Item 8.01 Other Events.
Dear Employees and Shareholders,
As 2021 came to a close, I sat down at my desk to reflect on the year that had
passed and the year that was ahead of us. My thoughts immediately focused on
what we as a company had accomplished over the previous twelve months. By
December 8th, 2021, Alpine 4 Holdings completed five acquisitions, one equity
investment, two capital raises totaling more than $74 million, and up-listed to
the Nasdaq exchange. Of course, any one of these events by itself takes
significant time, effort, and fortitude to see through to completion. But to
accomplish all of them in one year was a herculean feat, of which the Alpine 4
team deserves great credit. These new acquisitions will field growth in several
important sectors, including lithium batteries, energy storage systems,
commercial electronics, and 3D mapping. With the lithium battery market
trending towards $41 billion, and the energy storage systems (ESS) market
reaching $21.1 billion in global opportunity in 2021, our market opportunity
looks to be immense!
2021 Financial Impacts: As the year began, Alpine 4 and its subsidiaries had
effectuated measures to benefit from its fresh capital to take advantage of an
economy ready to explode. However, by the end of Q1 2021, the jump start on the
economy felt more like a false start in a race. Supply chain issues that had
plagued our economy for over a year began to hit all of our operating sectors
hard in Q1 2021. Challenges ranging from shortages and monumental price
increases in steel, electronic components, and nutraceutical ingredients found
Alpine 4 in the midst of a complicated operating environment, with the demand
for our products far outstripping our ability to deliver them in these market
constraints. As such, our P&L was hit hard with losses, as our potential
revenue was locked up in our balance sheet as WIP (Work in Progress) and
inventory, waiting on other parts to arrive so we could then turn them into
sales. The constrained WIP and inventory also ate through large cash reserves
on our balance sheet to support our subsidiaries' need to purchase parts and
inventory to satisfy our customer base. In addition, due to these supply chain
issues, many of our smaller, non-public competitors were simply wiped out and
closed their doors during 2021. While these supply chain issues have been
problematic in 2021, we are starting to see some easing of these constraints as
we head into 2022, and our cash reserves should gradually begin to rise back up
starting in Q2 2022 as our WIP and Inventory turn into A/R and then cash.
Alpine 4 Is More Than Just a Holding Company: For almost eight years, we have
been aggressively pursuing our business model of DSF, and we have built an
impressive array of companies that compete together to disrupt our respective
markets. It takes unique, forward-thinking companies like Alpine 4 to reshape
how industries can operate together. Imagine a company like Vayu Aerospace,
which is competing for the business of large corporations and government
contracts, that could leverage the strengths of another company like ElecJet and
its graphene lithium power cells to give its products a competitive advantage in
flight duration, safety, and reliability; or, the ITAR and AS9100D
certifications of Quality Circuit Assembly to manufacture specific versions of
ElecJet's graphene batteries and electronics to be sold to other major aerospace
corporations. This integrated web of Alpine 4's subsidiaries that seek to use
their products or services as an advantage together is what makes us unique.
This is the power of synergy, and it's the ability to position the playing
field in our favor.
Value Isn't Always Obvious: Occasionally, I'm asked where I feel our valuation
should be from a market cap perspective. While that can be a subjective
statement, many of our subsidiaries, such as Vayu Aerospace, Identified
Technologies, RCA Commercial, and ElecJet, would have market caps if publicly
held as stand-alone companies the size of ours, if not larger. So, when you
look at the aggregate value of our combined companies, it becomes clear that our
market cap could see much higher valuations in the future. This is especially
true as our subsidiaries mature and create opportunities for market cap growth.
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Generational Businesses Take Time to Build: Amazon, FedEx, TBS, ESPN, Tesla, and
many smaller companies took years, and in some cases, over a decade, to build
their business models and create profit. Companies like Lyft and Uber have yet
to achieve profitability as they are still building out their business model.
It is all about the infrastructure they built or are building, and Alpine 4 is
no different. We are building the foundation of a company to be continuously
relevant. We always aim to grow and enhance our acquisitions, and it takes
time, money, and effort to transform these companies. This transformational
process can lead to losses for a period of time with our acquired subsidiaries.
Quality Circuit Assembly, Inc. (QCA) epitomizes this. Purchased in mid-2016,
the company did roughly $7m per year in annual sales and produced a net profit
of $700k. QCA will close out 2021 with over $15.5m in sales, generate $2.5m in
net profit, and has the infrastructure to support sales above $25 million
without having to expand its manufacturing facilities. All of our subsidiaries
are on their journey to being "optimized." Some can take as little as 90 days,
as we anticipate with RCA Commercial or as long as QCA, which took several
years. Regardless of where an individual subsidiary is at in the process, our
focus is on the foundation we are building for the future.
2022 A Year of Optimization and Integration: Last year, we successfully acquired
five new subsidiaries. In 2022, we plan to capitalize on the opportunities that
these subsidiaries represent so that exponential growth can begin to occur. One
growth-related decision to be made, is where to build our graphene lithium
battery facility in the United States. One of the most significant cost
considerations with batteries is the expense of freight. A manufacturing
presence in the United States, with a vast and growing appetite for all things
electrical, gives ElecJet and RCA Batteries an equal playing field with more
developed battery manufacturers. This significant cost savings on freight
represents just one of our competitive advantages. This advantage will create
the ability to sell our revolutionary battery cells on a much broader scale than
if we were to manufacture them solely overseas. In addition, Vayu Aerospace
will continue to benefit from the production infrastructure we built in 2021 and
continuing into 2022 to manufacture our airframes in larger quantities. They
will also continue to benefit from the redesigned avionics platform for G1 and
US-2, now solely made of US-based components and assembled by our subsidiary,
Quality Circuit Assembly.
In early 2021, we formed A4 Ventures, a think tank of Alpine 4 executives and
consultants, to be the innovation spring of Alpine 4. Shortly after Alpine 4
acquired Vayu and Impossible Aerospace, A4 Ventures, at my direction, began the
planning to create a company built around the future of autonomous delivery of
freight. Its mission was to use Vayu Aerospace's airframes and its avionics
software as its primary delivery mechanism to create a mesh network of delivery
points within a geographic area. The result of our efforts was the creation of
Global Autonomous Corporation or GAC. We intend to build the business model out
and spin off the subsidiary into a public entity at some point in the future,
much like eBay did with PayPal.
With regards to our acquisition front, we are slowing our pace down for 2022.
The 2021 acquisition pace was the result of unique opportunities in the market
and our ability to seize them. As for 2022, so far, we currently have two
targeted acquisitions. They are complementary in nature to our existing
subsidiaries and are designed to fulfill a larger footprint in our current
competitive offering. To acquire these two prospective companies, our CFO and I
will continuously review our cost of equity vs. cost of debt to see which avenue
is best suited to complete these transactions. Market conditions will guide our
decision making process on this matter.
In closing, 2022 will be a year of building upon our previous achievements while
leveraging them into new ventures. We will see the rounding out and
optimization of our DSF business model, while we simultaneously continue to take
advantage of market opportunities as they present themselves. Let's have a
wonderful 2022 and may you and your family be blessed!
Best regards,
Kent B. Wilson
CEO / President / Founder
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