Alpine 4 (ALPP) - 2020 Q2 - Quarterly Report

Part I - Financial Information Financial Statements Unaudited Q2 2020 financial statements reflect a net loss and a significant total stockholders' deficit Consolidated Balance Sheet Highlights (Unaudited) | Account | June 30, 2020 | December 31, 2019 | | :--- | :--- | :--- | | Total Current Assets | $11,875,600 | $12,372,306 | | Total Assets | $38,113,617 | $35,801,598 | | Total Current Liabilities | $15,723,639 | $21,626,676 | | Total Liabilities | $50,431,145 | $47,771,740 | | Total Stockholders' Deficit | $(12,317,528) | $(11,970,142) | Consolidated Statements of Operations Highlights (Unaudited) | Metric | Three Months Ended June 30, 2020 | Six Months Ended June 30, 2020 | | :--- | :--- | :--- | | Revenue | $9,042,864 | $17,878,460 | | Gross Profit | $1,956,016 | $3,715,760 | | Loss from Operations | $(1,606,197) | $(2,709,842) | | Net Loss | $(2,562,914) | $(2,312,526) | | Basic and Diluted Loss Per Share | $(0.02) | $(0.02) / $(0.03) | Consolidated Statements of Cash Flows Highlights (Unaudited, Six Months Ended June 30) | Cash Flow Activity | 2020 | 2019 | | :--- | :--- | :--- | | Net cash used in operating activities | $(942,984) | $(675,209) | | Net cash used in investing activities | $(2,581,537) | $(1,996,285) | | Net cash provided by financing activities | $3,918,031 | $2,624,466 | | Net increase (decrease) in cash | $393,510 | $(47,028) | Note 1 – Organization and Basis of Presentation The company operates as a technology holding company with seven subsidiaries, including the recent Excel acquisition - The company is a technology holding company with seven subsidiaries: ALTIA, LLC; Quality Circuit Assembly, Inc (QCA); American Precision Fabricators, Inc (APF); Morris Sheet Metal Corp; Deluxe Sheet Metal, Inc; and Excel Fabrication, LLC[13] - On February 21, 2020, the Company acquired Excel Fabrication, LLC, an Idaho Limited Liability Company[13] Note 2 - Summary of Significant Accounting Policies Outlines key accounting policies, including revenue recognition, and notes a significant impairment charge for the APF subsidiary - The company adopted ASC Topic 606, recognizing construction revenue over time and contract manufacturing revenue upon transfer of control[38][40][42] - During H1 2020, the company recorded impairment charges of $671,500 for APF's customer list and $440,100 for APF's goodwill due to a significant customer loss[30][33][36] - The company acknowledges that the COVID-19 pandemic is expected to materially affect its financial performance in 2020[15][17] Note 3 – Going Concern Negative working capital raises substantial doubt about the company's ability to continue as a going concern - The company's negative working capital and need for additional capital raise substantial doubt about its ability to continue as a going concern[52] - Management's mitigation plan includes increasing cash flow from acquisitions, targeting further acquisitions, and issuing additional common stock for cash[52] Note 4 – Leases Details finance and operating lease obligations totaling over $17 million, primarily from sale-leaseback transactions Future Minimum Lease Payments as of June 30, 2020 | Lease Type | Total Payments | Less: Imputed Interest | Total Obligation | | :--- | :--- | :--- | :--- | | Finance Leases | $28,245,569 | $(11,628,803) | $16,616,766 | | Operating Leases | $930,643 | $(192,850) | $737,793 | - The company entered into sale-leaseback transactions, accounted for as financing leases, to fund portions of the acquisitions of APF, Morris, Deluxe, and Excel[55] Note 5 – Notes Payable Total notes payable reached $22.7 million, including $3.9 million in PPP loans and $3.0 million in past-due term loans Notes Payable Breakdown | Category | June 30, 2020 | December 31, 2019 | | :--- | :--- | :--- | | Total Current | $7,248,990 | $8,724,171 | | PPP Loans | $3,896,107 | - | | Long-term Portion | $11,594,105 | $9,850,184 | | Total Notes Payable | $22,739,202 | $18,574,355 | - In April and May 2020, the company received seven loans totaling $3,896,107 under the Paycheck Protection Program (PPP), which it expects to be partially or fully forgiven[61] - As of June 30, 2020, $3,026,400 of term loans are past due and are currently being negotiated with lenders[63] Note 7 – Convertible Notes Payable Convertible notes payable decreased to $2.3 million due to repayments, conversions, and note amendments Convertible Notes Payable Activity (Six Months Ended June 30, 2020) | Description | Amount | | :--- | :--- | | Balance, Dec 31, 2019 | $2,783,806 | | Repayment of notes | $(195,008) | | Conversion to common stock | $(545,551) | | Settlement of note | $(301,500) | | Amortization of debt discounts | $370,136 | | Balance, June 30, 2020 | $2,319,155 | - In May and June 2020, the company amended two seller notes from the QCA acquisition, extending maturity dates and recognizing a loss on extinguishment of debt of $192,272[68] Note 8 – Stockholders' Equity Details a complex capital structure with multiple stock classes and significant voting power held in preferred stock - The company has three classes of common stock: Class A (1 vote/share), Class B (10 votes/share), and Class C (5 votes/share)[76] - Series B Preferred Stock holds voting power equal to 200% of all other outstanding common and preferred stock combined[72] - During H1 2020, the company issued 4,023,088 shares of Class B common stock to settle $603,463 in unpaid salaries[76] Note 9 – Business Combinations Details recent acquisitions, including a bargain purchase gain from Deluxe and provisional accounting for Excel - The acquisition of Deluxe in November 2019 resulted in a bargain purchase gain of $2,143,779[84][85] - The company acquired Excel Fabrication on February 21, 2020, for a total consideration of $5,492,000, with the purchase price allocation being provisional[86][87] Unaudited Pro Forma Results (Six Months Ended June 30) | Metric | 2020 | 2019 | | :--- | :--- | :--- | | Sales | $18,864,205 | $21,378,791 | | Loss from operations | $(2,516,901) | $(2,207,880) | | Net loss from continuing operations | $(2,119,585) | $(8,263,294) | Note 10 – Industry Segments Provides a financial breakdown by operating segment, highlighting Morris as the top revenue source and APF's operating loss Revenue by Segment (Six Months Ended June 30, 2020) | Segment | Revenue | | :--- | :--- | | QCA | $4,383,628 | | APF | $1,785,416 | | Morris | $5,771,426 | | Deluxe | $3,903,268 | | Excel | $2,034,722 | Income (Loss) from Operations by Segment (Six Months Ended June 30, 2020) | Segment | Income (Loss) from Operations | | :--- | :--- | | QCA | $39,033 | | APF | $(1,317,929) | | Morris | $383,064 | | Deluxe | $(306,249) | | Excel | $257,611 | Note 13 – Subsequent Events Post-period events include note settlements and the strategic expansion of subsidiaries into the APF facility - In July 2020, the company began expanding its subsidiaries QCA and Excel into APF's Fort Smith, AR facility to leverage synergies[100] Management's Discussion and Analysis of Financial Condition and Results of Operations Discusses the DSF acquisition strategy, revenue growth from acquisitions, and widening operating losses due to impairments - The company's business model is to acquire businesses that fit its disruptive DSF model: Drivers (emerging tech), Stabilizers (consistent revenue), and Facilitators (synergistic services)[102][106] - The increase in operating expenses is primarily due to a $1.1 million impairment loss related to APF and costs from newly acquired operations[115][121] - The company's liquidity is financed through operations, stock sales, and debt, including $3.9 million in PPP loans received in April/May 2020[123] Comparison of Results for the Three Months Ended June 30 | Metric | 2020 | 2019 | Change | | :--- | :--- | :--- | :--- | | Revenue | $9,042,864 | $6,475,843 | $2,567,021 | | Loss from Operations | $(1,606,197) | $(50,199) | $(1,555,998) | | Net Loss | $(2,562,914) | $(4,956,676) | $2,393,762 | Comparison of Results for the Six Months Ended June 30 | Metric | 2020 | 2019 | Change | | :--- | :--- | :--- | :--- | | Revenue | $17,878,460 | $13,601,832 | $4,276,628 | | Loss from Operations | $(2,709,842) | $(399,168) | $(2,310,674) | | Net Loss | $(2,312,526) | $(3,967,165) | $1,654,639 | Quantitative and Qualitative Disclosures About Market Risk The company is exempt from this disclosure requirement as a Smaller Reporting Company - The Company is not required to include this disclosure as it qualifies as a Smaller Reporting Company[123] Controls and Procedures Management concluded that disclosure controls and procedures were ineffective due to material weaknesses in internal controls - Management concluded that disclosure controls and procedures were ineffective as of the end of the reporting period[125] - Material weaknesses identified include inadequate segregation of duties, risk assessment, control activities, and monitoring processes over financial reporting[125] Part II - Other Information Legal Proceedings The company reported no legal proceedings for the period - None reported[127] Unregistered Sales of Equity Securities and Use of Proceeds No unregistered sales of equity securities were reported - None reported[127] Defaults Upon Senior Securities No defaults on senior securities were reported, though some term loans are noted as past due in the financials - None reported[127] Other Information This section is not applicable for the current reporting period - Not Applicable[127] Exhibits Lists all exhibits filed with the Form 10-Q, including certifications and material agreements - Exhibits include the Certificate of Incorporation, Bylaws, various security and promissory note agreements, and CEO/CFO certifications pursuant to Sarbanes-Oxley Sections 302 and 906[128][129] Signatures - The report was signed on August 13, 2020, by Kent B. Wilson, serving as Chief Executive Officer, Chief Financial Officer, President, and Director[130]