ALPINE 4 HOLDINGS, INC. 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 nine months ended
Overview and Highlights Company Background
As of the date of this Report, the Company was a holding company that owned eleven operating subsidiaries:
-A4 Corporate Services, LLC ; -ALTIA, LLC ;
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-Morris Sheet Metal, Corp;
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-SPECTRUMebos, Inc. ; -Vayu (US), Inc. ; -Thermal Dynamics, Inc. ;
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In the first quarter of 2020, we created three additional subsidiaries to act as
silo holding companies, organized by industries. These silo subsidiaries are
In
On
On
In
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On
QCA rents a location at
Business Strategy What We Do:
It is our mandate to grow
This type of corporate structure is about having our subsidiaries prosper
through strong onsite leadership while working synergistically with other
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
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 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.
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[[Image Removed: Picture]] 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.
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Results of Operations
The following are the results of our operations for the three months ended
Three Months Three Months
Ended Ended
September 30, September 30,
2021 2020 $ Change
Revenue $ 17,398,316 $ 8,729,633 $ 8,668,683
Cost of revenue 12,950,180 7,390,406 5,559,774
Gross Profit 4,448,136 1,339,227 3,108,909
Operating expenses:General and administrative
expenses 5,539,465 1,911,278 3,628,187
Research and development 581,131 - 581,131
Total operating expenses 6,120,596 1,911,278 4,209,318
Loss from operations (1,672,460) (572,051) (1,100,409)
Other income (expenses)
Interest expense (537,882) (1,139,462) 601,580
Gain (loss) on extinguishment
of debt - 253,063 (253,063)
Gain on forgiveness of debt 4,307,291 - 4,307,291
Bargain purchase gain - 64,371 (64,371)
Other
income 438,701 (5,783) 444,484
Total other income
(expenses) 4,208,110 (827,811) 5,035,921
Income (loss) before
income tax 2,535,650 (1,399,862) 3,935,512
Income tax expense 54,058 - 54,058
Net income
(loss) $ 2,481,592 $ (1,399,862) $ 3,881,454
Revenue
Our revenues for the three months ended
Cost of revenue
Our cost of revenue for the three months ended
Operating expenses
Our operating expenses for the three months ended
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Other income (expenses)
Other income for the three months ended
The following are the results of our operations for the nine months ended
Nine Months Nine Months
Ended Ended
September September
30, 2021 30, 2020 $ Change
Revenue $ 39,938,585 $ 26,608,093 $ 13,330,492
Cost of revenue 30,771,770 21,553,106 9,218,664
Gross Profit 9,166,815 5,054,987 4,111,828
Operating expenses:
General and administrative
expenses 17,719,228 7,225,280 10,493,948
Impairment loss of intangible
assets - 1,111,600 (1,111,600)
Research and development 1,096,333 - 1,096,333
Total operating expenses 18,815,561 8,336,880 10,478,681
Loss from operations (9,648,746) (3,281,893) (6,366,853)
Other income (expenses)
Interest expense (3,226,192) (3,694,531) 468,339
Change in value of
derivative liability - 2,298,609 (2,298,609)
Gain on extinguishment of
debt 803,079 344,704 458,375
Change in fair value of
contingent consideration - 500,000 (500,000)
Gain on forgiveness of debt 4,896,573 - 4,896,573
Bargain purchase gain - 64,371 (64,371)
Other
income 454,191 56,352 397,839
Total other income
(expenses) 2,927,651 (430,495) 3,358,146
Loss before income tax (6,721,095) (3,712,388) (3,008,707)
Income tax expense 54,058 - 54,058
Net loss $ (6,775,153) $ (3,712,388) $ (3,062,765) During the nine months ended
Revenue
Our revenues for the nine months ended
Cost of revenue
Our cost of revenue for the nine months ended
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Operating expenses
Our operating expenses for the nine months ended
Other income (expenses)
Other income for the nine months ended
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
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 two acquisitions that closed in
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
For a summary of our critical 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
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