Alpine 4 Holdings Inc
Alpine 4 Holdings Inc details
Ticker:ALPP
Employees: 480
Filing
Table of Contents
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
x QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30 , 2022
o TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number: 001-40913
Alpine 4 Holdings, Inc.
(Exact name of registrant as specified in its charter)
Delaware 46-5482689
(State or Other Jurisdiction of Incorporation or Organization) (I.R.S. Employer Identification No.)
2525 E Arizona Biltmore Circle , Suite 237
Phoenix , AZ 85016
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: 480 - 702-2431
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company.
Large accelerated filer o Accelerated filer o
Non-accelerated filer x Smaller reporting company x
Emerging growth company x
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).Yes o No x
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(1) of the Exchange Act. x
State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date: As of August 11 , 2022, the issuer had 178,460,954 shares of its Class A common stock issued and outstanding, 8,548,088 shares of its Class B common stock issued and outstanding and 12,500,200 shares of its Class C common stock issued and outstanding.
Table of Contents
TABLE OF CONTENTS
PART I Page
Item 1. Financial Statements 4
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 25
Item 3. Quantitative and Qualitative Disclosures About Market Risk 31
Item 4. Controls and Procedures 31
PART II
Item 1. Legal Proceedings 31
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 32
Item 6. Exhibits 33
Signatures 36
2
Table of Contents
CAUTIONARY NOTE CONCERNING FORWARD-LOOKING STATEMENTS
Certain statements and information in this Quarterly Report on Form 10-Q for the quarter ended June 30 , 2022 (the “Quarterly Report”), may constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the Private Securities Litigation Reform Act of 1995. All statements, other than statements of historical facts, which address activities, events, or developments that we expect or anticipate will or may occur in the future, including such things as future capital expenditures, commencement of business operations, business strategy, statements related to the expected effects on our business from the novel coronavirus (“COVID-19”) pandemic, and other similar matters are forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” “continue,” “hope,” “intend,” “project,” “positioned,” or “strategy” or other comparable terminology. These forward-looking statements are based largely on our current expectations and assumptions and are subject to a number of risks and uncertainties, many of which are beyond our control. These statements are subject to many risks, uncertainties, and other important factors that could cause actual future results to differ materially from those expressed in the forward-looking statements including, but not limited to, the duration and scope of the COVID-19 pandemic and impact on the demand for the products we distribute; our ability to obtain the products from the manufacturer; actions governments, businesses, and individuals take in response to the pandemic, including mandatory business closures and restrictions on onsite commercial interactions; the impact of the COVID-19 pandemic and action taken in response to the pandemic on global and regional economies and economic activity; the pace of recovery when the COVID-19 pandemic subsides; general economic uncertainty in key global markets and a worsening of global economic conditions or low levels of economic growth; our inability to sustain profitable sales growth; and circumstances or developments that may make us unable to implement or realize the anticipated benefits, or that may increase the costs, of our current and planned business initiatives. For a more thorough discussion of these risks, you should read this entire Report carefully, as well as the risks discussed under “Risk Factors” in our Annual Report for the year ended December 31, 2021.
Although management believes that the assumptions underlying the forward-looking statements included in this Report are reasonable, such statements do not guarantee our future performance, and actual results could differ from those contemplated by these forward-looking statements. The assumptions used for purposes of the forward-looking statements specified in the following information represent estimates of future events and are subject to uncertainty as to possible changes in economic, legislative, industry, and other circumstances. As a result, the identification and interpretation of data and other information and their use in developing and selecting assumptions from and among reasonable alternatives require the exercise of judgment. To the extent that the assumed events do not occur, the outcome may vary substantially from anticipated or projected results, and, accordingly, no opinion is expressed on the achievability of those forward-looking statements. In the light of these risks and uncertainties, all of the forward-looking statements made herein are qualified by these cautionary statements, and there can be no assurance that the results and events contemplated by the forward-looking statements contained in this Report will in fact transpire. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of their dates. We expressly disclaim any obligation to update or revise any forward-looking statements.
3
Table of Contents
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
ALPINE 4 HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 30, December 31,
2022 2021
(unaudited)
ASSETS
CURRENT ASSETS:
Cash $ 4,168,598 $ 3,715,666
Accounts receivable, net 13,016,990 11,875,176
Inventory, net 25,687,103 25,981,905
Contract assets 1,486,647 877,904
Prepaid expenses and other current assets 2,182,837 1,955,907
Total current assets 46,542,175 44,406,558
Property and equipment, net 20,676,026 28,096,562
Intangible asset, net 35,451,091 36,777,245
Right of use assets, net 9,735,784 1,460,206
Goodwill 21,937,634 21,937,634
Other non-current assets 896,075 357,118
TOTAL ASSETS $ 135,238,785 $ 133,035,323
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 8,829,235 $ 7,744,957
Accrued expenses 6,331,025 5,074,006
Contract liabilities 3,513,283 6,359,449
Line of credit 8,091,942 4,473,489
Notes payable, current portion 3,118,767 5,690,524
Financing lease obligation, current portion 689,804 649,343
Operating lease obligation, current portion 671,371 428,596
Total current liabilities 31,245,427 30,420,364
Notes payable, net of current portion 4,059,272 8,426,105
Line of credit, net of current portion 5,458,338 5,640,051
Financing lease obligations, net of current portion 14,961,856 15,319,467
Operating lease obligations, net of current portion 9,110,746 1,066,562
Deferred tax liability 51,308 51,308
TOTAL LIABILITIES 64,886,947 60,923,857
STOCKHOLDERS' EQUITY:
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 June 30, 2022 and December 31, 2021 5 5
Series C preferred stock; $ 3.50 stated value; 2,028,572 shares authorized, 0 and 10,149 shares issued and outstanding at June 30, 2022 and December 31, 2021 — —
Series D preferred stock; $ 3.50 stated value; 1,628,572 shares authorized, 0 and 78,674 shares issued and outstanding at June 30, 2022 and December 31, 2021 — 7
Class A Common stock, $ 0.0001 par value, 295,000,000 shares authorized, 162,158,324 and 161,798,817 shares issued and outstanding at June 30, 2022 and December 31, 2021 16,219 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 June 30, 2022 and December 31, 2021 854 854
Class C Common stock, $ 0.0001 par value, 15,000,000 shares authorized, 12,500,200 and 12,500,200 shares issued and outstanding at June 30, 2022 and December 31, 2021 1,250 1,250
Additional paid-in capital 131,684,633 131,293,861
Accumulated deficit ( 61,351,123 ) ( 59,200,693 )
Total stockholders' equity 70,351,838 72,111,466
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 135,238,785 $ 133,035,323
The accompanying notes are an integral part of these unaudited consolidated financial statements.
4
Table of Contents
ALPINE 4 HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
Three Months Ended June 30, Six Months Ended June 30,
2022 2021 2022 2021
Revenues, net $ 25,271,126 $ 14,130,730 $ 50,863,280 $ 22,540,269
Costs of revenue 18,661,407 10,166,670 38,616,104 17,821,590
Gross profit 6,609,719 3,964,060 12,247,176 4,718,679
Operating expenses:
General and administrative expenses 9,082,997 6,353,075 18,128,235 12,179,763
Research and development 394,835 515,202 586,765 515,202
Total operating expenses 9,477,832 6,868,277 18,715,000 12,694,965
Loss from operations ( 2,868,113 ) ( 2,904,217 ) ( 6,467,824 ) ( 7,976,286 )
Other income (expenses)
Interest expense ( 962,474 ) ( 1,216,587 ) ( 1,571,435 ) ( 2,688,310 )
Gain on extinguishment of debt — 803,079 — 803,079
Gain on forgiveness of debt — 159,742 — 589,282
Gain on sale of property 5,597,450 — 5,597,450 —
Other income 258,660 30,706 291,379 15,490
Total other income (expenses) 4,893,636 ( 223,060 ) 4,317,394 ( 1,280,459 )
Income (loss) before income tax 2,025,523 ( 3,127,277 ) ( 2,150,430 ) ( 9,256,745 )
Income tax — — — —
Net income (loss) $ 2,025,523 $ ( 3,127,277 ) $ ( 2,150,430 ) $ ( 9,256,745 )
Weighted average shares outstanding:
Basic 183,198,579 161,712,406 183,124,480 158,184,050
Diluted 184,190,932 161,712,406 183,124,480 158,184,050
Basic income (loss) per share $ 0.01 $ ( 0.02 ) $ ( 0.01 ) $ ( 0.06 )
Diluted income (loss) per share $ 0.01 $ ( 0.02 ) $ ( 0.01 ) $ ( 0.06 )
The accompanying notes are an integral part of these unaudited consolidated financial statements.
5
Table of Contents
ALPINE 4 HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS CHANGES IN STOCKHOLDERS' EQUITY
(unaudited)
Additional
Class A Common Class B Common Class C Common Paid-in Accumulated Total Stockholders’
Series B Preferred Stock Series C Preferred Stock Series D Preferred Stock Stock Stock Stock Capital Deficit Equity
Shares Amount Shares Amount Shares Amount Shares Amount Shares Amount Shares Amount
Balance, December 31, 2021 5 $ 5 10,149 $ — 78,674 $ 7 161,798,817 $ 16,182 8,548,088 $ 854 12,500,200 $ 1,250 $ 131,293,861 $ ( 59,200,693 ) $ 72,111,466
Issuance of shares of common stock for compensation — — — — — — 39,386 4 — — — — 99,248 — 99,252
Conversion of series D preferred stock to Class A — — — — ( 78,674 ) ( 7 ) 63,907 7 — — — — — — —
Conversion of series C preferred stock to Class A — — ( 10,149 ) — — — 8,245 — — — — — — — —
Share-based compensation expense — — — — — — — — — — — — 1,026 — 1,026
Net loss — — — — — — — — — — — — — ( 4,175,953 ) ( 4,175,953 )
Balance, March 31, 2022 5 5 — — — — 161,910,355 16,193 8,548,088 854 12,500,200 1,250 131,394,135 ( 63,376,646 ) 68,035,791
Issuance of shares of common stock for compensation — — — — — — 171,850 18 — — — — 132,307 — 132,325
Common shares issued for cash — — — — — — 76,119 8 — — — — 55,136 — 55,144
Share-based compensation expense — — — — — — — — — — — — 103,055 — 103,055
Net income — — — — — — — — — — — — — 2,025,523 2,025,523
Balance, June 30, 2022 5 $ 5 — $ — — $ — 162,158,324 $ 16,219 8,548,088 $ 854 12,500,200 $ 1,250 $ — 131,684,633 $ ( 61,351,123 ) $ 70,351,838
Balance, December 31, 2020 5 $ 5 1,714,286 $ 171 — $ — $ 126,363,158 $ 12,636 $ 9,023,088 $ 902 $ 14,162,267 $ 1,417 $ 30,991,978 $ ( 39,795,401 ) $ ( 8,788,292 )
Issuance of shares of common stock for cash, net of offering costs — — — — — — 9,857,397 985 — — — — 54,301,997 — 54,302,982
Issuance of shares of common stock for convertible note payable and accrued interest — — — — — — 702,877 70 — — — — 109,760 — 109,830
Issuance of shares of series D preferred stock for acquisition — — — — 1,428,570 143 — — — — — — 6,653,166 — 6,653,309
Repurchase of class C common stock — — — — — — — — — — ( 45,000 ) ( 5 ) ( 185,845 ) — ( 185,850 )
Share-based compensation expense — — — — — — — — — — — — 19,341 — 19,341
Beneficial conversion feature on convertible notes — — — — — — — — — — — — 92,428 — 92,428
Net loss — — — — — — — — — — — — — ( 6,129,468 ) ( 6,129,468 )
Balance, March 31, 2021 5 5 1,714,286 171 1,428,570 143 136,923,432 13,691 9,023,088 902 14,117,267 1,412 91,982,825 ( 45,924,869 ) 46,074,280
Issuance of shares of common stock for acquisitions — — — — — — 643,010 64 — — — — 2,535,007 — 2,535,071
Issuance of shares of common stock for convertible note payable and accrued interest — — — — — — 5,295,308 534 — — — — 1,419,034 — 1,419,568
Conversions of Class C to Class A — — — — — — 1,617,067 162 — — ( 1,617,067 ) ( 162 ) — — —
Conversion of Class B to Class A — — — — — — 350,000 35 ( 350,000 ) ( 35 ) — — — — —
Share-based compensation expense — — — — — — — — — — — — 7,988 — 7,988
Net loss — — — — — — — — — — — — — ( 3,127,277 ) ( 3,127,277 )
Balance, June 30, 2021 5 $ 5 1,714,286 $ 171 1,428,570 $ 143 144,828,817 $ 14,486 8,673,088 $ 867 12,500,200 $ 1,250 $ 95,944,854 $ ( 49,052,146 ) $ 46,909,630
The accompanying notes are an integral part of these unaudited consolidated financial statements.
6
Table of Contents
ALPINE 4 HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Six Months Ended June 30,
2022 2021
OPERATING ACTIVITIES:
Net loss $ ( 2,150,430 ) $ ( 9,256,745 )
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation 1,563,756 1,015,984
Amortization 1,326,154 657,180
Gain on extinguishment of debt — ( 803,079 )
Gain on forgiveness of debt — ( 589,282 )
Gain on sale of property ( 5,597,450 ) —
Employee stock compensation 335,658 27,329
Amortization of debt discounts — 1,436,052
Non-cash lease expense 224,422 210,025
Write off of inventory 71,552 —
Bad debt expense 115,835 —
Changes in current assets and liabilities:
Accounts receivable ( 1,257,649 ) ( 2,037,949 )
Inventory 223,250 ( 2,554,413 )
Contract assets ( 608,743 ) ( 1,144,546 )
Prepaid expenses and other assets ( 765,887 ) ( 389,719 )
Accounts payable 1,084,278 ( 822,645 )
Accrued expenses 1,257,019 1,045,814
Contract liabilities ( 2,846,166 ) ( 950,176 )
Operating lease liability ( 213,041 ) ( 218,087 )
Net cash used in operating activities ( 7,237,442 ) ( 14,374,257 )
INVESTING ACTIVITIES:
Capital expenditures ( 756,870 ) ( 317,958 )
Proceeds from sale of property 12,454,943 —
Cash paid for acquisition — ( 16,824,000 )
Cash assumed in acquisition — 81,442
Net cash provided by (used) in investing activities 11,698,073 ( 17,060,516 )
FINANCING ACTIVITIES:
Proceeds from the sale of common stock, net of offering costs 55,144 54,302,982
Proceeds from issuances of notes payable, non-related party — 15,609
Proceeds from issuances of convertible notes payable — 408,000
Proceeds from line of credit 24,863,835 —
Repayment of mortgage on property ( 4,642,043 ) —
Repurchase of common stock — ( 185,850 )
Repayments of notes payable, related party — ( 130,831 )
Repayments of notes payable, non-related parties ( 2,540,390 ) ( 6,992,968 )
Repayments of convertible notes payable — ( 1,680,964 )
Repayment of line of credit ( 21,427,095 ) ( 2,821,033 )
Cash paid on financing lease obligations ( 317,150 ) ( 345,303 )
Net cash provided by (used) in financing activities ( 4,007,699 ) 42,569,642
NET INCREASE IN CASH 452,932 11,134,869
CASH, BEGINNING BALANCE 3,715,666 722,583
CASH, ENDING BALANCE $ 4,168,598 $ 11,857,452
CASH PAID FOR:
Interest $ 1,224,984 $ 1,099,209
Income taxes $ — $ —
SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING AND INVESTING ACTIVITIES:
Common stock issued for convertible note payable and accrued interest $ — $ 1,529,398
Common stock issued for acquisition $ — $ 2,535,071
ROU asset and operating lease obligation recognized under Topic 842 $ 8,500,000 $ 3,689,634
Remeasurement of finance lease liability $ — $ 279,287
Equipment purchased on note payable $ 243,843 $ —
Conversion of series D preferred stock for common stock $ 7 $ —
Issuance of shares of series D preferred stock for acquisition $ — $ 6,653,309
Beneficial conversion feature on convertible notes $ — $ 92,428
The accompanying notes are an integral part of these unaudited consolidated financial statements.
7
Table of Contents
Alpine 4 Holdings, Inc., and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
For the Six Months Ended June 30 , 2022
Note 1 – Organization and Basis of Presentation
The unaudited consolidated financial statements were prepared by Alpine 4 Holdings, 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 filed with the SEC on April 14, 2022. The results for the six months ended June 30 , 2022, are not necessarily indicative of the results to be expected for the year ending December 31, 2022.
The Company was incorporated under the laws of the State of Delaware on April 22, 2014. The Company was formed to serve as a vehicle to affect an asset acquisition, merger, exchange of capital stock, or other business combination with a domestic or foreign business. On March 2, 2021, the Company 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., a California corporation (“QCA”).
Effective January 1, 2019, the Company purchased all of the outstanding capital stock of Morris Sheet Metal Corp., an Indiana corporation (“MSM”); JTD Spiral, Inc., an Indiana corporation wholly owned by MSM; Morris Enterprises LLC, an Indiana limited liability company; and Morris Transportation LLC, an Indiana limited liability company (collectively “Morris”).
Effective November 6, 2019, the Company purchased all of the outstanding capital stock and units of Deluxe Sheet Metal, Inc., an Indiana corporation, 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”). Excel subsequently changed its name to Excel Construction Services, LLC.
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 May 5, 2021, the Company acquired all of the outstanding shares of stock of Thermal Dynamics International, 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 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 Elecj et Corp., (“Elecj et”) and the three Elecj et shareholders. Pursuant to the agreement, AC3 merged with and into Elecj et with Elecj et being the surviving entity following the merger.
8
Table of Contents
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.
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.;
• Elecj et Corp.;
• DTI Services Limited Liability Company (doing business as RCA Commercial Electronics); and
• Global Autonomous Corporation
Basis of presentation
The accompanying consolidated 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”).
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.
As shown in the accompanying consolidated financial statements, the Company has incurred significant recurring losses and negative cash flows from operations. These factors raise doubt about the Company's ability to continue as a going concern. While the Company experienced an operating loss for the three months ended June 30, 2022, of $ 2.9 million this was an improvement over the previous quarters ended March 31, 2022, and December 31, 2021, during which the Company had an operating loss of $ 3.6 million and $ 12.4 million, respectively. While the Company had a negative cash flow used in operation of $ 7.2 million for the six months ended June 30, 2022, it was an improvement over the same period last year, the six months ended June 30, 2021, when the Company had a negative cash flow used in operations of $ 14.4 million.
As of June 30, 2022, the Company had positive working capital of approximately $ 15.3 million, which was an increase of $ 1.3 million compared to December 31, 2021. The Company has secured bank financing totaling $ 23.5 million in lines of credit of which approximately $ 9.9 million was unused. Likewise, subsequent to June 30, 2022, the Company raised net proceeds of approximately $ 9,175,000 from the sale of 14,492,754 shares of Class A common stock and the same number of warrants (see Note 9). As of the date of this Report, the Company had approximately $ 7.4 million in cash.
9
Table of Contents
The Company plans to continue to generate additional revenue (and improve cash flows from operations) combined with improved gross profit performance from the existing operating companies. The Company also may raise funds through debt financing, securing additional lines of credit, and the sale of shares through its planned at-the-market offering.
Based on management’s plans to improve cash flows, as disclosed above management believes the Company has sufficient working capital to satisfy the Company’s estimated liquidity needs for the next 12 months. Because of the above factors, the Company believes that this alleviates the substantial doubt in connection with the Company's ability to continue as a going concern. However, there is no assurance that management’s plans will be successful due to the current economic climate in the United States and globally.
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 June 30, 2022 and December 31, 2021. Significant intercompany balances and transactions have been eliminated.
Use of estimates
The consolidated financial statements are prepared in accordance with U.S. GAAP. Preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, costs and expenses and related disclosures. The Company bases its estimates on historical experience and on various other assumptions that it believes to be reasonable. In many instances, the 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 our 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. The ultimate impact from COVID-19 on the Company’s operations and financial results during 2022 will depend on, among other things, the ultimate severity and scope of the pandemic, the pace at which governmental and private travel restrictions and public concerns about public gatherings will ease, and the speed with which the economy recovers. The Company is not able to fully quantify the impact that these factors will have on the Company’s financial results during 2022 and beyond. COVID-19 did have a negative impact on the Company’s financial performance in 2021. 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. These events are currently escalating and creating 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 hinder 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 2022 and beyond.
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.
Cash
Cash and cash equivalents consist of cash and short-term investments with original maturities of less than 90 days. As of June 30, 2022, and December 31, 2021, the Company had no cash equivalents.
10
Table of Contents
Major Customers
The Company had one customer, W.W. Grainger Inc., that made up 10 % of accounts receivable as of June 30, 2022. The Company had no customer that made up over 10% of accounts receivable as of December 31, 2021.
For the six months ended June 30, 2022, the Company had one customer, W.W. Grainger Inc., that made up 12 % of total revenues. For the six months ended June 30, 2021, the Company had two customers, Rivian Automotive, Inc. a nd Lighthouse Worldwide Solutions, that made up 15 % and 10 % of total revenues, respectively.
For the six months ended June 30, 2022, the Company had received 10 % of total revenues from prime contractors.
Major Customer by Segment
Manufacturing
As of as of June 30, 2022, the manufacturing segment had one customer, Lighthouse Worldwide Solutions, that made up 29 % of accounts receivable. As of December 31, 2021, the manufacturing segment had two customers, Rivian Automotive, Inc. and Lighthouse Worldwide Solutions, that made up 31 % and 20 %, respectively, of accounts receivable.
For the six months ended June 30, 2022, the manufacturing segment had two customers, Rivian Automotive, Inc. and Lighthouse Worldwide Solutions, that made up 20 % and 15 %, respectively, of total manufacturing revenues. For the six months ended June 30, 2021, the manufacturing segment had two customers, Rivian Automotive, Inc. and Lighthouse Worldwide Solutions, that made up 34 % and 23 %, respectively, of total manufacturing revenues.
Construction
As of June 30, 2022, the construction segment had two customers, A. Hattersley & Sons, Inc., and Shambaugh & Sons L.P., that made up 34 % and 17 %, respectively, of accounts receivable. As of December 31, 2021, the construction segment had two customers, A. Hattersley & Sons, Inc. and Shambaugh & Sons L.P., that made up 25 % and 17 %, respectively, of accounts receivable.
For the six months ended June 30, 2022, the construction segment had two customers, A. Hattersley & Sons, Inc. Shambaugh & Sons L.P., that made up 22 % and 16 %, respectively of total construction revenues. For the six months ended June 30, 2021, the construction segment had one customer, A. Hattersley & Sons, Inc., that made up 11 % of total construction revenues.
Defense
Of the defense segment, 100 % of accounts receivables and revenues were related to prime contractors.
Technologies
In the technologies segment, the Company had one customer, W.W. Grainger Inc., that made up 36 % of accounts receivable as of June 30, 2022, and two customers, Direct Supply Inc. and W.W. Grainger Inc., that made up 14 % and 30 %, respectively, of accounts receivable as of December 31, 2021.
For the six months ended June 30, 2022, the technology segment had one customer, W.W. Grainger Inc., that made up 31 % of their total revenues.
Aerospace
As of December 31, 2021, the aerospace segment had one customer, Branch Civil, Inc., that made up 57 % of accounts receivable.
For the six months ended June 30, 2022, the aerospace segment had no customer that made up over 10% of total aerospace revenues.
Fair value measurements
Accounting Standards Codification (“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
11
Table of Contents
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.
The Company's financial instruments consist of cash and cash equivalents, accounts receivable, accounts payable, accrued expenses, convertible notes, notes payable and lines of credit. The carrying 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.
The carrying value of long-term debt approximates fair value since the related rates of interest approximate current market rates. As of June 30, 2022, and December 31, 2021, the Company had no financial assets or liabilities that were required to be fair valued on a recurring basis.
Research and Development
The Company focuses on quality control and development of new products and the improvement of existing products. All cost related to research and development activities are expensed as incurred. During the six months ended June 30, 2022 and 2021, research and development cost totaled $ 586,765 and $ 515,202 , respectively.
Earnings (loss) per share
The Company presents both basic and diluted net income (loss) per share on the face of the 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 only potentially dilutive
12
Table of Contents
securities outstanding during the periods presented were options and warrants. The following table illustrates the computation of basic and diluted earnings per share (“EPS”) for the three and six months ended June 30, 2022 and 2021:
For the Three Months Ended June 30, 2022 For the Three Months Ended June 30, 2021
Net Income Shares Per Share Amount Net loss Shares Per Share Amount
Basic EPS
Net income (loss) $ 2,025,523 183,198,579 $ 0.01 $ ( 3,127,277 ) 161,712,406 $ ( 0.02 )
Effect of Dilutive Securities
Stock options and warrants — 992,353 — — — —
Dilute EPS
$ 2,025,523 184,190,932 $ 0.01 $ ( 3,127,277 ) 161,712,406 $ ( 0.02 )
For the Six Months Ended June 30, 2022 For the Six Months Ended June 30, 2021
Net loss Shares Per Share Amount Net loss Shares Per Share Amount
Basic EPS
Net loss $ ( 2,150,430 ) 183,124,480 $ ( 0.01 ) $ ( 9,256,745 ) 158,184,050 $ ( 0.06 )
Effect of Dilutive Securities
Stock options and warrants — — — — — —
Dilute EPS
$ ( 2,150,430 ) 183,124,480 $ ( 0.01 ) $ ( 9,256,745 ) 158,184,050 $ ( 0.06 )
Revenue Recognition
The Company recognizes revenue under ASC Topic 606. Revenue 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 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 table presents our revenues disaggregated by type for the three and six months ended June 30, 2022:
13
Table of Contents
Three Months Ended June 30, 2022
Construction Services Manufacturing Defense Technologies Aerospace Total
Sale of goods $ — $ 7,530,475 $ — $ 9,255,658 $ — $ 16,786,133
Sale of services 5,669,259 — 2,472,207 — 343,527 8,484,993
Total revenues $ 5,669,259 $ 7,530,475 $ 2,472,207 $ 9,255,658 $ 343,527 $ 25,271,126
Six Months Ended June 30, 2022
Construction Services Manufacturing Defense Technologies Aerospace Total
Sale of goods $ — $ 16,178,570 $ — $ 19,049,646 $ — $ 35,228,216
Sale of services 9,725,463 — 5,160,188 — 749,413 15,635,064
Total revenues $ 9,725,463 $ 16,178,570 $ 5,160,188 $ 19,049,646 $ 749,413 $ 50,863,280
The following table presents our revenues disaggregated by type for the three and six months ended June 30, 2021:
Three Months Ended June 30, 2021
Construction Services Manufacturing Defense Total
Sale of goods $ — $ 7,557,404 $ — $ 7,557,404
Sale of services 5,428,221 — 1,145,105 6,573,326
Total revenues $ 5,428,221 $ 7,557,404 $ 1,145,105 $ 14,130,730
Six Months Ended June 30, 2021
Construction Services Manufacturing Defense Total
Sale of goods $ — $ 11,295,713 $ — $ 11,295,713
Sale of services 10,099,451 — 1,145,105 11,244,556
Total revenues $ 10,099,451 $ 11,295,713 $ 1,145,105 $ 22,540,269
Note 3 – 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.
14
Table of Contents
As of June 30, 2022, the future minimum finance and operating lease payments were as follows:
Finance Operating
Twelve Months Ending June 30, Leases Leases
2023 $ 1,919,067 $ 1,323,145
2024 1,938,189 1,350,970
2025 1,944,187 1,207,752
2026 1,848,756 862,231
2027 1,890,900 879,476
Thereafter 15,815,312 9,911,924
Total payments 25,356,411 15,535,498
Less: imputed interest ( 9,704,751 ) ( 5,753,381 )
Total obligation 15,651,660 9,782,117
Less: current portion ( 689,804 ) ( 671,371 )
Non-current financing leases obligations $ 14,961,856 $ 9,110,746
Operating Leases
The table below presents the lease related assets and liabilities recorded on the Company’s consolidated balance sheets as of June 30, 2022, and December 31, 2021:
June 30, December 31,
Classification on Balance Sheet 2022 2021
Assets
Operating lease assets Operating lease right of use assets $ 9,735,784 $ 1,460,206
Total lease assets $ 9,735,784 $ 1,460,206
Liabilities
Current liabilities
Operating lease liability Current operating lease liability $ 671,371 $ 428,596
Noncurrent liabilities
Operating lease liability Long-term operating lease liability 9,110,746 1,066,562
Total lease liability $ 9,782,117 $ 1,495,158
The lease expense for the six months ended June 30, 2022, was $ 253,121 . The cash paid under operating leases during the six months ended June 30, 2022, was $ 251,398 . At June 30, 2022, the weighted average remaining lease terms were 13.9 years, and the weighted average discount rate was 6.94 %.
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 they transferred control of the building to the buyer, has derecognized the asset, and recognized a gain on the sale of $ 5,597,450 and paid off the outstanding mortgage of $ 4,642,043 . Under ASC 842 the Company simultaneously entered into a sale leaseback transaction where the building was then leased back for a term of 15 years with monthly rent payments that range from $ 67,708 to $ 89,305 . The Company determined the lease to be an operating lease and recognized a right-of-use asset and operating lease liability of $ 8,500,000 based on the present value of the minimum lease payments discounted using an incremental borrowing rate of 7 %.
15
Table of Contents
Note 4 – Debt
The outstanding balances for the loans as of June 30, 2022, and December 31, 2021, were as follows:
June 30, December 31,
2022 2021
Lines of credit, current portion $ 8,091,942 $ 4,473,489
Equipment loans, current portion 86,173 61,640
Term notes, current portion 3,032,594 5,628,884
Total current 11,210,709 10,164,013
Lines of credit, net of current portion 5,458,338 5,640,051
Long-term portion of equipment loans and term notes 4,059,272 8,426,105
Total notes payable and line of Credit $ 20,728,319 $ 24,230,169
Future scheduled maturities of outstanding debt are as follows:
Twelve Months Ending June 30,
2023 $ 11,210,709
2024 7,745,512
2025 1,617,748
2026 53,443
2027 35,907
Thereafter 65,000
Total $ 20,728,319
In August 2020, the Company filed a lawsuit against Alan Martin regarding his note payable (See Note 8). As of June 30, 2022, the note had a balance of $ 2,857,500 and accrued interest of $ 1,598,586 which is reflected in current liabilities in the consolidated balance sheets.
During 2022, the Company had four revolving lines of credit in the aggregate of $ 23.5 million, including one capital expenditures line of credit of $ 0.5 million. The revolving lines of credit used as of June 30, 2022, totaled $ 13.6 million with interest rates ranging from prime plus 2.50 % - 4.25 % and terms ranging from one to two years . As of June 30, 2022, the Company had $ 9.9 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 in compliance with these covenants.
In June 2022, the Company paid the outstanding principal balance of $ 2,374,061 on three notes payable due to the sellers of Morris Sheet Metal, Corp. that matured during the year.
Note 5 – Stockholders' Equity
Common Stock
The Company had the following transactions in its common stock during the six months ended June 30, 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.
• In March 2022, the Company issued 39,386 shares of Class A common stock for services with a value of $ 99,252 .
• On January 13, 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 .
• On April 29, 2022, the Company issued 171,850 shares of Class A common stock at a value of $ 132,325 as employee compensation.
16
Table of Contents
• 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").
Stock Options
The following summarizes the stock option activity for the six months ended June 30, 2022:
Weighted-
Weighted- Average
Average Remaining Aggregate
Exercise Contractual Intrinsic
Options Price Life (Years) Value
Outstanding at December 31, 2021 1,790,000 $ 0.19 6.09 $ 3,098,055
Granted 2,084,620 0.77
Forfeited ( 618,000 ) 0.30
Exercised —
Outstanding at June 30, 2022 3,256,620 $ 0.54 8.43 $ 697,990
Vested and expected to vest at June 30, 2022 3,256,620 $ 0.54 8.43 $ 697,990
Exercisable at June 30, 2022 1,075,125 $ 0.14 5.87 $ 634,053
The following table summarizes information about options outstanding and exercisable as of June 30, 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 5.88 $ 0.05 882,125 $ 0.05
0.10 85,000 5.78 0.10 85,000 0.10
0.77 2,084,620 9.84 0.77 — —
0.90 108,000 4.77 0.90 108,000 0.90
3,256,620 1,075,125
During the six months ended June 30, 2022 and 2021, stock option expense amounted to $ 104,081 and $ 27,329 , respectively. Unrecognized stock option expense as of June 30, 2022, amounted to $ 1,483,595 , which will be recognized over a period extending through April 2025.
During the six months ended June 30, 2022, the Company issued 2,084,620 options in connection with the Company's Employee Stock Option Plan ("ESOP"). The options have an exercise price of $ 0.77 , vest annually over a three year vesting period and expire on April 29, 2032.
The fair value of the 2,084,620 options issued in connection with the ESOP is $1,586,650, and was determined using the Black-Scholes option pricing model with the following assumptions:
17
Table of Contents
Stock price $ 0.77
Risk-free interest rate 2.38 %
Expected life of the options 6.25 years
Expected volatility 200 %
Expected dividend yield 0 %
Warrants
The following summarizes the warrants activity for the six months ended June 30, 2022:
Weighted-
Weighted- Average
Average Remaining Aggregate
Exercise Contractual Intrinsic
Warrants Price Life (Years) Value
Outstanding at December 31, 2021 5,527,778 $ 3.32 4.62 $ —
Granted —
Forfeited —
Exercised —
Outstanding at June 30, 2022 5,527,778 $ 3.32 4.13 $ —
Vested and expected to vest at June 30, 2022 5,527,778 $ 3.32 4.13 $ —
Exercisable at June 30, 2022 5,527,778 $ 3.32 4.13 $ —
The following table summarizes information about warrants outstanding and exercisable as of June 30, 2022:
Warrants Outstanding Warrants Exercisable
Weighted Weighted Weighted
Average Average Average
Exercise Number Remaining Exercise Number Exercise
Price of Shares Life (Years) Price of Shares Price
$ 6.60 416,667 2.64 $ 6.60 416,667 $ 6.60
2.52 396,825 2.46 2.52 396,825 2.52
3.10 4,285,715 4.40 3.10 4,285,715 3.10
3.08 428,571 4.40 3.08 428,571 3.08
5,527,778 5,527,778
During the year ended December 31, 2021, the Company issued 416,667 warrants to a placement agent in connection with sale of its common stock The warrants have an exercise price of $ 6.60 , are exercisable as of August 16, 2021 and expire on February 16, 2025. The Company issued another 428,571 warrants to a placement agent in connection with the sale of its common stock. The warrants have an exercise price of $ 3.08 , are exercisable as of May 26, 2022, and expire November 22, 2026. The Company issued another 396,825 warrants in connection with the RCA acquisition. The warrants have an exercise price of $ 2.52 , were exercisable as of December 9, 2021, and expire December 9, 2024.
The fair value of the 416,667, the 428,571, and the 396,825 warrants issued to the placement agent and RCA sellers 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 with the following assumptions:
18
Table of Contents
Stock price $ 2.51 -$ 7.03
Risk-free interest rate 0.01 %- 1.02 %
Expected life of the options 2 - 5 years
Expected volatility 159 - 347 %
Expected dividend yield 0 %
The fair value of the warrants was recorded as offering costs with a corresponding credit to additional paid in capital.
Note 6 – Business Combinations
DTI Services (doing business as RCA Commercial Electronics) ("RCA")
On December 13, 2021, the Company closed the acquisition of RCA. The acquisition was considered an acquisition of a business under ASC 805. 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 adjustment to the provisional amounts as new information is obtained about facts and circumstances that existed at the acquisition date. A summary of the purchase price allocation at fair value is presented below:
Purchase Allocation
Accounts receivable $ 3,409,230
Other current assets 1,259,556
Inventory 14,040,123
Property and equipment 761,370
Customer list 4,700,000
Trademark 1,800,000
Non-compete agreement 690,000
Goodwill 213,477
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 ( 396,852 shares) 668,863
Seller notes 2,000,000
$ 20,351,401
The following are the unaudited pro forma results of operations for the three and six months ended June 30, 2021, as if Vayu, TDI, Alt Labs, Identified Technologies, Elecjet, and RCA had been acquired on January 1, 2021. The pro forma results include estimates and assumptions which management believes are reasonable. However, pro forma results do not
19
Table of Contents
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)
Three Months Ended June 30, 2021 Six Months Ended June 30, 2021
Sales $ 27,419,003 $ 51,900,467
Cost of goods sold 18,792,686 36,584,402
Gross profit 8,626,317 15,316,065
Operating expenses 9,601,812 18,416,828
Loss from operations ( 975,495 ) ( 3,100,763 )
Net income (loss) ( 1,257,704 ) ( 3,818,063 )
Net loss per share ( 0.01 ) ( 0.02 )
Note 7 – 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 June 30, 2022, the Company has reduced its reportable segments to five operating segments as represented by the Company’s five silo companies: A4 Construction Services, Inc.; A4 Manufacturing, Inc.; A4 Technologies, Inc.; A4 Aerospace Corporation; and A4 Defense Systems, Inc. The Company’s reportable segments for the three and six months ended June 30, 2022, and June 30, 2021, and as of June 30, 2022, and December 31, 2021, were as follows:
Three Months Ended June 30, Six Months Ended June 30,
2022 2021 2022 2021
Revenue
Construction Services $ 5,669,259 $ 5,428,221 $ 9,725,463 $ 10,099,451
Manufacturing 7,530,475 7,557,404 16,178,570 11,295,713
Defense 2,472,207 1,145,105 5,160,188 1,145,105
Technologies 9,255,658 — 19,049,646 —
Aerospace 343,527 — 749,413 —
$ 25,271,126 $ 14,130,730 $ 50,863,280 $ 22,540,269
Gross profit
Construction Services $ 165,320 $ 871,860 $ 530,152 $ 714,202
Manufacturing 2,123,788 2,631,982 4,127,957 3,544,259
Defense 1,285,732 460,218 2,128,921 460,218
Technologies 2,858,396 — 4,980,695 —
Aerospace 176,483 — 479,451 —
$ 6,609,719 $ 3,964,060 $ 12,247,176 $ 4,718,679
Income (loss) from operations
Construction Services $ ( 391,838 ) $ ( 752,731 ) $ ( 1,027,526 ) $ ( 2,856,533 )
Manufacturing ( 435,960 ) 477,949 ( 1,089,309 ) 732,138
Defense 783,704 3,622 1,206,844 3,622
Technologies 401,833 — 691,610 —
Aerospace ( 941,161 ) ( 705,398 ) ( 1,792,291 ) ( 2,923,177 )
Unallocated ( 2,284,691 ) ( 1,927,659 ) ( 4,457,152 ) ( 2,932,336 )
$ ( 2,868,113 ) $ ( 2,904,217 ) $ ( 6,467,824 ) $ ( 7,976,286 )
20
Table of Contents
Depreciation and amortization
Construction Services $ 304,259 $ 421,326 $ 470,663 $ 754,048
Manufacturing 436,424 416,264 918,111 579,623
Defense 72,090 56,217 144,180 56,217
Technologies 245,852 — 489,565 —
Aerospace 267,087 48,124 549,777 226,368
Unallocated 158,807 8,807 317,614 56,908
$ 1,484,519 $ 950,738 $ 2,889,910 $ 1,673,164
Interest Expense
Construction Services $ 185,863 $ 300,634 $ 350,873 $ 682,470
Manufacturing 221,505 126,519 351,494 268,875
Defense — 825 — 825
Technologies 60,431 — 115,248 —
Aerospace 912 — 2,352 —
Unallocated 493,763 788,609 751,468 1,736,140
$ 962,474 $ 1,216,587 $ 1,571,435 $ 2,688,310
Net income (loss)
Construction Services $ ( 577,533 ) $ ( 193,937 ) $ ( 1,321,875 ) $ ( 2,674,205 )
Manufacturing 5,130,225 366,412 4,284,460 457,659
Defense 783,704 6,384 1,206,844 6,384
Technologies 337,857 — 572,817 —
Aerospace ( 923,204 ) ( 705,407 ) ( 1,758,952 ) ( 2,493,646 )
Unallocated ( 2,725,526 ) ( 2,600,729 ) ( 5,133,724 ) ( 4,552,937 )
$ 2,025,523 $ ( 3,127,277 ) $ ( 2,150,430 ) $ ( 9,256,745 )
21
Table of Contents
As of As of
June 30, 2022 December 31, 2021
Total Assets
Construction Services $ 18,125,882 $ 13,985,561
Manufacturing 44,217,346 39,964,186
Defense 10,688,747 11,982,580
Technologies 41,299,819 39,516,284
Aerospace 10,736,511 17,078,926
Unallocated 10,170,480 10,507,786
$ 135,238,785 $ 133,035,323
Goodwill
Construction Services $ 113,592 $ 113,592
Manufacturing 8,036,200 8,036,200
Defense 6,426,786 6,426,786
Technologies 5,447,746 5,447,746
Aerospace 1,913,310 1,913,310
$ 21,937,634 $ 21,937,634
Accounts receivable, net
Construction Services $ 4,344,834 $ 4,193,243
Manufacturing 3,473,169 3,192,030
Defense 1,246,766 1,371,184
Technologies 3,753,021 2,998,945
Aerospace 199,200 119,774
$ 13,016,990 $ 11,875,176
Note 8 – 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 agreed to pay a royalty fee of 2.5 % 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, for whom services will be provided through 2030. In exchange for these services, DTI receives annual payments as follows:
Years Ending June 30 ,
2023 $ 66,626
2024 59,964
Total $ 126,590
22
Table of Contents
Royalty Agreement
On November 28, 2021, the Company entered into a Royalty Agreement with the sellers of Elecj et. In the Royalty Agreement, the Company noted that upon closing of the merger with Elecj et, the Company desired to build its initial factory (“Factory”) to manufacture batteries in the United States. The Company agreed 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, except as set forth below.
In June 2020, the Company’s subsidiary Excel Fabrication, LLC filed a lawsuit against Fusion Mechanical, LLC, in the Fifth Judicial District Court, State of Idaho (Case Number CV42-20-2246). The Company claimed tortious interference and trade secret violations by the defendant. The defendant filed a motion to dismiss, which was denied by the Court. As of the date of this Report, discovery was proceeding. The defendant filed a second motion to dismiss and the Company filed a memorandum in response to the second motion to dismiss, for which a hearing was held on May 10, 2021. On June 11, 2021, the court issued a decision narrowing the claims of the plaintiffs to three items: breach of contract, good faith and fair dealings and intentional interference for economic advantage. These were the Company’s three main points of contention. As of the date of this Report, trial is set for Spring 2023.
In August 2020, 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 Well Testing LLC (“HWT”) dba Venture West Energy Services, LLC. The Company brought claims for breach of contract, including but not limited to breaches of the seller’s representations and warranties in the purchase agreement in connection with the acquisition of HWT. The defendant answered and counterclaimed, claiming breach by the Company of its obligation to issue a promissory note (to be issued in connection with the acquisition of HWT). As of the date of this Report, the discovery period had ended but no trial date had been scheduled. A summary judgement motion was filed on December 22, 2021, and was fully briefed and submitted for decision in January 2022. That motion was pending as of the date of this Report.
In May 2021, the Company and several shareholders filed a lawsuit in the United States District Court for the District of Arizona (Case number 2:21-cv-00886-MTL) against Fin Capital LLC ("Fin Cap"), and Grizzly Research LLC ("Grizzly") alleging securities fraud, tortious interference with business expectancy and libel slander for disseminating false and misleading statements about Alpine 4 and its employees to manipulate the stock price and further their own financial interests. As of the date of this Report Fin Capital and Grizzly Research LLC filed motions to dismiss for lack of jurisdiction. The Court has denied Fin Capital’s motion to dismiss and granted the Grizzly Research motion. However, the Court granted the Company until May 12, 2022, to file an amended complaint. The Company subsequently filed its first amended complaint. In June 2022, both Grizzly and Finn moved to dismiss the first amended complaint. As of the date of this Report, those motions were still pending. The Court denied motions of Grizzly and Finn relating to the filing of the joint planning report and and entered the scheduling order. Because the scheduling order is now in place, the Company will be moving forward with discovery.
In August 2021, 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. 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. As of the date of this Report, the Company had agreed on a scheduling order with counsel for Mr. Porter, and the Company was participating in discovery.
In October 2021, 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. 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
23
Table of Contents
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. A stipulated motion to sever Mr. Morses's case from those of Messrs. Hobbs and Karraker has been sent to counsel for Mr. Morse for approval and filing with the court. In July 2022, Mr. Hobbs also expressed interest in settling his claims on similar terms. Negotiations with Mr. Hobbs were ongoing as of the date of this Report. As of the date of this Report, Mr. Karraker's lawsuit was proceeding.
Note 9 – Subsequent Events
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 $ 40,910 in connection with its ATM offering.
In July 2022, the Company's subsidiary ElecJet paid a license fee of $ 250,000 and a follow up $ 300,000 fee in conjunction with the development of its AX-03 solid state battery.
In August 2022, certain investors exercised 1,449,276 warrants for cash proceeds of approximately $1,000,000.
24
Table of Contents
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Management’s Discussion and Analysis of Financial Condition and Results of Operations is designed to provide a reader of the financial statements with a narrative report on our financial condition, results of operations, and liquidity. This discussion and analysis should be read in conjunction with the unaudited Financial Statements and notes thereto for the six months ended June 30, 2022, included under Item 1 – Financial Statements in this Quarterly Report, and our audited Financial Statements and notes thereto for the year ended December 31, 2021, contained in our Annual Report on Form 10-K. The following discussion contains forward-looking statements that involve risks and uncertainties, such as statements of our plans, objectives, expectations, and intentions. Our actual results could differ materially from those discussed in the forward-looking statements. Please also see the cautionary language at the beginning of this Quarterly Report regarding forward-looking statements.
Overview and Highlights
Company Background
Alpine 4 Holdings, Inc. (“we,” “our,” or the “Company”), was incorporated under the laws of the State of Delaware on April 22, 2014. We are a publicly traded conglomerate that is acquiring businesses that fit into its disruptive DSF business model of Drivers, Stabilizers, and Facilitators. At Alpine 4, we understand the nature of how technology and innovation can accentuate a business. Our focus is on how the adaptation of new technologies even in brick and mortar businesses can drive innovation. We also believe that our holdings should benefit synergistically from each other and that the ability to have collaboration across varying industries can spawn new ideas and create fertile ground for competitive advantages.
As of the date of this Report, the Company was a holding company that owned fourteen operating subsidiaries:
– 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), Inc.;
– Thermal Dynamics, Inc.;
– Alternative Laboratories, LLC.;
– Identified Technologies Corporation;
– Elecj et Corp.;
– DTI Services Limited Liability Company (doing business as RCA Commercial Electronics); and
– Global Autonomous Corporation .
In the first quarter of 2020, we created three additional subsidiaries to act as silo holding companies, organized by industries. These silo subsidiaries are A4 Construction Services, Inc. (“A4 Construction”), A4 Manufacturing, Inc. (“A4 Manufacturing”), and A4 Technologies, Inc. (“A4 Technologies”). In the first quarter of 2021, we formed additional silo subsidiaries: A4 Defense Systems, Inc. (“A4 Defense”); and A4 Aerospace Corporation, Inc. (“A4 Aerospace”). All of these are Delaware corporations. Each is authorized to issue 1,500 shares of common stock with a par value of $0.01 per share, and the Company is the sole shareholder of each of these subsidiaries.
In March 2021, the Company announced the combination of its subsidiaries Deluxe Sheet Metal, Inc. (Deluxe) and Morris Sheet Metal Corporation (Morris) to become one of the largest sheet metal contractors in the Midwest region of the United States. Both companies will be under the Morris Sheet Metal brand. The Company’s management believes that the combination of these businesses will create a more harmonious relationship between the two companies. The combining of resources should empower Morris to strengthen its brand through its strategic banking relationship, eliminate duplicative and competitive interests, and expand its footprint beyond the Indiana home base.
On May 5, 2021, the Company acquired all of the outstanding shares of stock of Thermal Dynamics, Inc., a Delaware corporation (“Thermal Dynamics”).
25
Table of Contents
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”).
In June 2021, the Company announced the combination of its subsidiaries Impossible Aerospace (“IA”) and Vayu (US) (“Vayu US”) to become Vayu Aerospace Corporation (“VAYU”). The Company’s management believes that the combination of these businesses will create a more harmonious relationship between the two companies. The combining of resources should empower VAYU to strengthen its brand through its strategic banking relationship, eliminate duplicative and competitive interests, and expand its footprint beyond the Michigan home base.
On October 20, 2021, the Company, and the Company’s subsidiary, A4 Aerospace, Inc., a Delaware corporation (“A4 Aerospace”), entered into a Stock Purchase Agreement with Identified Technologies Corporation, a Delaware corporation with foreign registration in Pennsylvania (“Identified Technologies”). Pursuant to the Stock Purchase Agreement, A4 Aerospace purchased all of the outstanding shares of capital stock of Identified Technologies, a total of 6,486,044 shares of Identified Technologies’ capital stock (the “ITC Shares”). The total purchase price for the ITC Shares was $4,000,000 and was paid in shares of the Company’s Class A common stock, issued to the Shareholders. Following the closing of the transaction, A4 Aerospace owned 100% of the capital stock of 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 Elecj et Corp., a Delaware corporation (“Elecj et”) and the three Elecj et shareholders. Pursuant to the Agreement, AC3 merged with and into Elecj et, 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, 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 two individual owners of these entities. DTI, Direct Tech, PMI, Continu.Us, and Solas were referred to in the Membership Interest Purchase Agreement collectively as “RCA.” Pursuant to the Membership Interest Purchase Agreement, the Company acquired all of the outstanding membership interests of RCA.
Alpine 4 maintains our corporate office located at 2525 E. Arizona Biltmore Circle, Suite 237, Phoenix, Arizona 85016. ALTIA works out of the headquarters offices. QCA rents a location at 1709 Junction Court #380 San Jose, California 95112. Morris Sheet Metal and JTD Spiral are located at 6212 Highview Dr, Fort Wayne, Indiana 46818. Excel Construction Services’ office and fabrication space are located at 297 Wycoff Cir, Twin Falls, Idaho 83301. Vayu (US) has its headquarters at 3753 Plaza Drive, Ann Arbor, Michigan 48108. The headquarters for TDI are located at 14955 Technology Ct, Fort Myers, Florida 33912. Alt Labs has its headquarters at 4740 S. Cleveland Ave. Fort Myers, Florida 33907. The Identified Technologies Corporation headquarters are located at 6401 Penn Ave, Suite 211, Pittsburgh, Pennsylvania 15206. Elecj et has its headquarters at 2525 E Arizona Biltmore Cir, Suite 237, Phoenix, Arizona 85016. RCA Commercial Electronics has its headquarters at 5935 W 84th St, Indianapolis, Indiana 46278. Global Autonomous Corporation has its offices at 2525 E Arizona Biltmore Circle, Suite 237, Phoenix Arizona 85016.
Business Strategy
What We Do:
Alexander Hamilton, in his “Federalist paper #11,” said that our adventurous spirit distinguishes the commercial character of America. Hamilton knew that our freedom to be creative gave American businesses a competitive advantage over the rest of the world. We believe that Alpine 4 also exemplifies this spirit in our subsidiaries and that our greatest competitive advantage is our highly diverse business structure combined with a culture of collaboration.
It is our mandate to grow Alpine 4 into a leading, multi-faceted holding company with diverse subsidiary holdings with products and services that not only benefit from one another as a whole, but also have the benefit of independence. This type of corporate structure is about having our subsidiaries prosper through strong onsite leadership while working synergistically with other Alpine 4 holdings. The essence of our business model is based around acquiring B2B companies in a broad spectrum of industries via our acquisition strategy of DSF (Drivers, Stabilizer, Facilitator). Our DSF business model (which is discussed more below) offers our shareholders an opportunity to own small-cap businesses that hold defensible positions in their individual market space. Further, Alpine 4’s greatest opportunity for growth exists in the
26
Table of Contents
smaller to middle-market operating companies with revenues between $5 to $150 million annually. In this target-rich environment, businesses generally sell at more reasonable multiples, presenting greater opportunities for operational and strategic improvements that have greater potential to enhance profit.
Driver, Stabilizer, Facilitator (DSF)
Driver: A Driver is a company that is in an emerging market or technology, that has enormous upside potential for revenue and profits, with a significant market opportunity to access. These types of acquisitions are typically small, brand new companies that need a structure to support their growth.
Stabilizer: Stabilizers are companies that have sticky customers, consistent revenue and provide solid net profit returns to Alpine 4.
Facilitators: Facilitators are our “secret sauce.” Facilitators are companies that provide a product or service that an Alpine 4 sister company can use as leverage to create a competitive advantage.
When you blend these categories into a longer-term view of the business landscape, you can then begin to see the value-driving force that makes this a truly purposeful and powerful business model. As stated earlier, our greatest competitive advantage is our highly diversified business structure combined with a collaborative business culture, that helps drive out competition in our markets by bringing; resources, planning, technology and capacity that our competitors simply do not have. DSF reshapes the environment each subsidiary operates in by sharing and exploiting the resources each company has, thus giving them a competitive advantage that their peers do not have.
How We Do It:
Optimization vs. Asset Producing
The process to purchase a perspective company can be long and arduous. During our due diligence period, we are validating and determining three major points, not just the historical record of the company we are buying. Those three major points are what we call the “What is, What Should Be and What Will Be”.
• “The What Is” (TWI). TWI is the defining point of where a company is holistically in a myriad of metrics; Sales, Finance, Ease of Operations, Ownership and Customer Relations to name a few. Subsequently, this is usually the point where most acquirers stop in their due diligence. We look to define this position not just from a number’s standpoint, but also how does this perspective map out to a larger picture of culture and business environment.
• “The What Should Be” (TWSB). TWSB is the validation point of inflection where we use many data inputs to assess if TWI is out of the norm with competitors, and does that data show the potential for improvement.
• “The What Will Be” (TWWB). TWWB is how we seek to identify the net results or what we call Kinetic Profit (KP) between the TWI and TWSB. The keywords are Kinetic Profit. KP is the profit waiting to be achieved by some form of action or as we call it, the Optimization Phase of acquiring a new company.
Optimization: During the Optimization Phase, we seek to root up employees with in-depth training on various topics. Usually, these training sessions include; Profit and Expense Control, Production Planning, Breakeven Analysis and Profit Engineering to name a few. But the end game is to guide these companies to: become net profitable with the new debt burden placed on them post-acquisition, mitigate the loss of sales due to acquisition attrition (we typically plan on 10% of our customers leaving simply due to old ownership not being involved in the company any longer), potential replacement of employees that No longer wish to be employed post-acquisition and other ancillary issues that may arise. The Optimization Phase usually takes 12-18 months post-acquisition and a company can fall back into Optimization if it is stagnant or regresses in its training.
Asset Producing: Asset Producing is the ideal point where we want our subsidiaries to be. To become Asset Producing, subsidiary management must have completed prescribed training formats, proven they understand the key performance indicators that run their respective departments and finally, the subsidiaries they manage must have posted a net profit for 3 consecutive months.
27
Table of Contents
Results of Operations
The following are the results of our operations for the three months ended June 30, 2022, as compared to the three months ended June 30, 2021.
Three Months Ended Three Months Ended
June 30, 2022 June 30, 2021 $ Change
Revenue $ 25,271,126 $ 14,130,730 $ 11,140,396
Cost of revenue 18,661,407 10,166,670 8,494,737
Gross Profit 6,609,719 3,964,060 2,645,659
Operating expenses:
General and administrative expenses 9,082,997 6,353,075 2,729,922
Research and development 394,835 515,202 (120,367)
Total operating expenses 9,477,832 6,868,277 2,609,555
Loss from operations (2,868,113) (2,904,217) 36,104
Other income (expenses)
Interest expense (962,474) (1,216,587) 254,113
Gain on extinguishment of debt — 803,079 (803,079)
Gain on forgiveness of debt — 159,742 (159,742)
Gain on sale of property 5,597,450 — 5,597,450
Other income 258,660 30,706 227,954
Total other income (expenses) 4,893,636 (223,060) 5,116,696
Income (loss) before income tax 2,025,523 (3,127,277) 5,152,800
Income tax expense — — —
Net income (loss) $ 2,025,523 $ (3,127,277) $ 5,152,800
Revenue
Our revenues for the three months ended June 30, 2022, increased by $11,140,396 as compared to the three months ended June 30, 2021. In 2022, the increase in revenue is related to the acquisition of TDI, Alt Labs, and RCA. Revenues for TDI, Alt Labs, and RCA were $2,472,208, $2,958,885, and $8,910,276, respectively.
Cost of revenue
Our cost of revenue for the three months ended June 30, 2022, increased by $8,494,737 as compared to the three months ended June 30, 2021. In 2022, the increase in cost of revenue is related to the acquisition of TDI, Alt Labs, and RCA. Cost of revenue for TDI, Alt Labs, and RCA were $1,186,475, $2,100,888, and $6,302,827, respectively.
Operating expenses
Our operating expenses for the three months ended June 30, 2022, increased by $2,609,555 as compared to the three months ended June 30, 2021. The increase is due to the acquisitions of TDI, Alt Labs, and RCA. Operating expenses for TDI, Alt Labs, and RCA were $922,077, $1,489,658, and $1,974,712, respectively.
28
Table of Contents
Other income (expenses)
Other income for the three months ended June 30, 2022, increased by $5,116,696 as compared to the same period in 2021. This increase was primarily due the sale of the Alt Labs building in Fort Meyers, Florida.
The following are the results of our operations for the six months ended June 30, 2022, as compared to the six months ended June 30, 2021.
Six Months Ended Six Months Ended
June 30, 2022 June 30, 2021 $ Change
Revenue $ 50,863,280 $ 22,540,269 $ 28,323,011
Cost of revenue 38,616,104 17,821,590 20,794,514
Gross Profit 12,247,176 4,718,679 7,528,497
Operating expenses:
General and administrative expenses 18,128,235 12,179,763 5,948,472
Research and development 586,765 515,202 71,563
Total operating expenses 18,715,000 12,694,965 6,020,035
Loss from operations (6,467,824) (7,976,286) 1,508,462
Other income (expenses)
Interest expense (1,571,435) (2,688,310) 1,116,875
Gain on extinguishment of debt — 803,079 (803,079)
Gain on forgiveness of debt — 589,282 (589,282)
Gain on sale of property 5,597,450 — 5,597,450
Other income 291,379 15,490 275,889
Total other expenses 4,317,394 (1,280,459) 5,597,853
Loss before income tax (2,150,430) (9,256,745) 7,106,315
Income tax expense — — —
Net loss $ (2,150,430) $ (9,256,745) $ 7,106,315
Revenue
Our revenues for the six months ended June 30, 2022, increased by $28,323,011 as compared to the six months ended June 30, 2021. In 2022, the increase in revenue is related to the acquisition of TDI, Alt Labs, and RCA. Revenues for TDI, Alt Labs, and RCA were $5,160,188, $6,783,023, and $18,147,535, respectively.
Cost of revenue
Our cost of revenue for the six months ended June 30, 2022, increased by $20,794,514 as compared to the six months ended June 30, 2021. In 2022, the increase in cost of revenue is related to the acquisition of TDI, Alt Labs, and RCA. Cost of revenue for TDI, Alt Labs, and RCA were $3,031,267, $5,023,547, and $13,354,108, respectively. The net result of the increase in our cost of revenue dollars in comparison to our revenue was an increase in our gross profit percentage from 21% during the first six months ended June 30, 2021 to 24% in the first six months ended June 30, 2022.
29
Table of Contents
Operating expenses
Our operating expenses for the six months ended June 30, 2022, increased by $6,020,035 as compared to the six months ended June 30, 2021. The increase is due to the acquisitions of TDI, Alt Labs, and RCA. Operating expenses for TDI, Alt Labs, and RCA were $922,077, $3,378,620, and $3,564,917, respectively.
Other income (expenses)
Other income for the six months ended June 30, 2022, increased by $5,597,853 as compared to the same period in 2021. This increase was primarily due the sale of the Alt Labs building in Fort Meyers, Florida.
Liquidity and Capital Resources
We have financed our operations since inception from existing revenue, the sale of common stock, capital contributions from stockholders and from the issuance of notes payable and convertible notes payable. We expect to continue to finance our operations from our current operating cash flow and by the selling shares of our common stock and or debt instruments. In the first quarter of 2021, we raised approximately $55,000,000 through the sale of our common stock in public and private transactions. On November 26, 2021, we completed a registered direct offering of common stock, raising approximately $22,000,000 in cash. The Company received net proceeds of $7.6 million from the sale of property on June 23, 2022. The Company raised $10 million in gross proceeds from the sale of 14,492,754 shares of Class A Common Stock and warrants to purchase 14,492,754 shared in a registered direct public offering that closed on July 13, 2022, the details of which are outlined in a Current Report on form 8-K filed by the Company on July 13, 2022. In August 2022, certain investors in the ATM Offering executed 1,449,276 warrants at an exercise price of $0.69 for cash proceeds to the Company of $1,000,000.
Management expects to have sufficient working capital for continuing operations from either the sale of its products or through the raising of additional capital through private offerings of our securities and improved cash flows from operations including the six acquisitions that closed in 2021. The Company also secured bank lines of credit totaling $23.5 in 2022 and 2021 of which $4.2 million was secured in March 2022. Additionally, the Company is monitoring additional businesses to acquire which management hopes will provide additional operating revenues to the Company. There can be no guarantee that the planned acquisitions will close or that they will produce the anticipated revenues on the schedule anticipated by management.
The Company also may elect to seek additional bank financing, engage in debt financing through a placement agent, or sell shares of its common stock in public or private offering transactions.
Off-Balance Sheet Arrangements
The Company has not entered into any transactions with unconsolidated entities whereby the Company has financial guarantees, subordinated retained interests, derivative instruments, or other contingent arrangements that expose the Company to material continuing risks, contingent liabilities, or any other obligation under a variable interest in an unconsolidated entity that provides financing, liquidity, market risk, or credit risk support to the Company.
Critical Accounting Policies and Estimates
Our consolidated financial statements are prepared in accordance with generally accepted accounting principles in the United States, or U.S. GAAP. Preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, costs and expenses and related disclosures. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable. In many instances, we 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 and valuation of long-lived. Actual results could differ significantly from our estimates. To the extent that there are material differences between these estimates and actual results, our future financial statement presentation, financial condition, results of operations and cash flows will be affected. Management believes that there have been no changes in our critical accounting policies during the six months ended June 30 , 2022.
For a summary of our significant accounting policies, refer to Note 2 of our consolidated financial statements included under Item 8 – Financial Statements in our Annual Report on Form 10-K filed on April 14, 2022.
30
Table of Contents
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
As a Smaller Reporting Company, the Company is not required to include the disclosure under this Item.
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
As required by Rule 13a-15 under the Securities Exchange Act of 1934, we have carried out an evaluation of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this quarterly report, June 30 , 2022. This evaluation was carried out under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer.
Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission's rules and forms. Disclosure controls and procedures include controls and procedures designed to ensure that information required to be disclosed in our company's reports filed under the Securities Exchange Act of 1934 is accumulated and communicated to management, including our Chief Executive Officer and our Chief Financial Officer, to allow timely decisions regarding required disclosure.
Based upon that evaluation, we have concluded that our disclosure controls and procedures were ineffective as of the end of the period covered by this report due to the following material weaknesses in our internal control over financial reporting, many of which are indicative of many small companies with small staff: (i) inadequate segregation of duties and effective risk assessment; and (ii) inadequate control activities and monitoring processes over financial reporting. However, as discussed in our Annual Report for the year ended December 31, 2021, additional staff has been hired to address the issue of segregation of duties and the controls and monitoring processes. Management anticipates making significant progress to remediate these areas of material weakness in 2022 and has engaged a third party specialty management consultant firm to help facilitate the process .
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting during the quarter ended June 30 , 2022, that have materially affected or are reasonably likely to materially affect, our internal control over financial reporting.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
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 June 2020, the Company’s subsidiary Excel Fabrication, LLC filed a lawsuit against Fusion Mechanical, LLC, in the Fifth Judicial District Court, State of Idaho (Case Number CV42-20-2246). The Company claimed tortious interference and trade secret violations by the defendant. The defendant filed a motion to dismiss, which was denied by the Court. As of the date of this Report, discovery was proceeding. The defendant filed a second motion to dismiss and the Company filed a memorandum in response to the second motion to dismiss, for which a hearing was held on May 10, 2021. On June 11, 2021, the court issued a decision narrowing the claims of the plaintiffs to three items: breach of contract, good faith and fair dealings and intentional interference for economic advantage. These were the Company’s three main points of contention. As of the date of this Report, trial is set for Spring 2023.
In August 2020, 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 Well Testing LLC (“HWT”) dba Venture West Energy Services, LLC. The Company brought claims for breach of contract, including but not limited to breaches of the seller’s representations and warranties in the purchase agreement in connection with the acquisition of HWT. The defendant
31
Table of Contents
answered and counterclaimed, claiming breach by the Company of its obligation to issue a promissory note (to be issued in connection with the acquisition of HWT). As of the date of this Report, the discovery period had ended but no trial date had been scheduled. A summary judgement motion was filed on December 22, 2021, and was fully briefed and submitted for decision in January 2022. That motion was pending as of the date of this Report.
In May 2021, the Company and several shareholders filed a lawsuit in the United States District Court for the District of Arizona (Case number 2:21-cv-00886-MTL) against Fin Capital LLC ("Fin Cap"), and Grizzly Research LLC ("Grizzly") alleging securities fraud, tortious interference with business expectancy and libel slander for disseminating false and misleading statements about Alpine 4 and its employees to manipulate the stock price and further their own financial interests. As of the date of this Report Fin Capital and Grizzly Research LLC filed motions to dismiss for lack of jurisdiction. The Court has denied Fin Capital’s motion to dismiss and granted the Grizzly Research motion. However, the Court granted the Company until May 12, 2022, to file an amended complaint. The Company subsequently filed its first amended complaint. In June 2022, both Grizzly and Finn moved to dismiss the first amended complaint. As of the date of this Report, those motions were still pending. The Court denied motions of Grizzly and Finn relating to the filing of the joint planning report and and entered the scheduling order. Because the scheduling order is now in place, the Company will be moving forward with discovery.
In August of 2021 Rob Porter filed a lawsuit in the District Court of Oklahoma Country State of Oklahoma (CJ-2021-3421) alleging unjust enrichment and breach of contract for Class B Shares. 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. As of the date of this Report, the Company had agreed on a scheduling order with counsel for Mr. Porter, and the Company was participating in discovery.
In October 2021, 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. 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. A stipulated motion to sever Mr. Morses's case from those of Messrs. Hobbs and Karraker has been sent to counsel for Mr. Morse for approval and filing with the court. In July 2022, Mr. Hobbs also expressed interest in settling his claims on similar terms. Negotiations with Mr. Hobbs were ongoing as of the date of this Report. As of the date of this Report, Mr. Karraker's lawsuit was proceeding.
Item 1A. RISK FACTORS
Item 1A “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2021, includes a detailed discussion of the Company’s risk factors. However, many of the risk factors disclosed in Item 1A of our Annual Report may be further heightened or exacerbated by the impact of the COVID-19 pandemic.
Changes in general economic conditions, geopolitical conditions, domestic and foreign trade policies, monetary policies and other factors beyond our control may adversely impact our business and operating results.
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. These events are currently escalating and creating 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 may increase the likelihood of supply interruptions and further hinder 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.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Issuances in 2022
32
Table of Contents
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 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.
In March 2022, the Company issued 39,386 shares of Class A Common Stock to management in connection with the acquisition of DTI Services Limited Liability Company.
The shares of Class A common stock referenced above that were issued in connection with the acquisition of DTI Services 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 29, 2022, the Company issued 171,850 shares of Class A at a value of $132,325 as employee compensation.
The shares of Class A common stock referenced above 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.
Purchases of equity securities by the issuer and affiliated purchasers
No purchases of the Company's equity securities were made by the Company or any affiliated purchasers during the six months ended June 30 , 2022.
Item 6. Exhibits.
Exhibit Number Description
2.1 Impossible Aerospace Merger Agreement dated November 13, 2020 (incorporated by reference to Exhibit 3.4 to Alpine 4’s Current Report on Form 8-K filed November 17, 2020).
2.2 Vayu (US) Merger Agreement dated December 29, 2020 (incorporated by reference to Exhibit 3.4 to Alpine 4’s Current Report on Form 8-K filed January 4, 2021).
2.3 Elecjet Merger Agreement, dated November 29, 2021 (incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K filed on December 3, 2021)
3.1 Series C Preferred Stock Certificate of Designation (incorporated by reference to Exhibit 3.4 to Alpine 4’s Current Report on Form 8-K filed November 17, 2020).
3.2 Series D Preferred Stock Certificate of Designation (incorporated by reference to Exhibit 3.4 to Alpine 4’s Current Report on Form 8-K filed January 4, 2021).
3.3 Certificate of Amendment to Certificate of Incorporation (Name Change) filed February 5, 2021 (incorporated by reference to Exhibit 3.4 to Alpine 4’s Current Report on Form 8-K filed February 8, 2021).
10.1 Impossible Aerospace Consultant Agreement dated November 13, 2020 (incorporated by reference to Exhibit 10.1 to Alpine 4’s Current Report on Form 8-K filed November 17, 2020).
10.2 RSU Agreement dated November 13, 2020 (incorporated by reference to Exhibit 10.2 to Alpine 4’s Current Report on Form 8-K filed November 17, 2020).
33
Table of Contents
10.3 Vayu (US) Employment Agreement dated December 29, 2020 (incorporated by reference to Exhibit 10.1 to Alpine 4’s Current Report on Form 8-K filed January 4, 2021).
10.4 RSU Agreement dated December 29, 2020 (incorporated by reference to Exhibit 10.2 to Alpine 4’s Current Report on Form 8-K filed January 4, 2021).
10.5 Form of Securities Purchase Agreement (AGP Transaction) (incorporated by reference to Exhibit 10.1 to Alpine 4’s Current Report on Form 8-K filed February 12, 2021).
10.6 Form of Placement Agent Agreement (incorporated by reference to Exhibit 10.2 to Alpine 4’s Current Report on Form 8-K filed February 12, 2021).
10.7 Stock Purchase Agreement by and among A4 Defense Services, Inc., Thermal Dynamics International, Inc., Page Management Co., Inc., and Stephen L. Page (previously filed as Exhibit 10.1 to the Company’s Current Report filed on May 4, 2021, and incorporated herein by reference).
10.8 Membership Interest Purchase Agreement by and among A4 Manufacturing, Inc., Alpine 4 Holdings, Inc., Alternative Laboratories, LLC, KAI Enterprises, LLC, and Kevin Thomas (previously filed as Exhibit 10.1 to the Company’s Current Report filed on May 10, 2021, and incorporated herein by reference).
10.9 Commercial Lease Agreement by and between 4740 Cleveland, LLC, and Alternative Laboratories, LLC (previously filed as Exhibit 10.4 to the Company’s Current Report filed on May 10, 2021, and incorporated herein by reference).
10.10 Membership Interest Purchase Agreement by and among A4 Manufacturing, Inc., Alpine 4 Holdings, Inc., 4740 Cleveland, LLC, and Kevin Thomas (previously filed as Exhibit 10.5 to the Company’s Current Report filed on May 10, 2021, and incorporated herein by reference).
10.11 Identified Technologies Corporation Stock Purchase Agreement, dated October 20, 2021 (previously filed as Exhibit 10 to the Company’s Current Report filed on October 25, 2021, and incorporated herein by reference).
10.12 Form of Sales Agreement (incorporated by reference to Exhibit 10.1 to Alpine 4’s Current Report on Form 8-K filed March 9, 2022).
31.1 Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2 Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1 Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2 Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101 INS XBRL Instance Document*
101 SCH XBRL Schema Document*
101 CAL XBRL Calculation Linkbase Document*
101 DEF XBRL Definition Linkbase Document*
34
Table of Contents
101 LAB XBRL Labels Linkbase Document*
101 PRE XBRL Presentation Linkbase Document*
* The XBRL related information in Exhibit 101 shall not be deemed "filed" for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to liability of that section and shall not be incorporated by reference into any filing or other document pursuant to the Securities Act of 1933, as amended, except as shall be expressly set forth by specific reference in such filing or document.
35
Table of Contents
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Alpine 4 Holdings, Inc.
Dated: August 11 , 2022
By: /s/ Kent B. Wilson
Kent B. Wilson
Chief Executive Officer
(Principal Executive Officer)
By: /s/ Larry Zic
Larry Zic
Chief Financial Officer
(Principal Financial Officer)
36