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ALPINE 4 HOLDINGS, INC.

(ALPP)
  Report
Delayed Nasdaq  -  04:00 2022-10-03 pm EDT
0.5547 USD   -0.05%
09/27Alpine 4 Holdings, Inc. : Changes in Registrant's Certifying Accountant, Financial Statements and Exhibits (form 8-K)
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08/23Alliance Global Starts Alpine 4 Holdings at Buy With $2.75 Price Target
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08/12Alpine 4 Holdings, Inc. Reports Earnings Results for the Second Quarter and Six Months Ended June 30, 2022
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ALPINE 4 HOLDINGS, INC. Management's Discussion and Analysis of Financial Condition and Results of Operations (form 10-Q)

08/12/2022 | 06:11am EDT
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;
-Elecjet 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").

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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 Elecjet Corp., a Delaware corporation
("Elecjet") and the three Elecjet shareholders. Pursuant to the Agreement, AC3
merged with and into Elecjet, with Elecjet being the surviving entity following
the merger.

On December 9, 2021, the Company, and A4 Technologies, Inc., a wholly owned
subsidiary of the Company, 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. Elecjet 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
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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.
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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           Three Months
                                                                 Ended                  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.
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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.
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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.
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