ALPINE 4 HOLDINGS, INC. There are statements in this Report that are not historical facts. These "forward-looking statements" can be identified by use of terminology such as "believe," "hope," "may," "anticipate," "should," "intend," "plan," "will," "expect," "estimate," "project," "positioned," "strategy" and similar expressions. You should be aware that these forward-looking statements are subject to risks and uncertainties that are beyond our control. For a discussion of these risks, you should read this entire Report carefully, especially the risks discussed under "Risk Factors." Although management believes that the assumptions underlying the forward-looking statements included in this Report are reasonable, they do not guarantee our future performance, and actual results could differ from those contemplated by these forward-looking statements. The assumptions used for purposes of the forward-looking statements specified in the following information represent estimates of future events and are subject to uncertainty as to possible changes in economic, legislative, industry, and other circumstances. As a result, the identification and interpretation of data and other information and their use in developing and selecting assumptions from and among reasonable alternatives require the exercise of judgment. To the extent that the assumed events do not occur, the outcome may vary substantially from anticipated or projected results, and, accordingly, no opinion is expressed on the achievability of those forward-looking statements. In the light of these risks and uncertainties, there can be no assurance that the results and events contemplated by the forward-looking statements contained in this Report will in fact transpire. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of their dates. We expressly disclaim any obligation or intention to update or revise any forward-looking statements.
Overview and Highlights Company Background
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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 ;
- ElecJet Corp. ;
- DTI Services Limited Liability Company (doing business as RCA Commercial
Electronics ); and
- Global Autonomous Corporation .
Starting in the first quarter of 2020, we also created additional subsidiaries
to act as silo holding companies, organized by industries. These silo
subsidiaries are
Business Strategy What We Do:
It is our mandate to grow
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.
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Stabilizer: Stabilizers are companies that have sticky customers, consistent
revenue and provide solid net profit returns to
Facilitators: Facilitators are our "secret sauce". Facilitators are companies
that provide a product or service that an
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 don't have. DSF reshapes the environment each subsidiary operates in by sharing and exploiting the resources each company has, thus giving them a competitive advantage that their peers don't have.
How We Do It:
Optimization vs. Asset Producing
The process to purchase a perspective company can be long and arduous. During our due diligence period, we are validating and determining three major points, not just the historical record of the company we are buying. Those three major points are what we call the "What is, What Should Be and What Will Be".
· "The What Is" (TWI). TWI is the defining point of where a company is
holistically in a myriad of metrics; Sales, Finance, Ease of Operations,
Ownership and Customer Relations to name a few. Subsequently, this is
usually the point where most acquirers stop in their due diligence. We
look to define this position not just from a number's standpoint, but also
how does this perspective map out to a larger picture of culture and
business environment.
· "The What Should Be" (TWSB). TWSB is the validation point of inflection
where we use many data inputs to assess if TWI is out of the norm with
competitors, and does that data show the potential for improvement.
· "The What Will Be" (TWWB). TWWB is how we seek to identify the net results
or what we call Kinetic Profit (KP) between the TWI and TWSB. The keywords
are Kinetic Profit. KP is the profit waiting to be achieved by some form
of action or as we call it, the Optimization Phase of acquiring a new
company.
Optimization: During the Optimization Phase, we seek to root up employees with in-depth training on various topics. Usually, these training sessions include; Profit and Expense Control, Production Planning, Breakeven Analysis and Profit Engineering to name a few. But the end game is to guide these companies to: become net profitable with the new debt burden placed on them post-acquisition, mitigate the loss of sales due to acquisition attrition (we typically plan on 10% of our customers leaving simply due to old ownership not being involved in the company any longer), potential replacement of employees that no longer wish to be employed post-acquisition and other ancillary issues that may arise. The Optimization Phase usually takes 12-18 months post-acquisition and a company can fall back into Optimization if it is stagnant or regresses in its training.
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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.
Results of Operations
The following are the results of our operations for the year ended
Year Ended Year Ended
December 31, December 31,
2021 2020 $ Change
Revenues, net $ 51,640,813 $ 33,454,349 $ 18,186,464
Costs of revenue 43,942,815 28,090,722 15,852,093
Gross Profit 7,697,998 5,363,627 2,334,371
Operating expenses: General and administrative expenses 27,889,130 9,695,891 18,193,239 Research and development
1,464,918 - 1,464,918
Impairment loss of intangible asset
and goodwill 367,519 1,561,600 (1,194,081 )
Total operating expenses 29,721,567 11,257,491 18,464,076
Loss from operations (22,023,569 ) (5,893,864 ) (16,129,705 )
Other income (expenses)
Interest expense (3,834,742 ) (5,463,597 ) 1,628,855
Change in value of derivative
liabilities - 2,298,609 (2,298,609 )
Gain on extinguishment of debt 803,079 344,704 458,375
Gain on forgiveness of debt 5,987,523 - 5,987,523
Impairment loss on equity
investment (1,350,000 ) - (1,350,000 )
Change in fair value of contingent
consideration - 500,000 (500,000 )
Other income 635,526 71,224 564,302
Total other income (expenses) 2,241,386 (2,249,060 ) 4,490,446
Loss before income tax (19,782,183 ) (8,142,924 ) (11,639,259 )
Income tax benefit (376,891 ) (93,051 ) (283,840 )
Net loss $ (19,405,292 ) $ (8,049,873 ) $ (11,355,419 )
Revenues
Our revenues for the year ended
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Costs of revenue
Our cost of revenue for the year ended
Operating expenses
Our operating expenses for the year ended
Other income (expenses)
Other expenses for the year ended
Liquidity and Capital Resources
We have financed our operations since inception from the sale of common stock,
capital contributions from stockholders, and from the issuance of notes payable
and convertible notes payable. We expect to continue to finance our operations
from our current operating cash flow and by the selling shares of our common
stock and or debt instruments. In the first quarter of 2021, we raised
approximately
In April and
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 2021 acquisitions. The Company also secured bank lines
of credit totaling
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.
Liquidity Outlook
The Company's financial statements are prepared in accordance with generally
accepted accounting principles in
In accordance with
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While the Company experienced a loss for the year ended
The Company received a total of approximately
- The Company raised approximately $67.1 million in net proceeds in
connection with a registered direct offering of its stock and;
- The Company raised approximately $9.3 million in net proceeds in
connection with an equity line of credit financing arrangement.
As of
The Company plans to continue to generate additional revenue (and improve cash flows from operations) partly from the acquisitions of six operating companies which closed in 2021 combined with improved gross profit performance from the existing operating companies. The Company also plans to continue to raise funds through debt financing and the sale of shares through its planned at-the-market offering.
Based on the capital raise as indicated above and management's plans to improve cash flows from operations, management believes the Company has sufficient working capital to satisfy the Company's estimated liquidity needs for the next 12 months.
However, there is no assurance that management's plans will be successful due to
the current economic climate in
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
Intangible Assets
The Company uses a third-party specialty valuation firm to value its intangible assets acquired in its business combination and asset acquisitions. The Company amortizes intangible assets with finite lives over their estimated useful lives, which range between one and fifteen years as follows:
Customer list 3-15 years Non-compete agreements 1-5 years Software development 5 years Patent 17 years
Proprietary technology 15 years
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The intangible assets with finite useful lives are reviewed for impairment when
indicators of impairment are present and the undiscounted cash flows estimated
to be generated by those assets are less than the assets' carrying amounts. In
that event, a loss is recognized based on the amount by which the carrying
amount exceeds the fair value of the long-lived assets. The Company has not
changed its estimate for the useful lives of its intangible assets, but would
expect that a decrease in the estimated useful lives of intangible assets by 20%
would result in an annual increase to amortization expense of approximately
Construction Contracts
For the Company's material construction contracts, estimates are used to determine the total estimated costs for a job and throughout the respective jobs' progress and adjusted accordingly. Revenue is generally recognized over time as our performance creates or enhances an asset that the customer controls as it is created or enhanced. Our fixed price construction projects generally use a cost-to-cost input method to measure our progress towards complete satisfaction of the performance obligation as we believe it best depicts the transfer of control to the customer which occurs as we incur costs on our contracts. Under the cost-to-cost measure of progress, the extent of progress towards completion is measured based on the ratio of costs incurred to date to the total estimated costs at completion of the performance obligation. For certain of our revenue streams, that are performed under time and materials contracts, our progress towards complete satisfaction of such performance obligations is measured using an output method as the customer receives and consumes the benefits of our performance completed to date. Due to uncertainties inherent in the estimation process, it is possible that estimates of costs to complete a performance obligation will be revised in the near-term. For those performance obligations for which revenue is recognized using a cost-to-cost input method, changes in total estimated costs, and related progress towards complete satisfaction of the performance obligation, are recognized on a cumulative catch-up basis in the period in which the revisions to the estimates are made. When the current estimate of total costs for a performance obligation indicates a loss, a provision for the entire estimated loss on the unsatisfied performance obligation is made in the period in which the loss becomes evident.
Contract Assets and Contract Liabilities
The timing of revenue recognition may differ from the timing of invoicing to customers. Contract assets include unbilled amounts from our construction projects when revenues recognized under the cost-to-cost measure of progress exceed the amounts invoiced to our customers, as the amounts cannot be billed under the terms of our contracts. Such amounts are recoverable from our customers based upon various measures of performance, including achievement of certain milestones, completion of specified units or completion of a contract. In addition, many of our time and materials arrangements, are billed pursuant to contract terms that are standard within the industry, resulting in contract assets being recorded, as revenue is recognized in advance of billings. Our contract assets do not include capitalized costs to obtain and fulfill a contract. Contract assets are generally classified as current within the consolidated balance sheets.
Contract liabilities from our construction contracts arise when amounts invoiced to our customers exceed revenues recognized under the cost-to-cost measure of progress. Contract liabilities additionally include advanced payments from our customers on certain contracts. Contract liabilities decrease as we recognize revenue from the satisfaction of the related performance obligation.
Contract Retentions
As of
For a summary of our significant accounting policies, refer to Note 2 of our consolidated financial statements included under "Item 8 - Financial Statements and Supplementary Data" in this Form 10-K.
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