $0.
Research and Development
The Company focuses on quality control and development of Class A common stock were classified outsidenew products and the improvement of permanent equity at its redemption value.existing products. All costs related to research and development activities are expensed as incurred. During the yearyears ended December 31, 2018, the shares were redeemed2022 and classified as permanent equity.2021, research and development cost totaled $876,542 and $1,464,918, respectively.
Revenue Recognition
On January 1, 2018, theThe 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 presentedrecognizes revenue under ASC Topic 606, while priorRevenue from contract with Customers ("Topic 606"). The following is a summary of the revenue recognition policy for each of the Company’s subsidiaries.
Revenue is recognized under Topic 606, at a point in time and over a period amounts are not adjustedof time, in a manner that reasonably reflects the delivery of its services and continueproducts to be reportedcustomers in accordancereturn for expected consideration and includes the following elements:
•executed contracts with the historic accounting under ASC Topic 605.Company’s customers that it believes are legally enforceable;
•identification of performance obligations in the respective contract;
The Company recorded a net increase•determination of the transaction price for each performance obligation in the respective contract;
•allocation the transaction price 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 each performance obligation; and
•recognition of revenue and costs relating toonly when the sales ofCompany satisfies each performance obligation.
The Company’s subsidiaries are all located in North America, as well as the 6th Sense Auto service. Under the new revenue standard, sales ofcustomer base in which 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.is derived from. 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 amountQCA and recognizing the amounts over the monthly subscription period, ranging from 12 to 36 months.
QCAAlt Labs
QCA is a(Circuit boards and cables) and Alt Labs (Supplements) are contract manufacturermanufacturers and recognizesrecognize 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 toas 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, managementneeded, and have determined that the warranty and returns would be immaterial.immaterial for the periods presented.
ElecJet
APFElecJet is a contract manufacturer of electric components, and a research and development company for battery technology and recognizes revenue when the products have been built and control has been transferredshipped to the customer. If a deposit for a product or service is received prior to completion, the payment is recorded toas 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, managementneeded, and have determined that the warranty and returns would be immaterial.immaterial for the periods presented.
Identified Technologies
Identified Technologies provides 3D mapping drone software and data for industrial job sites and recognizes revenue when the service has been provided to the customer. If a deposit for a product or service is received prior to completion, the payment is recorded as 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, and have determined that the warranty and returns would be immaterial for the periods presented.
Direct Tech Sales (“RCA”)
RCA is engaged in the design, manufacture and wholesale distribution of electronics such as televisions, mounting solutions, projectors and screens, audio equipment, digital signage, mobile audio and video systems, and all wire and connecting products throughout the United States of America. RCA recognizes revenue when the products have been shipped to the customer which is also when title transfers. If a deposit for a product or service is received prior to completion, the payment is recorded as 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, and have determined that the warranty and returns would be immaterial for the periods presented.
MSM, Excel and TDI
For our construction contracts, revenue is generally recognized over time as our performance creates or enhances an asset that the customer controls as it is created or enhanced. Our fixed price construction projects generally use a cost-to-cost input method to measure our progress towards complete satisfaction of the performance obligation as we believe it best depicts the transfer of control to the customer which occurs as we incur costs on our contracts. Under the cost-to-cost measure of progress, the extent of progress towards completion is measured based on the ratio of costs incurred to date to the total estimated costs at completion of the performance obligation. For certain of our revenue streams, that are performed under time and materials contracts, our progress towards complete satisfaction of such performance obligations is measured using an output method as the customer receives and consumes the benefits of our performance completed to date. Due to uncertainties inherent in the estimation process, it is possible that estimates of costs to complete a performance obligation will be revised in the near-term. For those performance obligations for which revenue is recognized using a cost-to-cost input method, changes in total estimated costs, and related progress towards complete satisfaction of the performance obligation, are recognized on a cumulative catch-up basis in the period in which the revisions to the estimates are made. When the current estimate of total costs for a performance obligation indicate a loss, a provision for the entire estimated loss on the unsatisfied performance obligation is made in the period in which the loss becomes evident.
Contract Assets and Contract Liabilities
The timing of revenue recognition may differ from the timing of invoicing to customers. Contract assets include unbilled amounts from our construction projects when revenues recognized under the cost-to-cost measure of progress exceed the amounts invoiced to our customers, as the amounts cannot be billed under the terms of our contracts. Such amounts are recoverable from our customers based upon various measures of performance, including achievement of certain milestones, completion of specified units or completion of a contract. In addition, many of our time and materials arrangements, are billed pursuant to contract terms that are standard within the industry, resulting in contract assets being recorded, as revenue is recognized in advance of billings. Our contract assets do not include capitalized costs to obtain and fulfill a contract. Contract assets are generally classified as current within the consolidated balance sheets.
Contract liabilities from our construction contracts arise when amounts invoiced to our customers exceed revenues recognized under the cost-to-cost measure of progress. Contract liabilities additionally include advanced payments from our customers on certain contracts. Contract liabilities decrease as we recognize revenue from the satisfaction of the related performance obligation.
Contract Retentions
As of December 31, 2022 and 2021, accounts receivable included retainage billed under terms of our contracts. These retainage amounts represent amounts which have been contractually invoiced to customers where payments have been partially withheld pending the achievement of certain milestones, satisfaction of other contractual conditions or completion of the project. The Company has recorded a receivable for retainage of approximately $2.0 million and $1.6 million as of December 31, 2022, and 2021, respectively.
The following table presents our revenues disaggregated by type with the sales of goods recognized upon delivery and the sales of services recognized over the time of the contract as described above:
| | | | | | | | | | | |
| Year ended December 31, |
| 2022 | | 2021 |
Sale of goods | | | |
Circuit boards and cables | $ | 18,780,769 | | | $ | 15,700,902 | |
Supplements | 12,889,992 | | | 11,674,220 | |
Electronics | 41,191,146 | | | 1,543,469 | |
Total sale of goods | 72,861,907 | | | 28,918,591 | |
| | | |
Sale of services | | | |
Construction contracts | 30,098,249 | | | 22,462,399 | |
Drone 3D mapping | 1,602,846 | | | 259,823 | |
Total sale of services | 31,701,095 | | | 22,722,222 | |
Total revenues | $ | 104,563,002 | | | $ | 51,640,813 | |
Earnings (loss) per share
Basic earningsThe Company presents both basic and diluted net income (loss) per commonshare on the face of the consolidated statements of operations. Basic net income (loss) per share is computed by dividing net income (loss) available to common shareholders by the weighted-averageweighted average number of shares of common stock outstanding during the period. Diluted earnings per common share is computed by dividing income availablecalculations give effect to common shareholders by the weighted-average number ofall potentially dilutive shares of common stock outstanding during the period, increased to includeincluding stock options and warrants, using the numbertreasury-stock method. If antidilutive, the effect of additionalpotentially dilutive shares of common stock that would have been outstanding if potentially dilutive securities had been issued.is ignored. The amount of anti-dilutive shares related to stock options and warrants as of December 31, 2022 and 2021, were 21,664,165 and 7,317,778, respectively. The following table illustrates the computation of basic and diluted earnings per share (“EPS”) inclusive of all classes of common stock as the only potentially dilutive securities outstanding duringdifference between the periods presented were the convertible debentures, but theyclasses of common stock are anti-dilutive duerelated to the net loss incurred. voting rights (Note 6) for the years ended December 31, 2022 and 2021:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| For the Year Ended December 31, 2022 | | For the Year Ended December 31, 2021 |
| Net loss | | Shares | | Per Share Amount | | Net loss | | Shares | | Per Share Amount |
Basic EPS | | | | | | | | | | | |
Loss available to stockholders | $ | (12,875,313) | | | 190,779,052 | | | $ | (0.07) | | | $ | (19,483,138) | | | 164,216,808 | | | $ | (0.12) | |
Effect of Dilutive Securities | | | | | | | | | | | |
Stock options and warrants | — | | | — | | | — | | | — | | | — | | | — | |
Dilute EPS | | | | | | | | | | | |
Loss available to stockholders plus assumed conversions | $ | (12,875,313) | | | 190,779,052 | | | $ | (0.07) | | | $ | (19,483,138) | | | 164,216,808 | | | $ | (0.12) | |
Stock-based compensation
The Company accounts for equity instruments issuedfollows the guidelines in ASC 718-10 Compensation-Stock Compensation, which requires companies to measure the cost of employee and non-employee services received in exchange for an award of an equity instrument based on the receipt of goods or services from other than employees in accordance with ASC 718-10, Compensation – Stock Compensation, and the conclusions reached by ASC 505-50, Equity – Equity-Based Payments to Non-Employees. Costs are measured at the estimated fair market value of the consideration received or the estimatedgrant-date fair value of the equity instruments issued, whicheveraward. Stock-based compensation expense for stock options is more reliably measurable.recognized on a straight-line basis over the requisite service period. The Company may issue compensatory shares for services including, but not limited to, executives, management, accounting, operations, corporate communication, financial and administrative consulting services. The Company determines the grant date fair value of equity instruments issued for consideration other than employee services is determined on the earliest of a performance commitment is reached or completion of performance byoptions using the provider of goods or services as defined by ASC 505-50.Black-Scholes option-pricing model.
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 February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). The guidance in ASU No. 2016-02 supersedes the lease recognition requirements in ASC Topic 840, Leases (FAS 13). ASU 2016-02 requires an entity to recognize assets and liabilities arising from a lease for both financing and operating leases, along with additional qualitative and quantitative disclosures. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, with early adoption permitted. The Company does not expect the adoption of this ASU to have a material impact on its financial statements.
Other recent accounting pronouncements issued by the FASB, including its Emerging Issues Task Force, the American Institute of Certified Public Accountants, and the Securities and Exchange Commission did not or are not believed by management to have a material impact on the Company's present or future financial statements.
In June 2016, the FASB issued ASC 326, Financial Instruments - Credit Losses, which amends the impairment model by requiring entities to use a forward-looking approach, based on expected losses, to estimate credit losses on certain types of financial instruments, including trade receivables. The new standard is effective in the first quarter of fiscal 2023 and is expected to have an immaterial impact on the Company's financial statements. Note 3 – Going Concern
Leases
The accompanying financial statements have been prepared onCompany determines whether a going concern basis. The working capitalcontract 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 is currently negative and causes doubtuses the rate implicit in the lease to discount lease payments to present value; however, most of the ability forCompany’s leases do not provide a readily determinable implicit rate. Therefore, the Company to continue. The Company requires capital fordiscounts lease payments based on an estimate of its operational and marketing activities. The Company's ability to raise additional capital through the future issuances of common stock is unknown. The obtainment of additional financing, the successful development of the Company's plan of operations, and its ultimate transition to the attainment of profitable operations are necessary for the Company to continue operations. The ability to successfully resolve these factors raise substantial doubt about the Company's ability to continue as a going concern. The financial statements of the Company do not include any adjustments that may result from the outcome of these aforementioned uncertainties.incremental borrowing rate.
In order to mitigate the risk related with the going concern uncertainty, the Company has a three-fold plan to resolve these risks. First, the acquisitions of QCA, and APF have allowed for an increased level of cash flow to the Company. Second, the Company is considering other potential acquisition targets that, like QCA, should increase income and cash flow to the Company. Third, the Company plans to issue additional shares of common stock for cash and services during the next 12 months and has engaged professional service firms to provide advisory services in connection with that capital raise.
Note 4 – Leases
As of December 31, 2018,2022, the future minimum capitalfinance and operating lease and financing transaction payments net of amortization of debt issuance costs, wereare as follows:
Year Ending December 31, | | | |
2019 | | | 817,181 | |
2020 | | | 836,022 | |
2021 | | | 849,645 | |
2022 | | | 865,351 | |
2023 | | | 875,428 | |
Thereafter | | | 8,763,471 | |
Total | | | 13,007,098 | |
Less: Current capital leases and financing transaction | | | (105,458 | ) |
Less: imputed interest | | | (4,606,464 | ) |
Non-current capital leases and financing transaction | | $ | 8,295,176 | |
| | | | | | | | | | | | | | |
Years Ending December 31, | | Finance Leases | | Operating Leases |
2023 | | $ | 1,925,840 | | | $ | 2,287,038 | |
2024 | | 1,952,462 | | | 2,443,909 | |
2025 | | 1,880,402 | | | 1,960,387 | |
2026 | | 1,867,799 | | | 1,805,158 | |
2027 | | 1,910,388 | | | 1,770,300 | |
Thereafter | | 14,952,719 | | | 13,253,279 | |
Total payments | | 24,489,610 | | | 23,520,071 | |
Less: imputed interest | | (9,171,495) | | | (6,938,692) | |
Total obligation | | 15,318,115 | | | 16,581,379 | |
Less: current portion | | (725,302) | | | (1,318,885) | |
Non-current capital leases obligations | | $ | 14,592,813 | | | $ | 15,262,494 | |
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 termFinance Leases
As of the lease. The term of the lease has been extended through December 31, 2032 at a monthly rate of approximately $69,000. These payments are reflected2022, all finance leases in the table above.
On April 5, 2018,above were related to property and equipment, and are included as part of property and equipment, net on the Company acquired APF (see Note 9). In order to fund a portionconsolidated balance sheet. Depreciation expense associated with the finance leases within property and equipment was $1,251,817 and $1,244,059 for the years ended December 31, 2022 and 2021, respectively. Of this amount, $151,398 and $422,259 is recorded within Cost of Revenues with the acquisition price,remainder recorded in General & Administrative expenses on the Company simultaneously entered into a sale leaseback transaction with a third-party lender wherebyConsolidated Statements of Operations for the building acquired from APF was sold for $1,900,000,years ended December 31, 2022 and leased back2021. Interest expense related to the companyfinance leases for a periodthe years ended December 31, 2022 and 2021 was $1,255,231 and $1,301,842, respectively, and is recorded within Interest Expense on the Consolidated Statement of 15Operations. At December 31, 2022, the weighted average remaining lease terms were 11.95 years, at a monthly rate of $15,833, subject to an annual increase of 2% throughout the term of the lease. The Company had no gain or loss resulting from the sale of the property, and the resulting lease qualifies as a capital lease. As a result, the Company has capitalized the cost of the building and the resulting capital lease obligation liability of $1,900,000. The resulting capital lease obligation liability of $1,763,903 as of December 31, 2018 is reflected in financing lease obligation in the accompanying consolidated balance sheets. The payments related to this lease are reflected in the table above.weighted average discount rate was 8.01%.
Operating Leases
The table below presents the operating lease related assets and liabilities recorded on the Company’s consolidated balance sheet:
| | | | | | | | | | | | | | | | | |
| Classification on Balance Sheet | | December 31, 2022 | | December 31, 2021 |
Assets | | | | | |
Operating lease assets | Operating lease right of use assets | | $ | 16,407,566 | | | $ | 1,460,206 | |
Total lease assets | | | $ | 16,407,566 | | | $ | 1,460,206 | |
| | | | | |
Liabilities | | | | | |
Current liabilities | | | | | |
Operating lease liability | Current operating lease liability | | $ | 1,318,885 | | | $ | 428,596 | |
Noncurrent liabilities | | | | | |
Operating lease liability | Long-term operating lease liability | | 15,262,494 | | | 1,066,562 | |
Total lease liability | | | $ | 16,581,379 | | | $ | 1,495,158 | |
On May 3, 2021, the Company entered into a lease agreement for the building on 4740 Cleveland in Ft. Myers, Florida. The lease had a term of 72 months with monthly payments ranging from $40,833 to $49,583 from May 2021 to July 2021 and $58,333 from August 2021 through the end of the term. The Company has twodetermined the lease to be an operating lease and recognized a right-of-use asset and operating lease liability of $3,689,634 based on the
present value of the minimum lease payments discounted using an incremental borrowing rate of 3.96%. This lease was terminated on August 27, 2021, when the Company purchased the building.
In December 2021, the Company acquired RCA. As part of this purchase the Company entered into a lease agreement for office and warehouse space under a non-cancellable operating leases aslease. The lease has a term of December89 months with monthly payments ranging from $31,350 to $35,207. The Company determined the lease to be an operating lease and recognized a right-of-use asset of $1,196,764 and operating lease liability of $1,226,128 based on the present value of the minimum lease payments discounted using an incremental borrowing rate of 4%.
On June 23, 2022, the Company entered into a sale lease back agreement for the building on 4740 Cleveland in Ft. Myers, Florida. The lease had a term of 180 months with monthly payments ranging from $67,708 to $89,306. The Company determined the lease to be an operating lease and recognized a right-of-use asset and an operating lease liability of $8,725,000 based on the present value of the minimum lease payments discounted using an incremental borrowing rate of 7.00%.
On June 26, 2022, the Company amended its lease effective July 1, 2022 for the warehouse in Ann Arbor, Michigan for an additional 12,800 sq ft through July 31, 20182025, with total monthly lease payments ranging from $16,000 to $16,800. As a result of this amendment, the Company remeasured the right of use asset and liability and recorded an additional $543,595 in right of use asset on the date of the modification based on the present value of the minimum lease payment discounted using an incremental borrowing rate of 5.13%.
On June 13, 2022, the Company entered into a lease effective October 1, 2022 for its locationsa building in San Jose, California. ApproximateCalifornia through March 1, 2033, with total monthly rent obligations for these locations amountlease payments ranging from $49,156 to $21,500 and $5,000 respectively.$66,062. The Company also hasdetermined the lease to be an office it leasesoperating lease and recognized a right-of-use asset of and operating lease liability of $5,506,357 based on the present value of the minimum lease payments discounted using an incremental borrowing rate of 4%.
On September 9, 2022, the Company amended its lease effective as of October 1, 2022 for the warehouse in Phoenix, ArizonaFt. Myers, Florida through September 30, 2027, with total monthly lease payments ranging from $21,637 to $23,682. As a result of this amendment, the Company remeasured the right of use asset and liability and recorded an additional $1,179,091 in right of use asset on a month-to-month basis.
the date of the modification based on the present value of the minimum lease payment discounted using an incremental borrowing rate of 6.25%.
The five-year minimum rent payments for each location are as follows:
Year Ending December 31, | | | |
2019 | | $ | 274,118 | |
2020 | | | 282,342 | |
2021 | | | 290,812 | |
Thereafter | | | - | |
Total | | $ | 847,272 | |
Rentoperating lease expense for the years ended December 31, 20182022 and 2017 amounted to $447,5952021 was $1,006,683 and $468,673,$386,056, respectively.
Note 5 – Notes Payable
In May 2018, APF also secured a line Of this amount, $329,938 and $0 is recorded in Cost of credit with Crestmark, providingRevenues on the Consolidated Statements of Operations for borrowings up to $1,000,000 at a variable interest rate, collateralized by APF’s outstanding accounts receivable.
As of December 31, 2017, the Company had an outstanding term loan with a 30% interest rate of $10,000 which was repaid during the year ended December 31, 2018. During the years ended December 31, 2018,2022 and 2021, respectively. The remaining $676,745 and $386,056 is recorded within General & Administrative expenses on the Company borrowed an aggregate totalConsolidated Statements of $149,000 in additional short-term notes payable bearing interest at 15% per annum with maturity datesOperations for the years ended December 31, 2022 and 2021, respectively. The cash paid under operating leases during the years ended December 31, 2022 and 2021 was $1,087,951 and $402,688, respectively. As of three months fromDecember 31, 2022, the date of issuance.weighted average remaining lease terms were 11.83 years and the weighted average discount rate was 6%.
Note 4 – Debt
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. The Company is not current on its payments on the note. In August 2020, the company filed a lawsuit against Alan Martin regarding his note payable. The balance as of December 31, 2022, and 2021, was $2,857,500, and accrued interest of $1,710,577 and $1,170,861, respectively, which are reflective in the current liabilities. The default rate is 10% and the daily late charge is $575. (See a description of the Company’s ongoing legal proceedings relating to this transaction in Note 11, Commitments and Contingencies, below.)
On April 5, 2018,In connection with the Morris acquisition in January 2019, the Company issued twothree subordinated secured promissory notes in thefor an aggregate principal amount of $1,950,000 (“Secured APF Notes”) as part of the consideration$3,100,000. The notes bear interest at 4.25% per annum, require monthly payment for the purchasefirst 35 months of APF (see Note 9).$31,755 with any remaining principal and accrued interest due on the 3 year-
anniversary. The Secured APF Notes are secured by the equipment, customer accounts and intellectual propertyCompany also issued three supplemental notes payable for an aggregate of the Company, and all of the products and proceeds from any of the assets of APF.$350,000. The Secured APF Notesnotes bear interest at 4.25% per annum and are due on the 1-year anniversary. In May 2020, the Company amended the three supplemental notes of $116,667 each with the sellers of Morris. The notes were due January 1, 2020. Each of the new notes as of the date of amendment had accrued interest of $2,703. This was added to the note resulting in the principal amount of each of the new notes equaling to $119,370. The amendment required an initial payment of $30,000 for each note, which was made on May 23, 2020, and 8 monthly installments of $10,000 with one final payment of $13,882 through January 2021. The amended notes have aggregatean interest rate of 6%. As of December 31, 2022, the outstanding balance on these notes and supplemental notes were paid in full.
In connection with the Deluxe acquisition in November 2019, the Company issued two subordinated secured promissory notes to the seller. The first note for $1,900,000 bears interest at 4.25% per annum, require monthly payments of $19,975payment for the first 2335 months of $19,463 with a balloon payment due in April 2020 for theany remaining principal and accrued interest outstanding.
On Maydue on the 3 2018,year-anniversary. The second note for $496,343 bears interest at 8.75% and is due in January 2020. In January 2020, the Company entered into a debt conversion agreement with the seller, which fully settled the second note. On April 8, 2021, the Company entered into a settlement agreement with the seller wherein the outstanding balance on the first note amounting to $1,883,418 including accrued interest and net other costs was settled in full through a payment of approximately $887,000 and the exchange of 1,617,067 shares of the Company’s Class C common shares held by the seller for the same number of shares of the Company’s Class A common stock. The Company recognized a gain on extinguishment of debt totaling $803,079 during the year ended December 31, 2021, as a result of the settlement of the note.
In connection with the Excel acquisition in February 2020, the Company issued a subordinated secured promissory note to the seller. The note for $2,300,000 bears interest at 4.25% per annum, requires monthly interest only payments for 48 months and is due February 2024. The ending balance for this loan as of December 31, 2022 and 2021, was $2,062,318. (See a description of the Company’s ongoing legal proceedings relating to this transaction in Note 11, Commitments and Contingencies, below.)
In October 2019, Morris entered into an equipment finance note for $107,997 with an interest rate of 9.4% for 48 monthly payments with Bryn Mawr Equipment Finance Inc. The outstanding balance on this note as of December 31, 2022 and 2021, was $23,405 and $52,504, respectively.
In connection with the RCA acquisition in December 2021, the Company issued two subordinated secured promissory notes for an aggregate of $2,000,000. The notes are amortized over 10 years, bear interest at 3.75% per annum and require monthly payment of at least $19,590. After three years, the unpaid principal amount on the notes will be immediately due.
In April and May 2020, the Company received seven loans under the Paycheck Protection Program of the U.S. Coronavirus Aid, Relief and Economic Security (“CARES”) Act totaling $3,896,108. During the year ended December 31, 2021, the Company also acquired four loans with a lenderbook value totaling $1,799,725 due to acquisitions, and fair value of $65,000. The loans have terms of 24 months and accrue interest at 1% per annum. The Company paid $88,160 for total borrowingsthe loan assumed in connection with the IA acquisition, and the remaining $356,690 was forgiven. The remaining ten loans were forgiven as provided by the CARES Act during the year ended December 31, 2021. The Company recognized a gain on forgiveness of $630,750,debt of $0 and $3,896,108 for the years ended December 31, 2022 and December 31, 2021, respectively. The Company also assumed an Economic Injury Disaster Loan (EIDL) of $65,000 in connection with the Vayu acquisition, which was still outstanding as of December 31, 2022.
On August 27, 2021 the Company entered into $4.7 million agreement for the purchase of a building located at 4740 Cleveland in Ft. Myers, Florida. The loan bears interest at a rate of 3.95% per annum for a term of 10-years and requires monthly payments of $24,722. The loan is secured by the building and a guarantee by the Company. On June 23, 2022, the Company sold the building at 4740 S. Cleveland Ave. Fort Myers, Florida, for $13,200,000. The Company determined that it had transferred control of the building to the buyer, has derecognized the asset, and recognized a gain on the sale of $5,822,450 and paid off the outstanding mortgage of $4,642,043. Under ASC 842, Leases, the Company simultaneously entered into a sale leaseback transaction where the building was then leased back (See Note 3).
In January 2022, Alt Labs entered into a note payable for $500,000 with an interest rate of 3.85% for 60 monthly payments of $9,186. The outstanding balance on this note as of December 31, 2022, was $414,498.
In May 2022, Morris entered into an equipment finance note for $61,000 with an interest rate of APF.10% for 60 monthly payments of $1,314. The outstanding balance on this note bearsas of December 31, 2022, was $53,595.
In January 2022, Morris entered into an equipment finance note for $89,153 with an interest at 11.75%rate of 5.86% for 60 monthly payments of $1,722. The outstanding balance on this note as of December 31, 2022, was $74,644.
In March 2022, Morris entered into an equipment finance note for $93,433 with an interest rate of 5.86% for 60 monthly payments of $1,804. The outstanding balance on this note as of December 31, 2022, was $79,653.
In May 2021, Morris entered into a revolving line of credit totaling $2.5 million with a variable interest rate based on the current WSJ Prime rate, which was 7.50% per annum as of December 31, 2022. The business assets of Morris are pledged as collateral on this line of credit. The term end date for this line was October 2022, but has been extended through May 2023. The total line of credit used as of December 31, 2022 and is payable in weekly paymentsDecember 31, 2021, was $2.49 million and $1.73 million respectively, with approximately $7 thousand available to be drawn on as of $3,795 commencingDecember 31, 2022.
In September 2021, QCA entered into a revolving line of credit totaling $5.5 million that includes a capital expenditure line of credit $0.5 million, with a variable interest rate based on the loancurrent WSJ Prime rate plus 2.5%. As of December 31, 2022, the interest rate was 10.00%. AR, inventory, and equipment are pledged as collateral on this line of credit. The term end date on this line of credit is September 2023. The line of credit used as of December 31, 2022 and December 31, 2021 was $5.0 million and $2.0 million, respectively, with approximately $51 thousand available to be drawn on as of December 31, 2022.
In April 2022, Alt Labs entered into three revolving lines of credit totaling $5.0 million with a variable interest rate based on the current WSJ Prime rate plus 2.5%. As of December 31, 2022, the interest rate was 10.00%. AR, inventory, and equipment are pledged as collateral on these lines of credit. The term end date for two of the three lines of credit is March 2024, while the term date of the third line of credit is March 2026. The total lines of credit used as of December 31, 2022 was $1.84 million, with approximately $17 thousand available to be drawn on as of December 31, 2022. Alt Labs had an existing line of credit totaling $750 thousand as of December 31, 2021. This was paid out and closed as part of opening the new lines of credit in 2022.
In September 2022, RCA entered into a revolving line of credit totaling $20.0 million with an interest rate of 1.75% plus the secured overnight financing rate (SOFR). AR, inventory, and equipment are pledged as collateral on these lines of credit. The term end date for this line of credit is September 2027. The total lines of credit used as of December 31, 2022 was $5.54 million, with approximately $3.80 million available to be drawn on as of December 31, 2022. RCA had an existing line of credit totaling $10.0 million, with a used total of $5.64 million as of December 31, 2021. The balance of the existing line of credit was paid off and closed as part of the opening of the new line of credit in September 2022.
The Company is required to maintain covenants including financial ratios as a condition of the line of credit agreements. As of the date of this Report, the Company was not in compliance with these covenants as the 10-K report was not filed within 90 days from the year ended December 31, 2022. However, the Company received waivers extended through May 4, 2022.
5th, 2023. As such, the Company will be in compliance with the covenants as of the date of this report.
The outstanding balances for the loans as of December 31, 20182022 and 20172021 were as follows:
| | 2018 | | | 2017 | |
Lines of credit, current portion | | $ | 2,504,440 | | | $ | 1,657,610 | |
Equipment loans, current portion | | | 260,301 | | | | 147,079 | |
Term notes, current portion | | | 880,862 | | | | 10,000 | |
Total current | | | 3,645,603 | | | | 1,814,689 | |
Long-term portion | | | 4,517,441 | | | | - | |
Total notes payable | | $ | 8,163,044 | | | $ | 1,814,689 | |
F - 12
| | | | | | | | | | | |
| December 31, 2022 | | December 31, 2021 |
Lines of credit, current portion | $ | 7,426,814 | | | $ | 4,473,489 | |
Equipment loans, current portion | 68,410 | | | 61,640 | |
Term notes, current portion | 3,132,726 | | | 5,628,884 | |
Total current | 10,627,950 | | | 10,164,013 | |
| | | |
Line of credit, net of current portion | 7,215,520 | | | 5,640,051 | |
Long-term portion of equipment loans and term notes | 4,266,350 | | | 8,426,105 | |
Total notes payable | $ | 22,109,820 | | | $ | 24,230,169 | |
Future scheduled maturities of outstanding notes payable from related partiesdebt are as follows:
| | | | | | | | |
Years Ending December 31, | | |
2023 | | $ | 10,627,950 | |
2024 | | 5,104,159 | |
2025 | | 155,254 | |
2026 | | 734,607 | |
2027 | | 5,422,850 | |
Thereafter | | 65,000 | |
Total | | $ | 22,109,820 | |
Year Ending December 31, | | | |
2019 | | $ | 3,645,603 | |
2020 | | | 4,271,959 | |
2021 | | | 178,607 | |
2022 | | | 66,875 | |
Total | | $ | 8,163,044 | |
Note 6 – Notes Payable, Related Parties5 - Preferred Stock Subject to Redemption
Series C Preferred Stock
The Company designated 2,028,572 shares of Series C Preferred Stock with a stated value of $3.50 per share. No dividends will accrue on the Series C Preferred Stock. If dividends are declared on the Company’s Class A, Class B, or Class C Common Stock, the holders of the Series C Preferred Stock will participate in such dividends on a per share basis, pari passu with the Classes of Common Stock.
Voting Rights - The Series C Preferred Stock will vote together with the Class A Common Stock on a one-vote-for-one-Preferred-share basis. As long as any shares of Series C Preferred Stock are outstanding, the Company may not, without the affirmative vote or written consent of the holders of a majority of the then outstanding shares of the Series C Preferred Stock, (a) alter or change the powers, preferences or rights given to the Series C Preferred Stock or alter or amend the Certificate of Designation, (b) amend its Certificate of Incorporation or other charter documents in any manner that adversely affects any rights of the holders of the Series C Preferred Stock, or (c) enter into any agreement or arrangement with respect to any of the foregoing.
Liquidation - Upon any liquidation, dissolution or winding-up of the Company, whether voluntary or involuntary (a "Liquidation"), the holders of the Series C Preferred Stock shall participate on a per share basis with the holders of the Class A, Class B, and Class C Common Stock of the Company, and shall be entitled to share equally, on a per share basis, all assets of the Company of whatever kind available for distribution to the holders of all classes of the Common Stock. The Company shall mail written notice of any such Liquidation, not less than 45 days prior to the payment date stated therein, to each record holder of Series C Preferred Stock.
Conversion - The Series C Preferred Stock shall be convertible automatically into shares of the Company's Class A Common Stock (the “Automatic Conversion”) as follows:
•Each share of Series C Preferred Stock will automatically convert into shares of the Company’s Class A Common Stock on the earlier to occur of (a) the fifth day after the twenty-four month anniversary of the original issue date or (b) the fifth day after the date on which the Company’s Class A Common Stock first
trades on a national securities exchange (including but not limited to NASDAQ, NYSE, or NYSE American but excluding OTCQX Market) (such date, the “Automatic Conversion Date”).
•The number of shares of the Company’s Class A Common Stock into which the Series C Preferred Stock shall be converted shall be determined by multiplying the number of shares of Series C Preferred Stock to be converted by the $3.50 stated value, and then dividing that product by the Conversion Price. The Conversion Price shall be equal to the Variable Weighted Average Price (“VWAP”) of the five Trading Days prior to the Automatic Conversion Date. “VWAP” shall be defined as the volume weighted average price of the Company’s Class A Common Stock on the OTC Markets or other stock exchange or trading medium where such shares are traded as reported by Bloomberg, L.P. using the VWAP function. If for any reason, VWAP cannot be thus determined, “VWAP” shall mean the average closing or last sale prices over the five Trading Days prior to the Automatic Conversion Date of the Company’s Class A Common Stock on the OTC Markets or such other exchange or trading medium.
Restrictions on Resales of Class C Common Stock - The sale of shares of the Company’s Class A Common Stock issued at the time of conversion by any holder into the market or to any private purchaser shall be limited to not more than twenty-five percent (25%) of all conversion shares received by such holder at the time of the automatic conversion in any given 120-day period.
Company Redemption Rights - At any time on or prior to the Automatic Conversion Date, the Company shall have the right to redeem all (but not less than all) shares of the Series C Preferred Stock issued and outstanding at any time after the original issue date, upon three (3) business days’ notice, at a redemption price per share of Series C Preferred Stock then issued and outstanding (the “Corporation Redemption Price”), equal to the stated value of $3.50 per share.
During the year ended December 31, 2018 and 2017, notes payable due2020, the Company issued 1,714,286 shares of Series C Preferred Stock in connection with the acquisition of assets of IA that were valued at $5,848,013. The difference in stated value will be accreted over a 24 month period or upon conversion from Series C Preferred Stock to related parties consisted of the following:
| | 2018 | | | 2017 | |
Notes payable; non-interest bearing; due upon demand; unsecured | | $ | 4,500 | | | $ | 4,500 | |
| | | | | | | | |
Note payable; bearing interest at 8% per annum; due June 30, 2017; unsecured | | | 7,500 | | | | 7,500 | |
| | | | | | | | |
Note payable; bearing at 30% per annum; due March 3, 2018; unsecured | | | - | | | | 11,500 | |
| | | | | | | | |
Note payable; bearing at 20% per annum; due April 28, 2018; unsecured | | | - | | | | 20,000 | |
| | | | | | | | |
Series of notes payable, bearing interest at rates from 10% to 15% per annum, with maturity dates from April 2018 to July 2018, unsecured | | | 120,000 | | | | - | |
| | | | | | | | |
Total notes payable - related parties | | $ | 132,000 | | | $ | 43,500 | |
The above notes which are in default asClass A Common stock. As of December 31, 2018, were due on demand by2022, and 2021, 1,714,286 and 1,704,137, respectively, of these shares had been converted to Class A common stock. Prior to conversion the lenders asCompany recognized accretion to interest expense in the amount of the date of this Report.
Note 7 – Convertible Notes Payable
At December 31, 2018$0 and 2017, convertible notes payable consisted of the following:
| | 2018 | | | 2017 | |
Series of convertible notes payable issued prior to December 31, 2016, bearing interest at rates of 8% - 20% per annum, with due dates ranging from April 2016 through October 2017. The outstanding principal and interest balances are convertible into shares of Class A common stock at the option of the debt holder at an exercise price of $1 per share. | | $ | 25,000 | | | $ | 40,000 | |
| | | | | | | | |
Secured convertible notes payable issued to the sellers of QCA on April 1, 2016 for an aggregate of $2,000,000, bearing interest at 5% per annum, due in monthly payments starting on July 1, 2016 and due in full on July 1, 2019. The outstanding principal and interest balances are convertible after 12 months into Class A common stock at the option of the debt holder at a conversion price of $10 per share. | | | 1,654,588 | | | | 1,827,108 | |
| | | | | | | | |
Secured convertible note payable issued to the seller of VWES on January 1, 2017 for an aggregate of $1,500,000, bearing interest at 5% per annum, due in full on July 1, 2018. The outstanding principal and interest balances are convertible after 12 months into Class A common stock at the option of the debt holder at a conversion price of $8.50 per share. The amount was extinguished and replaced by the Amended and Restated Secured Promissory Note (see Note 9). | | | - | | | | 1,500,000 | |
| | | | | | | | |
Series of convertible notes payable issued in January 2017, bearing interest at rates of 10% per annum, and due in January 2018. The outstanding principal and interest balances are convertible into shares of Class A common stock at the option of the debt holder at an exercise price of $1 per share. | | | 10,000 | | | | 30,000 | |
On July 13, 2017, the Company entered into a variable convertible note$69,661 for $43,000 with net proceeds of $40,000. The note is due April 30, 2018 and bears interest at 12% per annum. After 180 days, the note is convertible into shares of Class A common stock at a discount of 38% to the average of the three lowest trading closing prices of the stock for ten days prior to conversion. The Company can prepay the note up to 180 days prior to the due date, with the prepayment penalty ranging from 10% to 27% depending on when prepaid. | | | - | | | | 43,000 | |
| | | | | | | | |
On July 19, 2017, the Company entered into a variable convertible note for $115,000 with net proceeds of $107,000. The note is due January 21, 2018 and bears interest at 10% per annum. The note is immediately convertible to the Company's Class A common stock at a discount of 35% to the average of the three lowest trading closing prices of the stock for ten days prior to conversion. The Company can prepay the convertible note up to 180 days from July 19, 2017. The Company issued 500,000 shares of Class A common stock to the note holder which are returnable if no event of default has occurred and the note is paid in full within 180 days of the note date. Management had determined that it was probable that the Company would meet the conditions under the note and therefore the shares and the cost of issuance were not recorded. During the three months ended March 31, 2018, the Company repaid the note and the shares were returned. | | | - | | | | 72,748 | |
| | | | | | | | |
On September 5, 2017, the Company entered into a variable convertible note for $105,000 with net proceeds of $100,000. The note is due September 5, 2018 and bears interest at 10% per annum. After 180 days, the note is convertible to the Company's Class A common stock at a discount of 35% to the average of the three lowest trading closing prices of the stock for ten days prior to conversion. The Company can prepay the convertible note up to 180 days from September 5, 2017. The prepayment penalty is equal to 10% to 25% of the outstanding note amount depending on the prepayment date. | | | - | | | | 105,000 | |
| | | | | | | | |
On October 4, 2017, the Company entered into a variable convertible note for $60,000 with net proceeds of $55,000. The note is due July 4, 2018 and bears interest at 12% per annum. After 180 days, the note is convertible into shares of Class A common stock at a discount of 35% of the lowest trading price during the previous ten days prior to conversion. The Company can prepay the convertible note up to 180 days from October 4, 2017. The prepayment penalty is equal to 10% to 25% of the outstanding note amount depending on the prepayment date. | | | - | | | | 60,000 | |
| | | | | | | | |
On October 11, 2017, the Company entered into a variable convertible note for $58,500 with net proceeds of $55,500. The note is due on July 20, 2018 and bears interest at 12% per annum. After 180 days, the note is convertible into shares of Class A common stock at a discount of 38% of the average of the three lowest trading prices of the stock for ten days prior to conversion. The Company can prepay the convertible note up to 180 days from October 11, 2017. The prepayment penalty is equal to 10% to 27% of the outstanding note amount depending on the prepayment date. | | | - | | | | 58,500 | |
| | | | | | | | |
On November 2, 2017, the Company entered into a variable convertible note for $115,000 with net proceeds of $107,000. The note is due May 2, 2018 and bears interest at 10% per annum. The note is immediately convertible to the Company's Class A common stock at a discount of 35% to the average of the three lowest trading closing prices of the stock for ten days prior to conversion. The Company issued 150,000 shares to the lender with this note, which has been recorded as a discount. | | | - | | | | 115,000 | |
| | | | | | | | |
On November 28, 2017, the Company entered into a variable convertible note for $105,000 with net proceeds of $100,000. The note is due November 28, 2018 and bears interest at 10% per annum. After 180 days, the note is convertible into shares of Class A common stock at a discount of 35% of the average of the three lowest trading price during the previous ten days prior to conversion. The Company can prepay the convertible note up to 180 days from November 28, 2017. The prepayment penalty is equal to 10% to 25% of the outstanding note amount depending on the prepayment date. | | | - | | | | 105,000 | |
On December 6, 2017, the Company entered into a variable convertible note for $86,000 with net proceeds of $79,000. Additional borrowings of $64,000 were received under this convertible note in January 2018. The note is due June 6, 2018 and bears interest at 10% per annum. After 180 days at the maturity date, the note is convertible to the Company's Class A common stock at a discount of 35% to the average of the three lowest trading closing prices of the stock for ten days prior to conversion. | | | - | | | | 86,000 | |
| | | | | | | | |
On January 10, 2018, the Company entered into a variable convertible note for $150,000 with net proceeds of $135,000. The note is due October 1, 2018 and bears interest at 12% per annum. The note is immediately convertible into shares of Class A common stock at the lesser of $0.16 per share or 60% of the lowest trading price the previous 25 days prior to conversion. The Company can prepay the note within the first 90 days following January 10, 2018 with a prepayment penalty equal to 145% of the total outstanding balance. The Company issued 333,333 shares to the lender with this note, which has been recorded as a discount. | | | 95,000 | | | | - | |
| | | | | | | | |
On March 13, 2018, the Company entered into a variable convertible note for $128,000 with net proceeds of $125,000. The note is due December 30, 2018 and bears interest at 12% per annum. After 180 days, the note is convertible into shares of Class A common stock at a discount of 42% of the average of the 2 lowest trading price the previous 10 days prior to conversion. The Company can prepay the note at a penalty ranging from 15% to 40%. | | | - | | | | - | |
| | | | | | | | |
On April 3, 2018, the Company entered into a variable convertible note for $85,000 with net proceeds of $79,000. The note is due January 2, 2019 and bears interest at 10% per annum. The note is immediately convertible into shares of the Company's Class A common stock at a discount of 35% to the average of the three lowest trading closing prices of the stock for ten days prior to conversion. In connection with this variable convertible note, the Company issued 386,363 shares of its Class A common stock, which has been recorded as a discount. | | | - | | | | - | |
| | | | | | | | |
On April 5, 2018, the Company entered into convertible promissory notes for an aggregate principal amount of $450,000 as part of the consideration for the acquisition of APF (see Note 9). The convertible notes are due in full in 36 months and bear interest at 4.25% per annum, and are convertible into shares of Class A common stock after 6 months from the issuance date at a rate of $1 per share. | | | 450,000 | | | | - | |
| | | | | | | | |
On April 9, 2018, the Company entered into a variable convertible note for $124,199 with net proceeds of $115,000. The note is due January 9, 2019 and bears interest at 12% per annum. After 180 days, the note is convertible into shares of the Company's Class A common stock at a discount of 35% to the average of the three lowest trading closing prices of the stock for ten days prior to conversion. In connection with this variable convertible note, the Company issued 76,670 shares of its Class A common stock, along with warrants to purchase 153,340 shares of Class A common stock at an exercise price of $1 per share which are immediately vested and have a 3 years contractual life. The value of the common stock and warrants have been recorded as a discount. | | | 61,699 | | | | - | |
| | | | | | | | |
On April 9, 2018, the Company entered into a variable convertible note for $37,800 with net proceeds of $35,000. The note is due January 9, 2019 and bears interest at 12% per annum. After 180 days, the note is convertible into shares of the Company's Class A common stock at a discount of 35% to the average of the three lowest trading closing prices of the stock for ten days prior to conversion. | | | 37,800 | | | | - | |
| | | | | | | | |
On June 4, 2018, the Company entered into a variable convertible note for $165,000 with net proceeds of $151,500. The note is due December 4, 2019 and bears interest at 10% per annum. The note is immediately convertible into shares of the Company's Class A common stock at a discount of 42% to the average of the two lowest trading closing prices of the stock for ten days prior to conversion. The Company issued 850,000 shares of Class A common stock to the note holder which are returnable if no event of default has occurred and the note is paid in full within 180 days of the note date. | | | 165,000 | | | | - | |
| | | | | | | | |
On July 16, 2018, the Company entered into a variable convertible note for $220,000 with net proceeds of $214,000. The note is due July 16, 2019 and bears interest at 10% per annum. The note is immediately convertible into shares of the Company's Class A common stock at a discount of 35% to the average of the three lowest trading closing prices of the stock for ten days prior to conversion. | | | - | | | | - | |
On July 18, 2018, the Company entered into a variable convertible note for $88,000 with net proceeds of $88,000. The note is due April 30, 2019 and bears interest at 12% per annum. The note is immediately convertible into shares of the Company's Class A common stock at a discount of 42% to the average of the two lowest trading closing prices of the stock for ten days prior to conversion. | | | 88,000 | | | | - | |
| | | | | | | | |
On August 30, 2018, the Company entered into a variable convertible note for $337,500 with net proceeds of $303,750. The note is due February 28, 2019 and bears interest at 10% per annum. The note is immediately convertible into shares of the Company's Class A common stock at a discount of 42% to the average of the two lowest trading closing prices of the stock for ten days prior to conversion. | | | 337,500 | | | | - | |
| | | | | | | | |
On September 27, 2018, the Company entered into a variable convertible note for $93,000 with net proceeds of $93,000. The note is due July 15, 2019 and bears interest at 12% per annum. The note is immediately convertible into shares of the Company's Class A common stock at a discount of 42% to the average of the two lowest trading closing prices of the stock for ten days prior to conversion. | | | 93,000 | | | | - | |
| | | | | | | | |
On October 23, 2018, the Company entered into a variable convertible note for $220,000 with net proceeds of $198,000. The note is due December 14,2018 and bears interest at 10% per annum. The note is immediately convertible into shares of the Company's Class A common stock at a discount of 42% to the average of the two lowest trading closing prices of the stock for ten days prior to conversion. | | | 220,000 | | | | - | |
| | | | | | | | |
On November 12, 2018, the Company entered into a variable convertible note for $670,000 with net proceeds of $636,000. The note is due November 12, 2019 and bears interest at 10% per annum. The note is immediately convertible into shares of the Company's Class A common stock at a discount of 35% to the average of the three lowest trading closing prices of the stock for ten days prior to conversion. | | | 670,000 | | | | - | |
| | | | | | | | |
On December 7, 2018, the Company entered into a variable convertible note for $130,000 with net proceeds of $122,200. The note is due September 7, 2019 and bears interest at 12% per annum. The note is immediately convertible into shares of the Company's Class A common stock at a discount of 40% to the lowest trading closing prices of the stock for 20 days prior to conversion. | | | 130,000 | | | | - | |
| | | | | | | | |
Total convertible notes payable | | | 4,037,587 | | | | 4,042,356 | |
Less: discount on convertible notes payable | | | (942,852 | ) | | | (79,630 | ) |
Total convertible notes payable, net of discount | | | 3,094,735 | | | | 3,962,726 | |
Less: current portion of convertible notes payable | | | (2,644,735 | ) | | | (2,302,620 | ) |
Long-term portion of convertible notes payable | | $ | 450,000 | | | $ | 1,660,106 | |
The discounts on convertible notes payable arise from stock issued with notes payable, beneficial conversion features, as well as conversion features of certain convertible notes being treated as derivative liabilities (see Note 11). The discounts are being amortized over the terms of the convertible notes payable. Amortization of debt discounts during the years ended December 31, 20182022 and 2017 amounted to $1,428,954 and $89,292, respectively, and is recorded as interest expense in the accompanying consolidated statements of operations. The unamortized discount balance for these notes was $942,852 as2021, respectively.
As of December 31, 2018,2022 and 2021, 0 and 10,149 shares of Series C Preferred Stock were outstanding, respectively.
Series D Preferred Stock
The Company designated 1,628,572 shares of Series D Preferred Stock with a stated value of $3.50 per share. No dividends will accrue on the Series D Preferred Stock. If dividends are declared on the Company’s Class A, Class B, or Class C Common Stock, the holders of the Series D Preferred Stock will participate in such dividends on a per share basis, pari passu with the Classes of Common Stock.
Voting Rights - The Series D Preferred Stock will vote together with the Class A Common Stock on a one-vote-for-one-Preferred-share basis. As long as any shares of Series D Preferred Stock are outstanding, the Company may not, without the affirmative vote or written consent of the holders of a majority of the then outstanding shares of the Series D Preferred Stock, (a) alter or change the powers, preferences or rights given to the Series D Preferred Stock or alter or amend the Certificate of Designation, (b) amend its Certificate of Incorporation or other charter documents in any manner that adversely affects any rights of the holders of the Series D Preferred Stock, or (c) enter into any agreement or arrangement with respect to any of the foregoing.
Liquidation - Upon any liquidation, dissolution or winding-up of the Company, whether voluntary or involuntary (a "Liquidation"), the holders of the Series D Preferred Stock shall participate on a per share basis with the holders of the Class A, Class B, and Class C Common Stock of the Company, and shall be entitled to share equally, on a per share basis, all assets of the Company of whatever kind available for distribution to the holders of all classes of the Common Stock. The Company shall mail written notice of any such Liquidation, not less than 45 days prior to the payment date stated therein, to each record holder of Series D Preferred Stock.
Conversion - The Series D Preferred Stock shall be convertible automatically into shares of the Company's Class A Common Stock (the “Automatic Conversion”) as follows:
•Each share of Series D Preferred Stock will automatically convert into shares of the Company’s Class A Common Stock on the earlier to occur of (a) the fifth day after the twenty-four month anniversary of the original issue date or (b) the fifth day after the date on which is expectedthe Company’s Class A Common Stock first trades on a national securities exchange (including but not limited to NASDAQ, NYSE, or NYSE American but excluding OTCQX Market) (such date, the “Automatic Conversion Date”).
•The number of shares of the Company’s Class A Common Stock into which the Series D Preferred Stock shall be converted shall be determined by multiplying the number of shares of Series D Preferred Stock to be amortizedconverted by the $3.50 stated value, and then dividing that product by the Conversion Price. The Conversion Price shall be equal to the Variable Weighted Average Price (“VWAP”) of the five Trading Days prior to the Automatic Conversion Date. “VWAP” shall be defined as the volume weighted average price of the Company’s Class A Common Stock on the OTC Markets or other stock exchange or trading medium where such shares are traded as reported by Bloomberg, L.P. using the VWAP function. If for any reason, VWAP cannot be thus determined, “VWAP” shall mean the average closing or last sale prices over the next 12 months.
A summaryfive Trading Days prior to the Automatic Conversion Date of the activityCompany’s Class A Common Stock on the OTC Markets or such other exchange or trading medium.
Restrictions on Resales of Class A Common Stock - The sale of shares of the Company’s Class A Common Stock issued at the time of conversion by any holder into the market or to any private purchaser shall be limited to not more than twenty-five percent (25%) of all conversion shares received by such holder at the time of the automatic conversion in any given 90-day period.
Company Redemption Rights - At any time on or prior to the Automatic Conversion Date, the Company shall have the right to redeem all (but not less than all) shares of the Series D Preferred Stock issued and outstanding at any time after the original issue date, upon three (3) business days’ notice, at a redemption price per share of Series D Preferred Stock then issued and outstanding (the “Corporation Redemption Price”), equal to the stated value of $3.50 per share.
Registration Rights - The shares issued on conversion of the Series D Preferred Stock have piggyback registration rights beginning on that date which his six months after the date on which the Company’s Class A Common Stock trades on a national securities exchange, and are subject to standard underwriter holdback limitations.
During the year ended December 31, 2021, the Company issued 1,432,224 shares of Series D Preferred Stock in connection with the acquisition of assets of Vayu that were valued at $6,653,309. The difference in stated value will be accreted over a 24-month period or upon conversion from Series D Preferred Stock to Class A Common stock. As of December 31, 2022 and 2021, 1,432,224 and 1,353,570, respectively, of these shares had been converted to Class A common stock. Prior to conversion the Company recognized accretion to interest income in the Company's convertible notes payable is provided below:amount of $0 and $615,170 for the years ended December 31, 2022 and 2021, respectively.
Balance outstanding, December 31, 2016 | | $ | 2,007,557 | |
Issuance of convertible notes payable for acquisition of VWES | | | 1,500,000 | |
Issuance of convertible notes payable for cash | | | 836,000 | |
Repayment of notes | | | (219,721 | ) |
Conversion of notes payable to common stock | | | (88,902 | ) |
Discount from issuance of common stock | | | (16,500 | ) |
Discount from beneficial conversion feature | | | (30,000 | ) |
Discount from derivative liabilities | | | (115,000 | ) |
Amortization of debt discounts | | | 89,292 | |
Balance outstanding, December 31, 2017 | | | 3,962,726 | |
Issuance of convertible notes payable for acquisition of APF | | | 450,000 | |
Issuance of convertible notes payable for cash | | | 2,355,950 | |
Issuance for debt discounts | | | 147,341 | |
Extinguishment of convertible note | | | (1,500,000 | ) |
Repayment of notes | | | (1,417,133 | ) |
Conversion of notes payable to common stock | | | (50,133 | ) |
Discount from beneficial conversion feature | | | (2,282,970 | ) |
Amortization of debt discounts | | | 1,428,954 | |
Balance outstanding, December 31, 2018 | | $ | 3,094,735 | |
As of December 31, 2022 and 2021, 0 and 78,674 shares of Series D Preferred Stock were outstanding, respectively.
Note 86 – Stockholders' Equity
Preferred Stock
The Company is authorized to issue 10,000,0005,000,000 shares of $.0001$0.0001 par value preferred stock.
Series B Preferred Stock
The Company is authorized to issue 100 shares of Series B preferred stock. The Series B Preferred Stock has a $1.00 stated value and does not accrue dividends. The Series B has the following voting rights:
•If at least one share of Series B Preferred Stock is issued and outstanding, then the total aggregate issued shares of Series B Preferred Stock at any given time, regardless of their number, shall have that number of votes (identical in every other respect to the voting rights of the holders of all classes of Common Stock or series of preferred stock entitled to vote at any regular or special meeting of stockholders) equal to two hundred percent (200%) of the total voting power of all holders of the Company’s common and preferred stock then outstanding, but not including the Series B Preferred Stock.
•If more than one share of Series B Preferred Stock is issued and outstanding at any time, then each individual share of Series B Preferred Stock shall have the voting rights equal to: Two hundred percent (200%) of the total voting power of all holders of the Company’s common and preferred stock then outstanding, but not including the Series B Preferred Stock divided by the number of shares of Series B Preferred Stock issued and outstanding at the time of voting.
Upon any liquidation, dissolution or winding-up of the Company, whether voluntary or involuntary (a "Liquidation"), the Holders of the Series B Preferred Stock are entitled to receive out of the assets of the Company for each share of Series B Preferred Stock then held by the Holder an amount equal to the Stated Value, and all other amounts in respect thereof then due and payable before any distribution or payment shall be made to the holders of any Junior Securities.
The Series B Preferred Stock shall be convertible into shares of the Company's Class A Common Stock only as follows:
•In the event that the Holder of Series B Preferred Stock ceases to be a director of the Company, upon such director's resignation or removal from the board by any means, the shares of Series B Preferred Stock held by such resigning or removed director shall convert automatically into that same number of shares of Class A Common Stock (i.e. on a one-for-one share basis).
•Shares of Series B Preferred Stock converted into Class A Common Stock, canceled, or redeemed, shall be canceled and shall have the status of authorized but unissued shares of undesignated preferred stock.
As of December 31, 20182022 and December 31, 2017, no2021, 5 and 5 shares of preferred stockSeries B Preferred Stock were outstanding.outstanding and were issued to certain members of the Board of Directors for services rendered.
Common Stock
Pursuant to the Second Amended and Restated Certificate of Incorporation, the Company is authorized to issue twothree 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 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. OtherwiseOther than the voting rights, of the two classes ofClass A and Class B common stock will beare identical.
Any holder of Class C common stock may convert 25% of his or her shares at any time after the 3rd to 6th anniversary into shares of Class A common stock on a share-for-share basis. Other than the voting rights the Class A and Class C common stock are identical.
The Company had the following transactions in its common stock during the year ended December 31, 2018:2022:
•In January 2022, the Company issued 72,152 shares of Class A common stock for no additional consideration upon conversion of 10,149 shares of Series C Preferred Stock and 78,674 of Series D Preferred Stock.
• | Issued 499,999 shares of its Class A common stock in connection with a convertible note payable. The note payable had an embedded conversion option that was a derivative, and the residual amount after allocating proceeds to the derivative was $0. Accordingly, no discount was recognized. |
| |
• | Issued 120,000 shares of its Class A common stock in connection with the conversion of convertible notes payable and accrued interest with a value of $15,600. |
| |
• | Issued 100,000 shares of the Company's Class A common stock related to the Amended Agreement with the seller of VWES. |
| |
• | Issued 76,670 shares of Class A common stock in connection with a convertible note payable. The value of the shares amounted to $9,584 and has been recorded as a discount to the note payable. |
| |
• | Issued 3,400,000 shares of Class B common stock to various employees, officers and board members as compensation. The value of the shares amounted to $176,800 and has been recorded as a component of general and administrative expenses for the year ended December 31, 2018. |
| |
• | Issued 250,000 shares of Class A common stock for the conversion of $7,250 of outstanding convertible notes payable. |
| |
• | Issued 23,330 shares of Class A common stock with debt valued at $2,333. |
| |
• | Issued 274,295 shares of Class A common stock for the conversion of $14,000 of outstanding convertible notes payable. |
| |
• | Issued 195,924 shares of Class A common stock for the conversion of $10,000 of outstanding convertible notes payable. |
| |
• | Issued 175,702 shares of Class A common stock for the conversion of $3,883 of outstanding convertible notes payable and $3,454 of accrued interest. |
| |
• | Issued 1,250,000 shares of Class A common stock as an inducement to investors to entering into convertible note agreements. |
•In January 2022, the Company amended the Corporation's Amended and Restated Certificate of Incorporation increasing the authorized capital stock from 195,000,000 to 295,000,000.
•In March 2022, the Company issued 39,386 shares of Class A common stock for services with a value of $99,252.
•In April 2022, the Company issued 171,850 shares of Class A common stock at a value of $132,325 as employee compensation.
•During May and June 2022, the Company issued 76,119 shares of Class A common stock for cash of $55,144 in connection with a registered at-the-market offering (the "ATM Offering").
•In July 2022, the Company sold 14,492,754 shares of Class A common stock and 14,492,754 warrants to certain investors, under a registered direct offering, for net proceeds of $9,175,000. The warrants have an exercise price of $0.69 per share and a term of 5 years.
•In July 2022, the Company issued 60,600 shares of Class A common stock for cash of $42,318 in connection with its ATM offering.
•In August 2022, certain investors exercised 1,449,276 warrants at an exercise price of $0.69, for net proceeds of $1,000,000.
•In September 2022, certain shareholders converted 37,500 shares of Class C common stock for 37,500 shares of Class A common stock.
•In October 2022, certain shareholders converted 201,806 shares of Class C common stock for 201,806 shares of Class A common stock.
•In November 2022, certain shareholders converted 22,662 shares of Class C common stock for 22,662 shares of Class A common stock.
The Company had the following transactions in its common stock during the year ended December 31, 2017:2021:
• | Issued 578,640 shares of its•On February 11, 2021, the Company entered into a Securities Purchase Agreement (the “Purchase Agreement”) with certain investors to purchase 8,333,333 shares of the Company’s Class A common stock for aggregate gross proceeds of approximately $50 million. A.G.P./Alliance Global Partners served as the placement agent and received a cash fee of 7% of the aggregate gross proceeds and warrants to purchase shares of the Company’s Class A common stock for services. Total expense for the shares issued for services was $62,084; |
| |
• | Issued 886,757 shares of its Class A common stock in connection with the conversion of convertible notes payable and accrued interest with a value of $99,573; |
| |
• | Issued 132,209 shares of the Company's restricted Class A common stock in private placement transactions to investors, in exchange for capital raised of $40,000; and |
| |
• | Issued 150,000 Class A common stock to a lender valued at $16,500. |
Redeemable Common Stock equal to 5% of the number of shares sold in the offering with an exercise price of $6.60 per share and are not exercisable until August 16, 2021. Net proceeds from the sale of shares amounted to approximately $45 million.
During 2017,•In February 2021, the Company issued 379,4031,524,064 shares of Class A common stock to an investor for cash for total proceeds of approximately $9.3 million.
•On March 17, 2021, the Company repurchased 45,000 shares of Class C common stock for $185,850.
•On April 30, 2021, the Company issued 1,617,067 shares of Class A common stock for no additional consideration upon conversion of that number of shares of Class C common stock by the holder of the Class C common stock.
•On May 5, 2021, the Company issued 281,223 shares of Class A common stock that were valued at $1,102,394 in connection with the acquisition of TDI.
•On May 10, 2021, the Company issued 361,787 shares of Class A common stock that were valued at $1,432,677 in connection with the acquisition of Alt Labs.
•On May 17, 2021, the Company issued 350,000 shares of Class A common stock for no additional consideration upon conversion of that number of shares of Class B common stock by the holder of the Class B common stock.
•On October 20, 2021, the Company issued 888,881 shares of Class A common stock that were valued at $3,617,746 in connection with the acquisition of Identified Technology.
•On November 9, 2021, the Company issued 2,409,248 shares of Class A common stock for no additional consideration upon conversion of 1,704,137 shares of Series D Preferred Stock and 1,353,570 shares of Series C Preferred Stock.
•On November 15, 2021 the Company issued 125,000 shares of Class A common stock for no additional consideration upon conversion of that number of shares of Class B common stock by the holder of the Class B common stock .
•On November 26, 2021, the Company closed on a registered direct offering where it sold to certain investors a total of 8,571,430 shares of the Company’s Class A common stock and 4,285,715 warrant to purchase shares of Class A common stock for net proceeds of $22,189,152.
•On November 29, 2021, the Company issued 1,803,279 shares of Class A common stock that were valued at $4,562,996 in connection with the ElecJet acquisition.
•On November 29, 2021, the Company granted 983,636 contingent shares of Class A common stock that were valued at $2,488,599 in connection with the ElecJet acquisition. These contingent shares represent equity compensation for post-acquisition services and are accounted for under ASC 718. Of this amount, 655,758 of the contingent shares valued at $1,659,063 are performance based and management determined the performance conditions were deemed not probable and as such, no expense was recognized for the years ended December 31, 2022 and 2021. The remaining 327,878 shares are a time-based award and is recognized based on the grant-date fair value of the shares of $829,536 over the vesting period of 3-years. As such, the Company recognized $0 and $299,555 of stock based compensation expense related to this award for the years ended December 31, 2021 and 2022, respectively.
•On December 9, 2021, in connection with the acquisition of DTI Services Limited Liability Company, the Company issued 1,587,301 shares of its Class A Common Stock that were valued at $3,682,539.
•On December 20, 2021, the Company issued 100,000 shares of Class A common stock in connection with the purchaseHWT legal proceedings.
•On December 29, 2021, the Company issued 99,018 shares of VWES. Of these shares, 260,000 shares were redeemable at $4.25 per share at three different redemption periods: 130,000 shares at 12 months, 65,000 shares at 18 months and 65,000 shares at 24 months from the closing date of the purchase of VWES. Additionally, 119,403 shares were redeemable at $3.35 per share at 12 months from the closing date of the purchase of VWES. These shares were valued at the redemption value of $1,439,725. The redemption right on these shares was cancelledClass A common stock to management in connection with the Amended Agreement entered on February 22, 2018 (see Note 9).acquisition of DTI Services Limited Liability Company.
Due to•During the natureyear ended December 31, 2021 , the Company issued 7,384,018 shares of the issuance ofClass A common stock for the VWES acquisition, it was historically recorded outsideconversion of permanent equity. Subsequent to February 22, 2018 after the cancellation of the redemption rights, the stock was reclassified to equity in the accompanying consolidated balance sheet.total debt and accrued liabilities totaling $1,886,898.
Stock Options
The Company has issued stock options to purchase shares of the Company’s Class A common stock issued pursuant to the Company's 2016 Stock Option and Stock Award Plan (the "Plan"). The Company uses the Black-Scholes option pricing model to estimate the fair value of stock-based awards on the date of grant and on each modification date. The following key assumptions during the years ended December 31, 2018 and 2017:
F-32
| | 2018 | | | 2017 | |
| | | | | | |
Risk free rate | | | 2.38 | % | | | 2.38 | % |
Volatility | | | 200 | % | | | 200 | % |
Expected terms (years) | | | 6.25 | | | | 6.25 | |
Dividend rate | | | 0 | % | | | 0 | % |
The following summarizes the stock option activity for the years ended December 31, 2018:2022 and 2021:
| | | | | | | Weighted- | | | |
| | | | | Weighted- | | Average | | | |
| | | | | Average | | Remaining | | Aggregate | |
| | | | | Exercise | | Contractual | | Intrinsic | |
| | Options | | | Price | | Life (Years) | | Value | |
| | | | | | | | | | |
Outstanding at December 31, 2016 | | | - | | | $ | 0.00 | | | | | |
Granted | | | 1,344,000 | | | | 0.57 | | | | | |
Forfeited | | | (561,750 | ) | | | 0.77 | | | | | |
Outstanding at December 31, 2017 | | | 782,250 | | | $ | 0.42 | | | | 9.44 | | | $ | - | |
Granted | | | 1,064,000 | | | | 0.07 | | | | | | | | | |
Forfeited | | | (56,250 | ) | | | 0.81 | | | | | | | | | |
Exercised | | | - | | | | 0.00 | | | | | | | | | |
Outstanding at December 31, 2018 | | | 1,790,000 | | | $ | 0.19 | | | | 9.10 | | | $ | - | |
| | | | | | | | | | | | | | | | |
Vested and expected to vest at December 31, 2018 | | | 1,790,000 | | | $ | 0.19 | | | | 9.10 | | | $ | - | |
| | | | | | | | | | | | | | | | |
Exercisable at December 31, 2018 | | | 391,969 | | | $ | 0.32 | | | | 8.67 | | | $ | - | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Options | | Weighted Average Exercise Price | | Weighted Average Remaining Contractual Life (Years) | | Aggregate Intrinsic Value |
Outstanding at December 31, 2020 | 1,790,000 | | | $ | 0.19 | | | 7.09 | | $ | 6,176,855 | |
Granted | — | | | | | | | |
Forfeited | — | | | | | | | |
Exercised | — | | | | | | | |
Outstanding at December 31, 2021 | 1,790,000 | | | $ | 0.19 | | | 6.09 | | $ | 3,098,055 | |
Granted | 2,084,620 | | | $ | 0.77 | | | | | |
Forfeited | (781,712) | | | $ | 0.32 | | | | | |
Exercised | — | | | $ | — | | | | | |
Outstanding at December 31, 2022 | 3,092,908 | | | $ | 0.55 | | | 7.94 | | $ | 463,494 | |
| | | | | | | |
Vested and expected to vest at December 31, 2022 | 3,092,909 | | | $ | 0.55 | | | 7.94 | | $ | 463,494 | |
| | | | | | | |
Exercisable at December 31, 2022 | 1,084,500 | | | $ | 0.14 | | | 5.37 | | $ | 463,494 | |
The following table summarizes information about options outstanding and exercisable as of December 31, 2018:2022:
| | Options Outstanding | | Options Exercisable | |
| | | | Weighted | | Weighted | | | | Weighted | |
| | | | Average | | Average | | | | Average | |
Exercise | | Number | | Remaining | | Exercise | | Number | | Exercise | |
Price | | of Shares | | Life (Years) | | Price | | of Shares | | Price | |
| | | | | | | | | | | |
| $ | 0.05 | | | | 979,000 | | | | 9.38 | | | $ | 0.05 | | | | 88,000 | | | $ | 0.05 | |
| | 0.10 | | | | 85,000 | | | | 9.28 | | | | 0.10 | | | | 10,625 | | | | 0.10 | |
| | 0.13 | | | | 388,500 | | | | 8.59 | | | | 0.13 | | | | 145,688 | | | | 0.13 | |
| | 0.26 | | | | 114,000 | | | | 8.34 | | | | 0.26 | | | | 49,875 | | | | 0.26 | |
| | 0.90 | | | | 223,500 | | | | 8.27 | | | | 0.90 | | | | 97,781 | | | | 0.90 | |
| | | | | | 1,790,000 | | | | | | | | | | | | 391,969 | | | | | |
F - 18
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Options Outstanding | | Options Exercisable |
Exercise Price | | Number of Shares | | Weighted Average Remaining Life (Years) | | Weighted Average Exercise Price | | Number of Shares | | Weighted Average Exercise Price |
$ | 0.05 | | | 891,500 | | | 5.38 | | $ | 0.05 | | | 891,500 | | | $ | 0.05 | |
0.10 | | | 85,000 | | | 5.28 | | 0.10 | | | 85,000 | | | 0.10 | |
0.13 | | | — | | | 4.58 | | 0.13 | | | — | | | 0.13 | |
0.77 | | | 2,008,409 | | | 9.33 | | 0.77 | | | — | | | 0.77 | |
0.90 | | | 108,000 | | | 4.27 | | 0.90 | | | 108,000 | | | 0.90 | |
| | 3,092,909 | | | | | | | 1,084,500 | | | |
During the years ended December 31, 20182022 and 2017,2021, stock option expense amounted to $71,223$473,159 and $87,136,$36,538, respectively. Unrecognized stock option expense as of December 31, 20182022 amounted to $199,812,$1,053,547, 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.
2023.
During the year ended December 31, 2017,2022, the Company granted an aggregate total of 2,001 warrants to individuals. These warrants allissued 2,084,620 options in connection with the Company's 2021 Employee Equity Incentive Plan (the "Plan"). The options have a 3 year contractual life, an exercise price of $2.00 per share$0.77, vest annually over a three year vesting period and are vested immediately.expire on April 29, 2032.
AsThe fair value of the 2,084,620 options issued in connection with the Plan is $1,534,401, and was determined using the Black-Scholes option pricing model with the following assumptions:
| | | | | |
Stock price | $ | 0.77 | |
Risk-free interest rate | 2.90 | % |
Expected life of the options | 6.25 years |
Expected volatility | 158 | % |
Expected dividend yield | 0 | % |
Warrants
The following summarizes the warrant activity for the years ended December 31, 2022, and 2021:
| | | | | | | | | | | | | | | | | | | | | | | |
| Warrants | | Weighted- Average Exercise Price | | Weighted- Average Remaining Contractual Life (Years) | | Aggregate Intrinsic Value |
Outstanding at December 31, 2020 | 275,000 | | | $ | 1.01 | | | 0.23 | | $ | 723,250 | |
Granted | 5,527,778 | | | 3.32 | | | | |
Forfeited | (275,000) | | | 1.01 | | | | |
Exercised | — | | | — | | | | | |
Outstanding at December 31, 2021 | 5,527,778 | | | $ | 3.32 | | | 4.62 | | $ | — | |
Granted | 14,492,754 | | | 0.69 | | | | |
Forfeited | — | | | — | | | | | |
Exercised | (1,449,276) | | | 0.69 | | | | | |
Outstanding at December 31, 2022 | 18,571,256 | | | $ | 1.47 | | | 4.31 | | $ | — | |
| | | | | | | |
Vested and expected to vest at December 31, 2022 | 18,571,256 | | | $ | 1.47 | | | 4.31 | | $ | — | |
| | | | | | | |
Exercisable at December 31, 2022 | 18,571,256 | | | $ | 1.47 | | | 4.31 | | $ | — | |
The following table summarizes information about warrants outstanding and exercisable as of December 31, 2018,2022:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Warrants Outstanding | | Warrants Exercisable |
Exercise Price | | Number of Shares | | Weighted Average Remaining Life (Years) | | Weighted Average Exercise Price | | Number of Shares | | Weighted Average Exercise Price |
$ | 6.60 | | | 416,667 | | | 2.13 | | $ | 6.60 | | | 416,667 | | | $ | 6.60 | |
2.52 | | | 396,825 | | | 1.94 | | 2.52 | | | 396,825 | | | 2.52 | |
3.10 | | | 4,285,715 | | | 3.9 | | 3.10 | | | 4,285,715 | | | 3.1 | |
3.08 | | | 428,571 | | | 3.9 | | 3.08 | | | 428,571 | | | 3.08 | |
0.69 | | 13,043,478 | | | 4.6 | | 0.69 | | 13,043,478 | | | 0.69 | |
| | 18,571,256 | | | | | | | 18,571,256 | | | |
During the year ended December 31, 2021, the Company had 230,341issued 416,667 warrants outstandingto a placement agent in connection with a weighted averagesale of its common stock. The warrants have an exercise price of $1.01$6.60, were exercisable as of August 16, 2021 and expire on February 16, 2025. The Company issued another 428,571 warrants to a weighted average remaining lifeplacement agent in connection with the sale of 2.23 years.its common stock. The warrants have an exercise price of $3.08, were
exercisable as of May 26, 2021 and expire November 22, 2026. The Company issued another 396,825 warrants in connection to the RCA acquisition. The warrants have an exercise price of $2.52, were exercisable as of December 9, 2021 and expire December 9, 2024. During July 2022, the Company issued another 14,492,754 warrants to certain investors in connection with the sale of its common stock. The warrants have an exercise price of 0.69, were exercisable as of as of July 13, 2022, and expire July 13, 2027. The fair value of the 416,667, 428,571, and the 396,825 warrants issued to the placement agent in connection with a registered direct offering, and to the RCA sellers in connection with the DTI/RCA acquisition (discussed below in Note 97) during the year ended December 31, 2021, are $2,498,637, $902,414, and $668,863 respectively and was determined using the Black-Scholes option pricing model. The fair value of the 14,492,754 warrants issued to the placement agent during the year ended December 31, 2022, are $7,083,038, and was determined using the Black-Scholes option pricing model. All of these warrants were determined using the following assumptions:
| | | | | |
Stock price | $0.62 - 7.03 |
Risk-free interest rate | 0.01 - 1.02% |
Expected life of the options | 1.5-5 years |
Expected volatility | 157-347% |
Expected dividend yield | 0 | % |
Note 7 – Business Combinations
or the various acquisitions noted below that occurred during the year ended December 31, 2021, there were minimal amounts of transaction costs incurred by the Company ranging from $0-$40,000 that are deemed immaterial. Any transactions costs associated with each acquisition below was expensed as incurred, and are recorded within General & Administrative expenses on the Consolidated Statements of Operations.
Venture West Energy ServicesVayu (US)
Effective January 1, 2017,February 8, 2021, the Company purchased 100%Vayu Inc to add to its A4 Aerospace services portfolio of companies. The purchase agreement provides for the Company to purchase all the outstanding shares of Vayu and its assets. Under the provision of ASC 805 Business Combinations, the Company determined that the acquisition of Vayu was an asset acquisition as more than 95% was concentrated in a single asset or a group of assets in Intellectual Property. As such, the Company accounted for this acquisition as an asset acquisition in accordance with ASC 805-10-20. Accordingly, the assets acquired are initially recognized at the consideration paid, which was the fair value of the outstanding interestsSeries D preferred stock issued, including direct acquisition costs. The cost is allocated to the group of Venture West Energy Services (“VWES”) (formerly Horizon Well Testing, LLC).assets acquired based on their relative fair values. The assets acquired and liabilities assumed were as follows at the acquisition date:
| | | | | |
| Purchase Allocation |
Cash | $ | 81,442 | |
Property and equipment | 56,011 | |
Intellectual property | 8,406,743 | |
Non-compete agreement | 100,819 | |
Deferred tax liability | (1,362,667) | |
Accrued expenses and other current liabilities | (564,039) | |
SBA loan (PPP funds) | (65,000) | |
| $ | 6,653,309 | |
The purchase price was paid as follows: | | | | | |
Series D Preferred Stock (1,432,244 shares) | $ | 6,653,309 | |
| $ | 6,653,309 | |
Alpine 4TDI
On May 5 2021, the Company purchased 100%Thermal Dynamics, Inc, (“TDI”), to add to its A4 Defense services portfolio of companies. Under the provision of ASC 805 Business Combinations, the acquisition is considered an acquisition of a business since the Company is acquiring the outstanding interestscapital of VWES for $2,200,000 cash, two notes payable ($1,500,000TDI and $300,000), 379,403 sharescontinuing the business of Alpine 4's Class A common stock, valued at $1,439,725,TDI with defined inputs and 75,000 warrants,substantive processes that contribute to purchase one share of Alpine 4 Class A common stock, valued at $40,941. The $300,000 note bears interest at 1% and was payable in full by July 31, 2017 (see Note 6). The $1,500,000 note is a convertible note with an optionthe ability to convert at $8.50 into Alpine 4's Class A common stock. The $1,500,000 note bears interest at 5% per annum and has a balloon payment due on the 18-month anniversary of the closing of the purchase. There were also post-closing adjustments of $25,232.
create outputs. A summary of the finalized purchase price allocation at fair value is below.presented below:
| | Purchase Allocation | |
Cash | | $ | 262,384 | |
Accounts Receivable, net | | | 245,833 | |
Property, Plant & Equipment | | | 4,804,458 | |
Intangibles | | | - | |
Goodwill | | | 167,845 | |
Accrued Expenses | | | (25,086 | ) |
Total consideration | | $ | 5,455,434 | |
| | | | | |
| Purchase Allocation |
Accounts receivable | $ | 1,408,682 | |
Property and equipment | 111,789 | |
Customer list | 3,840,000 | |
Non-compete agreement | 120,000 | |
Goodwill | 6,426,786 | |
Other asset | 91,000 | |
Accounts payable | (786,151) | |
Accrued expenses and other current liabilities | (53,857) | |
Contract liabilities | (3,637,122) | |
Notes payable | (64,733) | |
| $ | 7,456,394 | |
The purchase price was paid as follows:
| | | | | |
Class A Common Stock (281,223 shares) | $ | 1,102,394 | |
Cash | 6,354,000 | |
| $ | 7,456,394 | |
Alt Labs
On February 22, 2018,May 10, 2021, the Company entered into an Amended Agreement with the seller of VWES. Per the terms of the Amended Agreement, the two notes payable initially issued to the seller of VWESclosed on January 1, 2017, for $1,500,000 and $300,000 were cancelled, along with the redemption rights associated with 379,403 shares the Company’s Class A common stock and 75,000 warrants, and replaced with a new Amended and Restated Secured Promissory Note for $3,000,000 (see Note 5). The new note is due in semi-annual payments of $150,000 commencing on June 1, 2018, through June 1, 2020 and bears interest at 7% per annum. If the note is paid was full on or before June 1, 2018, the balance due would be discounted by $500,000. If the note is paid in full after June 1, 2018, and on or before December 1, 2018, the balance due will be discounted by $450,000. If the note is paid in full after December 1, 2018, and on or before June 1, 2019, the balance due will be discounted by $350,000. If the note is paid in full after June 1, 2019, and on or before December 1, 2019, the balance due will be discounted by $250,000. If the note is paid in full after December 1, 2019, and on or before June 1, 2020, the balance due will be discounted by $200,000.
In connection with the Amended Agreement, the Company also issued an additional 100,000 shares of Class A common stock to the seller of VWES valued at $15,000, and granted new warrants effective February 22, 2018 to purchase 75,000 shares of common stock with an exercise price of $1.00 per share valued at $9,142 using the Black-Sholes model. The warrants are immediately vested and have a contractual life of 3 years. The Company also agreed to return the land and building acquired in the acquisition of VWESAlternative Laboratories, LLC (Alt Labs) to add to its A4 Manufacturing services portfolio. Under the provision of ASC 805 Business Combinations, the acquisition is considered an acquisition of a business since the Company is acquiring the outstanding capital of Alt Labs and
continuing the business of Alt Labs with defined inputs and substantive processes that contribute to the seller. The land and building had an aggregate book value as of February 22, 2018 of $173,396, which approximated its fair value.
The Company compared the value of the extinguished debt, returned land and building and cancelled stock and warrantsability to the value of the new Amended and Restated Secured Promissory Note and new instruments issued as of February 22, 2018. The difference of $136,300 was reflected as a gain on extinguishment of debt during the accompanying consolidated statements of operations for the year ended December 31, 2018.
The following is acreate outputs. A summary of the non-cash items given as consideration to the seller of VEWS in connection with the Amended and Restated Secured Promissory Note, which is reflected in the supplemental disclosure of non-cash financing activities in the accompanying consolidated statement of cash flows for the year ended December 31, 2018.
| | Non-Cash | |
| | Consideration | |
Note payable | | $ | 3,000,000 | |
Common stock | | | 15,000 | |
Warrants | | | 9,142 | |
Land and building | | | 173,396 | |
Total | | $ | 3,197,538 | |
American Precision Fabricators (“APF”)
On April 5, 2018, the Company announced that it had entered into a Securities Purchase Agreement (the "SPA") with APF, an Arkansas corporation, and Andy Galbach ("Galbach") and Clarence Carl Davis, Jr. ("Davis"), the owners of APF (the "Sellers"). Pursuant to the SPA, the Company acquired 100% of the outstanding shares in APF.
The total purchase price of APF from the SPA amounted to $4,500,000, which consisted of aggregate cash consideration paid to the Sellers of $2,100,000, an aggregate of $1,950,000 of secured promissory notes due to the Sellers (see Note 5), and an aggregate of $450,000 of convertible promissory notes due to the Sellers (see Note 7). At the closing date, the Company and the Sellers agreed to a reduction of the purchase price of $123,250, resulting from a net working capital adjustment which was deducted from the cash consideration due to the Sellers. As a result, the total purchase price of APF was $4,376,750.
A summary of thefinalized purchase price allocation at fair value is below. presented below:
| | | | | |
| Purchase Allocation |
Accounts receivable | $ | 397,441 | |
Inventory | 2,621,653 | |
Property and equipment | 1,739,441 | |
Customer list | 1,250,000 | |
Proprietary technology | 3,670,000 | |
Non-compete agreement | 20,000 | |
Goodwill | 4,410,564 | |
Other assets | 390,502 | |
Accounts payable | (397,441) | |
Accrued expenses and other current liabilities | (411,830) | |
Contract liabilities | (1,754,290) | |
Notes payable | (33,363) | |
| $ | 11,902,677 | |
The business combination accountingpurchase price was paid as follows:
| | | | | |
Class A Common Stock (361,847 shares) | $ | 1,432,677 | |
Cash | 10,470,000 | |
| $ | 11,902,677 | |
On May 4, 2021, the Company also entered into an agreement to acquire the 100% membership interest in 4740 Cleveland LLC (“Cleveland”), a Florida limited liability company that is not yet complete and the amounts assigned to assets acquired and liabilities assumed are provisional.owner of the building currently being leased by Alt Labs, for a total purchase price of $7,000,000. The Company is still inclosed on the process of obtaining and assessing documentationpurchase of the contracts for customer relationships. Therefore, this may resultbuilding in future adjustments toAugust 2021.
Identified Technologies
On October 20, 2021, the provisional amounts as new information is obtained about facts and circumstances that existed at the acquisition date.
| | Purchase Allocation | |
Accounts receivable | | $ | 945,050 | |
Inventory | | | 675,074 | |
Prepaid expenses and other current assets | | | 250,040 | |
Property and equipment | | | 3,300,000 | |
Goodwill | | | 1,230,100 | |
Accounts payable | | | (1,234,328 | ) |
Accrued expenses | | | (154,186 | ) |
Line of credit | | | (165,000 | ) |
Deferred tax liability | | | (470,000 | ) |
| | $ | 4,376,750 | |
In connection with the SPA, and as consideration for the Company to enter into the SPA, APF and Galbach entered into a ConsultingStock Purchase Agreement with Identified Technologies Corporation (IDT) to add to its A4 Aerospace services portfolio of companies. Under the provision of ASC 805 Business Combinations, the acquisition is considered an acquisition of a business since the Company is acquiring the outstanding capital of IDT and continuing the business of IDT with defined inputs and substantive processes that contribute to the ability to create outputs. A summary of the finalized purchase price allocation at fair value is presented below:
| | | | | |
| Purchase Allocation |
Accounts receivable | $ | 90,858 | |
Other asset | 27,469 | |
Proprietary technology | 1,650,000 | |
Tradename | 210,000 | |
Goodwill | 1,913,310 | |
Non-compete agreement | 90,000 | |
Accrued expenses and other current liabilities | (363,856) | |
| $ | 3,617,781 | |
The purchase price was paid as follows:
| | | | | |
Cash | $ | 35 | |
Class A Common Stock (888,881 shares) | 3,617,746 | |
| $ | 3,617,781 | |
ElecJet
On November 29, 2021, the Company acquired ElecJet Corp (ElecJet) to add to its A4 Technology portfolio of companies. Under the provision of ASC 805 Business Combinations, the acquisition is considered an acquisition of a business since the Company is acquiring the outstanding capital of Elecjet and continuing the business of ElecJet with defined inputs and substantive processes that contribute to the ability to create outputs. As part of the acquisition there was a contingent royalty agreement based on potential future graphene batteries. More detail of this agreement can be found in Note 11. It was determined that this contingent agreement had a FMV of $0 at the date of acquisition. A summary of the finalized purchase price allocation at fair value is presented below:
| | | | | |
| Purchase Allocation |
Cash | $ | 27,466 | |
Accounts receivable | 30,000 | |
Inventory | 95,000 | |
Proprietary technology | 5,890,000 | |
Non-compete agreement | 200,000 | |
Goodwill | 6,496,343 | |
Deferred tax liability | (1,562,074) | |
Accrued expenses and other current liabilities | (113,742) | |
| $ | 11,062,993 | |
The purchase price was paid as follows:
| | | | | |
Cash | $ | 6,500,000 | |
Class A Common Stock (1,803,279) | 4,562,993 | |
| $ | 11,062,993 | |
DTI Services Agreement (the "Consulting Agreement")(doing business as RCA Commercial Electronics)
On December 13, 2021, the Company purchased DTI Services (RCA), pursuant to which Galbach agreed foradd to its technology portfolio of companies. Under the provision of ASC 805 Business Combinations, the acquisition is considered an acquisition of a periodbusiness since the Company is acquiring the outstanding capital of 90 days followingRCA and continuing the closing datebusiness of RCA with
defined inputs and substantive processes that contribute to provide strategic management servicesthe ability to APF, meet with APF's new management, and provide his knowledge in customer relations, trade and service implementation, and other business disciplines. Additionally, APF agreed to reimburse Galbach for his expenses incurred by Galbach in connection with providingcreate outputs. A summary of the services underfinalized purchase price allocation at fair value is presented below:
| | | | | |
| Purchase Allocation |
Accounts receivable | $ | 3,409,230 | |
Other current assets | 1,259,556 | |
Inventory | 12,477,872 | |
Property and equipment | 761,370 | |
Customer list | 6,300,000 | |
Trademark | 620,000 | |
Non-compete agreement | 690,000 | |
Goodwill | 1,355,728 | |
ROU asset | 1,196,764 | |
Accounts payable | (951,302) | |
Accrued expenses and other current liabilities | (677,720) | |
Customer deposits | (153,201) | |
Operating lease liability | (1,226,128) | |
Line of credit | (4,710,768) | |
| $ | 20,351,401 | |
The purchase price was paid as follows:
| | | | | |
Cash | $ | 14,000,000 | |
Class A Common Stock (1,587,301 shares) | 3,682,538 | |
Warrants (396,825 shares) | 668,863 | |
Seller notes | 2,000,000 | |
| $ | 20,351,401 | |
For tax purposes, the Consulting Agreement.
SimultaneousGoodwill associated with the purchasebusiness combinations of APF, a building, owned by APF prior toTDI, Alt Labs, and RCA described above will be deductible under IRC section 197 as the acquisition, was sold in a sale-leaseback transaction agreement, whereby the building was leased from the buyer for 15 years. The proceeds from the sale-leaseback of $1,900,000transactions were used to fund the cash consideration to the sellers. The building and the lease is being treated as a capital lease (see Note 4).
an asset purchase. The Goodwill associated with the business combinations of Identified Technology and ElecJet described above is not deductible for tax purposes.
The following are the unaudited pro forma results of operations for the three and years ended December 31, 20182022 and 2017,2021, as if APFExcel, IA, Vayu, TDI, Alt Labs, Identified Technology, ElecJet, and RCA had been acquired on January 1, 2017.2021. The pro forma results include estimates and assumptions which management believes are reasonable. However, pro forma results do include any anticipated cost savings or other effects of the planned integration of
these entities, and are not necessarily indicative of the results that would have occurred if the business combination had been in effect on the dates indicated.
| | | | | | | | | | | |
| Pro Forma Combined Financials (unaudited) |
| Years Ended December 31, |
| 2022 | | 2021 |
Sales | $ | 104,563,002 | | | $ | 98,321,144 | |
Cost of goods sold | 82,848,600 | | | 75,523,745 | |
Gross profit | 21,714,402 | | | 22,797,399 | |
Operating expenses | 32,470,186 | | | 38,643,670 | |
Loss from operations | (10,755,784) | | | (15,846,271) | |
Net loss from continuing operations | (12,875,313) | | | (12,144,338) | |
Loss per share | (0.07) | | | (0.06) | |
| Pro Forma Combined Financials (Unaudited) | |
| Year Ended December 31, 2018 | | Year Ended December 31, 2017 | |
| | | | |
Revenue | | $ | 15,407,012 | | | $ | 11,995,811 | |
| | | | | | | | |
Net Loss from continuing operations | | $ | (3,189,893 | ) | | $ | (1,649,423 | ) |
| | | | | | | | |
Net loss per shares from continuing operations | | $ | (0.12 | ) | | $ | (0.07 | ) |
Note 108 – Equity Investments
AmplifeiIntl LLC
On September 15, 2021, A4 Manufacturing, Inc. entered into a Membership Interest Purchase Agreement acquiring approximately a 9% membership interest in AmplifeiIntl LLC (also doing business as Happinss) (“Amplifei”). The membership interest is non-voting and the Company does not have the ability to exercise significant influence over operating and financial activities. The equity investment is being valued using cost as there is no market for the membership units, and accordingly, no quoted market price is available. The investment is tested for impairment, at least annually, and more frequently upon the occurrences of certain events. As of December 31, 2021, the Company determined there was an impairment on this investment and recognized a loss on impairment for the entire value of $1,350,000.
The membership interest was paid for as follows:
| | | | | |
Accounts receivable owed from Amplifei | $ | 1,000,000 | |
Cash | 350,000 | |
Total | $ | 1,350,000 | |
Note 9 – Income Taxes
The components of the Company's income tax provision are as follows:
| | | | | | | | | | | |
| Year Ended December 31, 2022 | | Year Ended December 31, 2021 |
Current expense (benefit) | | | |
Federal | $ | — | | | $ | — | |
State | 139,020 | | | — | |
| 139,020 | | | — | |
| | | |
Deferred benefit | | | |
Federal | $ | (650,283) | | | $ | (1,616,916) | |
State | (222,731) | | | (326,825) | |
| (873,014) | | | (1,943,741) | |
| | | |
Provision for income tax benefit | $ | (733,994) | | | $ | (1,943,741) | |
A reconciliation of the provision for income taxes with the expected provision for income taxes computed by applying the federal statutory income tax rate of 21% to the net loss before provision for income taxes is as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2022 | | Year Ended December 31, 2021 |
| Amount | | Percentage | | Amount | | Percentage |
Pre-tax book loss | $ | (13,609,307) | | | | | $ | (21,426,879) | | | |
| | | | | | | |
Federal income tax at statutory rate | (2,857,954) | | | 21.0 | % | | (4,499,644) | | | 21.0 | % |
State income tax benefit | (530,084) | | | 3.9 | % | | (163,677) | | | 0.8 | % |
Change in valuation allowance | 2,760,687 | | | (20.3) | % | | 3,559,163 | | | (16.6) | % |
Permanent items | 21,281 | | | (0.2) | % | | (839,583) | | | 3.9 | % |
| | | | | | | |
Other | (127,924) | | | 1.4 | % | | — | | | — | % |
| | | | | | | |
Provision for income tax benefit | $ | (733,994) | | | 5.4 | % | | $ | (1,943,741) | | | 9.1 | % |
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amountsamount of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. A full valuation allowance is established againstSignificant components of the remainingCompany's net deferred income taxes are as follows:
| | | | | | | | | | | |
| Year Ended December 31, 2022 | | Year Ended December 31, 2021 |
Deferred tax asset: | | | |
Accrued expenses and other | $ | 696,419 | | | $ | 347,645 | |
Lease Liability | 8,176,101 | | | — | |
| | | |
Loss carryforwards | 14,295,781 | | | 13,124,197 | |
Stock based compensation | 211,499 | | | 90,293 | |
Research and experimental expenditures | 202,199 | | | — | |
Inventory | 625,937 | | | — | |
| | | |
Interest | 634,445 | | | 615,260 | |
Total deferred tax asset | 24,842,381 | | | 14,177,395 | |
Valuation allowance | (13,492,773) | | | (9,887,550) | |
Net deferred tax assets | 11,349,608 | | | 4,289,845 | |
| | | |
Deferred tax liabilities: | | | |
Fixed assets | (3,266,395) | | | (365,922) | |
Intangible assets and goodwill | (4,865,970) | | | (5,785,088) | |
ROU asset | (4,205,393) | | | — | |
Total deferred tax liabilities | (12,337,758) | | | (6,151,010) | |
| | | |
Net non-current deferred tax liability | $ | (988,150) | | | $ | (1,861,165) | |
Management assesses the available positive and negative evidence to estimate whether sufficient future taxable income will be generated to permit use of the existing deferred tax assetsassets. A significant piece of objective negative evidence evaluated was the lack of sustained profitability in recent years. Such objective evidence limits the ability to consider other subjective evidence, such as the Company's projections for future growth.
On the basis of this evaluation, as of December 31, 20182022 and 2017 based on estimates of recoverability. The Company determined that such2021, a valuation allowance was necessary givenof $13.5 million and $9.9 million, respectively, has been recorded to recognize only the portion of the deferred tax asset that is more likely than not to be realized. The amount of the deferred tax asset considered realizable, however, could be adjusted based on changes in objective and subjective evidence in future years. If and when the Company determines the valuation allowance should be released (i.e., reduced), the adjustment would result in a tax benefit reported in that period’s consolidated statement of operations, the effect of which would be an increase in reported net income. The amount of any such tax benefit associated with release of the Company's valuation allowance in a particular reporting period may be material.
The Company has gross federal and state net operating loss carryforwards of $71.0 million and $20.1 million, respectively, at December 31, 2022. At December 31, 2022, the Company has approximately $11.3 million of federal net operating losses available to offset future taxable income for 20 years and will begin to expire in 2036. The remaining $59.7 million of federal net operating losses are carried forward indefinitely to offset future taxable income up to an 80% limitation of taxable income in the year of use. The state net operating losses begin to expire in 2024. The Company has a gross interest limitation carryforward of $2.5 million under Section 163(j) for federal tax purposes at December 31, 2022. The Section 163(j) interest may be carried forward indefinitely.
The future tax benefits from NOLs and built-in losses would be materially reduced or potentially eliminated if we experience an “ownership change” as defined under IRC §382. The Company has identified ownership shifts on
August 23, 2014, April 29, 2015, February 4, 2016 and July 1, 2019, which immaterially impacted the Company. The Company does not believe an ownership change has occurred in the current year.
With exceptions due to the generation and expected near termutilization of net operating losses or credits, as of December 31, 2022, Alpine 4 Holdings and Subsidiaries are no longer subject to federal or state examinations by taxing authorities for tax years before 2019 and 2018, respectively.
Significant judgment is required in evaluating the Company's uncertain tax positions and determining its provision for income taxes. Although the Company believes that it has appropriately reserved for its uncertain tax positions, no assurance can be given that the final tax outcome of these matters will not be different than expectations. The Company will adjust these reserves in light of changing facts and circumstances, such as the closing of a tax audit, the refinement of an estimate, the closing of a statutory audit period or changes in applicable tax law. To the extent that the final tax outcome of these matters is different than the amounts recorded, such differences would impact the provision for income taxes in the period in which such determination is made. The provision for income taxes includes the impact of reserve provisions and changes to the reserves that are considered appropriate, as well as related net interest.
The Company's policy is to recognize interest and/or penalties related to income tax matters in income tax expense. The Company had no accrual for interest or penalties at December 31, 2022 or 2021, and has not recognized interest or penalties during the years ended December 31, 2022 and 2021 since there was no reduction of income taxes paid due to uncertain tax positions.
The following table summarizes the activity related to the Company's gross unrecognized tax liabilities:
| | | | | | | | | | | |
| December 31, 2022 | | December 31, 2021 |
Unrecognized tax liabilities, beginning of the year | $ | 1,169,028 | | | $ | — | |
Increase related to current year tax positions | 480,911 | | | 1,169,028 | |
Unrecognized tax liabilities, end of year | $ | 1,649,939 | | | $ | 1,169,028 | |
Included in the balance of unrecognized tax liabilities as of December 31, 2022 are $0.6 million of tax liabilities that, if recognized, would affect the ETR. Also included in the balance of unrecognized tax liabilities as of December 31, 2022 are $1.0 million of tax liabilities that, if recognized, would result in adjustments to other tax accounts, primarily deferred taxes.
Note 10 – Industry Segments
The Company discloses segment information that is consistent with the way in which management operates and views its business. Effective during the quarter ended September 30, 2022, the Company increased its reportable segments to eight segments. All segments and the uncertaintysubsidiaries within each segment are geographically located in North America. The financial results are logical to review in this manner for comparison, trend, deviations, etc. purposes.
Management excludes the following when reviewing the profit/loss by segment.
•Intercompany Sales/COGS
•Management fees to the parent Company
•Income tax benefit/expense
There has not been any change to the measurement method in how management reviews the profit/loss by segment.
The reporting segments and their business activity are as follows:
A4 Construction Services Morris Sheet Metal (“MSM”) provides commercial construction services primarily as a sheet metal contractor.
A4 Construction Services Excel Construction (“Excel”) provides commercial construction services primarily as a sheet metal contractor.
A4 Manufacturing Quality Circuit Assembly (QCA) is a contract manufacturer within the technology industry.
A4 Manufacturing Alternative Labs (“Alt Labs”) is a contract manufacturer within the dietary & nutraceutical supplements industry.
A4 Defense Thermal Dynamics does contracting for the US Government particularity for the US Defense Department and US Department of State.
A4 Technologies RCA Commercial Electronics (“RCA”) is a B2B commercial electronics manufacturer.
A4 Technologies ElecJet is a battery research & development company.
A4 Aerospace Vayu is a drone aircraft manufacturer.
A4 All Other includes the QCA-Central, Identified Technologies and Corporate operating segments.
The Company’s reportable segments for the years ended December 31, 2022 and 2021:
| | | | | | | | | | | |
| Years Ended December 31, |
| 2022 | | 2021 |
Revenue | | | |
A4 Construction Services - MSM | $ | 18,290,019 | | | $ | 16,191,284 | |
A4 Construction Services - Excel | 1,761,572 | | | 1,803,739 | |
A4 Manufacturing - QCA | 16,763,989 | | | 14,258,084 | |
A4 Manufacturing - Alt Labs | 12,889,992 | | | 11,674,220 | |
A4 Defense - TDI | 10,046,658 | | | 4,467,376 | |
A4 Technologies - RCA | 40,092,612 | | | 1,454,451 | |
A4 Technologies - ElecJet | 1,098,534 | | | 89,018 | |
A4 Aerospace - Vayu | 81,100 | | | — | |
All Other | 3,538,526 | | | 1,702,641 | |
| $ | 104,563,002 | | | $ | 51,640,813 | |
| | | |
Gross profit | | | |
A4 Construction Services - MSM | $ | 1,374,517 | | | $ | (385,266) | |
A4 Construction Services - Excel | 3,681 | | | (92,765) | |
A4 Manufacturing - QCA | 3,258,082 | | | 2,763,213 | |
A4 Manufacturing - Alt Labs | 2,343,368 | | | 3,749,878 | |
A4 Defense - TDI | 3,082,844 | | | 1,073,636 | |
A4 Technologies - RCA | 10,687,202 | | | 379,740 | |
A4 Technologies - ElecJet | (236,636) | | | 76,818 | |
A4 Aerospace - Vayu | 13,087 | | | — | |
All Other | 1,188,257 | | | 132,744 | |
| $ | 21,714,402 | | | $ | 7,697,998 | |
| | | |
| | | | | | | | | | | |
Income (loss) from operations | | | |
A4 Construction Services - MSM | $ | (883,922) | | | $ | (4,247,240) | |
A4 Construction Services - Excel | (973,934) | | | (1,969,535) | |
A4 Manufacturing - QCA | 702,875 | | | 1,426,141 | |
A4 Manufacturing - Alt Labs | 2,284,308 | | | (3,027,203) | |
A4 Defense - TDI | 1,072,306 | | | (282,882) | |
A4 Technologies - RCA | 2,525,619 | | | (100,328) | |
A4 Technologies - ElecJet | (1,107,254) | | | (62,163) | |
A4 Aerospace - Vayu | (3,336,279) | | | (4,875,829) | |
All Other | (11,039,503) | | | (8,983,320) | |
| $ | (10,755,784) | | | $ | (22,122,359) | |
| | | |
Depreciation and amortization | | | |
A4 Construction Services - MSM | $ | 684,563 | | | $ | 846,808 | |
A4 Construction Services - Excel | 267,966 | | | 291,556 | |
A4 Manufacturing - QCA | 417,172 | | | 377,868 | |
A4 Manufacturing - Alt Labs | 983,931 | | | 611,079 | |
A4 Defense - TDI | 288,950 | | | 191,740 | |
A4 Technologies - RCA | 979,206 | | | 49,299 | |
A4 Technologies - ElecJet | 414,333 | | | 33,833 | |
A4 Aerospace - Vayu | 1,025,412 | | | 1,093,995 | |
All Other | 1,113,005 | | | 658,181 | |
| $ | 6,174,538 | | | $ | 4,154,359 | |
| | | |
Interest Expenses | | | |
A4 Construction Services - MSM | $ | 421,287 | | | $ | 706,607 | |
A4 Construction Services - Excel | 245,855 | | | 291,263 | |
A4 Manufacturing - QCA | 262,551 | | | 230,044 | |
A4 Manufacturing - Alt Labs | 351,503 | | | 72,060 | |
A4 Defense - TDI | 11,975 | | | 825 | |
A4 Technologies - RCA | 159,878 | | | 15,347 | |
A4 Technologies - ElecJet | — | | | — | |
A4 Aerospace - Vayu | 10,677 | | | 9 | |
All Other | 1,660,406 | | | 1,973,078 | |
| $ | 3,124,132 | | | $ | 3,289,233 | |
| | | |
Net income (loss) | | | |
A4 Construction Services - MSM | $ | (1,246,295) | | | $ | (1,481,382) | |
A4 Construction Services - Excel | (1,219,789) | | | (1,899,512) | |
A4 Manufacturing - QCA | 367,760 | | | 1,774,139 | |
A4 Manufacturing - Alt Labs | 2,054,958 | | | (2,643,752) | |
A4 Defense - TDI | 1,060,331 | | | (270,289) | |
A4 Technologies - RCA | 2,365,741 | | | (115,675) | |
A4 Technologies - ElecJet | (1,110,727) | | | (62,163) | |
A4 Aerospace - Vayu | (3,346,956) | | | (4,852,182) | |
All Other | (11,800,336) | | | (9,932,322) | |
| $ | (12,875,313) | | | $ | (19,483,138) | |
| | | | | | | | | | | |
| As of December 31, 2022 | | As of December 31, 2021 |
Total Assets | | | |
A4 Construction Services - MSM | $ | 11,309,049 | | | $ | 10,935,355 | |
A4 Construction Services - Excel | 3,359,818 | | | 3,050,206 | |
A4 Manufacturing - QCA | 20,988,492 | | | 11,869,711 | |
A4 Manufacturing - Alt Labs | 26,636,905 | | | 23,173,298 | |
A4 Defense - TDI | 13,497,381 | | | 11,982,580 | |
A4 Technologies - RCA | 27,191,977 | | | 28,174,091 | |
A4 Technologies - ElecJet | 12,897,440 | | | 12,904,267 | |
A4 Aerospace - Vayu | 14,632,530 | | | 14,702,838 | |
All Other | $ | 15,118,622 | | | $ | 17,831,504 | |
| $ | 145,632,214 | | | $ | 134,623,850 | |
| | | |
Goodwill | | | |
A4 Construction Services - MSM | $ | 113,592 | | | $ | 113,592 | |
A4 Construction Services - Excel | — | | | — | |
A4 Manufacturing - QCA | 1,963,761 | | | 1,963,761 | |
A4 Manufacturing - Alt Labs | 4,410,564 | | | 4,410,564 | |
A4 Defense - TDI | 6,426,786 | | | 6,426,786 | |
A4 Technologies - RCA | 1,355,728 | | | 1,355,728 | |
A4 Technologies - ElecJet | 6,496,343 | | | 6,496,343 | |
A4 Aerospace - Vayu | — | | | — | |
All Other | 1,913,310 | | | 1,913,310 | |
| $ | 22,680,084 | | | $ | 22,680,084 | |
| | | |
Accounts receivable, net | | | |
A4 Construction Services - MSM | $ | 5,188,521 | | | $ | 3,906,271 | |
A4 Construction Services - Excel | 288,243 | | | 286,972 | |
A4 Manufacturing - QCA | 3,867,141 | | | 2,339,597 | |
A4 Manufacturing - Alt Labs | 1,833,502 | | | 406,333 | |
A4 Defense - TDI | 1,905,314 | | | 1,371,184 | |
A4 Technologies - RCA | 3,232,559 | | | 2,961,201 | |
A4 Technologies - ElecJet | 12,888 | | | 37,744 | |
A4 Aerospace - Vayu | — | | | — | |
All Other | 811,776 | | | 565,874 | |
| $ | 17,139,944 | | | $ | 11,875,176 | |
Note 11 - Commitments and Contingencies
Licensing Agreement
DTI has entered into licensing agreements with RCA Trademark Management for the licensing rights to the respective trademarks in the United States of America and Canada.
The RCA licensing agreement was amended with Technicolor, S.A., as licensor, and expires December 31, 2024. DTI agrees to pay a royalty fee of 2.50% on net sales of the licensed products with a minimum annual
payment of $420,000 for the years ended 2020 and 2021, $440,000 for the year ended 2022, $460,000 for the year ended 2023, and $480,000 for the year ended 2024.
Warranty Service Agreement
DTI entered into a warranty service agreement to provide certain warranty services for a lighting supplier through December 31, 2024, except for one class of customer through 2030. In exchange for these services DTI receives annual payments as follows:
| | | | | |
Years Ending December 31, | |
2023 | $ | 66,626 | |
2024 | 59,964 | |
Total | $ | 126,590 | |
Royalty Agreement
On November 28, 2021, the Company entered into a Royalty Agreement with the sellers of ElecJet. Upon closing the Company desires to build its initial factory (“Factory”) to manufacture graphene batteries in the territory of the United States. The Company agrees to pay the sellers 1.5% of net sales for batteries produced by the Factory. Royalty payments shall continue to be paid for a period of ten years from the starting date, or until the total of the royalty payments equals $50 million, whichever occurs first.
Legal Proceedings
From time to time, the Company may become involved in lawsuits and other legal proceedings that arise in the course of business. Litigation is subject to inherent uncertainties, and it is not possible to predict the outcome of litigation with total confidence. As of the date of this Report, the Company was not aware of any legal proceedings or potential claims against it whose outcome would be likely, individually or in the aggregate, to have a material adverse effect on the Company’s business, financial condition, operating results, or cash flows.
In August 2020, in a matter relating to the Company’s subsidiary Horizon Well Testing, LLC (“Horizon”), the Company filed a lawsuit in the United States District Court, District of Arizona (Case No.2:20-cv-01679-DJH), against Alan Martin, the seller of Horizon dba Venture West Energy Services, LLC (“VWES”). The Company brought suit in 2020 seeking to avoid the claimed liability due from the Company to Alan Martin, for the Company’s 2017 purchase of Mr. Martin’s business, Horizon. On summary judgment, the court found that the Company’s claim was barred by a time-limiting clause for indemnification claims. The Company disagrees with the court’s ruling and intends to appeal. Before the Company can file its appeal of the summary judgment order, the court must resolve Mr. Martin’s counterclaim in which Mr. Martin claims that Mr. Martin remains unpaid on the promissory note, as modified, under which the Company purchased the Horizon. The note balance is alleged to have a principal sum due of $3.3 million, plus interest at 8% accruing from 2019 to present, plus late fees accruing at $575 per day (Note 4). The Company continues to dispute the amount claimed due. As well, the Company’s legal position remains that the indebtedness should be discharged due to material misrepresentations by Mr. Martin in the original transaction.
In August 2021, in a matter relating to the Company’s subsidiary Horizon Well Testing, LLC (“Horizon”), Rob Porter filed a lawsuit in the District Court of Oklahoma County, State of Oklahoma (CJ-2021-3421), alleging unjust enrichment and breach of contract with respect to shares of Company that Mr. Porter claims was owed under his employment contract with the Company as President of Horizon. In October 2021, the Company filed its abilityanswer denying such claims. In October 2021, the Company also filed counterclaims against Mr. Porter for conversion and breach of fiduciary duties. The Company believes this is a frivolous lawsuit and as such, no accrual has been recorded as of December 31, 2022 and 2021. As of the date of this Report, a pre-trial scheduling conference is scheduled for June 21, 2023, and the Company is participating in discovery.
In October 2021, in a matter relating to generate sufficient profitsthe Company’s subsidiary Horizon Well Testing, LLC (“Horizon”), the Company received three complaints in the District Court of Oklahoma Country State of Oklahoma from former VWES employees Bruce Morse (CJ-2021-4316), Brian Hobbs (CJ-2021-4315), Thomas Karraker (CJ-2021-4314)
for unjust enrichment, and breach of contract with respect to their employment contracts with Horizon. On January 19, 2022, the Company filed answers to all three lawsuits that denied these claims. The Company believes these are frivolous lawsuits. In July 2022, the Company and Mr. Morse settled his claims against the Company. The settlement included the cash payment of $24,375 for Mr. Morse's claimed 37,500 shares of Class A Common stock, and subsequently Mr. Morse’s case has been dismissed. Subsequently, Mr. Hobbs and Mr. Karraker have also expressed interest in settling claims on similar terms, and negotiations are ongoing as of the date of this Report. As no formal settlement offer has been extended, no accrual has been recorded as of December 31, 2022 and 2021.
In November 2022, the Company received a complaint filed by Mr. Mark Bell in the district court of Idaho (CV42-22-4066) with regard to the Company’s February 2020 purchase of Excel Fabrication LLC (“Excel”) from Mr. Bell, over the Company’s refusal to continue paying on a $2,300,000 note comprising part of the purchase consideration (Note 4). In December 2022 the Company counter-sued Mr. Bell for breach of contract, fraud, and misrepresentation in the February 2020 sale of Excel to the Company. The case is set for trial in June of 2024.
In December 2022, the Company’s subsidiary Excel Fabrication LLC (“Excel”) received a demand for binding arbitration (AAA Case No. 01-22-0004-9935) by Starr Corporation of Idaho, a contractor for whom Excel Fabrication LLC was performing as sub-contractor and who stopped its new business model.work for Starr Corporation pursuant to its claimed contract right of termination due to failure of Starr Corporation to make payment within the contracted period for payment for work satisfactorily performed. Starr Corporation claims that Excel’s termination was wrongful, and seeks approximately $500,000, reflecting its costs in having to complete work that was called for under the contract. Excel is seeking a determination that its termination was rightful under the terms of the contract between the parties, and in addition seeks payment on its unpaid billing submittals and additional costs. Arbitration hearings are scheduled to commence in April 2024.
Note 12 – Subsequent Events
In January 2023, the Company made a $250,000 investment for a 10% equity interest in a battery materials company, which includes a seat on its board, and participation rights in future funding rounds.
In February 2023, the Company learned that a complaint the State of New York brought against Vayu in 2019 (prior to the Company’s ownership of Vayu) seeking a refund for two returned airframes, a case which had originally been dismissed for lack of jurisdiction, had become revived by virtue of New York’s highest court ruling (State of New York v Vayu, APL-2021-00148) that the State’s long arm statute applied to the 2016 transaction between Vayu and the State University of New York at Stonybrook. Total damages sought by the State of New York are less than $100,000, including interest and costs. The Tax Cutscompany is currently considering its options for reaching a settlement with the State of New York, and Jobs Act was signed into law on December 22, 2017,for the possibility of seeking redress from the previous owners of Vayu.
In April 2023, a certain investor converted 1.3 million shares of Class B common stock and reduced the corporate income tax rate from 34% to 21%. 1 share of Class B preferred stock for 1,300,001 shares of Class A common stock.
ALPINE 4 HOLDINGS, INC., AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
| | | | | | | | | | | |
| March 31, 2023 | | December 31, 2022 |
| (Unaudited) | | |
ASSETS | | | |
| | | |
CURRENT ASSETS: | | | |
Cash | $ | 475,300 | | | $ | 2,673,541 | |
Accounts receivable, net | 15,540,528 | | | 17,139,944 | |
Inventory | 25,262,659 | | | 25,258,369 | |
Contract assets | 1,835,432 | | | 1,402,788 | |
Prepaid expenses and other current assets | 2,449,395 | | | 2,428,223 | |
Total current assets | 45,563,314 | | | 48,902,865 | |
| | | |
Property and equipment, net | 20,265,637 | | | 19,503,485 | |
Intangible assets, net | 35,494,596 | | | 36,282,609 | |
Right of use assets, net | 15,949,731 | | | 16,407,566 | |
Goodwill | 22,680,084 | | | 22,680,084 | |
Other non-current assets | 1,991,363 | | | 1,855,605 | |
TOTAL ASSETS | $ | 141,944,725 | | | $ | 145,632,214 | |
| | | |
LIABILITIES AND STOCKHOLDERS' EQUITY | | | |
| | | |
CURRENT LIABILITIES: | | | |
Accounts payable | $ | 11,830,582 | | | $ | 8,608,554 | |
Accrued expenses | 6,256,263 | | | 6,749,890 | |
Contract liabilities | 5,700,142 | | | 5,284,285 | |
Line of credit | 8,970,460 | | | 7,426,814 | |
Notes payable, current portion | 5,998,347 | | | 3,201,136 | |
Notes payable, related party | 535,000 | | | — | |
Financing lease obligation, current portion | 743,157 | | | 725,302 | |
Operating lease obligation, current portion | 1,484,846 | | | 1,318,885 | |
Total current liabilities | 41,518,797 | | | 33,314,866 | |
| | | |
Notes payable, net of current portion | 2,229,684 | | | 4,266,350 | |
Line of credit, net of current portion | 3,928,105 | | | 7,215,520 | |
Financing lease obligations, net of current portion | 14,395,926 | | | 14,592,813 | |
Operating lease obligations, net of current portion | 14,841,129 | | | 15,262,494 | |
Deferred tax liability | 625,617 | | | 988,150 | |
TOTAL LIABILITIES | 77,539,258 | | | 75,640,193 | |
| | | |
Commitment & Contingencies (Note 7) | | | |
STOCKHOLDERS' EQUITY (1): | | | |
Preferred stock, $0.0001 par value, 5,000,000 shares authorized | — | | | — | |
Series B preferred stock; $1.00 stated value; 100 shares authorized, 4 and 5 shares issued and outstanding at March 31, 2023, and December 31, 2022 | 4 | | | 5 | |
Class A Common stock, $0.0001 par value, 200,000,000 shares authorized, 22,304,761 and 22,303,333 shares issued and outstanding at March 31, 2023, and December 31, 2022 | 2,230 | | | 2,230 | |
Class B Common stock, $0.0001 par value, 10,000,000 shares authorized, 1,068,512 and 1,068,512 shares issued and outstanding at March 31, 2023, and December 31, 2022 | 107 | | | 107 | |
Class C Common stock, $0.0001 par value, 15,000,000 shares authorized, 1,528,460 and 1,529,888 shares issued and outstanding at March 31, 2023, and December 31, 2022 | 153 | | | 153 | |
Additional paid-in capital | 141,906,511 | | | 141,723,921 | |
Accumulated deficit | (77,503,538) | | | (71,734,395) | |
Total stockholders' equity | 64,405,467 | | | 69,992,021 | |
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $ | 141,944,725 | | | $ | 145,632,214 | |
The Company's deferred tax assets, liabilities,accompanying notes are an integral part of these unaudited consolidated financial statements.
(1)Current and valuation allowanceprior period results have been adjusted to reflect the impact of the new tax law.one-for-eight stock split effected in May 2023. See Note 5, Stockholders' Equity and Note 8, Subsequent Events for details.
ALPINE 4 HOLDINGS, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
| | | | | | | | | | | |
| Three Months Ended March 31, |
| 2023 | | 2022 |
| | | |
Revenues, net | $ | 24,361,713 | | | $ | 25,592,154 | |
Cost of revenues | 19,145,257 | | | 19,954,697 | |
Gross profit | 5,216,456 | | | 5,637,457 | |
| | | |
Operating expenses: | | | |
General and administrative expenses | 10,243,023 | | | 9,201,682 | |
Research and development | 113,906 | | | 191,930 | |
Total operating expenses | 10,356,929 | | | 9,393,612 | |
Loss from operations | (5,140,473) | | | (3,756,155) | |
| | | |
Other income (expenses) | | | |
Interest expense | (998,870) | | | (608,961) | |
Other income | 43,200 | | | 32,719 | |
Total other income (expenses) | (955,670) | | | (576,242) | |
| | | |
Loss before income tax | (6,096,143) | | | (4,332,397) | |
| | | |
Income tax | (327,000) | | | (332,837) | |
| | | |
Net Loss | $ | (5,769,143) | | | $ | (3,999,560) | |
| | | |
Weighted average shares outstanding (1): | | | |
Basic | 24,901,733 | | | 22,879,056 | |
Diluted | 24,901,733 | | | 22,879,056 | |
| | | |
Basic loss per share | $ | (0.23) | | | $ | (0.17) | |
| | | |
Diluted loss per share | $ | (0.23) | | | $ | (0.17) | |
The following is a reconciliation of the difference between the effective and statutory income tax rates for years ended December 31:
| | 2018 | | | 2017 | |
| | Amount | | | Percent | | | Amount | | | Percent | |
| | | | | | | | | | | | |
Federal statutory rates | | $ | (1,660,684 | ) | | | 21.0 | % | | $ | (1,106,976 | ) | | | 34.0 | % |
State income taxes | | | (474,481 | ) | | | 6.0 | % | | | (367,525 | ) | | | 11.3 | % |
Permanent differences | | | 890,348 | | | | -11.3 | % | | | 4,103 | | | | -0.1 | % |
Impact of change in tax rate | | | - | | | | | | | | 727,566 | | | | 22.3 | % |
Other | | | - | | | | | | | | (27,282 | ) | | | 0.9 | % |
Valuation allowance against net deferred tax assets | | | 1,201,418 | | | | -15.2 | % | | | 511,722 | | | | -14.9 | % |
Effective rate | | $ | (43,399 | ) | | | 0.5 | % | | $ | (258,392 | ) | | | 53.5 | % |
At December 31, 2018 and December 31, 2017, the significant components of the deferred tax assetsaccompanying notes are
summarized below:
| | 2018 | | | 2017 | |
Deferred income tax asset | | | | | | |
Net operation loss carryforwards | | $ | 2,607,105 | | | $ | 1,253,964 | |
Total deferred income tax asset | | | 2,607,105 | | | | 1,253,964 | |
Less: valuation allowance | | | (2,607,105 | ) | | | (1,253,964 | ) |
Total deferred income tax asset | | $ | - | | | $ | - | |
At December 31, 2018 and December 31, 2017, the significant components of the deferred tax liabilities are summarized below:
| 2018 | | 2017 | |
| | | | |
Deferred income tax liabilities: | | | | |
Book to tax differences in intangible assets | | | 608,304 | | | | 181,703 | |
Total deferred income tax asset | | $ | 608,304 | | | $ | 181,703 | |
The deferred tax liability is mostly made up of the difference between book and tax values for property and equipment and intangible assets.
The Company has recorded as of December 31, 2018 and 2017 a valuation allowance of $2,607,105 and $1,253,964, respectively, as management believes that it is more likely than not that the deferred tax assets will not be realized in future years. Management has based its assessment on the Company's lack of profitable operating history.
The Company annually conducts an analysis of its tax positions and has concluded that it had no uncertain tax positions as of December 31, 2018.
The Company has net operating loss carry-forwards of approximately $9.8 million. Such amounts are subject to IRS code section 382 limitations and begin to expire in 2029. The tax years from 2015 - 2018 are still subject to audit.
Note 11 – Industry Segments
This summary presents the Company's segments, QCA and APF for the years ended December 31, 2018 and 2017:
| Year Ended December 31, 2018 | |
| | | | | Unallocated | | | |
| | | | | and | | Total | |
| QCA | | APF | | Eliminations | | Consolidated | |
Revenue | | $ | 10,513,743 | | | | 3,104,791 | | | $ | 643,260 | | | $ | 14,261,794 | |
Segment gross profit | | | 3,293,86 | | | | 1,078,075 | | | | 449,535 | | | | 4,820,796 | |
Segment depreciation and amortization | | | 299,328 | | | | 200,247 | | | | 33,333 | | | | 532,908 | |
Segment interest expense | | | 734,033 | | | | 153,107 | | | | 2,234,061 | | | | 3,121,201 | |
Segment net income (loss) | | | 390,158 | | | | (455,125 | ) | | | (2,931,926 | ) | | | (2,996,893 | ) |
| | | | | | | | | | | | | | | | |
| As of December 31, 2018 | |
| | | | | | | | | Unallocated | | | | | |
| | | | | | | | | and | | Total | |
| QCA | | APF | | Eliminations | | Consolidated | |
Accounts receivable, net | | $ | 1,649,701 | | | $ | 958,153 | | | $ | 2,500 | | | $ | 2,610,354 | |
Goodwill | | | 1,963,761 | | | | 1,230,100 | | | | - | | | | 3,193,861 | |
Total assets | | | 10,767,883 | | | | 6,159,098 | | | | 1,013,695 | | | | 17,940,676 | |
| | | | | | | | | | | | | | | | |
| Year Ended December 31, 2017 | | | | | |
| | | | | Unallocated | | | | | | | | | |
| | | | | and | | Total | | | | | |
| QCA | | Eliminations | | Consolidated | | | | | |
Revenue | | $ | 7,809,813 | | | $ | 508,203 | | | $ | 8,318,016 | | | | | |
Segment gross profit | | | 2,191,078 | | | | 219,517 | | | | 2,410,595 | | | | | |
Segment depreciation and amortization | | | 289,746 | | | | 50,001 | | | | 339,747 | | | | | |
Segment interest expense | | | 730,096 | | | | 532,397 | | | | 1,262,493 | | | | | |
Segment net income (loss) | | | 327,511 | | | | (1,614,287 | ) | | | (1,286,776 | ) | | | | |
| | | | | | | | | | | | | | | | |
| As of December 31, 2017 | | | | | |
| | | | | Unallocated | | | | | | | | | |
| | | | | and | | Total | | | | | |
| QCA | | Eliminations | | Consolidated | | | | | |
Accounts receivable, net | | $ | 1,545,422 | | | $ | 15,058 | | | $ | 1,560,480 | | | | | |
Goodwill | | | 1,963,761 | | | | - | | | | 1,963,761 | | | | | |
Total assets | | | 10,569,893 | | | | 5,401,057 | | | | 15,970,950 | | | | | |
Note 12 – Derivative Liabilities and Fair Value Measurements
Derivative liabilities
The Company has issued convertible notes payable that were evaluated under the guidance in FASB ASC 815-40, Derivatives and Hedging, and were determined to have characteristics of derivative liabilities. As a result of the characteristicsintegral part of these notes, the conversion options relating to previously issued convertible debt and outstanding Class A common stock warrants were also required to be accounted for as derivative liabilities under ASC 815. Under this guidance, this derivative liability is marked-to-market at each reporting period with the non-cash gain or loss recorded in the period as a gain or loss on derivatives.
The valuation of our embedded derivatives is determined by using the Black-Scholes Option Pricing Model. As such, our derivative liabilities have been classified as Level 2.
The Company estimated the fair value of the derivative liabilities using the Black-Scholes Option Pricing Model and the following key assumptions during the years ended December 31, 2018 and 2017:
| 2018 | | 2017 | |
| | | | |
Risk free rate | | | 2.63 | % | | | 2.38 | % |
Volatility | | | 200 | % | | | 200 | % |
Expected terms (years) | 0.5 to 3.0 | | 0.5 to 2.67 | |
Dividend rate | | | 0 | % | | | 0 | % |
Fair value measurements
FASB ASC 820, Fair Value Measurements and Disclosures, defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. FASB ASC 820 also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. FASB ASC 820 describes three levels of inputs that may be used to measure fair value:
Level 1 – Quoted prices in active markets for identical assets or liabilities.
Level 2 – Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3 – Unobservable inputs that are supported by little or no market activity and that are financial instruments whose values are determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant judgment or estimation.
If the inputs used to measure the financial assets and liabilities fall within more than one level described above, the categorization is based on the lowest level of input that is significant to the fair value measurement of the instrument.
The following table provides a summary of the fair value of our derivative liabilities as of December 31, 2018 and 2017:
| Fair Value As of | | Fair Value Measurements at | |
| December 31, | | December 31, 2018 | |
Description | 2018 | | Using Fair Value Hierarchy | |
| | | Level 1 | | Level 2 | | Level 3 | |
Conversion feature on convertible notes | | $ | 1,892,321 | | | $ | - | | | $ | 1,892,321 | | | $ | - | |
| Fair Value As of | | Fair Value Measurements at | |
| December 31, | | December 31, 2017 | |
Description | 2017 | | Using Fair Value Hierarchy | |
| | | Level 1 | | Level 2 | | Level 3 | |
Conversion feature on convertible notes | | $ | 271,588 | | | $ | - | | | $ | 271,5881 | | | $ | - | |
The below table presents the change in the fair value of the derivative liabilities during the years ended December 31, 2018:
Derivative liability balance, December 31, 2016 | | $ | - | |
Issuance of derivative liability during the period | | | 367,633 | |
Derivative liability resolution | | | (222,099 | ) |
Change in derivative liability during the period | | | 126,054 | |
Derivative liability balance, December 31, 2017 | | | 271,588 | |
Issuance of derivative liability during the period | | | 2,282,970 | |
Derivative liability resolution | | | (58,018 | ) |
Change in derivative liability during the period | | | (604,219 | ) |
Derivative liability balance, December 31, 2018 | | $ | 1,892,321 | |
Note 13 – Discontinued Operations
In December 2018, the Company decided to shut down the operations of its VWES subsidiary. In February 2019, VWES filed for Chapter 7 bankruptcy.
VWES has been presented as discontinued operations in the accompanyingunaudited consolidated financial statements.
(1)Current and prior period results have been adjusted to reflect the one-for-eight stock split effected in May 2023. See Note 5, Stockholders' Equity and Note 8, Subsequent Events for details.
ALPINE 4 HOLDINGS, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS CHANGES IN STOCKHOLDERS' EQUITY (1)
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Series B Preferred Stock | | Class A Common Stock | | Class B Common Stock | | Class C Common Stock | | Additional Paid-in Capital | | Accumulated Deficit | | Total Stockholders’ Equity |
| Shares | | Amount | | Shares | | Amount | | Shares | | Amount | | Shares | | Amount | | | |
Balance, December 31, 2022 | 5 | | | $ | 5 | | | 22,303,333 | | | $ | 2,230 | | | 1,068,512 | | | $ | 107 | | | 1,529,888 | | | $ | 153 | | | $ | 141,723,921 | | | $ | (71,734,395) | | | $ | 69,992,021 | |
Conversion of Class C Common Stock to Class A Common Stock | — | | | — | | | 1,428 | | | — | | | — | | | — | | | (1,428) | | | — | | | — | | | — | | | — | |
Series B Preferred Share removal | (1) | | | (1) | | | — | | | — | | | — | | | — | | | — | | | — | | | 1 | | | — | | | — | |
Share-based compensation expense | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 182,589 | | | — | | | 182,589 | |
Net loss | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (5,769,143) | | | (5,769,143) | |
Balance, March 31, 2023 | 4 | | | $ | 4 | | | 22,304,761 | | | $ | 2,230 | | | 1,068,512 | | | $ | 107 | | | 1,528,460 | | | $ | 153 | | | $ | 141,906,511 | | | $ | (77,503,538) | | | $ | 64,405,467 | |
| | | | | | | | | | | | | | | | | | | | | |
Balance, December 31, 2021 | 5 | | | $ | 5 | | | 20,224,938 | | | $ | 2,022 | | | 1,068,512 | | | $ | 107 | | | 1,562,635 | | | $ | 156 | | | $ | 130,348,267 | | | $ | (58,859,082) | | | $ | 71,491,476 | |
Issuance of shares of common stock for compensation | — | | | — | | | 4,924 | | | — | | | — | | | — | | | — | | | — | | | 99,248 | | | — | | | 99,248 | |
Conversion of Series D preferred stock to Class A | — | | | — | | | 7,989 | | | 1 | | | — | | | — | | | — | | | — | | | 365,463 | | | — | | | 365,464 | |
Conversion of Series C preferred stock to Class A | — | | | — | | | 1,031 | | | — | | | — | | | — | | | — | | | — | | | 34,622 | | | — | | | 34,622 | |
Share-based compensation expense | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 93,197 | | | — | | | 93,197 | |
Net loss | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (3,999,560) | | | (3,999,560) | |
Balance, March 31, 2022 | 5 | | | $ | 5 | | | 20,238,882 | | | $ | 2,023 | | | 1,068,512 | | | $ | 107 | | | 1,562,635 | | | $ | 156 | | | $ | 130,940,797 | | | $ | (62,858,642) | | | $ | 68,084,447 | |
The operatingaccompanying notes are an integral part of these unaudited consolidated financial statements.
(1) Current and prior period results for VWES have been presentedadjusted to reflect the one-for-eight stock split effected in the accompanying consolidated statement of operationsMay 2023. See Note 5, Stockholders' Equity and Note 8, Subsequent Events for the years ended December 31, 2018 and 2017 as discontinued operations and are summarized below:
| | 2018 | | | 2017 | |
Revenue | | $ | 3,040,458 | | | $ | 1,773,474 | |
Cost of revenue | | | 2,974,313 | | | | 2,288,815 | |
Gross Profit | | | 66,145 | | | | (515,341 | ) |
Operating expenses | | | 5,045,078 | | | | 890,856 | |
Loss from operations | | | (4,978,933 | ) | | | (1,406,197 | ) |
Other income (expenses) | | | 67,809 | | | | (304,447 | ) |
Net loss | | $ | (4,911,124 | ) | | $ | (1,710,644 | ) |
details.
The assets and liabilities of the discontinued operations at December 31, 2018 and 2017 are summarized below:
| | 2018 | | | 2017 | |
| | | | | | |
Current assets | | $ | 121,296 | | | $ | 574,174 | |
Property and equipment | | | 387,727 | | | | 4,174,629 | |
Goodwill | | | - | | | | 167,845 | |
Total assets | | | 509,023 | | | | 4,916,648 | |
| | | | | | | | |
Current liabilities | | | 2,493,049 | | | | 922,276 | |
Notes payable - related party | | | 43,500 | | | | 343,500 | |
Notes payable | | | 215,898 | | | | 2,079,198 | |
Total liabilities | | | 2,752,447 | | | | 3,344,974 | |
Note 14 – Subsequent Events
On January 9, 2019, the Company, announced that it had entered into a Securities Purchase Agreement (the "SPA") with Morris Sheet Metal Corp., an Indiana corporation (" MSM "), JTD Spiral, Inc. a wholly owned subsidiary of MSM, an Indiana corporation (" JTD Spiral "), Morris Enterprises LLC, an Indiana limited liability company ("Morris Enterprises ") and Morris Transportation LLC, an Indiana limited liability company (" Morris Transportation " and, with MSM, JTD Spiral, and Morris Enterprises, and James Morris, Daniel Morris and Timothy Morris. The purchase price was $6,600,000 consisting of $3,150,000 in cash and the remainder financed with a seller note.
ALPINE 4 HOLDINGS, INC., AND SUBSIDIARIES
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, 5,000,000 shares authorized, none issued and outstanding at September 30, 2019 and December 31, 2018 | | | - | | | | - | |
Class A Common stock, $0.0001 par value, 125,000,000 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, 10,000,000 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, 15,000,000 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 | |
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| | | | | | | | | | | |
| Three Months Ended March 31, |
| 2023 | | 2022 |
OPERATING ACTIVITIES: | | | |
Net loss | $ | (5,769,143) | | | $ | (3,999,560) | |
Adjustments to reconcile net loss to net cash used in operating activities: | | | |
Depreciation | 739,771 | | | 733,459 | |
Amortization | 788,013 | | | 736,205 | |
Employee stock compensation | 182,589 | | | 192,449 | |
Income tax benefit | (362,533) | | | (332,837) | |
Amortization of debt discounts | 36,820 | | | — | |
Non-cash lease expense | 457,835 | | | 105,281 | |
Write off of inventory | 46,054 | | | 66,789 | |
Bad debt expense | 134,306 | | | 113,727 | |
Changes in current assets and liabilities: | | | |
Accounts receivable | 1,465,110 | | | (1,855,245) | |
Inventory | (50,344) | | | 1,760,757 | |
Contract assets | (432,644) | | | (329,702) | |
Prepaid expenses and other assets | (156,930) | | | (881,906) | |
Accounts payable | 3,222,028 | | | (397,124) | |
Accrued expenses | (493,627) | | | (29,364) | |
Contract liabilities | 415,857 | | | (1,680,316) | |
Operating lease liability | (255,404) | | | (103,375) | |
Net cash used in operating activities | (32,242) | | | (5,900,762) | |
| | | |
INVESTING ACTIVITIES: | | | |
Capital expenditures | (1,501,923) | | | (363,053) | |
Net cash used in investing activities | (1,501,923) | | | (363,053) | |
| | | |
FINANCING ACTIVITIES: | | | |
Proceeds from issuances of notes payable, non-related party | 850,145 | | | — | |
Proceeds from issuances of note payable, related party | 535,000 | | | — | |
Net proceeds/(repayments) from line of credit | (1,780,589) | | | 3,816,742 | |
Repayments of notes payable, non-related parties | (89,600) | | | (210,194) | |
Cash paid on financing lease obligations | (179,032) | | | (157,585) | |
Net cash provided by (used) in financing activities | (664,076) | | | 3,448,963 | |
| | | |
NET DECREASE IN CASH | (2,198,241) | | | (2,814,852) | |
| | | |
CASH, BEGINNING BALANCE | 2,673,541 | | | 3,715,666 | |
| | | |
CASH, ENDING BALANCE | $ | 475,300 | | | $ | 900,814 | |
| | | |
CASH PAID FOR: | | | |
Interest | $ | 998,870 | | | $ | 579,793 | |
| | | |
SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING AND INVESTING ACTIVITIES: |
Equipment purchased on note payable | $ | — | | | $ | 182,586 | |
Series B Preferred Share Removal | $ | 1 | | | $ | — | |
Conversion of Series D preferred stock for common stock | $ | — | | | $ | 400,092 | |
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.
AlpineALPINE 4 Technologies Ltd.HOLDINGS, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements
For the Nine months ended September 30, 2019NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1 – Organization and Basis of Presentation
The unaudited consolidated financial statements were prepared by Alpine 4 Technologies Ltd. (theHoldings, Inc. (‘we,” “our,” or 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 consolidated financial statements and footnotes included in the Company's Annual Report on Form 10-K for the year ended December 31, 2022, filed with the SEC on April 22, 2019.May 5, 2023. The results for the ninethree months ended September 30, 2019,March 31, 2023, are not necessarily indicative of the results to be expected for the year ending December 31, 2019.
Description of Business
2023.
The Company was incorporated under the laws of the State of Delaware onin April 22, 2014. TheWe are a publicly traded conglomerate that acquires businesses that fit into our disruptive DSF business model of Drivers, Stabilizers, and Facilitators.
As of the date of this Report, 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,directly or indirectly, fourteen companies:
•A4 Corporate Services, LLC;
•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, Corporation ("MSM");
•JTD Spiral, Inc.;
•Excel Construction Services, LLC ("Excel");
•SPECTRUMebos, Inc.;
•Vayu Aerospace Corporation;
•Thermal Dynamics International, Inc. ("TDI");
•Alternative Laboratories, LLC. ("Alt Labs");
•Identified Technologies, Corporation ("IDT");
•ElecJet Corporation.;
•DTI Services LLC (doing business as RCA Commercial Electronics ("RCA")); and
•Global Autonomous Corporation ("GAC").
In February 2023, the Company made a wholly owned$0.3 million investment for a 10% equity interest in a battery materials company, which includes a seat on its board of directors, and participation rights in future funding rounds. The investment is accounted for as an equity method investment as the board representation allows us to have significant influence over the operating and financial policies of the battery materials company. The investment is presented in other non-current assets on the consolidated balance sheet with the value of the investment being adjusted in arrears on a quarterly basis based on its financial performance.
Basis of presentation
The accompanying financial statements have been prepared in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”).
Liquidity
The Company’s financial statements are prepared in accordance with U.S. GAAP applicable to a going concern, which contemplates realization of assets and the satisfaction of liabilities in the normal course of business within one year after the date the consolidated financial statements are issued. In accordance with Financial Accounting Standards Board (the “FASB”), Accounting Standards Update (“ASU”) No. 2014-15, Presentation of Financial Statements - Going Concern (Subtopic 205-40), our management evaluates whether there are conditions or events, considered in aggregate, that raise substantial doubt about our ability to continue as a going concern within one year after the date that the financial statements are issued (further detail in the Going Concern sub-section below).
As shown in the accompanying consolidated financial statements, the Company has incurred significant recurring losses and negative cash flows from operations. These factors raise substantial doubt about the Company's ability to continue as a going concern. Although the Company has experienced net losses of $5.8 million and $4.0 million for the three months ended March 31, 2023 and 2022, respectively, net cash flows used in operations has improved to nearly breakeven for the three months ended March 31, 2023, from $5.9 million for the three months ended March 31, 2022.
As of March 31, 2023, the Company had positive working capital of approximately $4.0 million, which was a decrease of $11.5 million compared to December 31, 2022. The Company has bank financing totaling $33.0 million ($33.0 million in lines of credit including $0.1 million in capital expenditures lines of credit availability) of which approximately $3.8 million was available and unused as of March 31, 2023. There are three lines of credit that are set to mature during the next twelve months. These three lines of credits total $11.7 million, of which $9.0 million was used as of March 31, 2023, and are shown as a Current Liability on the Consolidated Balance Sheet.
The Company plans to continue to generate additional revenue, improve cash flows from operations, and improve gross profit performance across all of its subsidiaries. The Company also may raise funds through debt financing, securing additional lines of credit, and the sale of shares in public or private offerings.
Going Concern
The accompanying financial statements have been prepared on a going concern basis. While the working capital deficiency of prior years has improved, and working capital of the Company is currently positive, continued operating losses causes doubt as to the ability of the Company to continue. 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 profitable operations are necessary for the Company to continue. The uncertainty that exists with these factors raises substantial doubt about the Company's ability to continue as a going concern. The financial statements of the Company do not include any adjustments that may result from the outcome of these aforementioned uncertainties.
In order to mitigate the risk related to the going concern uncertainty, the Company has a three-fold plan to resolve these risks. First, the operating subsidiaries of QCA, QCA-C, IDT, TDI, and RCA plan to expand their revenues and profits yielding increased cash flow in those operating segments. This plan will allow for an increased level of cash flow to the Company. Second, the Company has expanded its credit facilities at the subsidiary level over the past twelve months to allow for greater borrowing accessibility if needed for the expansion of product lines and sales opportunities and plans to extend or refinance any lines of credit coming due over the next twelve months in order to provide additional financing. Finally, operating companies hard hit by the supply-chain related price increases such as MSM, Alt Labs, and Excel Construction have begun to experience an Indiana corporation, Morris Enterprises LLC, an Indianaeasing in the procurement and cost overruns of limited liability companyproduct supply. This subsequently has added to increased cash flow to those entities and Morris Transportation LLC, an Indiana limited liability company (collectively “Morris”) (see Note 9).less reliance on the Company to fund those activities. Although this plan is in place to mitigate the risk related to the going concern uncertainty, substantial doubt remains due to uncertainty around the growth projections and lack of control of many of the factors included in the Company’s plan.
Entity level risks
Our operations and performance may depend on global, regional, economic and geopolitical conditions. Russia’s invasion and military attacks on Ukraine have triggered significant sanctions from North American and European leaders. As of the date of this Report, those events were continuing to escalate and create increasingly volatile global economic conditions. Resulting changes in North American trade policy could trigger retaliatory actions by Russia, its allies and other affected countries, including China, resulting in a “trade war.” A trade war could result in increased costs for raw materials that we use in our manufacturing and could otherwise limit our ability to sell our products abroad. These increased costs would have a negative effect on our financial condition and profitability. Furthermore, the military conflict between Russia and Ukraine is increasing supply interruptions and further hindering our ability to find the materials we need to make our products. If the conflict between Russia and Ukraine continues for a long period of time, or if other countries become further involved in the conflict, we could face significant adverse effects to our business and financial condition. The Company is not able to fully quantify the impact that these factors will have on the Company’s financial results during 2023 and beyond.
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,March 31, 2023, and December 31, 2018.2022. Significant intercompany balances and transactions have been eliminated.
BasisUse of presentation
estimates
The accompanyingconsolidated financial statements present the balance sheets, statements of operations, stockholders' deficit and cash flows of the Company. The financial statements have beenare prepared in accordance with generally accepted accounting principles in the United States, or U.S. GAAP.
Use Preparation of estimates
The preparation ofthese financial statements in conformity with U.S. GAAP requires the Companyus to make estimates and judgmentsassumptions that affect the reported amounts of assets, and liabilities, revenuesrevenue, costs and expenses and related disclosures of contingent assets and liabilities. Thesedisclosures. The Company bases its estimates and judgments are based on historical information, information that is currently available to the Companyexperience and on various other assumptions that the Companyit believes to be reasonable underreasonable. In many instances, the circumstances.Company could have reasonably used different accounting estimates and in other instances changes in the accounting estimates are reasonably likely to occur from period to period. This applies in particular to useful lives of long-lived assets, reserves for accounts receivable and inventory, valuation allowance for deferred tax assets, fair values assigned to intangible assets acquired, and impairment of long-lived assets. Actual results could differ significantly from thoseour estimates. To the extent that there are material differences between these estimates and actual results, the Company’s future financial statement presentation, financial condition, results of operations and cash flows will be affected.
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,March 31, 2023, and December 31, 2018,2022, the Company had no cash equivalents.
The FDIC insures up to $250,000 per account with any excess amount in each account being uninsured. Total bank balances were $0.8 million and $3.2 million as of March 31, 2023, and December 31, 2022, respectively. Of this amount, $0.1 million and $2.0 million were uninsured as of March 31, 2023, and December 31, 2022, respectively. All uninsured amounts are held with J.P. Morgan Chase.
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
& Vendors
The Company had threeno customers thatwhich made up 21%, 16% and 13%, respectively,over 10% of total Company accounts receivable as of September 30, 2019. The Company had two customers that made up 29 % and 27%, respectively, of accounts receivable as ofMarch 31, 2023, or December 31, 2018.
2022.
For the ninethree months ended September 30, 2019,March 31, 2023, the Company had twono customers thatwhich made up 14%over 10% of total Company revenues. For the three months ended March 31, 2022, the Company had one customer within the A4 Technology - RCA segment, which made up 13% of total Company revenues.
For the three months ended March 31, 2023 and 2022, the Company received 12% and 11%, respectively, of total revenues. Company revenues from prime contractors.
For the ninethree months ended September 30, 2018,March 31, 2023, the Company had no vendors, which made up over 10% of total Company purchases. For the three months ended March 31, 2022, the Company had one customer thatvendor within the A4 Technology - RCA segment, which made up 23%17% 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
purchases.
Inventory
Inventory for all subsidiaries is valued at the lower of the inventory's cost (weightedweighted average basis) or net realizable value.cost. 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)work-in-process and finished goods. Below is a breakdown of how much inventory was in each area as of September 30, 2019Inventory at March 31, 2023, and December 31, 2018:2022, consists of:
| | 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 | |
| | | | | | | | | | | |
| March 31, 2023 | | December 31, 2022 |
Raw materials | $ | 10,083,241 | | | $ | 9,116,824 | |
Work in process | 3,236,331 | | | 3,165,876 | |
Finished goods | 11,943,087 | | | 12,975,669 | |
Inventory | 25,262,659 | | | 25,258,369 | |
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:
| 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")ASC Topic 360, Accounting for the Impairment of Long-Lived Assets.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,the three months ended March 31, 2023, there have beenwere no events or changes in circumstances that indicated a quantitative impairment losses.analysis was necessary.
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,March 31, 2023, and December 31, 2018,2022, the reporting units with goodwill were QCA, APFMSM, Excel, Alt Labs, TDI, Identified Technology, ElecJet, and Morris.
The Company used qualitative factors according to ASC 350-20-35-3 to determine whetherRCA. Consistent with our prior year assessment, the ElecJet reporting unit is considered an at-risk reporting unit. Our methods and assumptions were consistent with those discussed below in the Fair Value Measurement subsection. This reporting unit is primarily considered at-risk as it is
more likely than not thata start-up subsidiary with minimal to no revenue to offset its research & development expenses. The DCF model includes revenue growth assumptions of us executing large new customer and/or supplier agreements within 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 goodwillnext two years 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 ofthen steadily increasing 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 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 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 monthlymore normalized rate of approximately $69,000. These payments are reflected inthereafter. Any failure to execute these customer and/or supplier arrangements would negatively impact the table above.key growth assumptions.
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 3rd to 6th 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 | ) |
Note 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.
We apply the provisions of fair value measurement to various nonrecurring measurements for our financial and nonfinancial assets and liabilities. The Company's financial instruments consist of cash and cash equivalents, accounts receivable, accounts payable, accrued expenses, notes payable and lines 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.
IfWe calculate the
inputs usedestimated fair value of a reporting unit using a combination of the income and market approaches. For the income approach, we use a discounted cash flow models developed in connection with our third-party valuation specialists that include the following assumptions, among others: projections of revenues, expenses, and related cash flows based on assumed long-term growth rates; and estimated discount rates. For the market approach, we use analyses based primarily on market comparables. We base these assumptions on historical data and experience, industry projections, and general economic conditions.The carrying value of long-term debt approximates fair value since the related rates of interest approximate current market rates. As of March 31, 2023, and December 31, 2022, the Company had no financial assets or liabilities that were required to measure thebe fair valued on a recurring basis, as all of our financial assets and liabilities fall within more than one level described above,were Level 1.
Research and Development
The Company focuses on quality control and development of new products and the categorization is basedimprovement of existing products. All costs related to research and development activities are expensed as incurred. During the three months ended March 31, 2023 and 2022, research and development costs totaled $0.1 million and $0.2 million, respectively.
Earnings (loss) per share
The Company presents both basic and diluted net income (loss) per share on the lowest level of input that is significant to the fair value measurementface of the instrument.
consolidated statements of operations. Basic net income (loss) per share is computed by dividing net income (loss) by the weighted average number of shares of common stock outstanding during the period. Diluted per share calculations give effect to all potentially dilutive shares of common stock outstanding during the period, including stock options and warrants, using the treasury-stock method. If antidilutive, the effect of potentially dilutive shares of common stock is ignored. The amount of anti-dilutive shares related to stock options and warrants as of March 31, 2023 and 2022 was 2,700,473 and 837,472. respectively. The following table providesillustrates the computation of basic and diluted
earnings per share (“EPS”) inclusive of all classes of common stock as the only difference between the classes of common stock are related to the voting rights for the three months ended March 31, 2023 and 2022:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| For the Three Months Ended March 31, 2023 | | For the Three Months Ended March 31, 2022 |
| Net Loss | | Shares | | Per Share Amount | | Net Loss | | Shares | | Per Share Amount |
Basic EPS | | | | | | | | | | | |
Net loss | $ | (5,769,143) | | | 24,901,733 | | | $ | (0.23) | | | $ | (3,999,560) | | | 22,879,056 | | | $ | (0.17) | |
Effect of Dilutive Securities | | | | | | | | | | | |
Stock options and warrants | — | | | — | | | — | | | — | | | — | | | — | |
Dilute EPS | | | | | | | | | | | |
Total | $ | (5,769,143) | | | 24,901,733 | | | $ | (0.23) | | | $ | (3,999,560) | | | 22,879,056 | | | $ | (0.17) | |
Revenue Recognition
The Company recognizes revenue under ASC Topic 606, Revenue from contract with Customers ("Topic 606"). The following is a summary of the fair valuerevenue recognition policy for each of the Company’s subsidiaries.
Revenue is recognized under Topic 606, at a point in time and over a period of time, in a manner that reasonably reflects the delivery of its services and products to customers in return for expected consideration and includes the following elements:
•executed contract with the Company's customers that it believes are legally enforceable;
•identification of performance obligations in the respective contract;
•determination of the transaction price for each performance obligation in the respective contract;
•allocation of the transaction price to each performance obligation; and
•recognition of revenue only when the Company satisfies each performance obligation.
The following tables presents our revenues disaggregated by type for the three months ended March 31, 2023 and 2022:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, 2023 |
| Construction Services | | Manufacturing | | Defense | | Technologies | | Aerospace | | Total |
Sale of goods | $ | — | | | $ | 9,320,821 | | | $ | — | | | $ | 7,555,918 | | | $ | — | | | $ | 16,876,739 | |
Sale of services | 4,146,004 | | | — | | | 2,970,087 | | | — | | | 368,883 | | | 7,484,974 | |
Total revenues | $ | 4,146,004 | | | $ | 9,320,821 | | | $ | 2,970,087 | | | $ | 7,555,918 | | | $ | 368,883 | | | $ | 24,361,713 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, 2022 |
| Construction Services | | Manufacturing | | Defense | | Technologies | | Aerospace | | Total |
Sale of goods | $ | — | | | $ | 8,648,095 | | | $ | — | | | $ | 9,793,988 | | | $ | — | | | $ | 18,442,083 | |
Sale of services | 4,056,204 | | | — | | | 2,687,981 | | | — | | | 405,886 | | | 7,150,071 | |
Total revenues | $ | 4,056,204 | | | $ | 8,648,095 | | | $ | 2,687,981 | | | $ | 9,793,988 | | | $ | 405,886 | | | $ | 25,592,154 | |
Recent Accounting Pronouncements
Effective January 1, 2023, we adopted ASU 2016-13, Credit Losses Topic 326 (the new credit losses standard), using the modified retrospective approach. The comparative periods have not been restated and continue to be
reported under the accounting standard in effect for those periods. The new credit losses standard amends the impairment model to use a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. Our adoption of ASU 2016-13 did not have a material impact on our consolidated financial statements for the three months ended March 31, 2023, and we did not recognize a cumulative effect adjustment to retained earnings as of January 1, 2023.
To assist in quantifying the impact on our consolidated financial statements and supplementing our existing disclosures, we identified financial assets measured at an amortized cost basis in our consolidated balance sheet and evaluated the collectability considerations based on an expected credit loss assessment. We perform ongoing credit evaluations of our derivative liabilities ascustomers, but generally do not require collateral to support customer receivables. We establish an allowance for doubtful accounts based on various factors including the age of September 30, 2019receivables outstanding, historical trends, economic conditions 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 presentsother information. We also review outstanding balances on an account-specific basis based on the changecredit risk of the customer. We determined that all of our accounts receivable share similar risk characteristics within our operating segments based on historical data. We monitor our credit exposure on an ongoing basis and assess whether assets in the fair valuepool continue to display similar risk characteristics. We actively monitor the credit risk of our specific customers, age of receivables outstanding, recent collection trends and general economic conditions to evaluate 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 operationsrisk 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.
credit loss. The operating results for VWES have been presented in the accompanying consolidated statement of operationsincome for the ninethree months ended September 30, 2019March 31, 2023, reflects the measurement of credit losses for newly recognized financial assets as well as any changes to historical financial assets.
| | | | | |
| Allowance for Doubtful Accounts |
Balance as of December 31, 2022 | $ | 52,531 | |
Additions charged to expense | 153,243 | |
Accounts written-off | (18,937) | |
Balance as of March 31, 2023 | $ | 186,837 | |
Other recent accounting pronouncements issued by the FASB, including its Emerging Issues Task Force, the American Institute of Certified Public Accountants, and 2018 as discontinued operationsthe Securities and Exchange Commission did not or are summarized below:not believed by management to have a material impact on the Company's present or future 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 | ) |
The
assets and liabilitiesCompany determines whether a contract is or contains a lease at inception of the
discontinued operations at September 30, 2019contract and
December 31, 2018 are summarized below: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 discounts lease payments based on an estimate of its incremental borrowing rate.F-59
| | 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’ bankruptcy2023, the future minimum finance and operating lease payments were as follows:
| | | | | | | | | | | | | | |
Twelve Months Ending March 31, | | Finance Leases | | Operating Leases |
2024 | | $ | 1,931,757 | | | $ | 2,398,681 | |
2025 | | 1,962,353 | | | 2,423,929 | |
2026 | | 1,852,006 | | | 1,823,638 | |
2027 | | 1,880,265 | | | 1,814,303 | |
2028 | | 1,923,136 | | | 1,708,631 | |
Thereafter | | 14,368,333 | | | 12,855,124 | |
Total payments | | 23,917,850 | | | 23,024,306 | |
Less: imputed interest | | (8,778,767) | | | (6,698,331) | |
Total obligation | | 15,139,083 | | | 16,325,975 | |
Less: current portion | | (743,157) | | | (1,484,846) | |
Non-current financing leases obligations | | $ | 14,395,926 | | | $ | 14,841,129 | |
Finance Leases
As of March 31, 2023, all finance leases in the table above were related to property and equipment. Depreciation expense associated with the finance leases within Property and Equipment was completed$312,954 and $312,954 for the three months ended March 31, 2023 and 2022, respectively. Of this amount $44,503 and $0 is recorded within Cost of Revenues with the remainder recorded in General & Administrative expenses on the Consolidated Statements of Operations for the three months ended March 31, 2023 and 2022, respectively. Interest expense on finance leases for the three months ended March 31, 2023, and 2022 was $305,262 and $317,905, respectively, and is recorded in Interest Expense on the Consolidated Statements of Operations. At March 31, 2023, the weighted average remaining lease terms were 11.7 years, and the Company removed allweighted average discount rate was 8.01%.
Operating Leases
The table below presents the operating lease related assets and liabilities of VWES resulting in a gainrecorded on the dispositionCompany’s consolidated balance sheets as of discontinued operationsMarch 31, 2023, and December 31, 2022:
| | | | | | | | | | | | | | | | | |
| | | March 31, 2023 | | December 31, 2022 |
Assets | | | | | |
Operating lease assets | Operating lease right of use assets | | $ | 15,949,731 | | | $ | 16,407,566 | |
Total lease assets | | | $ | 15,949,731 | | | $ | 16,407,566 | |
| | | | | |
Liabilities | | | | | |
Current liabilities | | | | | |
Operating lease liability | Current operating lease liability | | $ | 1,484,846 | | | $ | 1,318,885 | |
Noncurrent liabilities | | | | | |
Operating lease liability | Long-term operating lease liability | | 14,841,129 | | | 15,262,494 | |
Total lease liability | | | $ | 16,325,975 | | | $ | 16,581,379 | |
The lease expense for the three months ended March 31, 2023 and 2022, was $598,590 and $126,561, respectively. Of this amount $216,754 and $0 is recorded within Cost of $2,515,028.Revenues with the remainder recorded in General & Administrative expense on the Consolidated Statements of Operations for the three months ended March 31, 2023 and 2022, respectively. The cash paid under operating leases during the three months ended March 31, 2023 and 2022, was $540,833 and $124,654, respectively. At March 31, 2023, the weighted average remaining lease terms were 11.7 years, and the weighted average discount rate was 6.01%.
Note 134 – Subsequent EventsDebt
The outstanding balances for the loans as of March 31, 2023, and December 31, 2022, were as follows:
Subsequent to September 30, 2019, | | | | | | | | | | | |
| March 31, 2023 | | December 31, 2022 |
Lines of credit, current portion | $ | 8,970,460 | | | $ | 7,426,814 | |
Equipment loans, current portion | 82,787 | | | 68,410 | |
Related Party term notes, current portion | 535,000 | | | — | |
Term notes, current portion | 5,915,560 | | | 3,132,726 | |
Total current | 15,503,807 | | | 10,627,950 | |
Lines of credit, net of current portion | 3,928,105 | | | 7,215,520 | |
Long-term portion of equipment loans and term notes | 2,229,684 | | | 4,266,350 | |
Total notes payable and line of Credit | $ | 21,661,596 | | | $ | 22,109,820 | |
Future scheduled maturities of outstanding debt are as follows:
| | | | | |
Twelve Months Ending March 31, | |
2024 | $ | 15,503,807 | |
2025 | 1,785,069 | |
2026 | 709,653 | |
2027 | 3,562,900 | |
2028 | 26,035 | |
Thereafter | 74,132 | |
Total | $ | 21,661,596 | |
In August 2020, the Company agreedfiled a lawsuit against Alan Martin regarding his note payable. As of March 31, 2023 and 2022, the note had a balance of $2.9 million, and accrued interest of $1.8 million and $1.2 million, respectively, which are reflective in current liabilities. The default rate is 10% and the daily late charge is $575 (See a description of the Company’s ongoing legal proceedings relating to settlethis transaction in Note 7, Commitments and Contingencies, below).
During January and February 2023, the Company issued a total of $1.3 million in six-month note payables ranging in size from $10,000 to $200,000 to executive officers and various investors with convertible note holdersan annual interest rate of 30% to be used for general corporate purposes. Of this amount, $0.5 million was issued to related parties.
During 2023, the Company had four revolving lines of credit in the aggregate of $33.0 million, including one capital expenditures line of credit of $0.1 million. The revolving lines of credit used as of March 31, 2023, totaled $12.9 million with interest rates ranging from WSJ prime plus 2.50% - 4.25% and issued 4,400,000terms ranging from one to five years. Accounts receivables, inventory, and property and equipment are pledged as collateral on the various lines of credit. As of March 31, 2023, the Company had $3.8 million in additional funds available to borrow. The Company is required to maintain covenants including financial ratios as a condition of the line of credit agreements. As of the date of this Report, the Company was not in compliance with these covenants. However, the Company received a forbearance agreement and waivers from the banking institutions regarding these failed covenants. As such, the Company was in compliance with the covenants as of the date of this report.
Note 5 – Stockholders' Equity
On May 12, 2023, a Certificate of Amendment was filed to effect a one-for-eight (1-for-8) reverse split (the “Reverse Split”) of the shares of the Company’s the Class A, Class B, and Class C Common Stock, and to decrease the number of shares of Class A common stock upon the conversion of convertible debts (see below)Common Stock from 295,000,000 shares to 200,000,000 shares (the “Class A Common Stock Decrease”). 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 CompanyReverse Split and the noteholder agreed that note would be settled overClass A Common Stock Decrease became effective on May 12, 2023. As 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 holderresult 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 4,550,000Reverse Split, every eight shares of the Company’s issued and outstanding 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 penaltiesCommon Stock automatically converted into one share 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 SharesStock, without any change in the par value per share, and 30,000began trading on a post-split basis under the Company’s existing trading symbol, “ALPP,” when the market opened on May 15, 2023. Additionally, every eight shares of the Company’s issued and outstanding Class B Common Stock automatically converted into one share of Class B Common Stock, without any change in the par value per share, and every eight shares of the Company’s issued and outstanding Class C Common Stock.
Subsequent to September 30, 2019, the Company issued 10,000 sharesStock automatically converted into one share 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 forthCommon Stock, without any change 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.
Variable Convertible Debt Payoff, Refinancing and Settlement Agreements
Subsequent to September 30, 2019, the Company completed a series of debt settlements, refinancings, and payoffs of existing variable convertible debt holders. Debt principal and accrued interest totaling $1,137,452 were settled through issuance of 5,965,946 Class A common shares and 1,617,067 Class C common shares. The Company also made $313,000 debt payments and modified the conversion price of a convertible note amounting to $195,000 to $0.15par value per share.
Creation of Series B Preferred Stock
On November 26, 2019, the Company’s board of directors approved the filing with the Secretary of State of Delaware a Certificate of Designation of Rights and Preferences (the “Designation”) for the creation of a new Series B Preferred Stock (the “Series B Preferred Stock”).
As of February 10, 2020, we had one series of preferred stock outstanding, our Series B Convertible Preferred Stock (the “Series B Preferred Stock”). The
Company has designated 100 shares of Series B Preferred Stock which has a stated value of $1.00, do not accrue dividends and has voting rights equivalent to 200% of the total voting power ofReverse Split affected all holders
of the Company's common and preferred stock then outstanding but not including the Series B Preferred Stock. The Series B Preferred Stock shall be convertible to the Company's Class A common stock in the event the Series B Preferred Stock holder ceases to be a director of the Company.As of February 10, 2020, we had 5 shares of Series B Preferred Stock outstanding, held by the members of our Board of Directors.
Changes in Authorized Capital
On December 30, 2019, the Company filed with the Secretary of State of Delaware a Certificate of Amendment (the “Amendment”) to the Company’s Certificate of Incorporation. Pursuant to the Amendment, the Company’s authorized shares of Class A, Class B, and Class C Common Stock uniformly and did not affect any common stockholder’s percentage ownership interest in the Company, except for de minimis changes as a result of the elimination of fractional shares. A total of 180,037,350 shares of Class A Common Stock were issued and outstanding immediately prior to the Reverse Split, and approximately 22,504,669 shares of common stock were issued and outstanding immediately after the Reverse Split. No fractional shares will be outstanding following the Reverse Split. Any holder who would have received a fractional share of common stock will automatically be entitled to receive an additional fraction of a share of common stock to round up to the next whole share. In addition, effective as of the same time as the Reverse Split, proportionate adjustments were made to all then-outstanding options and warrants with respect to the number of shares of Class A Common Stock subject to such options or warrants and the exercise prices thereof. The impact of this change in capital structure has been retrospectively applied to all periods presented herein.
Common Stock
The Company had the following transactions in its common stock during the three months ended March 31, 2023:
•In January 2023, certain shareholders converted 1,428 shares of Class C common stock into 1,428 shares of Class A common stock.
Series B Preferred Stock
During February 2023, the Company identified that it had inappropriately awarded a Series B Preferred Share to an executive officer who is not also a board member. As the Series B Preferred Shares can only be held by members of the Board, the share issuance was rescinded.
Stock Options
The following summarizes the stock option activity for the three months ended March 31, 2023:
| | | | | | | | | | | | | | | | | | | | | | | |
| Options | | Weighted Average Exercise Price | | Weighted Average Remaining Contractual Life (Years) | | Aggregate Intrinsic Value |
Outstanding at December 31, 2022 | 386,751 | | | $ | 4.39 | | | 7.94 | | $ | 463,495 | |
Granted | — | | | — | | | | | |
Forfeited | (7,689) | | | 6.16 | | | | | |
Exercised | — | | | — | | | | | |
Outstanding at March 31, 2023 | 379,062 | | | $ | 4.35 | | | 7.67 | | $ | 444,942 | |
| | | | | | | |
Vested and expected to vest at March 31, 2023 | 379,062 | | | $ | 4.35 | | | 7.67 | | $ | 444,942 | |
| | | | | | | |
Exercisable at March 31, 2023 | 135,567 | | | $ | 1.11 | | | 5.12 | | $ | 444,942 | |
The following table summarizes information about options outstanding and exercisable as of March 31, 2023:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Options Outstanding | | Options Exercisable |
Exercise Price | | Number of Shares | | Weighted Average Remaining Life (Years) | | Weighted Average Exercise Price | | Number of Shares | | Weighted Average Exercise Price |
$ | 0.05 | | | 111,438 | | | 5.26 | | $ | 0.40 | | | 111,438 | | | $ | 0.40 | |
0.10 | | | 10,625 | | | 5.03 | | 0.80 | | | 10,625 | | | 0.80 | |
0.77 | | | 243,495 | | | 9.08 | | 6.16 | | | — | | | — | |
0.90 | | | 13,504 | | | 4.02 | | 7.20 | | | 13,504 | | | 7.20 | |
| | 379,062 | | | | | | | 135,567 | | | |
During the three months ended March 31, 2023 and 2022, stock option expense amounted to $0.2 million and $0.2 million, respectively. Unrecognized stock option expense as of March 31, 2023, amounted to $0.9 million, which will be recognized over a period extending through April 2025.
Warrants
The following summarizes the warrants activity for the three months ended March 31, 2023:
| | | | | | | | | | | | | | | | | | | | | | | |
| Warrants | | Weighted Average Exercise Price | | Weighted Average Remaining Contractual Life (Years) | | Aggregate Intrinsic Value |
Outstanding at December 31, 2022 | 2,321,411 | | | $ | 11.78 | | | 4.31 | | $ | — | |
Granted | — | | | — | | | 0 | | |
Forfeited | — | | | — | | | | | |
Exercised | — | | | — | | | | | |
Outstanding at March 31, 2023 | 2,321,411 | | | $ | 11.78 | | | 4.02 | | $ | — | |
| | | | | | | |
Vested and expected to vest at March 31, 2023 | 2,321,411 | | | $ | 11.78 | | | 4.02 | | $ | — | |
| | | | | | | |
Exercisable at March 31, 2023 | 2,321,411 | | | $ | 11.78 | | | 4.02 | | $ | — | |
The following table summarizes information about warrants outstanding and exercisable as of March 31, 2023:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Warrants Outstanding | | Warrants Exercisable |
Exercise Price | | Number of Shares | | Weighted Average Remaining Life (Years) | | Weighted Average Exercise Price | | Number of Shares | | Weighted Average Exercise Price |
$ | 52.80 | | | 52,084 | | | 1.89 | | $ | 52.80 | | | 52,084 | | | $ | 52.80 | |
20.16 | | | 49,604 | | | 1.70 | | 20.16 | | | 49,604 | | | 20.16 |
24.80 | | | 535,716 | | | 3.66 | | 24.80 | | | 535,716 | | | 24.80 |
24.64 | | | 53,572 | | | 3.65 | | 24.64 | | | 53,572 | | | 24.64 |
5.52 | | | 1,630,435 | | | 4.29 | | $ | 5.52 | | | 1,630,435 | | | 5.52 |
| | 2,321,411 | | | | | | | 2,321,411 | | | |
Note 6 – Segment Reporting
The Company discloses segment information that is consistent with the way in which management operates and views its business. Effective during the quarter ended September 30, 2022, the Company increased (the “Share Increase”its reportable
segments to eight segments. All segments and the subsidiaries within each segment are geographically located in North America. The financial results are logical to review in this manner for comparison, trend, deviations, etc. purposes.
Management excludes the following when reviewing the profit/loss by segment.
•Intercompany Sales/COGS
•Management fees to the parent Company
•Income tax benefit/expense
There has not been any change to the measurement method in how management reviews the profit/loss by segment.
The operating segments and their business activity are as follows:
A4 Construction Services - Morris Sheet Metal (“MSM”) provides commercial construction services primarily as a sheet metal contractor.
A4 Construction Services - Excel Construction (“Excel”) provides commercial construction services primarily as a sheet metal contractor.
A4 Manufacturing - Quality Circuit Assembly ("QCA") is a contract manufacturer within the technology industry.
A4 Manufacturing - Alternative Labs (“Alt Labs”) is a contract manufacturer within the dietary & nutraceutical supplements industry.
A4 Defense - Thermal Dynamics does contracting for the US Government particularly for the US Defense Department and US Department of State.
A4 Technologies - RCA Commercial Electronics (“RCA”) is a business-to-business ("B2B") commercial electronics manufacturer.
A4 Technologies - ElecJet is a battery research and development company.
A4 Aerospace - Vayu is a drone aircraft manufacturer.
A4 All Other includes the QCA-Central, Identified Technologies and Corporate.
| | | | | | | | | | | |
| Three Months Ended March 31, |
| 2023 | | 2022 |
Revenue | | | |
A4 Construction Services - MSM | $ | 3,813,140 | | | $ | 3,767,390 | |
A4 Construction Services - Excel | 332,864 | | | 288,814 | |
A4 Manufacturing - QCA | 4,191,643 | | | 4,318,860 | |
A4 Manufacturing - Alt Labs | 4,226,914 | | | 3,824,138 | |
A4 Defense - TDI | 2,970,087 | | | 2,687,981 | |
A4 Technologies - RCA | 7,453,423 | | | 9,237,259 | |
A4 Technologies - ElecJet | 102,495 | | | 556,729 | |
A4 Aerospace - Vayu | — | | | 25,000 | |
All Other | 1,271,147 | | | $ | 885,983 | |
| $ | 24,361,713 | | | $ | 25,592,154 | |
Gross profit | | | |
| | | | | | | | | | | |
A4 Construction Services - MSM | $ | 231,888 | | | $ | 463,806 | |
A4 Construction Services - Excel | (150,008) | | | (98,974) | |
A4 Manufacturing - QCA | 897,715 | | | 1,027,184 | |
A4 Manufacturing - Alt Labs | 948,752 | | | 901,479 | |
A4 Defense - TDI | 616,582 | | | 843,189 | |
A4 Technologies - RCA | 2,374,178 | | | 2,184,328 | |
A4 Technologies - ElecJet | (73,809) | | | (62,029) | |
A4 Aerospace - Vayu | (2,410) | | | 25,000 | |
All Other | 373,568 | | | $ | 353,474 | |
| $ | 5,216,456 | | | $ | 5,637,457 | |
Income (loss) from operations | | | |
A4 Construction Services - MSM | $ | (404,413) | | | $ | (315,698) | |
A4 Construction Services - Excel | (432,081) | | | (319,990) | |
A4 Manufacturing - QCA | 19,097 | | | 414,448 | |
A4 Manufacturing - Alt Labs | (559,125) | | | (987,483) | |
A4 Defense - TDI | 181,534 | | | 423,140 | |
A4 Technologies - RCA | 475,864 | | | 566,290 | |
A4 Technologies - ElecJet | (245,421) | | | (304,346) | |
A4 Aerospace - Vayu | (820,967) | | | (806,897) | |
All Other | (3,354,961) | | | (2,425,619) | |
| $ | (5,140,473) | | | $ | (3,756,155) | |
Depreciation and amortization | | | |
A4 Construction Services - MSM | $ | 174,298 | | | $ | 166,404 | |
A4 Construction Services - Excel | 67,525 | | | — | |
A4 Manufacturing - QCA | 116,879 | | | 100,479 | |
A4 Manufacturing - Alt Labs | 208,554 | | | 307,035 | |
A4 Defense - TDI | 72,433 | | | 72,090 | |
A4 Technologies - RCA | 244,804 | | | 170,046 | |
A4 Technologies - ElecJet | 105,666 | | | 101,500 | |
A4 Aerospace - Vayu | 258,911 | | | 274,669 | |
All Other | 278,713 | | | 277,441 | |
| $ | 1,527,783 | | | $ | 1,469,664 | |
Interest expense | | | |
A4 Construction Services - MSM | $ | 113,710 | | | $ | 103,025 | |
A4 Construction Services - Excel | 60,570 | | | 61,985 | |
A4 Manufacturing - QCA | 163,645 | | | 36,289 | |
A4 Manufacturing - Alt Labs | 64,680 | | | 57,116 | |
A4 Defense - TDI | 17,347 | | | — | |
A4 Technologies - RCA | 85,956 | | | 54,817 | |
A4 Technologies - ElecJet | — | | | — | |
A4 Aerospace - Vayu | 5,958 | | | — | |
All Other | 487,004 | | | 295,729 | |
| $ | 998,870 | | | $ | 608,961 | |
Net income (loss) | | | |
A4 Construction Services - MSM | $ | (480,600) | | | $ | (362,367) | |
| | | | | | | | | | | |
A4 Construction Services - Excel | (492,651) | | | (381,975) | |
A4 Manufacturing - QCA | (144,187) | | | 373,867 | |
A4 Manufacturing - Alt Labs | (658,756) | | | (1,111,462) | |
A4 Defense - TDI | 164,187 | | | 423,140 | |
A4 Technologies - RCA | 389,908 | | | 511,473 | |
A4 Technologies - ElecJet | (245,421) | | | (304,346) | |
A4 Aerospace - Vayu | (826,925) | | | (806,897) | |
All Other | (3,474,698) | | | (2,340,993) | |
| $ | (5,769,143) | | | $ | (3,999,560) | |
The Company’s reportable segments as of March 31, 2023, and December 31, 2022, were as follows:
| | | | | | | | | | | |
| As of March 31, 2023 | | As of December 31, 2022 |
Total assets | | | |
A4 Construction Services - MSM | $ | 10,699,259 | | | $ | 11,309,049 | |
A4 Construction Services - Excel | 3,390,848 | | | 3,359,818 | |
A4 Manufacturing - QCA | 21,046,251 | | | 20,988,492 | |
A4 Manufacturing - Alt Labs | 27,083,918 | | | 26,636,905 | |
A4 Defense - TDI | 13,748,110 | | | 13,497,381 | |
A4 Technologies - RCA | 23,339,534 | | | 27,191,977 | |
A4 Technologies - ElecJet | 12,972,480 | | | 12,897,440 | |
A4 Aerospace - Vayu | 13,594,000 | | | 14,632,530 | |
All Other | 16,070,325 | | | 15,118,622 | |
| $ | 141,944,725 | | | $ | 145,632,214 | |
Goodwill | | | |
A4 Construction Services - MSM | $ | 113,592 | | | $ | 113,592 | |
A4 Construction Services - Excel | — | | | — | |
A4 Manufacturing - QCA | 1,963,761 | | | 1,963,761 | |
A4 Manufacturing - Alt Labs | 4,410,564 | | | 4,410,564 | |
A4 Defense - TDI | 6,426,786 | | | 6,426,786 | |
A4 Technologies - RCA | 1,355,728 | | | 1,355,728 | |
A4 Technologies - ElecJet | 6,496,343 | | | 6,496,343 | |
A4 Aerospace - Vayu | — | | | — | |
All Other | 1,913,310 | | | 1,913,310 | |
| $ | 22,680,084 | | | $ | 22,680,084 | |
Accounts receivable, net | | | |
A4 Construction Services - MSM | $ | 3,790,520 | | | $ | 5,188,521 | |
A4 Construction Services - Excel | 222,895 | | | 288,243 | |
A4 Manufacturing - QCA | 3,397,802 | | | 3,867,141 | |
A4 Manufacturing - Alt Labs | 1,994,703 | | | 1,833,502 | |
A4 Defense - TDI | 2,367,869 | | | 1,905,314 | |
A4 Technologies - RCA | 2,845,356 | | | 3,232,559 | |
A4 Technologies - ElecJet | 22,959 | | | 12,888 | |
A4 Aerospace - Vayu | (491) | | | — | |
All Other | 898,915 | | | 811,776 | |
| $ | 15,540,528 | | | $ | 17,139,944 | |
Note 7 – Commitments and Contingencies
Licensing Agreement
DTI has entered into licensing agreements with RCA Trademark Management for the licensing rights to the respective trademarks in the United States of America and Canada. The RCA licensing agreement was amended with Technicolor, S.A., as licensor, and expires December 31, 2024. DTI agrees to pay a royalty fee of 2.50% on net sales of the licensed products with a minimum annual payment of $440,000 for the year ended 2022, $460,000 for the year ended 2023, and $480,000 for the year ended 2024. These amounts were amended as part of the agreement signed in May 2023. The amended agreement extended our licensing agreement under December 31, 2027, and
provides us the ability to sell additional products under the trademark in exchange for higher royalty payments (See Note 8).
Warranty Service Agreement
DTI entered into a warranty service agreement to provide certain warranty services for a lighting supplier through December 31, 2024, except for one class of customer, for whom services will be provided through 2030. In exchange for these services, DTI expects to receive $66,626 and $59,964 during the year ended 2023 and 2024, respectively.
Royalty Agreement
On November 27, 2019,28, 2021, the Company entered into a Royalty Agreement with the sellers of ElecJet. Upon closing the Company desires to build its initial factory (“Factory”) to manufacture graphene batteries in the territory of the United States. The Company agrees to pay the sellers 1.5% of net sales for batteries produced by the Factory. Royalty payments shall continue to be paid for a period of ten years from the starting date, or until the total of the royalty payments equals $50 million, whichever occurs first.
Legal Proceedings
From time to time, the Company may become involved in lawsuits and other legal proceedings that arise in the course of business. Litigation is subject to inherent uncertainties, and it is not possible to predict the outcome of litigation with total confidence. As of the date of this Report, the Company was not aware of any legal proceedings or potential claims against it whose outcome would be likely, individually or in the aggregate, to have a material adverse effect on the Company’s board of directors approved, subjectbusiness, financial condition, operating results, or cash flows.
In August 2020, in a matter relating to stockholder approval, the Amendment that would have the effect of increasing the Company’s authorizedsubsidiary Horizon Well Testing, LLC (“Horizon”), the Company filed a lawsuit in the United States District Court, District of Arizona (Case No.2:20-cv-01679-DJH), against Alan Martin, the seller of Horizon dba Venture West Energy Services, LLC (“VWES”). The Company brought suit in 2020 seeking to avoid the claimed liability due from the Company to Alan Martin, for the Company’s 2017 purchase of Mr. Martin’s business, Horizon. On summary judgment, the court found that the Company’s claim was barred by a time-limiting clause for indemnification claims. The Company disagrees with the court’s ruling and intends to appeal. Before the Company can file its appeal of the summary judgment order, the court must resolve Mr. Martin’s counterclaim in which Mr. Martin claims that Mr. Martin remains unpaid on the promissory note, as modified, under which the Company purchased the Horizon. The note balance is alleged to have a principal sum due of $3.3 million, plus interest at 8% accruing from 2019 to present, plus late fees accruing at $575 per day (see Note 4). The Company continues to dispute the amount claimed due. As well, the Company’s legal position remains that the indebtedness should be discharged due to material misrepresentations by Mr. Martin in the original transaction.
In August 2021, in a matter relating to Horizon, Rob Porter filed a lawsuit in the District Court of Oklahoma County, State of Oklahoma (CJ-2021-3421), alleging unjust enrichment and breach of contract with respect to shares of Company that Mr. Porter claims was owed under his employment contract with the Company as President of Horizon. In October 2021, the Company filed its answer denying such claims. In October 2021, the Company also filed counterclaims against Mr. Porter for conversion and breach of fiduciary duties. The Company believes this is a frivolous lawsuit and as such, no accrual has been recorded as of March 31, 2023, and December 31, 2022. As of the date of this Report, a pre-trial scheduling conference was scheduled for June 21, 2023, and the Company was participating in discovery.
In October 2021, in a matter relating to Horizon, the Company received three complaints in the District Court of Oklahoma Country State of Oklahoma from former VWES employees Bruce Morse (CJ-2021-4316), Brian Hobbs (CJ-2021-4315), Thomas Karraker (CJ-2021-4314) for unjust enrichment, and breach of contract with respect to their employment contracts with Horizon. On January 19, 2022, the Company filed answers to all three lawsuits that denied these claims. The Company believes these are frivolous lawsuits. In July 2022, the Company and Mr. Morse settled his claims against the Company. The settlement included the cash payment of $24,375 for Mr. Morse's claimed 37,500 shares of Class A Common stock, and subsequently Mr. Morse’s case has been dismissed. Subsequently, Mr. Hobbs and Mr. Karraker have also expressed interest in settling claims on similar terms, and
negotiations were ongoing as of the date of this Report. As no formal settlement offer has been extended, no accrual has been recorded as of March 31, 2023, and December 31, 2022.
In June 2022, in a matter relating to the Company’s subsidiaries, DTI Services Limited Liability Company and Direct Tech Sales, LLC (doing business as RCA Commercial Electronics) (“RCA”), the Company received a complaint filed in the Superior Court of Marion County State of Indiana (CAUSE NO. 49D01-2203-PL-006662) by Gatehouse, LLC (“Gatehouse”), a supplier of PPP gloves for resale by RCA, seeking payment of $213,000 for supplied goods that RCA has good reason to believe are counterfeit, and thus unsalable. RCA has answered the complaint and asserted counterclaims of fraud and breach of contract. After a long delay in prosecution of the case by the plaintiff Gatehouse, motion practice has begun in this matter, however no scheduling, hearings, or trial date has yet been set in this matter.
In November 2022, the Company received a complaint filed by Mr. Mark Bell in the district court of Idaho (CV42-22-4066) with regard to the Company’s February 2020 purchase of Excel Fabrication LLC (“Excel”) from Mr. Bell, over the Company’s refusal to continue paying on a $2.3 million note comprising part of the purchase consideration (Note 4). In December 2022 the Company counter-sued Mr. Bell for breach of contract, fraud, and misrepresentation in the February 2020 sale of Excel to the Company. The case is set for trial in June of 2024.
In December 2022, the Company’s subsidiary Excel Fabrication LLC (“Excel”) received a demand for binding arbitration (AAA Case No. 01-22-0004-9935) by Starr Corporation of Idaho, a contractor for whom Excel Fabrication LLC was performing as sub-contractor and who stopped its work for Starr Corporation pursuant to its claimed contract right of termination due to failure of Starr Corporation to make payment within the contracted period for payment for work satisfactorily performed. Starr Corporation claims that Excel’s termination was wrongful, and seeks approximately $0.5 million, reflecting its costs in having to complete work that was called for under the contract. Excel is seeking a determination that its termination was rightful under the terms of the contract between the parties, and in addition seeks payment on its unpaid billing submittals and additional costs. Arbitration hearings are scheduled to commence in April 2024. As no formal settlement offer has been extended, no accrual has been recorded as of March 31, 2023, and December 31, 2022.
In February 2023, the Company learned that a complaint the State of New York brought against Vayu in 2019 (prior to the Company’s ownership of Vayu) seeking a refund for two returned airframes, a case which had originally been dismissed for lack of jurisdiction, had become revived by virtue of New York’s highest court ruling (State of New York v Vayu, APL-2021-00148) that the State’s long arm statute applied to the 2016 transaction between Vayu and the State University of New York at Stonybrook. Total damages sought by the State of New York are less than $100,000, including interest and costs. In light of the decision by the Court of Appeals to return the case to the trial courts for adjudication, the Company has expressed its wish to settle the matter and is currently awaiting the State of New York's response to the Company's response including the possibility of the State providing information useful to the Company should it wish to subsequently seek redress from the previous owners of Vayu.
Note 8 – Subsequent Events
In April 2023, a shareholder converted 1,300,000 shares of Class B common stock and 1 share of Series B preferred stock into 1,300,001 shares of Class A common stock.
On May 12, 2023, a Certificate of Amendment was filed to effect a one-for-eight (1-for-8) reverse split (the “Reverse Split”) of the shares of the Company’s the Class A, Class B, and Class C Common Stock, and to decrease the number of shares of Class A Common Stock from 100,000,000295,000,000 shares to 125,000,000 shares; the Class B common stock from 5,000,000200,000,000 shares to 10,000,000 shares;(the “Class A Common Stock Decrease”). The Reverse Split and the Class C common stock from 10,000,000 shares to 15,000,000 shares. Subsequent to the board of directors’ approvalA Common Stock Decrease became effective on May 12, 2023. As a result of the Amendment and the Share Increase, the holders of a majority of the voting powerReverse Split, every eight shares of the Company’s votingissued and outstanding Class A Common Stock automatically converted into one share of Class A Common Stock, without any change in the par value per share, and began trading on a post-split basis under the Company’s existing trading symbol, “ALPP,” when the market opened on May 15, 2023. Additionally, every eight shares of the Company’s issued and outstanding Class B Common Stock automatically converted into one share of Class B Common Stock, without any change in the par value per share, and every eight shares of the Company’s issued and outstanding Class C Common Stock automatically converted into one share of Class C Common Stock, without any change in the par value per
share. The Reverse Split affected all holders of Class A, Class B, and Class C Common Stock uniformly and did not affect any common stockholder’s percentage ownership interest in the Company, except for de minimis changes as a result of the elimination of fractional shares. A total of 180,037,350 shares of Class A Common Stock were issued and outstanding immediately prior to the Reverse Split, and approximately 22,504,669 shares of common stock approved, by written consent,were issued and outstanding immediately after the AmendmentReverse Split. No fractional shares will be outstanding following the Reverse Split. Any holder who would have received a fractional share of common stock will automatically be entitled to receive an additional fraction of a share of common stock to round up to the next whole share. In addition, effective as of the same time as the Reverse Split, proportionate adjustments were made to all then-outstanding options and warrants with respect to the number of shares of Class A Common Stock subject to such options or warrants and the Share Increase on November 27, 2019. The Amendment became effective on December 30, 2019, followingexercise prices thereof.
In May 2023, Mr. Kevin Thomas, who sold Alternative Laboratories, LLC to the filingCompany in May of 2021, sued the Company in the State circuit court for Collier County Florida (Case Number 23-CA-1981), alleging that the Company failed to deliver shares in the Company as promised by the terms of the Amendment on December 27, 2019, specifyingpurchase agreement, and additionally claims that with respect to an amount of $610,000 in Employee Retention Credits received by the effectiveCompany, that portion representing the credit attributed to the 1st quarterly period of 2021 and the part of the 2nd quarterly period of 2021 prior to the May 4th, 2021 date of sale, should be remitted to him rather than retained by the Company. The Company believes that Mr. Thomas’ complaint is wholly without merit, and the Company is in the process of answering the complaint and considering possible motions and counterclaims.
In May 2023, the RCA licensing agreement was amended and extended with a new expiration date of December 30, 2019.31, 2027 except for the agreement relating to Computer Monitors & Outdoor Televisions which expires on December 31, 2025. DTI Services LLC agreed to pay the following royalty fees ranging from 2.50% - 3.50% of net sales based on product type with a total minimum annual payment of $550,000 for the year ended 2023, and $600,000 for the year ended 2024, $620,000 for the year ended 2025, $660,000 for the year ended 2026, and $700,000 for the year ended 2027.
Lincoln Park Transaction
On January 16, 2020,In May 2023, the Company issued a nine-month $0.2 million note payable to an outside investor with an annual interest rate of 15%, with the proceeds to be used for general corporate purposes.
In May 2023, the Company issued a one-year $0.4 million convertible note payable to an outside investor with an annual interest rate of 12% with the proceeds to be used for general corporate purposes. In connection with this convertible note payable, the Company issued 13,750 restricted shares of Class A Common Stock to the investor as additional consideration for the purchase of the note and 196,250 restricted shares of Class A Common Stock, which shall be returned to the Company if timely repayments are made against the note.
Morris had a revolving line of credit totaling $2.5 million that was scheduled to expire on May 31, 2023. In June 2023, Morris entered into a transaction (the “Lincoln Park Transaction”) consistingForbearance agreement with its banking partner that extended the maturity of a purchasethe line of credit to July 21, 2023.
In June 2023, Quality Circuit Assembly entered into the third amendment on its loan and security agreement (the “Purchase Agreement”) and a registration rights agreement (the “Registration Rights Agreement”) with Lincoln Park, pursuantthat increased the maximum limit to which Lincoln Park has committed$7 million from $5 million.
Up to _______________ shares of Class A common stock
Up to _______________ Common Warrants to purchase upshares of Class A common stock
Up to $10.0 million worth_______________ shares of our Class A common stock $0.0001 par value per share (the “Common Stock”). A.G.P./Alliance Global Partners acted as sole placement agent for the offering.underlying such Warrants
Under the terms and subjectUp to the conditions of the Purchase Agreement, we have the right, but not the obligation, to sell to Lincoln Park, and Lincoln Park is obligated to purchase up to in the aggregate $10.0 million worth of shares of our Common Stock. As an initial purchase on January 17, 2020, Lincoln Park purchased 1,666,666 shares of our Common Stock (the “Initial Purchase Shares”) at a price of $0.15 per share.
Additional sales of Common Stock by us to Lincoln Park, if any, will be subject to certain limitations, and may occur from time to time, at our sole discretion, over the 36-month period commencing on the date that the registration statement of which this Prospectus is a part is declared effective by the U.S. Securities and Exchange Commission (the “SEC”) and a final prospectus in connection therewith is filed and the other conditions set forth in the purchase agreement are satisfied, all of which are outside the control of Lincoln Park (the date on which all of such conditions are satisfied being the “Commencement Date”).
After the Commencement Date, under the Purchase Agreement, on any business day selected by us, we may direct Lincoln Park to purchase up to 1,000,000 shares of our Common Stock on that business day (each, a “Regular Purchase”), provided, however, that (i) the Regular Purchase may be increased to up to 1,250,000 shares, provided that the closing sale price of the Common Stock is not below $0.30 on the purchase date; (ii) the Regular Purchase may be increased to up to 1,500,000 shares, provided that the closing sale price of the Common Stock is not below $0.40 on the purchase date (subject to adjustment for any reorganization, recapitalization, non-cash dividend, stock split, reverse stock split or other similar transaction as provided in the Purchase Agreement); and (iii) the Regular Purchase may be increased to up to 1,750,000 shares, provided that the closing sale price of the Common Stock is not below $0.50 on the purchase date (each subject to adjustment for any reorganization, recapitalization, non-cash dividend, stock split, reverse stock split or other similar transaction as provided in the Purchase Agreement). In each case, Lincoln Park’s maximum commitment in any single Regular Purchase may not exceed $1,000,000. The purchase price per share for each such Regular Purchase will be based off of prevailing market prices of Common Stock immediately preceding the time of sale. The purchase price per share will be equitably adjusted for any reorganization, recapitalization, non-cash dividend, stock split, or other similar transaction occurring during the business days used to compute such price.
In addition to Regular Purchases, we may also direct Lincoln Park to purchase other amounts as accelerated purchases or as additional accelerated purchases if the closing sale price of the common stock exceeds certain threshold prices as set forth in the Purchase Agreement.
Lincoln Park has no right to require us to sell any shares of common stock to Lincoln Park, but Lincoln Park is obligated to make purchases as we direct, subject to certain conditions. In all instances, we may not sell shares of our Common Stock to Lincoln Park under the purchase agreement if it would result in Lincoln Park’s beneficially owning more than 4.99% of our Common Stock. There are no upper limits on the price per share that Lincoln Park must pay for shares of Common Stock. Lincoln Park may not assign or transfer its rights and obligations under the Purchase Agreement.
There are no restrictions on future financings, rights of first refusal, participation rights, penalties or liquidated damages in the Purchase Agreement or Registration Rights Agreement, other than a prohibition on our entering into certain types of transactions that are defined in the Purchase Agreement as “Variable Rate Transactions.”
We issued to Lincoln Park 2,275,086 shares of Common Stock (the “Commitment Shares”) as consideration for its commitment____________ Pre-Funded Warrants to purchase shares of Common Stock under the Purchase Agreement.
Conversion of Amounts Owing into Class B Common Stock
Loans
Subsequent to September 30, 2019, the Company entered into two secured merchant loan agreements totaling to $900,000 with weekly payments of $41,645 totaling to $1,259,400. The Company also entered into a convertible note amounting to $200,000 with a conversion price of $0.15 per share, annual interest of 15% and a term of 1 year.
ALPINE 4 TECHNOLOGIES LTD.
14,000,000 SHARES OF CLASS A COMMON STOCK
TO BE SOLD BY LINCOLN PARK CAPITAL FUND, LLC
PROSPECTUS
August ___ 2023
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
The following table sets forth an itemization of all estimated expenses, all of which we will pay, in connection with the issuance and distribution of the securities being registered:
Nature of Expense: | | Amount | |
SEC Registration Fee
| | $ | 141
| *
|
Accounting fees and expenses
| | $ | 30,000
| * |
Legal fees and expenses | | $ | 30,000 | * |
Miscellaneous | | $ | 5,000 | * |
Total
| | $ | 65,141
| * |
*Estimated | | | | |
| | | | | | | | | | | |
Nature of Expense: | | Amount |
SEC Registration Fee | | $ | * |
Accounting fees and expenses | | $ | * |
Legal fees and expenses | | $ | * |
Miscellaneous | | $ | * |
Total | | $ | * |
_________________
*Estimated
In addition to these expenditures, Alpine 4 will pay the expenses associated with the distribution of the common stock, including the fees of our transfer agent. Those expenses are estimated to be approximately $10,000.
Item 14. Indemnification of Directors and Officers; Disclosure of Commission Position on Indemnification for Securities Act Liabilities
Subsection (a) of Section 145 of the General Corporation Law of the State of Delaware empowers a corporation to indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding whether civil, criminal, administrative or investigative (other than an action by or in the right of the corporation) by reason of the fact that he is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful.
Subsection (b) of Section 145 empowers a corporation to indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by right of the corporation to procure a judgment in its favor by reason of the fact that such person acted in any of the capacities set forth above, against expenses (including attorneys’ fees) actually and reasonably incurred by him in connection with the defense or settlement of such action or suit if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation, except that no indemnification may be made in respect to any claim issue or matter as to which such person shall have been adjudged to be liable to the corporation unless and only to the extent that the Court of Chancery or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Court of Chancery or such other court shall deem proper.
Section 145 further provides that to the extent a director or officer of a corporation has been successful on the merits or otherwise in the defense of any such action, suit or proceeding referred to in subsections (a) and (b) of Section 145 or in the defense of any claim, issue or matter therein, he shall be indemnified against expenses (including attorneys’ fees) actually and reasonably incurred by him in connection therewith; that the indemnification provided for by Section 145 shall not be deemed exclusive of any other rights which the indemnified party may be entitled; that indemnification provided by Section 145 shall, unless otherwise provided when authorized or ratified, continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of such person’s heirs, executors and administrators; and empowers the corporation to purchase and maintain insurance
on behalf of a director or officer of the corporation against any liability asserted against him and incurred by him in any such capacity, or arising out of his status as such, whether or not the corporation would have the power to indemnify him against such liabilities under Section 145.
Section 102(b)(7) of the General Corporation Law or the State of Delaware provides that a certificate of incorporation may contain a provision eliminating or limiting the personal liability of a director to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, provided that such provision shall not eliminate or limit the liability of the director (i) for any breach of the director’s duty of loyalty to the corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the Delaware General Corporation Law, or (iv) for any transaction from which the director derived an improper personal benefit.
Article Tenth of Alpine 4’s Charter provides that, “to the fullest extent permitted by the Delaware General Corporation Law, a director of this corporation shall not be liable to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director.”
Article XI, Section 1(a) of Alpine 4’s Bylaws further provides that “Each person who was or is made a party or is threatened to be made a party or is involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that he or she, or a person of whom he or she is the legal representative, is or was a director or officer, of the Corporation…shall be indemnified and held harmless by the Corporation to the fullest extent authorized by the Delaware General Corporation Law, as the same exists or may hereafter be amended.”
Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers, or persons controlling the Company pursuant to the foregoing provisions, Alpine 4 has been informed that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable.
Item 15. Recent Sales of Unregistered Securities.
Issuances in 2020
2023
In 2020 through February 10, 2020, the Company issued an aggregate of 5,956,946January 2023, a certain shareholder converted 11,417 shares of its restrictedClass C common stock for 11,417 shares of Class A common stock for note conversions.
In January 2020, five officers and directors of the Company converted $603,448 owed to them as salaries and commissions into 4,022,983 shares of the Company’s Class B Common stock. The conversion price was $0.15 per share, the closing price of the Company’s Class A common stock on January 7, 2020, which was when the individuals agreed with the Company to convert the amounts owing. The Class B common stock converts one share for one share into Class A common stock, so the Class A common stock market price was used as the conversion price.
The shares of Class A and Class B common stock referenced above that were issued during 2020in January 2023 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.
Issuances in 2019
During the quarter ended March 31, 2019, the Company issued 1,670,000 shares of its restricted Class A common stock for note conversions.
During the quarter ended June 30, 2019, the Company issued 33,975,924 shares of its restricted Class A common stock for note conversions.
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 200,000In April 2023, a certain shareholder converted 1.3 million shares of Class B common stock and 2,772,6061 share of Class B preferred stock for 1,300,001 shares of Class CA common stock to officers, directors, and employees for services rendered.
stock.
The shares of Class A Class B, and Class C common stock referenced above that were issued during 2019in April 2023 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.
Issuance of Convertible Notes
On January 5, 2018,In May 2023, the Company entered into a variable convertible note for $64,000. The note is due July 5, 2018 and bears interest at 10% per annum. The note is immediately convertible into the Company’sissued 13,750 restricted shares of Class A common stock at a discount of 35% to the average of the three lowest trading closing prices of the stockan investor as additional consideration for the ten days prior to conversion. Aspurchase of the date of this filing this note has been paid off.
On April 3, 2018, the Company entered into a variable convertible note with an unrelated lender for $85,000. The note is due January 2, 2019 and bears interest at 10% per annum. The note is immediately convertible into196,250 restricted shares of the Company’s Class A common stock, at a discount of 35%which shall be returned to the average ofCompany if timely repayments are made against the three lowest trading closing prices of the stock for ten days prior to conversion. As of the date of this filing this note has been paid off.convertible note.
On March 13, 2018, the Company entered into a variable convertible note with an unrelated lender for $128,000. The note is due December 18, 2018 and bears interest at 12% per annum. After 180 days, the note is convertible into shares of the Company’s Class A common stock at a discount of 40% to the average of the three lowest trading closing prices of the stock for ten days prior to conversion. As of the date of this filing this note has been paid off.
On April 9, 2018, the Company entered into a variable convertible note for $124,199. The note is due January 9, 2019 and bears interest at 12% per annum. After 180 days, the note is convertible to the Company’s Class A common stock at a discount of 35% to the average of the three lowest trading closing prices of the stock for the ten days prior to conversion. As of the date of this filing this note has been paid off.
On April 9, 2018, the Company entered into a variable convertible note for $37,800. The note is due January 9, 2019 and bears interest at 12% per annum. After 180 days, the note is convertible to the Company’s Class A common stock at a discount of 35% to the average of the three lowest trading closing prices of the stock for the ten days prior to conversion.
The convertible notesreferenced above that were issued between January and April 2018in May 2023 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.
On October 4, 2017,In June 2023, the Company entered intoissued a senior convertible promissory note, with an unrelated lender for $60,000 with net proceedsa warrant to purchase up to 200,000 shares of $55,000. The note is due July 4, 2018 and bears interest at 12% per annum. After 180 days, the note is convertible to the Company's Class A common stock, at a discountand 1,267,400 shares of 35% to the average of the three lowest trading closing prices of the stock for ten days prior to conversion. The Company can prepay the convertible note up to 180 days from October 5, 2017. The prepayment penalty is equal to 20% to 25% of the outstanding note amount depending on when prepaid. As of the date of this filing this note has been paid off.
On October 11, 2017, the Company entered into a convertible note with an unrelated lender for $58,500 with net proceeds of $55,500. The note is due July 20, 2018 and bears interest at 12% per annum. After 180 days, the note is convertible to the Company's Class A common stock at a discount of 38% to the average of the three lowest trading closing prices of the stock for ten days prior to conversion.stock. The Company can prepay the convertible notealso issued a Finder warrant to purchase up to 180 days from October 11, 2017. The prepayment penalty is equal to 10% to 27%3,579 shares of the outstanding note amount depending on when prepaid. As of the date of this filing this note has been paid off.
On November 2, 2017, the Company entered into a variable convertible note with unrelated 3rd party for $115,000 with net proceeds of $107,000. The note is due May 2, 2018 and bears interest at 10% per annum. The note is immediately convertible to the Company's Class A common stock at a discount of 35% to the average of the three lowest trading closing prices of the stock for ten days prior to conversion. The Company can prepay the convertible note up to 180 days from November 2, 2017 with a $750 prepayment penalty. As of the date of this filing this note has been paid off.stock.
On November 1, 2017,The securities referenced above that were issued in contemplation of entering into the November 2, 2017 note, the Company released 150,000 shares of the 500,000 returnable shares (see Note 8 – Other items Related to Equity). The shares were consideration for the second note dated November 2, 2017, and as such will be accounted for as a discount associated with that note.
On November 28, 2017, the Company entered into a variable convertible note with unrelated third party for $105,000. The note is due June 15, 2018 and bears interest at 10% per annum. The note is immediately convertible to the Company's Class A common stock at a discount of 35% to the average of the three lowest trading closing prices of the stock for ten days prior to conversion. The Company can prepay the convertible note up to 180 days from November 28, 2018 with a $750 prepayment penalty. As of the date of this filing this note has been paid off.
The convertible notes issued between October and December 20172023 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.
Issuance in 2022
On November 1, 2017, the Company entered into an agreement with the investor relations firm RedChip Companies Inc. ("RedChip"). The agreement is for six months with a review after 90 days. The Company will pay RedChip $2,500 per month for months 1-3 and $5,000 per month for months 4-6. For the first 90 days of serviceIn January 2022, the Company issued 275,00072,152 shares of the Company's Class A common stock for no additional consideration upon conversion of 10,149 shares which are restricted pursuant to the provisions of Rule 144. For the second 90 daysSeries C Preferred Stock and 78,674 shares of service the Company will issue 125,000Series D Preferred Stock.
The shares for the Company'sof Class A common shares which are restricted pursuant tostock issued upon conversion of the provisions of Rule 144.
The shares ofSeries C and Series D Preferred Stock into Class A common stock were issued and will be without registration under the 1933 Act in reliance on Section 4(a)(2) of the 1933 Act and the rules and regulations promulgated thereunder.
IssuanceIn March 2022, the Company issued 39,386 shares of Equity SecuritiesClass A common stock to management in Venture West/Horizon Transaction
In connection with the acquisition of Venture West EnergyDTI Services (“VWES”) (formerly Horizon Well Testing, L.L.C.), described in more detail above under “Recent Developments,” Alpine 4 purchased all of the outstanding stock of VWES (the “VWES Stock”) from Alan Martin (the “Seller”). Limited Liability Company.
The purchase price paid by Alpine 4 for the VWES Stock consisted of cash, a note, a convertible note, and securities consideration. The “Cash Consideration” paid was $2,200,000. The “Note” consisted of a secured note in the amount of $300,000, secured by a subordinated security interest in the assets of VWES . The Note bears interest at 1% and will be payable in full by April 30, 2017. The “Convertible Note” consisted of a secured convertible note in the amount of $1,500,000, secured by a subordinated security interest in the assets of VWES . The VWES Seller has the opportunity to convert the Convertible Note into shares of Alpine 4’s Class A common stock at a conversion price of $8.50 after a restricted period according to securities laws. The Convertible Note bears interest at 5% and is payable in full with a balloon payment on the 18-month anniversary of the closing date of the transaction with no monthly payments. The “Securities” consisted of two components, an aggregate of 379,403 shares of Alpine 4’s Class A common stock issued to the Seller, and a warrant to purchase an additional 75,000 shares of Class A common stock.
The Note, the Convertible Note, and the Securities was issued to the Seller pursuant to a share exchange agreement with the Seller, in which the Seller made certain representations and warranties, includingstock referenced above that he was an accredited investor, that he was acquiring the securities for his own account and not for the account of another, that he was acquiring the securities for investment purposes and not with a view to distribute the securities acquired, and that he had sufficient knowledge and experience in financial and business matters to evaluate the merits and risks of an investment in the Company. As such, the securities were issued to the Sellerin 2022, 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. The VWES transaction did not involve a public offering.
Stock Options to Employees
On April 7, 2017,29, 2022, the Company issued 741,500 options to purchase171,850 shares of the Company’s Class A common stock to 34 employees and consultantsat a value of the Company. The options were issued pursuant to the Company’s 2016 Stock Option and Stock Award Plan (the “Plan”). The options granted vest and the exercise price of the options granted was $0.90, which was the last closing bid price of the Company’s common stock$132,325 as traded on the OTC QB Market..
employee compensation.On April 10, 2018, the Company issued 85,000 options to purchaseThe shares of the Company’s Class A common stock to APF employees. The optionsreferenced above that were issued pursuant to the Plan. The options granted vest and the exercise price of the options granted was $0.10, which was the last closing bid price of the Company’s common stock as traded on the OTC QB Market. The options vest quarterly over four years.
On May 16, 2018, the Company issued 704,000 options to purchase shares of the Company’s Class A common stock to VWES employees. The optionsin 2022, were issued pursuant to the Plan. The options granted vest and the exercise price of the options granted was $0.05, which was the last closing bid price of the Company’s common stock as traded on the OTC QB Market. The options vest quarterly over four years.
On December 31, 2018, the Company issued 275,000 options to purchase shares of the Company’s Class A common stock to two employees. The options were issued pursuant to the Plan. The options granted vest and the exercise price of the options granted was $0.05, which was the last closing bid price of the Company’s common stock as traded on the OTC QB Market. The options vest quarterly over four years.
The Company provided to each of the recipients of the Options copies of the Company’s public filings including the financial information and other disclosures about the Company. The options were issued to the recipients without registration under the 1933 Act in reliance on Section 4(a)(2) of the 1933 Act and the rules and regulations promulgated thereunder.
During May and June 2022, the Company issued 76,119 shares of Class A common stock for cash of $55,144 in connection with a registered at-the-market offering (the "ATM Offering").
The issuanceshares of Class A common stock referenced above that were issued in 2022, were issued without registration under the 1933 Act in reliance on Section 4(a)(2) of the options did not involve a public offering1933 Act and the rules and regulations promulgated thereunder.
In July 2022, the Company issued 60,600 shares of Class A common stock for cash of $42,318 in connection with its ATM offering.
The shares of Class A common stock referenced above that were issued in 2022, were issued without registration under the 1933 Act in reliance on Section 4(a)(2) of the Company’s securities.1933 Act and the rules and regulations promulgated thereunder.
In August 2022, certain investors exercised 1,449,276 warrants at an exercise price of $0.69, for net proceeds of $1,000,000.
The shares of Class A common stock referenced above that were issued in 2022, 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.
In September 2022, certain shareholders converted 37,500 shares of Class C common stock for 37,500 shares of Class A common stock.
The shares of Class A common stock referenced above that were issued in 2022, 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.
In October 2022, certain shareholders converted 201,806 shares of Class C common stock for 201,806 shares of Class A common stock.
The shares of Class A common stock referenced above that were issued in 2022, 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.
In November 2022, certain shareholders converted 22,662 shares of Class C common stock for 22,662 shares of Class A common stock.
The shares of Class A common stock referenced above that were issued in 2022, 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.
Issuances in 2021
In January 2021, the Company issued 1,432,244 shares of Series D Preferred Stock in connection with the Vayu (US) merger transaction.
The shares of Series D Preferred Stock issued in connection with the Vayu (US) merger transaction 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.
For the year ended December 31, 2021, the Company issued an aggregate of 7,384,018 shares of its restricted Class A common stock for convertible debt of $1,886,896.
The shares of Class A common stock referenced above that were issued in 2021, 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.
In May 2021, the Company issued 281,223 shares of Class A common stock in connection with the TDI acquisition.
The shares of Class A common stock issued in connection with the TDI acquisition 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.
In May 2021, the Company issued 361,787 shares of Class A common stock in connection with the Alt Labs acquisition.
The shares of Class A common stock issued in connection with the Alt Labs acquisition 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.
On April 30, 2021, the Company issued 1,617,067 shares of Class A common stock upon conversion of shares of Class C common stock by the holder of the Class C common stock.
The shares of Class A common stock issued upon conversion of the Class C common stock into Class A common stock were issued without registration under the 1933 Act in reliance on Section 4(a)(2) of the 1933 Act and the rules and regulations promulgated thereunder.
On May 17, 2021, the Company issued 350,000 shares of Class A common stock upon conversion of shares of Class B common stock by the holder of the Class B common stock.
On November 15, 2021, the Company issued 125,000 shares of Class A common stock upon conversion of shares of Class B common stock by the holder of the Class B common stock.
The shares of Class A common stock issued upon conversion of the 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.
On October 20, 2021, in connection with the purchase of the outstanding securities of Identified Technologies Corporation, the Company issued 888,881 shares of its Class A common stock.
The shares of Class A common stock issued in connection with the Identified Technologies Corporation acquisition 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.
On November 1, 2021, the Company issued 2,409,258 shares of Class A common stock for no additional consideration upon conversion of 1,704,137 shares of Series C Preferred Stock and 1,353,570 shares of Series D Preferred Stock.
The shares of Class A common stock issued upon conversion of the Series C and Series D Preferred Stock into Class A common stock were issued without registration under the 1933 Act in reliance on Section 4(a)(2) of the 1933 Act and the rules and regulations promulgated thereunder.
On November 29, 2021, the Company issued 1,803,279 shares of Class A common stock in connection with the Elecjet acquisition.
The shares of Class A common stock issued in connection with the Elecjet acquisition 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.
On December 9, 2021, in connection with the acquisition of DTI Services Limited Liability Company, the Company issued 1,587,301 shares of its Class A common stock and 396,825 warrant shares.
The shares of Class A common stock issued in connection with the DTI Services Limited Liability Company acquisition 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.
On December 20, 2021, the Company issued 100,000 shares of Class A common stock in connection with the Horizon legal proceedings.
The shares of Class A common stock issued in connection with the Horizon legal proceedings 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.
On December 29, 2021, the Company issued 99,018 shares of Class A common stock to management in connection with the acquisition of DTI Services Limited Liability Company.
The additional shares of Class A common stock issued in connection with the DTI Services Limited Liability Company acquisition 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 16. Undertakings
Exhibits and Financial Statement Schedules.
The Exhibits to this registration statement are listed on the exhibit index, which appears elsewhere herein and is incorporated herein by reference.
| (a) | The undersigned registrant hereby undertakes that, for purposes | | | | | | |
Exhibit Number | | Description |
3.1 | | |
3.2 | | |
3.3 | | |
3.4 | | |
| | | | | | | | |
3.5 | | |
3.6 | | By-Laws of Alpine 4 (incorporated by reference to Exhibit 3.2 to Alpine 4’s Registration Statement on Form 10, filed May 8, 2014). |
3.7 | | |
3.8 | | |
3.9 | | |
3.10 | | |
4.1 | | |
4.2 | | Form of Investor Warrant (incorporated by reference to Exhibit 4.1 to Alpine 4’s Current Report on Form 8-K filed November 24, 2021). |
4.3 | | |
4.4 | | |
4.5 | | |
4.6 | | |
4.7 | | |
4.8* | | Form of Common Stock Purchase Warrant |
4.9* | | Form of Pre-Funded Warrant |
5.1* | | Opinion of Kirton McConkie, P.C. regarding validity of the registrant’s annual report pursuantshares of Alpine 4 Holdings, Inc., Class A Common Stock being registered hereunder. |
10.1 | | |
10.2 | | |
10.3 | | FPCD Note - $350,000 (incorporated by reference to the Company’s Current Report filed with the SEC on November 25, 2019) |
10.4 | | FPCD Note - $600,000 (incorporated by reference to the Company’s Current Report filed with the SEC on November 25, 2019) |
10.5 | | Note Amendment – #1 (incorporated by reference to the Company’s Current Report filed with the SEC on November 25, 2019) |
10.6 | | Note Amendment - # 2 (incorporated by reference to the Company’s Current Report filed with the SEC on November 25, 2019) |
10.7 | | FPCD Note - $137,870.48 (incorporated by reference to the Company’s Current Report filed with the SEC on November 25, 2019) |
10.8 | | Note Amendment - $180,000 (incorporated by reference to the Company’s Current Report filed with the SEC on November 25, 2019) |
10.9 | | APF Securities Agreement (incorporated by reference to the Company’s Current Report on Form 8-K filed with the Commission on April 9, 2018) |
10.10 | | Secured Promissory Notes (incorporated by reference to the Company’s Current Report on Form 8-K filed with the Commission on April 9, 2018) |
10.11 | | Secured Convertible Notes (incorporated by reference to the Company’s Current Report on Form 8-K filed with the Commission on April 9, 2018) |
10.12 | | Security Agreement (incorporated by reference to the Company’s Current Report on Form 8-K filed with the Commission on April 9, 2018) |
| | | | | | | | |
10.13 | | |
10.14 | | Purchase Agreement (incorporated by reference to the Company’s Current Report on Form 8-K filed with the Commission on February 24, 2020) |
10.15 | | |
10.16 | | Security Agreement (incorporated by reference to the Company’s Current Report on Form 8-K filed with the Commission on February 24, 2020) |
10.17 | | |
10.18 | | |
10.19 | | |
10.20 | | |
10.21 | | |
10.22 | | |
10.23 | | |
10.24 | | |
10.25 | | |
10.26 | | |
10.27 | | |
10.28 | | |
10.29 | | |
10.30 | | |
10.31 | | |
10.32 | | |
10.33 | | |
10.34 | | |
10.35 | | |
10.36 | | |
10.37 | | |
10.38 | | |
10.39 | | |
10.40 | | |
10.41 | | |
10.42 | | |
10.43 | | |
10.44 | | |
| | | | | | | | |
10.45 | | |
10.46 | | |
10.47 | | |
10.48 | | |
10.49 | | |
10.50 | | |
10.51 | | |
10.52 | | |
10.53 | | |
10.54 | | |
10.55 | | |
10.56* | | Form of Placement Agent Agreement |
10.57* | | Form of Securities Purchase Agreement |
10.58* | | Form of Lock-Up Agreement |
21 | | |
23.1 | | |
23.2 | | |
23.3* | | Consent of Kirton McConkie, P.C. (to be included in the registration statement shall be deemedopinion to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. |
| (b) | (1) The undersigned registrant hereby undertakes as follows: that prior to any public reoffering of the securities registered hereunder through use of a prospectus which is a part of this registration statement, by any person or party who is deemed to be an underwriter within the meaning of Rule 145(c), the issuer undertakes that such reoffering prospectus will contain the information called for by the applicable registration form with respect to reofferings by persons who may be deemed underwriters, in addition to the information called for by the other items of the applicable form. |
| (2) | The registrant undertakes that every prospectus: (i) that is filed pursuant to paragraph (1) immediately preceding, or (ii) that purports to meet the requirements of Section 10(a)(3) of the Securities Act of 1933 and is used in connection with an offering of securities subject to Rule 415, will be filed as a partExhibit 5.1 to this registration statement). |
24.1 | | Power of an amendmentAttorney (included in the signature page to the registration statement and will not be used until such amendment is effective, and that, for purposes of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. |
| (d) | Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act of 1933 and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act of 1933 and will be governed by the final adjudication of such issue. |
| (e) | The undersigned registrant hereby undertakes to respond to requests for information that is incorporated by reference into the joint proxy statement/prospectus pursuant to Item 4original filing of this form, within one business day of receipt of such request, and to send the incorporated documents by first class mail or other equally prompt means. This includes information contained in documents filed subsequent to the effective date of the registration statement through the date of responding to the request.Registration Statement). |
107 | | |
| (f) | The undersigned registrant hereby undertakes to supply by means of a post-effective amendment all information concerning a transaction, and the company being acquired involved therein, that was not the subject of and included in the registration statement when it became effective. |
*To be filed by amendment
Item 17. Undertakings
(a) The undersigned registrant hereby undertakes:
(1)To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement:
(i)To include any prospectus required by section 10(a)(3)of the Securities Act of 1933;
(ii)To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the SEC pursuant to Rule 424(b)if, in the aggregate, the changes in volume and price represent No more than 20% change in the maximum aggregate offering price set forth in the Calculation of Registration Fee table in the effective registration statement.
(iii)To include material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement; provided, however, that paragraphs (1)(i), (1)(ii)and (1)(iii)above do not apply if the information required to be included in a post-effective amendment by those paragraphs is contained in reports filed with or furnished to the SEC by the Registrant pursuant to Section 13 or Section 15(d)of the Securities Exchange Act of 1934 that are incorporated by reference in the registration statement; provided, however, that paragraphs (i), (ii)and (iii)do not apply if the information required to be included in a post-effective amendment by those paragraphs is contained in reports filed with or furnished to the
Securities and Exchange Commission by the registrant pursuant to Section 13 or Section 15(d)of the Securities Exchange Act of 1934 that are incorporated by reference in the registration statement;(2)That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
(3)To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering.
(4)That, for the purpose of determining liability under the Securities Act of 1933 to any purchaser:
(i)Each prospectus filed by the registrant pursuant to Rule 424(b)(3) shall be deemed to be part of the registration statement as of the date the filed prospectus was deemed part of and included in the registration statement; and
(ii)Each prospectus required to be filed pursuant to Rule 424(b)(2), (b)(5), or (b)(7) as part of a registration statement in reliance on Rule 430B relating to an offering made pursuant to Rule 415(a)(1)(i), (vii), or (x) for the purpose of providing the information required by section 10(a) of the Securities Act of 1933 shall be deemed to be part of and included in the registration statement as of the earlier of the date such form of prospectus is first used after effectiveness or the date of the first contract of sale of securities in the offering described in the prospectus. As provided in Rule 430B, for liability purposes of the issuer and any person that is at that date an underwriter, such date shall be deemed to be a new effective date of the registration statement relating to the securities in the registration statement to which that prospectus relates, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. Provided, however, that No statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such effective date, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such effective date.
(5)That, for the purpose of determining liability of the undersigned Registrant under the Securities Act to any purchaser in the initial distribution of the securities, that in a primary offering of securities of the undersigned Registrant pursuant to this registration statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of the following communications, the undersigned Registrant will be a seller to the purchaser and will be considered to offer or sell such securities to such purchaser:
(i)Any preliminary prospectus or prospectus of the undersigned Registrant relating to the offering required to be filed pursuant to Rule 424;
(ii)Any free writing prospectus relating to the offering prepared by or on behalf of the undersigned Registrant or used or referred to by the undersigned Registrant;
(iii)The portion of any other free writing prospectus relating to the offering containing material information about the undersigned Registrant or its securities provided by or on behalf of the undersigned Registrant; and
(iv)Any other communication that is an offer in the offering made by the undersigned Registrant to the purchaser.
(b)The undersigned registrant hereby undertakes that, for purposes of determining any liability under the Securities Act of 1933, each filing of the registrants annual report pursuant to Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing of an employee benefit plans annual report
pursuant to Section 15(d) of the Securities Exchange Act of 1934) that is incorporated by reference in the registration statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
(c)Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.
SIGNATURES
SIGNATURES AND POWER OF ATTORNEY FOR ALPINE 4
TECHNOLOGIES LTD.HOLDINGS, INC.
Pursuant to the requirements of the Securities Act of 1933, Alpine 4 Technologies Ltd.Holdings, Inc., has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Phoenix, Arizona, on February 14, 2020.Arizona.
ALPINE 4 HOLDINGS, INC.
| ALPINE 4 TECHNOLOGIES LTD. | | | | | | | |
Date: August 4, 2023 | |
By: | |
| By: /s//s/ Kent B. Wilson
|
| Name: | Kent B. Wilson |
| Title: | Chief Executive Officer (Principal Executive Officer), President, and Director |
| | |
Date: August 4, 2023 | By: | /s/ Christopher Meinerz |
| Name: | Christopher Meinerz |
| Title: | Chief Financial Officer (Principal Financial Officer, Principal Accounting Officer) and Director |
Each person whose signature appears below constitutes and appoints Kent Wilson his true and lawful attorney-in-fact and agent, each with full power of substitution and re-substitution, severally, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments) to this registration statement on Form S-1, any subsequent registration statements pursuant to Rule 462 of the Securities Act of 1933, as amended, and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them or their or his or her substitute or substitutes, may lawfully do or cause to be done by virtue hereof. This power of attorney may be executed in counterparts.
Pursuant to the requirements of the Securities Exchange Act of 1933, as amended,1934, this registration statementreport has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
Signature
| Title
| Date
| | | | | | |
| | |
| | |
/s//s/ Kent B. Wilson
| Chief Executive Officer, President, Director | February 14, 2020August 4, 2023 |
Kent B. Wilson |
| | |
/s/ Christopher Meinerz | Chief Financial Officer Director | August 4, 2023 |
| | Christopher Meinerz |
| | |
/s/ Scott Edwards /s/ Andy Call | Director | February 14, 2020August 4, 2023 |
Scott Edwards | | Andy Call |
| | |
| | |
/s/ Charles Winters
| Chairman of the Board | February 14, 2020 |
Charles Winters | | |
| | |
| | |
/s/ Ian Kantrowitz | Director | February 14, 2020August 4, 2023 |
Ian Kantrowitz | | |
| | |
/s/ Gerry Garcia | Chairwoman of the Board | August 4, 2023 |
/s/ Jeff Hail
| Chief Operating Officer | February 14, 2020Gerry Garcia |
Jeff Hail | | |
EXHIBIT INDEX
Exhibit | |
Number /s/ Edmond Lew | Description Director | August 4, 2023 |
| Edmond Lew |
3.1 | Certificate of Incorporation of Alpine 4 Technologies Ltd. (incorporated by reference to Exhibit 3.1 to Alpine 4’s Registration Statement on Form 10, filed May 8, 2014). | |
/s/ Christophe Jeunot | Director | August 4, 2023 |
3.2 | Certificate of Amendment to Certificate of Incorporation, dated June 27, 2014 (incorporated by reference to Exhibit 3.3 to Alpine 4’s Current Report on Form 8-K filed July 18, 2014).Christophe Jeunot |
| | |
3.3/s/ Jonathan Withem | Certificate of Amendment to Certificate of Incorporation, dated June 30, 2014 (incorporated by reference to Exhibit 3.4 to Alpine 4’s Current Report on Form 8-K filed July 18, 2014).Director | August 4, 2023 |
| |
3.4 | Second Amended and Restated Certificate of Incorporation, dated August 24, 2015 (incorporated by reference to Exhibit 3.1 to Alpine 4’s Current Report on Form 8-K filed August 27, 2015) |
| |
3.5 | Certificate of Amendment of Amended and Restated Certificate of Incorporation, dated December 15, 2017 (incorporated by reference to the Company’s Definitive Proxy Statement filed with the SEC on October 10, 2017) |
| |
3.6 | Certificate of Amendment of Amended and Restated Certificate of Incorporation, dated December 27, 2019 (incorporated by reference to the Company’s Definitive Information Statement filed with the SEC on December 9, 2019) |
| |
3.7 | Certificate of Designation of Rights and Preferences for Series B Preferred Stock (incorporated by reference to the Company’s Current Report filed with the SEC on November 27, 2019) |
| |
3.8 | By-Laws of Alpine 4 (incorporated by reference to Exhibit 3.2 to Alpine 4’s Registration Statement on Form 10, filed May 8, 2014). |
| |
5.1 | Opinion of Kirton McConkie, P.C. regarding validity of the shares of Alpine 4 Technologies Ltd. Class A common stock being registered hereunder (to be filed by amendment). |
| |
10.1 | Purchase Agreement, dated effective January 16, 2020, by and between Alpine 4 Technologies Ltd. and Lincoln Park Capital Fund, LLC (incorporated by reference to the Company’s Current Report filed with the SEC on January 23, 2020) |
| |
10.2 | Registration Rights Agreement, dated effective January 16, 2020, by and between Alpine 4 Technologies Ltd. and Lincoln Park Capital Fund, LLC (incorporated by reference to the Company’s Current Report filed with the SEC on January 23, 2020) |
| |
10.3 | FPCD Note - $350,000 (incorporated by reference to the Company’s Current Report filed with the SEC on November 25, 2019) |
| |
10.4 | FPCD Note - $600,000 (incorporated by reference to the Company’s Current Report filed with the SEC on November 25, 2019) |
| |
10.5 | Note Amendment – #1 (incorporated by reference to the Company’s Current Report filed with the SEC on November 25, 2019) |
| |
10.6 | Note Amendment - # 2 (incorporated by reference to the Company’s Current Report filed with the SEC on November 25, 2019) |
| |
10.7 | FPCD Note - $137,870.48 (incorporated by reference to the Company’s Current Report filed with the SEC on November 25, 2019) |
| |
10.8 | Note Amendment - $180,000 (incorporated by reference to the Company’s Current Report filed with the SEC on November 25, 2019) |
| |
10.9 | APF Securities Agreement (incorporated by reference to the Company’s Current Report on Form 8-K filed with the Commission on April 9, 2018) |
| |
10.10 | Secured Promissory Notes (incorporated by reference to the Company’s Current Report on Form 8-K filed with the Commission on April 9, 2018) |
| |
10.11 | Secured Convertible Notes (incorporated by reference to the Company’s Current Report on Form 8-K filed with the Commission on April 9, 2018) |
| |
10.12 | Security Agreement (incorporated by reference to the Company’s Current Report on Form 8-K filed with the Commission on April 9, 2018) |
| |
10.13 | Consulting Services Agreement (incorporated by reference to the Company’s Current Report on Form 8-K filed with the Commission on April 9, 2018) |
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21 | Subsidiaries of the Company |
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23.1 | Consent of MaloneBailey, LLC |
| |
23.2 | Consent of Kirton McConkie, P.C. (included in the opinion filed as Exhibit 5.1 to this registration statement) (to be filed by amendment). |
| |
24.1 | Power of Attorney (included in the signature page to the original filing of this Registration Statement).Jonathan Withem |