U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
 
[X]     QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
           For the quarterly period ended June 30, 2017

[   ]     TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
Commission file number:   000-55205
Alpine 4 Technologies Ltd.
(Exact name of registrant as specified in its charter)

Delaware
46-5482689
(State or Other Jurisdiction of Incorporation or Organization)
(I.R.S. Employer Identification No.)
 
 
4742 N. 24 th Street Suite 300
 
Phoenix, AZ
85016
(Address of Principal Executive Offices)
(Zip Code)
 
Registrant’s telephone number, including area code: 855-777-0077 ext 801

 (Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes ☒       No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes ☒       No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company.

Large accelerated filer
☐
Accelerated filer
☐
Non-accelerated filer
☐
Smaller reporting company
☒
Emerging growth company
☒
   
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes ☐        No ☒
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(1) of the Exchange Act.   ☒

State the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date:  As of August 11, 2017, the issuer had 22,550,852 shares of its Class A common stock issued and outstanding and 1,600,000 shares of its Class B common stock issued and outstanding.

TABLE OF CONTENTS
 
PART I
 
Page
 
 
 
Item 1.
Financial Statements
3
 
 
 
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
25
 
 
 
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
35
 
 
 
Item 4.
Controls and Procedures
35
 
 
 
PART II
 
 
 
 
 
Item 1.
Legal Proceedings
35
 
 
 
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
35
 
 
 
Item 3.
Defaults Upon Senior Securities
35
 
 
 
Item 4.
Mine Safety Disclosures
35
 
 
 
Item 5.
Other Information
35
 
 
 
Item 6.
Exhibits
36
 
 
 
 
Signatures
37
 
2
PART I - FINANCIAL INFORMATION
 
Item 1.  Financial Statements.
Alpine 4 Technologies Ltd.
Financial Statements
(Unaudited)
 
 
Contents
 
Financial Statements
PAGE
 
 
 
 
Consolidated Balance Sheets (Unaudited)
4
 
 
Consolidated Statements of Operations (Unaudited)
5
 
 
Consolidated Statements of Cash Flows (Unaudited)
7
 
 
Notes to Consolidated Financial Statements (Unaudited)
8
 
3
ALPINE 4 TECHNOLOGIES, LTD. and SUBSIDIARIES
 
CONSOLIDATED BALANCE SHEETS
 
(Unaudited)
 
             
    
Successor
   
Successor
 
   
June 30,
2017
   
December 31,
2016
 
             
ASSETS
           
             
CURRENT ASSETS:
           
Cash  
$
30,052
   
$
209,494
 
Accounts receivable, net
   
1,528,574
     
1,346,585
 
Inventory
   
1,132,921
     
930,114
 
Prepaid expenses and other current assets
   
87,540
     
39,734
 
Total current assets
   
2,779,087
     
2,525,927
 
                 
Property and equipment, net
   
9,585,868
     
5,202,133
 
Intangible asset, net
   
891,169
     
757,528
 
Goodwill
   
2,281,825
     
1,963,761
 
Other non-current assets
   
367,724
     
688,204
 
Total non-current assets
   
13,126,586
     
8,611,626
 
                 
TOTAL ASSETS
 
$
15,905,673
   
$
11,137,553
 
                 
LIABILITIES AND STOCKHOLDERS’ DEFICIT
               
                 
CURRENT LIABILITIES:
               
Accounts payable
 
$
1,931,173
   
$
1,434,170
 
Accrued expenses
   
602,487
     
299,043
 
Deferred Revenue
   
43,574
     
12,536
 
Deposits
   
12,509
     
12,509
 
Notes payable
   
3,413,657
     
1,332,031
 
Notes payable, related parties
   
481,500
     
205,000
 
Convertible notes payable, net of discount of $14,604 and $7,421
   
358,761
     
247,359
 
Financing Lease Obligation
   
19,921
     
13,814
 
Income Tax Payable
   
19,819
     
20,123
 
Total current liabilities
   
6,883,401
     
3,576,585
 
                 
NON-CURRENT LIABILITIES:
               
Long-term debt
   
-
     
147,079
 
Convertible notes payable
   
3,224,211
     
1,760,198
 
Financing Lease Obligation
   
6,556,189
     
6,572,579
 
Deferred tax liability
   
287,153
     
287,153
 
Total non-current liabilities
   
10,067,553
     
8,767,009
 
                 
TOTAL LIABILITIES
   
16,950,954
     
12,343,594
 
                 
                 
REDEEMABLE COMMON STOCK
               
Class A Common stock, $0.0001 par value, 379,403 and 0 shares issued and outstanding at June 30, 2017 and December 31, 2016, respectively
   
1,439,725
     
-
 
                 
STOCKHOLDERS’ DEFICIT:
               
Preferred stock, $0.0001 par value, 5,000,000 shares authorized, none issued and outstanding
   
-
     
-
 
Class A Common stock, $0.0001 par value, 500,000,000 shares authorized, 21,667,449 and 21,474,481 shares issued and outstanding
   
2,167
     
2,148
 
Class B Common stock, $0.0001 par value, 100,000,000 shares authorized, 1,600,000 and 1,600,000 shares issued and outstanding
   
160
     
160
 
Additional paid-in capital
   
16,389,832
     
16,228,106
 
Accumulated deficit
   
(18,877,165
)
   
(17,436,455
)
Total stockholders’ deficit
   
(2,485,006
)
   
(1,206,041
)
TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT
 
$
15,905,673
   
$
11,137,553
 
 
The accompanying notes are an integral part of these unaudited consolidated financial statements.
4
 
ALPINE 4 TECHNOLOGIES, LTD. and SUBSIDIARIES
 
CONSOLIDATED STATEMENTS OF OPERATIONS
 
(Unaudited)
 
             
    Three month period  
   
Successor
   
Successor
 
   
Three Months
 Ended
 April, 1,
2017 to
June 30,
2017
   
Three Months
Ended
 April, 1,
 2016 to
June 30,
 2016
 
             
Revenue
 
$
2,330,032
   
$
2,036,436
 
Cost of revenue (exclusive of depreciation)
   
1,585,475
     
1,319,623
 
Gross Profit
   
744,557
     
716,813
 
                 
Operating expenses:
               
General and administrative expenses    
1,102,084
     
1,920,714
 
Depreciation
   
162,926
     
71,170
 
Amortization
   
18,853
     
10,833
 
     Total operating expenses
   
1,283,863
     
2,002,717
 
Loss from operations
   
(539,306
)
   
(1,285,904
)
                 
Other expenses
               
Interest expense
   
366,882
     
260,690
 
Other (income)
   
(53,752
)
   
(51,948
)
     Total other expenses
   
313,130
     
208,742
 
                 
Gain (Loss) before income tax
   
(852,436
)
   
(1,494,646
)
                 
Income tax expense (benefit)
   
321
     
8,375
 
                 
Net gain/(loss)
 
$
(852,757
)
 
$
(1,503,021
)
                 
Weighted average shares outstanding :
               
Basic
   
23,494,522
     
22,685,880
 
Diluted
   
23,494,522
     
22,685,880
 
                 
Loss per share
               
Basic
 
$
(0.04
)
 
$
(0.07
)
Diluted
 
$
(0.04
)
 
$
(0.07
)
 
 
The accompanying notes are an integral part of these unaudited consolidated financial statements.
5
 
ALPINE 4 TECHNOLOGIES, LTD. and SUBSIDIARIES   
 
CONSOLIDATED STATEMENTS OF OPERATIONS   
 
(Unaudited)   
 
                   
   
Six month period
 
   
Successor
   
Successor
   
Predecessor
 
   
Six Months
 Ended
January, 1,
2017 to
 June 30,
 2017
   
Three Months
 Ended
April, 1,
2016 to
June 30,
2016
   
Three Months
Ended
 January, 1,
2016 to
March 31,
2016
 
                   
Revenue
 
$
4,823,273
   
$
2,036,436
   
$
1,788,654
 
Cost of revenue (exclusive of depreciation)
   
3,140,939
     
1,319,623
     
1,383,031
 
Gross Profit
   
1,682,334
     
716,813
     
405,623
 
                         
Operating expenses:
                       
General and administrative expenses
   
2,237,006
     
1,920,714
     
533,894
 
Depreciation
   
325,039
     
71,170
     
33,492
 
Amortization
   
37,706
     
10,833
     
-
 
     Total operating expenses
   
2,599,751
     
2,002,717
     
567,386
 
Loss from operations
   
(917,417
)
   
(1,285,904
)
   
(161,763
)
                         
Other expenses
                       
Interest expense
   
656,490
     
260,690
     
456
 
Other (income)
   
(133,564
)
   
(51,948
)
   
-
 
     Total other expenses
   
522,926
     
208,742
     
456
 
                         
Gain (Loss) before income tax
   
(1,440,343
)
   
(1,494,646
)
   
(162,219
)
                         
Income tax expense (benefit)
   
367
     
8,375
     
(31,770
)
                         
Net gain/(loss)
 
$
(1,440,710
)
 
$
(1,503,021
)
 
$
(130,449
)
                         
Weighted average shares outstanding :
                       
Basic
   
23,468,004
     
22,685,880
     
-
 
Diluted
   
23,468,004
     
22,685,880
     
-
 
                         
Loss per share
                       
Basic
 
$
(0.06
)
 
$
(0.07
)
       
Diluted
 
$
(0.06
)
 
$
(0.07
)
       

The accompanying notes are an integral part of these unaudited consolidated financial statements.
6
 
ALPINE 4 TECHNOLOGIES, LTD. and SUBSIDIARIES
 
CONSOLIDATED STATEMENT OF CASH FLOWS
 
(Unaudited)
 
                   
   
Six month period
 
   
Successor
   
Successor
   
Predecessor
 
   
Six Months
 Ended
January, 1,
2017 to
 June 30,
2017
   
Three Months
Ended
April, 1,
 2016 to
 June 30,
2016
   
Three Months
Ended
January, 1,
2016 to
March 31,
2016
 
OPERATING ACTIVITIES:
                 
Net loss
 
$
(1,440,710
)
 
$
(1,503,021
)
 
$
(130,449
)
Adjustments to reconcile net loss to net cash used in operating activities:
                       
Depreciation
   
325,039
     
71,170
     
33,492
 
Amortization
   
37,706
     
10,833
     
-
 
Employee stock compensation
   
32,673
     
956,250
     
-
 
Stock issued for services
   
6,168
     
262,240
     
-
 
Amortization of debt issuance
   
6,500
             
-
 
Amortization of debt discounts
   
22,817
     
98,476
     
-
 
Change in current assets and liabilities:
                       
Accounts receivable
   
32,071
     
(288,211
)
   
47,578
 
Inventory
   
(202,807
)
   
3,097
     
(14,062
)
Prepaids
   
(47,806
)
   
(19,887
)
   
(41,040
)
Accounts payable
   
497,003
     
22,062
     
16,468
 
Accrued expenses
   
271,678
     
79,455
     
56,723
 
Deferred tax
   
(304
)
   
-
     
(41,645
)
Deferred revenue
   
31,038
     
-
     
-
 
Net cash used in operating activities
   
(428,934
)
   
(307,536
)
   
(72,935
)
                         
INVESTING ACTIVITIES:
                       
Capital expenditures
   
(156,883
)
   
(84,050
)
   
-
 
Acquisition, net of cash acquired
   
(1,937,616
)
   
(2,800,000
)
   
-
 
Net cash used in investing activities
   
(2,094,499
)
   
(2,884,050
)
   
-
 
                         
FINANCING ACTIVITIES:
                       
Proceeds from issuances of notes payable, related party
   
94,000
     
-
     
-
 
Proceeds from issuances of notes payable, non-related party
   
1,942,392
     
204,000
     
-
 
Repaymentsof notes payable, non-related party
   
(156,197
)
   
(15,200
)
   
-
 
Proceeds from Line of Credit
   
4,992,511
     
2,297,888
         
Repayments on Line of Credit
   
(4,844,160
)
   
(1,708,853
)
       
Repayments of notes payable, related party
   
(117,500
)
           
(10,000
)
Repayments of convertible notes
   
(34,252
)
           
(59,461
)
Proceeds from convertible notes payable
   
142,000
     
12,500
     
-
 
Proceeds from the sale of common stock
   
15,000
     
6,000
     
-
 
Net Proceeds from financing obligation lease, net of commissions and financing charges
   
-
     
2,700,102
         
Change in restricted cash
   
320,480
     
(525,270
)
   
-
 
Cash paid for rent deposit on lease of building
   
-
     
(46,667
)
       
Cash paid on financing lease obligation
   
(10,283
)
   
(49,356
)
   
-
 
Net cash provided by (used in) financing activities
   
2,343,991
     
2,875,144
     
(69,461
)
                         
NET INCREASE (DECREASE) IN CASH
   
(179,442
)
   
(316,442
)
   
(142,396
)
                         
CASH, BEGINNING BALANCE
   
209,494
     
342,786
     
365,221
 
                         
CASH, ENDING BALANCE
 
$
30,052
   
$
26,344
   
$
222,825
 
                         
CASH PAID FOR:
                       
Interest
 
$
217,791
   
$
163,651
   
$
456
 
Income taxes
 
$
-
   
$
-
   
$
47,500
 
                         
SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING ACTIVITIES:
                       
Common stock issued for convertible note payable and accrued interest
 
$
36,963
   
$
58,520
   
$
-
 
Issuance of Convertible Note for acquisition of QCA
 
$
-
   
$
2,000,000
   
$
   
Purchase of building from lease proceeds
 
$
-
   
$
3,895,000
   
$
   
Issuance of Convertible Note for acquisition of HWT
 
$
1,500,000
   
$
-
   
$
-
 
Issuance of Note Payable for acquisition of HWT
 
$
300,000
   
$
-
   
$
-
 
Issuance of Warrants for acquisition of HWT
 
$
40,941
   
$
-
   
$
-
 
Issuance of Redeemable Common Stock for acquisition of HWT
 
$
1,439,725
   
$
-
   
$
-
 
Debt discount from convertible note payable
 
$
30,000
   
$
     
$
-
 

The accompanying notes are an integral part of these unaudited consolidated financial statements.
7
Alpine 4 Technologies Ltd.
Notes to Unaudited Consolidated Financial Statements
For the Three Months Ended June 30, 2017
(Unaudited)

Note 1 – Organization and Basis of Presentation
The unaudited financial statements were prepared by Alpine 4 Technologies Ltd. (the “Company”) , pursuant to the rules and regulations of the Securities Exchange Commission (“SEC”). The information furnished herein reflects all adjustments (consisting of normal recurring accruals and adjustments) which are, in the opinion of management, necessary to fairly present the operating results for the respective periods. Certain information and footnote disclosures normally present in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) were omitted pursuant to such rules and regulations. These financial statements should be read in conjunction with the audited financial statements and footnotes included in the Company’s Annual Report on Form 10-K filed with the SEC on April 14, 2017. The results for the three and six months ended June 30, 2017, are not necessarily indicative of the results to be expected for the year ending December 31, 2017.
Description of Business

Alpine 4 Technologies Ltd. (“we” or the “Company”) was incorporated under the laws of the State of Delaware on April 22, 2014.  The Company was formed to serve as a vehicle to affect an asset acquisition, merger, exchange of capital stock, or other business combination with a domestic or foreign business.  As of the date of this Report, the Company is a technology holding company owning three companies (ALTIA, LLC, Quality Circuit Assembly, Inc. (“QCA”); and Horizon Well Testing, LLC (“HWT”)).  For 2016, QCA made up most of the revenue disclosed in the consolidated financial statements.  HWT was not acquired until January 1, 2017, so it is not combined in our 2016 financial statements.

Acquisition Reporting

As discussed in Note 9, the Company entered into a stock purchase transaction with QCA in which the Company purchased 100% of QCA’s outstanding stock.

The consolidated financial statements herein are presented under predecessor entity reporting and, because the acquiring entity had nominal operations as compared with the acquired company, QCA, prior historical information of the acquirer is not presented.

This new basis of accounting was created on April 1, 2016, the effective date for financial reporting purposes of the stock purchase agreement.  In the following discussion, the results of the operations and cash flows for the periods ended on or prior to March 31, 2016 are referred to as “Predecessor” financial information, and the results of operations and cash flows of the Company for periods beginning April 1, 2016 and the financial position of the Company as of April 1, 2016 and subsequent balance sheet dates are referred to herein as “Successor” consolidated financial information.

Note 2 - Summary of Significant Accounting Policies
Principles of consolidation

The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries as of June 30, 2017, and December 31, 2017, significant intercompany balances and transactions have been eliminated.

Basis of presentation

The accompanying financial statements present the balance sheets, statements of operations, stockholders’ deficit and cash flows of the Company. The financial statements have been prepared in accordance with U.S. GAAP.

8
Use of estimates

The preparation of financial statements in conformity with U.S. GAAP requires the Company to make estimates and judgments that affect the reported amounts of assets and liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities.  These estimates and judgments are based on historical information, information that is currently available to the Company and on various other assumptions that the Company believes to be reasonable under the circumstances.  Actual results could differ from those estimates.

Reclassification

Certain prior year amounts have been reclassified to conform to the current period presentation.  These reclassifications had no impact on net earnings and financial position.

Advertising

Advertising costs are expensed when incurred.  All advertising takes place at the time of expense.  We have no long-term contracts for advertising.  Advertising expense for all periods presented were under $10,000.

Cash

Cash and cash equivalents consist of cash and short-term investments with original maturities of less than 90 days.  Cash equivalents are placed with high credit quality financial institutions and are primarily in money market funds.  The carrying value of those investments approximates fair value. As of June 30, 2017, and December 31, 2016, the Company had no cash equivalents.

Major Customers

For three months ended March 31, 2016 (Predecessor) and the three months ended June 30, 2016 (Successor), the Company had two customers that made up approximately 50% of total revenues.  For the three months ended June 30, 2017 (Successor), and six months ended June 30, 2017 (Successor), the Company had one customer that made up approximately 38% and 35% of total revenues, respectively.  All other customers were less than 10% each of total revenues in each period.

For three months ended March 31, 2016 (Predecessor) and the three months ended June 30, 2016 (Successor), the Company had two customers that made up approximately 50% of outstanding accounts receivable.  For the three months ended June 30, 2017 (Successor), and six months ended June 30, 2017 (Successor), the Company had one customer that made up approximately 48% of outstanding accounts receivable.  All other customers were less than 10% each of total accounts receivable for each period presented.

Accounts Receivable

The Company maintains reserves for potential credit losses on accounts receivable. Management reviews the composition of accounts receivable and analyzes historical bad debts, customer concentrations, customer credit worthiness, current economic trends and changes in customer payment patterns to evaluate the adequacy of these reserves. Reserves are recorded primarily on a specific identification basis.  As of June 30, 2017, and December 31, 2016, allowance for bad debt was $177,470 and $0, respectively.

Inventory

Inventory is valued at the lower of the inventory’s cost (weighted average basis) or market. Management compares the cost of inventory with its market value and an allowance is made to write down inventory to market value, if lower.  Inventory is segregated into four areas, raw materials, WIP, finished goods, and In-Transit.  Below is a breakdown of how much inventory was in each area as of June 30, 2017, and December 31, 2016.
9

Inventory
           
   
Jun 30,
2017
   
Dec 31,
2016
 
Raw materials
 
$
682,691
   
$
527,599
 
WIP
   
268,415
     
193,525
 
Finished goods
   
168,815
     
195,990
 
In Transit
   
13,000
     
13,000
 
   
$
1,132,921
   
$
930,114
 


Property and Equipment

Property and equipment are carried at cost less depreciation. Depreciation and amortization are provided principally on the straight-line method over the estimated useful lives of the assets, which range from ten years to 39 years as follows:

Automobiles & Trucks
10 to 20 years
Buildings
39 years
Leasehold Improvements
15 years or time remaining on lease (whichever is shorter)
Equipment
10 years

Maintenance and repair costs are charged against income as incurred.  Significant improvements or betterments are capitalized and depreciated over the estimated life of the asset.

Below is a table of Property and Equipment:

Property and Equipment
           
   
Jun 30,
2017
   
Dec 31,
2016
 
Automobiles & Trucks
 
$
1,441,242
   
$
-
 
Machinery & Equipment
   
4,278,117
     
1,263,941
 
Office furniture & fixtures
   
7,057
     
-
 
Building
   
3,945,952
     
3,895,000
 
Land
   
126,347
     
-
 
Leasehold Improvements
   
288,045
     
219,045
 
Less: Accumulated Depreciation
   
(500,892
)
   
(175,853
)
   
$
9,585,868
   
$
5,202,133
 

Purchased Intangibles and Other Long-Lived Assets

The Company amortizes intangible assets with finite lives over their estimated useful lives, which range between five and fifteen years as follows:

Customer List
15 years
Non-compete agreements
5 years
Software development
5 years

10
Below are tables for Intangibles and Other Long-Lived Assets:

Intangibles
           
   
Jun 30,
2017
   
Dec 31,
2016
 
Software
 
$
239,407
   
$
191,300
 
Noncompete
   
100,000
     
100,000
 
Customer Lists
   
654,427
     
531,187
 
Less: Accumulated Amortization
   
(102,665
)
   
(64,959
)
   
$
891,169
   
$
757,528
 
 
Other Long-Lived Assets
           
   
Jun 30,
2017
   
Dec 31,
2016
 
Restricted Cash
 
$
308,891
   
$
630,270
 
Deposits
   
58,833
     
57,934
 
   
$
367,724
   
$
688,204
 
 
Restricted cash consists of deposit account collateralizing letters of credit in favor of the counterparty in our lease financing obligation.  Changes in restricted cash are reflected as financing activities because the cash is being used in conjunction with financing activities.

Impairment of Long-Lived Assets

The Company accounts for long-lived assets in accordance with the provisions of Financial Accounting Standards Board (“FASB”) Topic 360, “Accounting for the Impairment of Long-Lived Assets.”  This statement requires that long-lived assets and certain identifiable intangibles be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.  An impairment loss would be recognized when the estimated future cash flows from the use of the asset are less than the carrying amount of that asset.  During all periods presented, there have been no impairment losses .

Goodwill

In financial reporting, goodwill is not amortized, but is tested for impairment annually in the fourth quarter of the fiscal year or whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.  Events that result in an impairment review include significant changes in the business climate, declines in our operating results, or an expectation that the carrying amount may not be recoverable.  We assess potential impairment by considering present economic conditions as well as future expectations.  All assessments of goodwill impairment are conducted at the individual reporting unit level.  As of June 30, 2017, the only reporting units with goodwill were QCA and HWT.

The Company used qualitative factors according to Accounting Standards Codification (“ASC”) 350-20-35-3 to determine whether it is more likely than not that the fair value of goodwill is less than its carrying amount.  Based on the qualitative criteria the company believes there not to be any triggers for potential impairment of goodwill and therefore the Company has recorded no impairment of goodwill in any period presented.

11
Fair Value Measurement

The Company’s financial instruments consist of cash and cash equivalents, accounts receivable, accounts payable, accrued expenses, convertible notes, notes and line of credit.  The carrying amount of these financial instruments approximates fair value due either to length of maturity or interest rates that approximate prevailing market rates unless otherwise disclosed in these financial statements.

Redeemable Common Stock

As discussed in Note 9 below, 379,403 shares of Class A common stock that were issued as consideration for the HWT acquisition contain a redemption feature which allows for the redemption of common stock at the option of the holder. In accordance with ASC 480, redemption provisions not solely within the control of the Company require the security to be classified outside of permanent equity.   Accordingly, at June 30, 2017, 379,403 shares of Class A common stock were classified outside of permanent equity at its redemption value.

Revenue Recognition

ALTIA

The Company accounts for its revenue per the guidance in ASC 605-25-25 by allocating the total contract amount between the product and service elements.  When a vehicle is sold to the driving consumer who purchases the 6 th Sense Auto service, the cost of the service is added to the price of the car and the amount collected by the dealership for this service is remitted to the Company.  At the time the vehicle is purchased, the Company recognizes the service portion of the contract over the service period of generally 12 to 36 months.

Quality Circuit Assembly

The Company accounts for its revenue per the guidance in ASC 605-25-25 by allocating the total contract amount between the product and service elements.  Revenue is recognized when either the product has completely been built and shipped or the service has been completed.  If a deposit for product or service is received prior to completion the payment is recorded to deferred revenue until such point the product or services meets our revenue recognition policy.  Management assesses the materiality and likelihood of warranty work and returns and records reserves as needed.  For all periods presented, management determined that the warranty and returns would be immaterial.

Horizon Well Testing

Revenue is recognized when the contract has been performed in completion.  Contracts range from one day to 30 days in length.

Leases

Leases are reviewed by management and examined to see if they are required to be categorized as an operating lease, a capital lease or a financing transaction.

Earnings (loss) per share

Basic earnings (loss) per common share is computed by dividing net income (loss) available to common shareholders by the weighted-average number of shares of common stock outstanding during the period. Diluted earnings per common share is computed by dividing income available to common shareholders by the weighted-average number of shares of common stock outstanding during the period increased to include the number of additional shares of common stock that would have been outstanding if potentially dilutive securities had been issued. The only potentially dilutive securities outstanding during the periods presented were the convertible debentures, but they are anti-dilutive due to the net loss incurred.  All earnings (loss) per common share have been adjusted retroactively for all periods presented to reflect changes in number of shares as a result of the reverse stock split amount.
12
Stock-based compensation

The Company accounts for equity instruments issued in exchange for the receipt of goods or services from other than employees in accordance with FASB ASC 718-10, Compensation – Stock Compensation, and the conclusions reached by FASB ASC 505-50, Equity – Equity-Based Payments to Non-Employees. Costs are measured at the estimated fair market value of the consideration received or the estimated fair value of the equity instruments issued, whichever is more reliably measurable. The value of equity instruments issued for consideration other than employee services is determined on the earliest of a performance commitment is reached or completion of performance by the provider of goods or services as defined by FASB ASC 505-50.

Income taxes

The Company records income taxes under the asset and liability method, whereby deferred tax assets and liabilities are recognized based on the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, and attributable to operating loss and tax credit carry forwards. Accounting standards regarding income taxes requires a reduction of the carrying amounts of deferred tax assets by a valuation allowance, if based on the available evidence, it is more likely than not that such assets will not be realized. Accordingly, the need to establish valuation allowances for deferred tax assets is assessed at each reporting period based on a more-likely-than-not realization threshold. This assessment considers, among other matters, the nature, frequency and severity of current and cumulative losses, forecasts of future profitability, the duration of statutory carry forward periods, the Company’s experience with operating loss and tax credit carry forwards not expiring unused, and tax planning alternatives.

The Company recorded valuation allowances on the net deferred tax assets.  Management will reassess the realization of deferred tax assets based on the accounting standards for income taxes each reporting period. To the extent that the financial results of operations improve and it becomes more likely than not that the deferred tax assets are realizable, the Company will be able to reduce the valuation allowance.

Significant judgment is required in evaluating the Company’s tax positions and determining its provision for income taxes. During the ordinary course of business, there are many transactions and calculations for which the ultimate tax determination is uncertain. Accounting standards regarding uncertainty in income taxes provides a two-step approach to recognizing and measuring uncertain tax positions. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount which is more than 50% likely, based solely on the technical merits, of being sustained on examinations. The Company considers many factors when evaluating and estimating its tax positions and tax benefits, which may require periodic adjustments and which may not accurately anticipate actual outcomes.

Embedded Conversion Features

The Company evaluates embedded conversion features within convertible debt under ASC 815 “Derivatives and Hedging” to determine whether the embedded conversion feature(s) should be bifurcated from the host instrument and accounted for as a derivative at fair value with changes in fair value recorded in earnings.  If the conversion feature does not require derivative treatment under ASC 815, the instrument is evaluated under ASC 470-20 “Debt with Conversion and Other Options” for consideration of any beneficial conversion features.

Related Party Disclosure

FASB ASC 850, “Related Party Disclosures” requires companies to include in their financial statements disclosures of material related party transactions. The Company discloses all material related party transactions. Related parties are defined to include any principal owner, director or executive officer of the Company and any immediate family members of a principal owner, director or executive officer.
13
Recent Accounting Pronouncements
In May 2014, the FASB issued Accounting Standards Update (“ASU”) No. 2014-09 (ASU 2014-09), Revenue from Contracts with Customers . ASU 2014-09 will eliminate transaction- and industry-specific revenue recognition guidance under current US GAAP and replace it with a principle based approach for determining revenue recognition. ASU 2014-09 will require that companies recognize revenue based on the value of transferred goods or services as they occur in the contract. The ASU also will require additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. ASU 2014-09 is effective for reporting periods beginning after December 15, 2016, and early adoption is not permitted. Entities can transition to the standard either retrospectively or as a cumulative-effect adjustment as of the date of adoption. Management is currently assessing the impact the adoption of ASU 2014-09 and has not determined the effect of the standard on our ongoing financial reporting.
In February 2015, the FASB issued ASU No. 2015-02, Consolidation (Topic 810): Amendments to the Consolidation Analysis. ASU 2015-02 provides guidance on the consolidation evaluation for reporting organizations that are required to evaluate whether they should consolidate certain legal entities such as limited partnerships, limited liability corporations, and securitization structures (collateralized debt obligations, collateralized loan obligations, and mortgage-backed security transactions). ASU 2015-02 is effective for periods beginning after December 15, 2015.

In August 2015, the FASB issued ASU No. 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date. The amendment in this ASU defers the effective date of ASU No. 2014-09 for all entities for one year. Public business entities, certain not-for-profit entities, and certain employee benefit plans should apply the guidance in ASU 2014-09 to annual reporting periods beginning December 15, 2017, including interim reporting periods within that reporting period. Earlier application is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods with that reporting period.

In November 2015, the FASB issued ASU No. 2015-17, Balance Sheet Classification of Deferred Taxes . The new guidance requires that all deferred tax assets and liabilities, along with any related valuation allowance, be classified as noncurrent on the balance sheet. This update is effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods. The Company adopted this ASU and all financial periods presented herein reflect this.  There were no significant impact on our financial position, results of operations, or cash flows.
 
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) . The guidance in ASU No. 2016-02 supersedes the lease recognition requirements in ASC Topic 840, Leases (FAS 13) . ASU 2016-02 requires an entity to recognize assets and liabilities arising from a lease for both financing and operating leases, along with additional qualitative and quantitative disclosures. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, with early adoption permitted. The Company is currently evaluating the effect this standard will have on its financial statements.
Other recent accounting pronouncements issued by the FASB, including its Emerging Issues Task Force, the American Institute of Certified Public Accountants, and the Securities and Exchange Commission did not or are not believed by management to have a material impact on the Company’s present or future financial statements.
 
Note 3 – Going Concern

The accompanying financial statements have been prepared on a going concern basis. The working capital of the Company is currently negative and causes doubt of the ability for the Company to continue. The Company requires capital for its operational and marketing activities.  The Company’s ability to raise additional capital through the future issuances of common stock is unknown. The obtainment of additional financing, the successful development of the Company’s plan of operations, and its transition, ultimately, to the attainment of profitable operations are necessary for the Company to continue operations. The ability to successfully resolve these factors raise substantial doubt about the Company’s ability to continue as a going concern. The financial statements of the Company do not include any adjustments that may result from the outcome of these aforementioned uncertainties.

In order to mitigate the risk related with this uncertainty, the Company has a three-fold plan to resolve these risks.  First, the acquisition of QCA has allowed for an increased level of cash flow to the Company as demonstrated in the sales for the second and third quarters of 2016.  Second, the Company has acquired HWT and is considering other potential acquisition targets that, like QCA, should increase income and cash flow to the Company.  Third, the Company plans to issue additional shares of common stock for cash and services during the next 12 months and has engaged MCAP, LLC to provide advisory services in connection with that capital raise.
14
 Note 4 – Leases

As of June 30, 2017, the future minimum capital lease and financing transaction payments, net of amortization of debt issuance costs, are as follows:

Fiscal Year
     
2017
 
$
287,000
 
2018
   
584,763
 
2019
   
599,382
 
2020
   
614,366
 
2021
   
629,725
 
Thereafter
   
6,715,046
 
Total
   
9,430,282
 
Less: Current capital leases and financing transaction
   
(19,921
)
Less: imputed interest
   
(2,854,172
)
Noncurrent capital leases and financing transaction
 
$
6,556,189
 

The Company also has a commitment to pay $276,000 towards Leasehold Improvements, of which $276,000 has been satisfied and reflected on the balance sheet as of June 30, 2017.

The money received from the sale of the building was used to purchase Quality Circuit Assembly.  Because this is a financing transaction, the sale is recorded under financing obligation lease on the Balance Sheet and amortized over the 15-year term of the lease.

The term of the lease has been extended through September 30, 2032 at a monthly rate of approximately $69,000.  These payments are not reflected in the table above.

A letter of credit of $1,000,000 is to be provided to landlord, of which $308,891 had been satisfied as of June 30, 2017.

Operating Leases

The company also had two operating leases as of June 30, 2017 (Successor), for its location in San Jose, CA (QCA), and Phoenix, AZ (Alpine).  Approximate monthly rent obligations are $27,500 and $2,800 respectively.

The five-year minimum rent payments for each location are as follows

Fiscal Year
 
San Jose, CA
   
Phoenix, AZ
 
2017
 
$
129,191
   
$
5,600
 
2018
   
266,134
     
-
 
2019
   
274,118
     
-
 
2020
   
282,342
     
-
 
2021
   
290,812
     
-
 
Thereafter
   
-
     
-
 
Total
   
1,242,597
     
5,600
 

15
The San Jose, CA, rent agreement expires at the end of 2021, and the Phoenix, AZ, rent agreement expired at the end of May 2017 and went to a monthly rent agreement.

Effective August 1, 2017, the company has also entered into an operating lease agreement in Oklahoma City, OK, for its Oklahoma business, HWT.  Approximate monthly rent is $5,000 and the term is for two years.

Note 5 – Notes Payable

During the three months ended March 31, 2016 (Predecessor), QCA paid off $10,000 of related party notes and $59,461 of unrelated party notes that were collateralized by vehicles prior to the purchase of QCA by Alpine 4.  There was no monthly payment on the related party notes.  The aggregate monthly payments on the unrelated party notes were $1,808.

During the six months ended June 30, 2017, the Company secured a line of credit with a third-party lender, Crestmark.  The line of credit is collateralized by HWT’s outstanding accounts receivable, up to 85% with maximum draws of $2,000,000 and a variable interest rate.  The Company also secured a five-year fixed rate (10.14%) term loan with Crestmark Equipment Finance which is collateralized by HWT’s equipment.  Both are guaranteed by the Company.

The company also entered into three fixed rate (30.00%) term notes with maturity dates of two, three and six months for a total of 70,000, of which $20,000 has been repaid as of June 30, 2017.

As of June 30, 2017, the outstanding balances for all notes payable are as follows:

June 30, 2017 (Successor)
 
Alpine 4
   
QCA
   
HWT
 
LOC current
 
$
-
   
$
1,328,613
   
$
122,655
 
Equipment current
   
-
     
162,005
     
1,750,384
 
Term notes
   
50,000
     
-
     
-
 
Total Current
 
$
50,000
   
$
1,490,618
   
$
1,873,039
 
Equipment noncurrent
   
-
     
-
     
-
 
Total Notes
 
$
50,000
   
$
1,490,618
   
$
1,873,039
 

The QCA and HWT equipment notes are classified as current due to the notes being in default and fully callable by the lender.

Note 6 – Notes Payable, Related Parties

During the six months ended June 30, 2017, the Company made payments to related parties for notes payable of $117,500, and borrowed $394,000 of which $300,000 was associated with the HWT acquisition described in Note 9.

At June 30, 2017, and December 31, 2016, notes payable consisted of the following:
16

   
Jun 30,
2017
   
Dec 31,
2016
 
Note payable; non-interest bearing; due upon demand; unsecured
 
$
-
   
$
15,000
 
Note payable; non-interest bearing; due upon demand; unsecured
   
4,500
     
15,000
 
Note payable; interest bearing; due May 31, 2017; unsecured
   
-
     
5,000
 
Notes payable; non-interest bearing; due upon demand; unsecured
   
6,000
     
-
 
Note payable; interest bearing; due January 10, 2017; unsecured
   
-
     
60,000
 
Note payable; interest bearing; due May 26, 2017; unsecured
   
43,500
     
-
 
Note payable; interest bearing; due June 30, 2017; unsecured
   
7,500
     
10,000
 
Note payable; interest bearing; due May 31, 2017; secured
   
100,000
     
100,000
 
Note payable; interest bearing; due July 31, 2017; secured
   
300,000
     
-
 
Note payable; interest bearing; due April 28, 2018; unsecured
   
20,000
     
-
 
   
$
481,500
   
$
205,000
 

During the six months ended March 31, 2017, a note with a related party was amended with a due date of January 30, 2017, to May 31, 2017.  Also, a note with due date of April 30, 2017, was amended to July 31, 2017.  These notes are now due upon demand.

The secured note for $100,000 is secured by real estate in the HWT purchase agreement.  The secured note for $300,000 is subordinated debt secured by all assets of HWT.

Note 7 – Convertible Notes Payable 

During the six months ended June 30, 2017 (Successor), the Company entered into fixed convertible note agreements with investors and as consideration for an acquisition.  The fixed convertible notes are unsecured; bear interest at 5-20% annually, and are due from April 27, 2016, to July 1, 2019.  All the fixed convertible notes payable contains a provision that allows the note holder to convert the outstanding balance into shares of the Company's common stock.  Notes are convertible at $1.00 per share, except for those issued for two business acquisitions, which are convertible at $8.50 and $10.00 per share.  The debt discount, which arises from a beneficial conversion feature (“BCF”) on the $1 per share investor notes, is being amortized over the terms of the convertible notes payable.  Total BCF discount recognized is $30,000 for the six months ended June 30, 2017.  For the six months ended June 30, 2017 (Successor), the Company recognized interest expense of $22,817 related to the amortization of the debt discount.  The unamortized balance was $14,604 as of June 30, 2017.

During the six months ended June 30, 2017 (Successor), the Company entered into two variable convertible note agreements with investors.  The variable convertible notes are unsecured; bear interest at 10-12% annually, and are due from January 30 to June 15, 2018.

17
On April 17, 2017, the Company entered into a variable convertible note with un related 3 rd party Ltd. for $58,500 with net proceeds of $55,000.  The note is due January 17, 2018 and bears interest at 12% per annum.  After 180 days, the note is convertible to the Company’s Class A common stock at a discount of 35% to the average of the three lowest trading closing prices of the stock for ten days prior to conversion.  The Company can prepay the convertible note up to 180 days from April 17, 2017.  The prepayment penalty is equal to 10% to 27% of the outstanding note amount depending on when prepaid.

On June 15, 2017, the Company entered into a variable convertible note with an unrelated 3 rd party for $60,000 with net proceeds of $57,000.  The note is due June 15, 2018 and bears interest at 10% per annum.  After 180 days, the note is convertible to the Company’s Class A common stock at a discount of 35% to the average of the three lowest trading closing prices of the stock for ten days prior to conversion.  The Company can prepay the convertible note up to 180 days from June 15, 2017.  The prepayment penalty is equal to 10% to 25% of the outstanding note amount depending on when prepaid.

Convertible notes payable at June 30, 2017, and December 31, 2016, consisted of the following:


   
Jun 30,
2017
   
Dec 31,
2016
 
Convertible Note - current
 
$
373,365
   
$
254,780
 
Debt discount
   
(14,604
)
   
(7,421
)
Net current
 
$
358,761
   
$
247,359
 
                 
Convertible Note - noncurrent
   
3,224,211
     
1,760,198
 
                 
Total Convertible Note
 
$
3,582,972
   
$
2,007,557
 
 
A roll forward of the convertible notes payable is provided below:

Balance 12/31/16
   
2,007,557
 
Issuance of convertible notes payable for acquisition
   
1,500,000
 
Issuance of convertible notes payable for cash and debt issuance costs
   
148,500
 
Notes paid
   
-34,252
 
Conversion of notes payable to common stock
   
-31,650
 
Discount from beneficial conversion feature
   
-30,000
 
Amortization of debt discount
   
22,817
 
Balance 6/30/17
   
3,582,972
 

18
Our significant principal debt obligations with due dates as of June 30, 2017, are as follows:

   
Payments due by Period
 
   
Less than
One Year
   
One to
Three Years
   
Three to
 Five Years
   
More
Than Five
 Years
   
Total
 
Notes payable, related parties
 
$
481,500
   
$
-
   
$
-
   
$
-
   
$
481,500
 
Notes payable, non-related parties
   
3,413,657
     
-
     
-
     
-
     
3,413,657
 
Convertible notes payable
   
373,365
     
3,224,211
                     
3,597,576
 
Total
 
$
4,268,522
   
$
3,224,211
   
$
-
   
$
-
   
$
7,492,733
 

Minimum payments on Notes payable, non-related parties is $43,717 per month.  Other loans have no monthly payments.

Note 8 – Stockholders’ Equity

Preferred Stock

The Company is authorized to issue 5,000,000 shares of $.0001 par value preferred stock. As of August 11, 2017, no shares of preferred stock were outstanding.

Common Stock

Pursuant to the Second Amended and Restated Certificate of Incorporation, the Company is authorized to issue two classes of common stock: Class A common stock, which will have one vote per share, and Class B common stock, which will have ten votes per share. Any holder of Class B common stock may convert his or her shares at any time into shares of Class A common stock on a share-for-share basis. Otherwise the rights of the two classes of common stock will be identical.

The Company had the following transactions in its common stock during the six months ended June 30, 2017:

·
Issued 154,000 shares of its Class A common stock for services.  Total expense for the shares issued for services was $6,168;
   
·
Issued 36,967 shares of its Class A common stock in connection with the conversion of convertible notes payable and accrued interest with a value of $36,963;
   
·
Issued 2,001 shares of the Company’s restricted Class A common stock in private placement transactions to investors, in exchange for capital raised of $15,000.

There were no equity transactions related to the Predecessor Company during any Predecessor period presented.

Redeemable Common Stock

·
The Company issued 379,403 shares of its Class A common stock in connection with the purchase of HWT.  260,000 shares are redeemable at $4.25 per share at three different redemption periods:  130,000 shares at 12 months, 65,000 shares at 18 months and 65,000 shares at 24 months from the closing date of the purchase of HWT.  119,403 shares are redeemable at $3.35 per share at 12 months from the closing date of the purchase of HWT.  Shares are valued at the redemption value of $1,439,725.

Due to the nature of the issuance of stock for the HWT acquisition, it is recorded outside of permanent equity in the balance sheet.

Stock Options

During the six months ended June 30, 2017, the following stock options were issued to purchase one share each of the Company’s Class A common stock.  The options were issued pursuant to the Company’s 2016 Stock Option and Stock Award Plan (the “Plan”).  The Company uses the Black-Scholes option pricing model to estimate the fair value of stock-based awards on the date of grant and on each modification date using the following assumptions.
19
Expected dividend yield
0%
Weighted average expected volatility
200%
Weighted average risk free interest rate
2.38%
Expected life of options
6.25 years

On April 7, 2017, the Company issued 741,500 options to employees and consultants of the Company. The options granted vest over the next four years, and the exercise price of the options granted is $0.90, which was the last closing bid price of the Company’s common stock as traded on the OTC QB Market.  The stock options are valued at $586,972 which will be expensed quarterly over the vesting period.

On May 3, 2017, the Company issued 114,000 options to an employee.  The options granted vest over the next four years and the exercise price of the options granted is $0.26, which was the last closing bid price of the Company’s common stock as traded on the OTC QB Market.  The stock options are valued at $29,298 which will be expensed quarterly over the vesting period.

Stock Options Outstanding
     
As of December 31, 2016
   
-
 
Issued
   
855,500
 
Forfeited
   
(92,000
)
As of June 30, 2017
   
763,500
 

During the three months ended June 30, 2017, approximately $33,000 of expense was recorded for stock options expense.

Reverse Stock Split

On July 29, 2016, the Company adopted a resolution approved by the shareholders to effectuate a reverse stock split at a ratio of one (1) new share for each ten (10) old shares of the Company’s commons stock (the “Reverse Split”).  By its terms, the Reverse Split would only reduce the number of outstanding shares of Class A and Class B common stock, and would not correspondingly reduce the number of Class A and Class B common shares authorized for issuance, which remained at 500,000,000 and 100,000,000, respectively.

The financial statements have been retrospectively restated to reflect the reverse split.

Note 9 – Business Combinations

Quality Circuit Assembly

Effective April 1, 2016 the Company Purchased 100% of the stock of Quality Circuit Assembly, Inc., a California corporation (“QCA”).

The purchase price paid by the Company for the QCA Shares consisted of cash and a convertible promissory note.   The “Cash Consideration” paid was the aggregate amount of $3,000,000.  The “Promissory Note Consideration” consists of a secured promissory note (the “Quality Circuit Assembly Note”) in the amount of $2,000,000 ($162,536 current, $1,750,996 noncurrent), secured by a subordinated security interest in the assets of QCA.  Additionally, the Sellers have the opportunity to convert the Quality Circuit Assembly Note into shares of the Company’s Class A common stock at a conversion price of $10 per share after 12 months.  The Quality Circuit Assembly Note will bear interest at 5% with first payment due July 1, 2016, and will be payable in full in 36-months (namely, July 1, 2019).
20
A summary of the final purchase price allocation at fair value is below.

   
Purchase Allocation
 
Cash
 
$
200,000
 
Accounts Receivable
   
1,158,995
 
Inventory
   
950,424
 
Property, Plant & Equipment
   
1,256,885
 
Prepaid
   
6,035
 
Intangibles
   
631,187
 
Goodwill
   
1,963,761
 
Accounts Payable
   
(672,410
)
Accrued Expenses
   
(128,444
)
Income Tax Payable
   
(20,123
)
Deferred Tax Liability
   
(346,310
)
   
$
5,000,000
 

Horizon Well Testing

Effective January 1, 2017, the Company Purchased 100% of the stock of Horizon Well Testing, LLC, an Oklahoma limited liability company (“HWT”).

Alpine 4 purchased 100% of the outstanding interests of HWT for $2,200,000 cash, two notes payables ($1,500,000 and $300,000), 379,403 shares of Alpine 4's Class A common stock, valued at $1,439,725, and 75,000 warrants to purchase on shares of Alpine 4 Class A common stock, valued at $40,941.  The $300,000 note bears interest at 1% and is payable in full by July 31, 2017.  The $1,500,000 note is a convertible note with an option to convert at $8.50 into Alpine 4's Class A common stock.  The note bears interest at 5% per annum and has a balloon payment due on the 18-month anniversary of the closing of the purchase.  There were also post-closing adjustments of $25,232.

HWT secured an equipment note for $1,872,392 from Crestmark Equipment Finance with a five-year term at a fixed interest rate of 10.14%.  HWT also secured a line of credit from Crestmark Bank with an initial funding amount of $165,012.  The line of credit is secured by HWT's accounts receivable and has a variable interest rate.

A summary of the preliminary purchase price allocation at fair value is below.

   
Purchase Allocation
 
Cash
 
$
262,384
 
Accounts Receivable, net
   
245,833
 
Property, Plant & Equipment
   
4,530,999
 
Intangibles
   
123,240
 
Goodwill
   
318,064
 
Accrued Expenses
   
(25,086
)
Total consideration
 
$
5,455,434
 

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Unaudited pro forma results of operations for the six months ended June 30, 2016 (Predecessor), as if the Companies (Alpine, QCA & HWT) had been combined as of January 1, 2016, follow.  The pro forma results include estimates and assumptions which management believes are reasonable.  However, pro forma results do not include any anticipated cost savings or other effects of the planned integration of these entities, and are not necessarily indicative of the results that would have occurred if the business combination had been in effect on the dates indicated or which may result in the future.  For period ending June 30, 2017 (Successor), pro forma information is not provided because the results after December 31, 2016, are post-acquisition.

   
Pro Forma Combined Financials
 
   
Six Months
 Ended
June 30,
2016
 
       
Revenue
 
$
6,034,350
 
         
Net (Loss) Income
 
$
(2,084,771
)
         
Net (Loss) Income per Common Share - Basic and Diluted
 
$
(0.09
)

Note 10 – Industry Segments

This summary presents the Company's current segments, QCA and HWT for the six months ended June 30, 2017 (Successor).  Prior periods are not presented as QCA made up the majority of the financials.

   
Successor
 
   
Three Months Ended June 30, 2017
 
   
QCA
   
HWT
   
Unallocated & Eliminations
   
Total
 Consolidated
 
                         
Revenue, external customers
 
$
1,884,879
   
$
350,300
   
$
94,853
   
$
2,330,032
 
Revenue, company segments
   
-
     
-
     
-
     
-
 
Segment Gross Profit
   
570,566
     
124,510
     
49,481
     
744,557
 
Segment Depreciation and Amortization
   
72,503
     
100,943
     
8,333
     
181,779
 
Segment Interest expense
   
180,920
     
66,058
     
119,904
     
366,882
 
Segment income tax expense
   
321
     
-
     
-
     
321
 
Segment net gain/(loss)
   
(27,600
)
   
(526,544
)
   
(298,613
)
   
(852,757
)
 
22
   
Successor
 
   
Six Months Ended June 30, 2017
 
   
QCA
   
HWT
   
Unallocated & Eliminations
   
Total
Consolidated
 
                         
Revenue, external customers
 
$
3,563,720
   
$
1,126,080
   
$
133,473
   
$
4,823,273
 
Revenue, company segments
   
26,837
     
-
     
(26,837
)
   
-
 
Segment Gross Profit
   
1,096,849
     
514,181
     
71,304
     
1,682,334
 
Segment Depreciation and Amortization
   
144,598
     
201,481
     
16,666
     
362,745
 
Segment Interest expense
   
348,653
     
137,991
     
169,846
     
656,490
 
Segment income tax expense
   
367
     
-
             
367
 
Segment net gain/(loss)
   
(137,916
)
   
(789,978
)
   
(512,816
)
   
(1,440,710
)
 
   
Successor
 
   
As of June 30, 2017
 
   
QCA
   
HWT
   
Unallocated
   
Total
Consolidated
 
                         
Accounts receivable, net
 
$
1,369,664
   
$
158,351
   
$
559
   
$
1,528,574
 
Purchase and acquisition long-lived assets
   
69,000
     
4,730,122
     
12,000
     
4,811,122
 
Goodwill
   
1,963,761
     
318,064
     
-
     
2,281,825
 
Total assets
   
10,511,734
     
5,126,131
     
267,808
     
15,905,673
 

Note 11 – Subsequent Events

Stock Options to Employees and Consultants

On July 31, 2017, the Company issued 488,500 options to purchase one share each of the Company's Class A common stock to employees and consultants of the Company. The options were issued pursuant to the Company's 2016 Stock Option and Stock Award Plan (the "Plan").  The options granted vest over the next four years and the exercise price of the options granted is $0.13, which was the last closing bid price of the Company's common stock as traded on the OTC QB Market.

Convertible Notes

 On July 13, 2017, the Company entered into a convertible note with 3 rd party unrelated lender for $43,000 with net proceeds of $40,000.  The note is due April 30, 2018 and bears interest at 12% per annum.  After 180 days, the note is convertible to the Company’s Class A common stock at a discount of 35% to the average of the three lowest trading closing prices of the stock for ten days prior to conversion.  The Company can prepay the convertible note up to 180 days from July 13, 2017.  The prepayment penalty is equal to 10% to 27% of the outstanding note amount depending on when prepaid.

On July 19, 2017, the Company entered into a convertible note with 3 rd party unrelated lender for $115,000 with net proceeds of $107,000.  The note is due January 21, 2018 and bears interest at 10% per annum.  After 180 days, the note is convertible to the Company’s Class A common stock at a discount of 35% to the average of the three lowest trading closing prices of the stock for ten days prior to conversion.  The Company can prepay the convertible note up to 180 days from July 19, 2017.  There is no prepayment penalty.  To secure this note the company also issued 500,000 shares to 3 rd party unrelated lender.  The shares are fully returnable if the note is prepaid within 180 days of issuance.  If not paid the 500,000 shares are non-returnable.

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Letter of Intent with Lattice Incorporated

On August 1, 2017, the Company announced that it had entered into a letter of intent to acquire all of the outstanding securities of Lattice Incorporated ("Lattice"), together with letters of intent with certain of Lattice's creditors to convert their debt in Lattice into equity.  The transaction will be subject to the parties to the transaction (including the holders of debt) entering into definitive agreements and the approval of Lattice's stockholders.  

The companies expect the transaction to close by the end of 2017.

About Lattice 

Lattice Incorporated is a trusted global partner to correctional facilities.  It provides a complete range of innovative inmate management and communications solutions that deliver greater efficiencies to facilities, reduce the administrative burden on their staff, provide them with revenue-generating opportunities, and connect their inmates with family and friends; serving approximately 350 correctional facilities and over 78,000 inmates in the United States, Canada, Japan, and Europe.

Lattice's headquarters are in southern New Jersey.  They maintain Sales Offices and a Customer Service Call Center in the United States, and they have strong relationships with correctional facility partners both domestically and outside the United States.

Lattice's Corrections Operating Platform (COP) is a complete range of innovative, secure solutions that continues to evolve based on the latest technology advancements.  It includes:

•
Inmate Telephone Solutions
•
Mobile Devices
•
Video Visitation
•
Video Arraignment
•
Deposit Solutions

Benefits of the Transaction
Sharing of resources: Management believes that the Alpine 4 acquisition of Lattice will leverage complementary strengths between the two companies, and Alpine 4 anticipates the benefits of that leverage to drop the fixed cost G&A expenses of Lattice in the first 12-18 months after closing.

Synergies:   The Company's subsidiary, QCA, will assist in the engineering of new products and services for Lattice and will also take over a large amount of the contract manufacturing of the Lattice product offering that is currently outsourced.   The Company's subsidiary, ALTIA, which has pioneered several GPS tracking hardware and software products, will be assisting Lattice in the development for pre and post prison tracking systems.

Increased Shareholder Value:  Management believes that this transaction will result in a positive adjustment to the Company's Shareholder Equity and is anticipated to reduce Lattice's overall debt from $6m to $3m. 

Profitable Earnings:  Upon closing, management anticipates that this transaction will eliminate approximately 50% of Lattice's debt, which should allow Lattice to obtain net profit earnings on its current revenue base.  It is also anticipated that the decreased debt burden will allow Lattice to direct more of its cash towards the growth of the company.  
 
Completion of Earnhardt Auto Center Pilot Program

On July 12, 2017, the Company announced that its subsidiary ALTIA had successfully concluded its 90 day pilot with Phoenix, AZ-based Earnhardt Auto Centers of its innovative 6 th  Sense Auto product platform. The pilot program was installed at the Earnhardt Chevrolet dealership in Chandler, AZ, and performed well above expectations and will continue on in the store for the foreseeable future.  ALTIA is also in negotiations with several other large automotive groups regarding its 6 th  Sense Auto and BrakeActive aftermarket products and anticipates larger orders in late Q3 and Q4 2017.

6 th  Sense Auto is designed for the modern "connected car" and dedicated to helping large dealerships like Earnhardt improve their inventory management, engine diagnostics, service maintenance and personalized customer support through wireless, cloud-based software.

With approximately 40 million new and used cars sold in the United States annually, management believes that ALTIA's market opportunity is very large, and believes that the Company's 6 th  Sense Auto product is positioned to be a dominant player in this industry.
 
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Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
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 to update or revise any forward-looking statements.

Overview and Highlights

Company Background

Alpine 4 Technologies Ltd. (the "Company") was incorporated under the laws of the State of Delaware on April 22, 2014.  The Company was formed to serve as a vehicle to affect an asset acquisition, merger, exchange of capital stock, or other business combination with a domestic or foreign business.  As of the date of this Report, the Company is a technology holding company owning three companies (ALTIA, LLC; Quality Circuit Assembly, Inc.; and Horizon Well Testing, LLC).

Business Strategy

Who We Are

Alpine 4 is a publicly held enterprise with four principles at the core of its business: Synergy, Innovation, Drive, and Excellence (S.I.D.E.).  At Alpine 4, we believe synergistic innovation drives excellence. By anchoring these words to our combined experience and capabilities, we are able to aggressively pursue opportunities within and across vertical markets. We deliver solutions that not only drive industry standards, but also increase value for our shareholders.
25


At Alpine 4, we understand the nature of how technology and innovation can accentuate a business. We strive to develop strategic synergies between our holdings to create value and operational excellence within a unique long-term perspective.


Our Strategy

Alpine 4's strategy is to provide Fortune 500-level execution strategies in its subsidiary companies and market segments to businesses and companies that have the most to benefit from this access.

Alpine 4 feels this opportunity exists in smaller middle market operating companies with revenues between $5 to $150 million.  In this target rich environment, businesses generally sell at more reasonable multiples, presenting greater opportunities for operational and strategic improvements and have greater potential for growth.   Implementation of our strategy within our holdings is accomplished by the offering of strategic and tactical MBA-level training and development, delivered via the following modules:

-
Alpine 4 Mini MBA program; and
   
-
An Alpine 4 developed ERP (Enterprise Resource Planning) and collaboration system called SPECTRUMebos.  SPECTRUMebos is what we are defining as an Enterprise Business Operating System (ebos).  This system will combine the key technology software components of Accounting and Financial Reporting, an Enterprise Resource Planning System (ERP), a Document Management System (DMS), a Business Intelligence (BI) platform and a Customer Resource Management (CRM) hub which will be tethered to management reporting and collaboration toolsets. Management believes that these tools will help drive real-time information in two directions: first, to the front lines by empowering customer-facing stakeholders; and second, back to management for planning, problem solving, and integration.   Management believes that SPECTRUMebos will be the technology "secret sauce" in managing our portfolio of companies and, in time, will be an offering to external customers.

All great strategies must have trade-offs. Therefore, Alpine 4 avoids companies that have unionized employees, businesses that have more than $150 million in revenue, and companies that operate in highly regulated business industries.

26
Diversification

It is our goal to help drive Alpine 4 into a leading multi-faceted holding company with diverse products and services that not only benefit from one another as 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.   Alpine 4 has been set up with a holding company model, with Presidents who will run each business, and Managers with specific industry related experience who, along with Kent Wilson, the CEO of Alpine 4, will help guide our portfolio of companies as needed.  Alpine 4 will work with our Presidents and Managers to ensure that our motto of S.I.D.E (Synergistic, Innovation, Drives, Excellence) is utilized.  Further, we plan to work with our subsidiaries and capital partners to provide the proper capital allocation and, to work to make sure each business is executing at high levels. 

In 2016, we saw the beginning of our plan for diversification take hold with the acquisition of Quality Circuit Assembly, Inc. ("QCA") when Alpine 4 acquired 100% of QCA's stock effective April 1, 2016.  Additional information relating to our acquisition of QCA can be found in our Current Report on Form 8-K, filed with the SEC on March 15, 2016.

In October of 2016, Alpine 4 formed a new Limited Liability Company called ALTIA (Automotive Logic & Technology In Action) to create an independent subsidiary for Alpine 4's 6 th Sense Auto product ("6SA") and its BrakeActive product.

Effective, January 1, 2017, Alpine 4 acquired 100% of Horizon Well Testing, LLC ("HWT"). Additional information about the acquisition of HWT can be found in our Current Reports on Form 8-K filed with the SEC on December 8, 2016, and January 13, 2017.

Finally, we have entered into two additional LOI's to acquire two different companies, and will provide additional disclosures relating to those transactions as they progress.

Segments

Segment revenue and net income are key metrics we use to evaluate segment operating performance and to determine resource allocation between segments.

Common Stock

Voting Rights

Holders of our Class A and Class B common stock have identical rights, except that holders of our Class A common stock are entitled to one vote per share and holders of our Class B common stock are entitled to ten votes per share. Holders of shares of Class A common stock and Class B common stock will vote together as a single class on all matters (including the election of directors) submitted to a vote of stockholders, unless otherwise required by law. We have not provided for cumulative voting for the election of directors in our certificate of incorporation.

Dividends

Subject to preferences that may apply to any shares of preferred stock outstanding at the time, the holders of Class A common stock and Class B common stock shall be entitled to share equally in any dividends that our board of directors may determine to issue from time to time. In the event a dividend is paid in the form of shares of common stock or rights to acquire shares of common stock, the holders of Class A common stock shall receive Class A common stock, or rights to acquire Class A common stock, as the case may be, and the holders of Class B common stock shall receive Class B common stock, or rights to acquire Class B common stock, as the case may be.
27
Liquidation Rights

Upon our liquidation, dissolution or winding-up, the holders of Class A common stock and Class B common stock shall be entitled to share equally all assets remaining after the payment of any liabilities and the liquidation preferences on any outstanding preferred stock.

Conversion

Our Class A common stock is not convertible into any other shares of our capital stock.

Each share of Class B common stock is convertible at any time at the option of the holder into one share of Class A common stock. In addition, each share of Class B common stock shall convert automatically into one share of Class A common stock upon any transfer, whether or not for value, except for certain transfers described in our certificate of incorporation.

Once transferred and converted into Class A common stock, the Class B common stock shall not be reissued. No class of common stock may be subdivided or combined unless the other class of common stock concurrently is subdivided or combined in the same proportion and in the same manner.

The foregoing description of the Second Amended and Restated Certificate of Incorporation is qualified in its entirety by reference to the text of the Amendment attached as Exhibit 3.1 to the Current Report on Form 8-K filed with the SEC on August 27, 2015, and incorporated therein by reference. 
      
Going Concern

The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company has incurred losses since inception.  The Company requires capital for its contemplated operational and marketing activities.  The Company's ability to raise additional capital through the future issuances of common stock is unknown. The obtainment of additional financing, the successful development of the Company's contemplated plan of operations, and its transition, ultimately, to the attainment of profitable operations are necessary for the Company to continue operations. The ability to successfully resolve these factors raises some doubt about the Company's ability to continue as a going concern. The financial statements of the Company do not include any adjustments that may result from the outcome of these aforementioned uncertainties.

In order to mitigate the risk related with this uncertainty, the Company has a three-fold plan to resolve these risks.  First, the acquisition of QCA and HWT has allowed for an increased level of cash flow to the Company.  Second, the Company is in negotiations to acquire another company that management believes will increase income and cash flow to the Company as QCA has done.  Third, the Company plans to issue additional shares of common stock for cash and services during the next 12 months and has engaged MCAP, LLC to provide advisory services in connection with that capital raise.

Results of Operations 

Revenue
Our revenues were $4,823,273 for the six months ended June 30, 2017 (Successor), with the majority being from QCA.  This compares with $1,788,654 for the three months ended March 31, 2016 (Predecessor), and $2,036,436 for the three months ended June 30, 2016 (Successor).  Predecessor revenue is from circuit board and wire harness sales.  Successor revenues include these and the 6SA product for the period ending June 30, 2016, as well as oil industry services for the period ending June 30, 2017.  The Company began selling the 6SA products and services during the second half of 2015, and expect our revenue from 6SA products to grow significantly over the next 12 months. Management's expectations of growth in revenues are based on management's contacts within the automobile dealership industry and the anticipated increase in interest in Alpine 4's products and services.   Management also expects revenue from circuit board and wire harness sales to increase over the next 12 months as well as services in the oil field industry.  These expectations are a result of increased focus on acquiring new customers and growing current customer's orders.
28
Cost of Revenue

Our cost of revenues was $3,140,939 for the six months ended June 30, 2017 (Successor).  This compares to $1,383,031 for the three months ended March 31, 2016 (Predecessor) and $1,319,623 for the three months ended June 30, 2016 (Successor).  We expect our cost of revenue to increase over the next 12 months as our revenue increases.  

General and administrative expenses

Our general and administrative expenses were $2,237,006 for the six months ended June 30, 2017 (Successor).  This compares to $533,894 for the three months ended March 31, 2016 (Predecessor) and $1,920,714 for the three months ended June 30, 2016 (Successor).  As Alpine 4 increases its advertising and brand and product/service awareness campaigns beginning in the second half of 2017, and as Alpine 4 hires additional personnel as needed and as operations permit, management anticipates that such actions will result in increased expenses in these areas to the Company.  

Interest expense

Our interest expense was $656,490 for the six months ended June 30, 2017 (Successor).  This compares to $456 for the three months ended March 31, 2016 (Predecessor) and $260,690 for the three months ended June 30, 2016 (Successor).  The increase in interest expense is due to the increase in debt, including convertible notes, along with interest costs associated with the purchase of QCA and HWT.  Interest expense includes the interest on the convertible debentures and the amortization of the debt discounts associated with the conversion features embedded in the convertible debentures.

Liquidity and Capital Resources

We have financed our operations since inception from the sale of common stock, capital contributions from stockholders, and issuance of notes payable and convertible notes payable.  We expect to continue to finance our operations by selling shares of our common stock and by generating income from the sale of our products.  As noted above, management's expectations of growth in revenues is based on management's contacts within the automobile dealership industry, and the anticipated increase in interest in Alpine 4's products and services as Alpine 4 increases its advertising and brand and product/service awareness campaigns beginning in the third and fourth quarters of 2017.  Additionally, management anticipates that the new campaigns will result in the Company's adding new dealerships each month, which began in the second quarter and which should continue through the end of 2017.

Management expects to have sufficient working capital for continuing operations from either the sale of its products, its subsidiaries' product and services revenue, or through the raising of additional capital through private offerings of our securities. Additionally, as of the date of this Report, the Company was in negotiations to acquire two businesses, which management believes 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, or at all.

The Company used cash from operating activities of $428,934 for the six months ended June 30, 2017 (Successor).  This compares with cash used of $72,935 for the three months ended March 31, 2016 (Predecessor) and cashed used of $307,536 for the three months ended June 30, 2016 (Successor).  The increase is due to the increase of inventory.
29
The Company used cash from investing activities of $2,094,499 for the six months ended June 30, 2017 (Successor).  This compares with $0 cash used for the three months ended March 31, 2016 (Predecessor), and $2,884,050 cash used for the three months ended June 30, 2016 (Successor).  The increase is due to the purchase of QCA in 2016 and HWT in 2017.

The Company generated cash from financing activities of $2,343,991 for the six months ended June 30, 2017 (Successor).  This compares to cash used of $69,461 for the three months ended March 31, 2016 (Predecessor) and generated cash of $2,875,144 for the three months ended June 30, 2016.  The decrease is due to the financing transaction of HWT which was cheaper than the QCA transaction.

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

The preparation of financial statements and related disclosures in conformity with U.S. generally accepted accounting principles ("U.S. GAAP") and the Company's discussion and analysis of its financial condition and operating results require the Company's management to make judgments, assumptions, and estimates that affect the amounts reported in its condensed consolidated financial statements and accompanying notes.  Note 2, "Summary of Significant Accounting Policies," of this Form 10-Q describes the significant accounting policies and methods used in the preparation of the Company's condensed consolidated financial statements. Management bases its estimates on historical experience and on various other assumptions it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Actual results may differ from these estimates and such differences may be material.

Management believes the Company's critical accounting policies and estimates are those related to revenue recognition, inventory valuation and lease accounting. Management considers these policies critical because they are both important to the portrayal of the Company's financial condition and operating results, and they require management to make judgments and estimates about inherently uncertain matters.

Revenue Recognition

ALTIA

The Company accounts for ALTIA's revenue per the guidance in ASC 605-25-25 by allocating the total contract amount between the product and service elements.  When a vehicle is sold to the driving consumer who purchases the 6 th Sense Auto service, the cost of the service is added to the price of the car and the amount collected by the dealership for this service is remitted to the Company.  At the time the vehicle is purchased, the Company recognizes the service portion of the contract over the service period of generally 12 to 36 months.

Quality Circuit Assembly

The Company accounts for QCA's revenue per the guidance in ASC 605-25-25 by allocating the total contract amount between the product and service elements.  Revenue is recognized when either the product has completely been built and shipped or the service has been completed.  If a deposit for product or service is received prior to completion the payment is recorded to deferred revenue until such point the product or services meets our revenue recognition policy.  Management assesses the materiality and likelihood of warranty work and returns and records reserves as needed.  For all periods presented, management determined that the warranty and returns would be immaterial.
30
Horizon Well Testing

Revenue is recognized when the contract has been performed in completion.  Contracts range from one day to 30 days in length.
 
Principles of consolidation

The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries as of June 30, 2017 (Successor), and December 31, 2016.  Significant intercompany balances and transactions have been eliminated.

Basis of presentation

The accompanying financial statements present the balance sheets, statements of operations, stockholders' deficit and cash flows of the Company. The financial statements have been prepared in accordance with U.S. GAAP.

Use of estimates

The preparation of financial statements in conformity with U.S. GAAP requires the Company to make estimates and judgments that affect the reported amounts of assets and liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities.  These estimates and judgments are based on historical information, information that is currently available to the Company and on various other assumptions that the Company believes to be reasonable under the circumstances.  Actual results could differ from those estimates.

Advertising

Advertising costs are expensed when incurred.  All advertising takes place at the time of expense.  We have no long-term contracts for advertising.  Advertising expense for all periods presented were under $10,000.

Cash

Cash and cash equivalents consist of cash and short-term investments with original maturities of less than 90 days.  Cash equivalents are placed with high credit quality financial institutions and are primarily in money market funds.  The carrying value of those investments approximates fair value. As of June 30, 2017, and December 31, 2016, the Company had no cash equivalents.

Accounts Receivable

The Company maintains reserves for potential credit losses on accounts receivable. Management reviews the composition of accounts receivable and analyzes historical bad debts, customer concentrations, customer credit worthiness, current economic trends and changes in customer payment patterns to evaluate the adequacy of these reserves. Reserves are recorded primarily on a specific identification basis.  As of June 30, 2017 (Successor), and March 31, 2016 (Predecessor), allowance for bad debt was $177,470 and $0, respectively.

Inventory

Inventory is valued at the lower of the inventory's cost (weighted average basis) or market. Management compares the cost of inventory with its market value and an allowance is made to write down inventory to market value, if lower.  Inventory is segregated into four areas, raw materials, WIP, finished goods, and In-Transit.

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Property and Equipment

Property and equipment are carried at cost less depreciation. Depreciation and amortization are provided principally on the straight-line method over the estimated useful lives of the assets, which range from ten years to 39 years as follows:

Automobiles & Trucks
10 to 20 years
Buildings
39 years
Leasehold Improvements
15 years or time remaining on lease (whichever is shorter)
Equipment
10 years

Maintenance and repair costs are charged against income as incurred.  Significant improvements or betterments are capitalized and depreciated over the estimated life of the asset.

Purchased Intangibles and Other Long-Lived Assets

The Company amortizes intangible assets with finite lives over their estimated useful lives, which range between five and fifteen years as follows:

Customer List
15 years
Non-compete agreements
5 years
Software development
5 years

Impairment of Intangibles

The Company evaluates intangible assets for impairment on a yearly basis or as needed.  During the six months ended June 30, 2017 (Successor), there have been no impairment losses.

Impairment of Long-Lived Assets

The Company accounts for long-lived assets in accordance with the provisions of FASB Topic 360, "Accounting for the Impairment of Long-Lived Assets".  This statement requires that long-lived assets and certain identifiable intangibles be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.  An impairment loss would be recognized when the estimated future cash flows from the use of the asset are less than the carrying amount of that asset.  During the three months ended June 30, 2017 (Successor), there have been no impairment losses .

Goodwill

In financial reporting, goodwill is not amortized, but is tested for impairment annually in the fourth quarter of the fiscal year or whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.  Events that result in an impairment review include significant changes in the business climate, declines in our operating results, or an expectation that the carrying amount may not be recoverable.  We assess potential impairment by considering present economic conditions as well as future expectations.  All assessments of goodwill impairment are conducted at the individual reporting unit level.  As of June 30, 2017, the only reporting units with goodwill were QCA and HWT.

The Company used qualitative factors according to ASC 350-20-35-3 to determine whether it is more likely than not that the fair value of goodwill is less than its carrying amount.  Based on the qualitative criteria the company believes there not to be any triggers for potential impairment of goodwill and therefore the Company has recorded no impairment of goodwill in any period presented.

Fair Value Measurement

The Company's financial instruments consist of cash and cash equivalents, accounts receivable, accounts payable, accrued expenses, convertible notes, notes and line of credit.  The carrying amount of these financial instruments approximates fair value due either to length of maturity or interest rates that approximate prevailing market rates unless otherwise disclosed in these financial statements.
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Leases

Leases are reviewed by management and examined to see if they are required to be categorized as an operating lease, a capital lease or a financing transaction.

Earnings (loss) per share

Basic earnings (loss) per common share is computed by dividing net income (loss) available to common shareholders by the weighted-average number of shares of common stock outstanding during the period. Diluted earnings per common share is computed by dividing income available to common shareholders by the weighted-average number of shares of common stock outstanding during the period increased to include the number of additional shares of common stock that would have been outstanding if potentially dilutive securities had been issued. The only potentially dilutive securities outstanding during the periods presented were the convertible debentures, but they are anti-dilutive due to the net loss incurred.  All earnings (loss) per common share have been adjusted retroactively for periods presented to reflect changes in number of shares as a result of the reverse stock split amount.
 
Redeemable Common Stock

As discussed in Note 9 above, 379,403 shares of Class A common stock that were issued as consideration for the HWT acquisition contain a redemption feature which allows for the redemption of the Class A common stock at the option of the holder. In accordance with ASC 480, redemption provisions not solely within the control of the Company require the security to be classified outside of permanent equity.   Accordingly, at June 30, 2017, 379,403 shares of Class A common stock were classified outside of permanent equity at its redemption value.

Stock-based compensation

The Company accounts for equity instruments issued in exchange for the receipt of goods or services from other than employees in accordance with FASB ASC 718-10, Compensation – Stock Compensation, and the conclusions reached by FASB ASC 505-50, Equity – Equity-Based Payments to Non-Employees. Costs are measured at the estimated fair market value of the consideration received or the estimated fair value of the equity instruments issued, whichever is more reliably measurable. The value of equity instruments issued for consideration other than employee services is determined on the earliest of a performance commitment is reached or completion of performance by the provider of goods or services as defined by FASB ASC 505-50.

Income taxes

The Company records income taxes under the asset and liability method, whereby deferred tax assets and liabilities are recognized based on the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, and attributable to operating loss and tax credit carry forwards. Accounting standards regarding income taxes requires a reduction of the carrying amounts of deferred tax assets by a valuation allowance, if based on the available evidence, it is more likely than not that such assets will not be realized. Accordingly, the need to establish valuation allowances for deferred tax assets is assessed at each reporting period based on a more-likely-than-not realization threshold. This assessment considers, among other matters, the nature, frequency and severity of current and cumulative losses, forecasts of future profitability, the duration of statutory carry forward periods, the Company's experience with operating loss and tax credit carry forwards not expiring unused, and tax planning alternatives.

The Company recorded valuation allowances on the net deferred tax assets.  Management will reassess the realization of deferred tax assets based on the accounting standards for income taxes each reporting period. To the extent that the financial results of operations improve and it becomes more likely than not that the deferred tax assets are realizable, the Company will be able to reduce the valuation allowance.
33
Significant judgment is required in evaluating the Company's tax positions and determining its provision for income taxes. During the ordinary course of business, there are many transactions and calculations for which the ultimate tax determination is uncertain. Accounting standards regarding uncertainty in income taxes provides a two-step approach to recognizing and measuring uncertain tax positions. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount which is more than 50% likely, based solely on the technical merits, of being sustained on examinations. The Company considers many factors when evaluating and estimating its tax positions and tax benefits, which may require periodic adjustments and which may not accurately anticipate actual outcomes.

Embedded Conversion Features

The Company evaluates embedded conversion features within convertible debt under ASC 815 "Derivatives and Hedging" to determine whether the embedded conversion feature(s) should be bifurcated from the host instrument and accounted for as a derivative at fair value with changes in fair value recorded in earnings.  If the conversion feature does not require derivative treatment under ASC 815, the instrument is evaluated under ASC 470-20 "Debt with Conversion and Other Options" for consideration of any beneficial conversion features.

Related Party Disclosure

FASB ASC 850, "Related Party Disclosures" requires companies to include in their financial statements disclosures of material related party transactions. The Company discloses all material related party transactions. Related parties are defined to include any principal owner, director or executive officer of the Company and any immediate family members of a principal owner, director or executive officer.

Recent Developments

Acquisition of Horizon Well Testing

On November 30, 2016, the Company entered into a Stock Purchase Agreement (the "HWT SPA") with Horizon Well Testing, L.L.C., an Oklahoma limited liability company ("HWT") and its sole shareholder Adam Martin (the "HWT Seller").  Effective as of January 1, 2017, Alpine 4 acquired and took full control of HWT.

Since 2010, HWT has been providing services to the oil and gas industry.  This acquisition is another step in Alpine 4's strategy of diversification through acquisitions.

Pursuant to the HWT SPA, Alpine 4, HWT and the HWT Seller agreed on the terms pursuant to which Alpine 4 would purchase from HWT Seller all of the outstanding membership interests of HWT (the "HWT Interests").  The purchase price paid by Alpine 4 for the HWT Interests consisted of cash, a note, a convertible note, and securities consideration.  The "Cash Consideration" paid was $2,200,000.  The "Note" consisted of a secured note in the amount of $300,000, secured by a subordinated security interest in the assets of HWT.  The Note bears interest at 1% and will be payable in full by July 31, 2017.  The "Convertible Note" consisted of a secured convertible note in the amount of $1,500,000, secured by a subordinated security interest in the assets of HWT.  The HWT Seller has the opportunity to convert the Convertible Note into shares of Alpine 4's Class A common stock at a conversion price of $8.50 after a restricted period according to securities laws.    The Convertible Note bears interest at 5% and is payable in full with a balloon payment on the 18-month anniversary of the closing date of the transaction with no monthly payments.  The "Securities" consisted of two components, an aggregate of 379,403 shares of alpine 4s Class A common stock issued to the Seller, and a warrant to purchase an additional 75,000 shares of Class A common stock.

In the HWT SPA, the HWT Seller acknowledged and agreed that his entry into consulting agreements with Alpine 4 was an integral part of the transaction contemplated by the HWT SPA. As such, the HWT Seller agreed to enter into consulting agreements with Alpine 4 and HWT, and continue to work with HWT for a period of time agreed upon by Alpine 4 and the HWT Seller.
 
On July 31, 2017, the Company issued options to purchase 488,500 shares of the Company's Class A common stock to employees and consultants of the Company. The options were issued pursuant to the Company's 2016 Stock Option and Stock Award Plan (the "Plan").  The options granted vest over four years, and the exercise price of the options granted is $0.13, which was the last closing bid price of the Company's common stock as traded on the OTC QB Market.

The options were issued without registration under the 1933 Act in reliance on Section 4(a)(2) of the 1933 Act and the rules and regulations promulgated thereunder.
34
Item 3. Quantitative and Qualitative Disclosures about Market Risk.

None.

Item 4. Controls and Procedures.
 
Evaluation of Disclosure Controls and Procedures
 
As required by Rule 13a-15 under the Securities Exchange Act of 1934, we have carried out an evaluation of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this quarterly report, June 30, 2017. This evaluation was carried out under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer.
 
Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission's rules and forms. Disclosure controls and procedures include controls and procedures designed to ensure that information required to be disclosed in our company's reports filed under the Securities Exchange Act of 1934 is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.
 
Based upon that evaluation, including our Chief Executive Officer and Chief Financial Officer, we have concluded that our disclosure controls and procedures were ineffective as of the end of the period covered by this report due to the following material weaknesses in our internal control over financial reporting, which are indicative of many small companies with small staff: (i) inadequate segregation of duties and effective risk assessment; (ii) inadequate control activities and monitoring processes; and (iii) failure in the process for identification and disclosure of related party transactions; and (iv) insufficient written policies and procedures for accounting and financial reporting with respect to the requirements and application of both U.S. GAAP and SEC guidelines.
 
We plan to take steps to enhance and improve the design of our internal control over financial reporting. During the period covered by this quarterly report on Form 10-Q, we have not been able to remediate the material weaknesses identified above. To remediate such weaknesses, we hope to implement the following changes during our fiscal year ending December 31, 2017: (i) appoint additional qualified personnel to address inadequate segregation of duties and ineffective risk management; and (ii) adopt sufficient written policies and procedures for accounting and financial reporting. The remediation efforts set out in (i) and (ii) are largely dependent upon our securing additional financing to cover the costs of implementing the changes required. If we are unsuccessful in securing such funds, remediation efforts may be adversely affected in a material manner.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting during the quarter ended June 30, 2017, that have materially affected or are reasonably likely to materially affect, our internal control over financial reporting.

PART II - OTHER INFORMATION
 
Item 1.                      Legal Proceedings.
 
There are not presently any material pending legal proceedings to which the Company is a party or as to which any of its property is subject, and no such proceedings are known to the Company to be threatened or contemplated against it.
 
Item 2.                      Unregistered Sales of Equity Securities and Use of Proceeds.

During the quarter ended June 30, 2017, the Company issued 154,000 shares of its restricted Class A common stock in connection with services.

The shares of Class A common stock were issued without registration under the 1933 Act in reliance on Section 4(a)(2) of the 1933 Act and the rules and regulations promulgated thereunder.
 
On July 31, 2017, the Company issued options to purchase 488,500 shares of the Company's Class A common stock to employees and consultants of the Company. The options were issued pursuant to the Company's 2016 Stock Option and Stock Award Plan (the "Plan").  The options granted vest over four years, and the exercise price of the options granted is $0.13, which was the last closing bid price of the Company's common stock as traded on the OTC QB Market.

The options were issued without registration under the 1933 Act in reliance on Section 4(a)(2) of the 1933 Act and the rules and regulations promulgated thereunder.

Item 4.                      Mine safety disclosures.

None

Item 5.                      Other Information.

None
35
Item 6.                      Exhibits.

3.1
Certificate of Incorporation (previously filed with the Commission as an exhibit to the Company's Form 10 and incorporated herein by reference)
   
3.2
Bylaws (previously filed with the Commission as an exhibit to the Company's Form 10 and incorporated herein by reference)
   
Certificate of Amendment to Certificate of Incorporation (previously filed with the Commission as an exhibit to the Company's Form 8-K on July 18, 2014, and incorporated herein by reference)
   
Certificate of Amendment to Certificate of Incorporation (previously filed with the Commission as an exhibit to the Company's Form 8-K on July 18, 2014, and incorporated herein by reference)
   
QCA Stock Purchase Agreement, dated as of March 15, 2016 (incorporated by reference to the Company's Current Report on Form 8-K filed with the Commission on March 15, 2016)
   
Reverse stock slip of 1 to 10 as of July 29, 2016 (incorporated by reference to the Company's Current Report on Form 8-K filed with the Commission on August 3, 2016)
   
Horizon Securities Purchase Agreement (incorporated by reference to Exhibit 99.1 to Alpine 4's Current Report on Form 8-K filed with the Commission on December 8, 2016)
   
Horizon Secured Promissory Note (incorporated by reference to Exhibit 99.1 to Alpine 4's Current Report on Form 8-K filed with the Commission on December 8, 2016)
   
Horizon Security Agreement (incorporated by reference to Exhibit 99.1 to Alpine 4's Current Report on Form 8-K filed with the Commission on December 8, 2016)
   
Horizon Warrant (incorporated by reference to Exhibit 99.1 to Alpine 4's Current Report on Form 8-K filed with the Commission on December 8, 2016)
   
Horizon Master Services Commission Agreement (incorporated by reference to Exhibit 99.1 to Alpine 4's Current Report on Form 8-K filed with the Commission on December 8, 2016)
   
Consulting Services Agreement (incorporated by reference to Exhibit 99.1 to Alpine 4's Current Report on Form 8-K filed with the Commission on December 8, 2016)
   
10.13 Third Amendment of Lease, dated June 14, 2017
   
31
Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
   
32
Certification of the Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
   
101.INS*
XBRL Instance Document
   
101.SCH*
XBRL Taxonomy Extension Schema Document
   
101.CAL*
XBRL Taxonomy Extension Calculation Linkbase Document
   
101.LAB*
XBRL Taxonomy Extension Label Linkbase Document
   
101.PRE*
XBRL Taxonomy Extension Presentation Linkbase Document
   
101.DEF*
XBRL Taxonomy Extension Definition Linkbase Definition

36
SIGNATURES
 
In accordance with the requirements of the Exchange Act, the Registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 
Alpine 4 Technologies Ltd.
 
 
Dated: August 11, 2017
 
 
 
By: /s/ Kent B. Wilson
 
Kent B. Wilson
 
Chief Executive Officer, President, and Secretary (Principal Executive Officer)
 
Dated: August 11, 2017
 
 
 
By: /s/ David G. Schmitt
 
David G. Schmitt
 
Chief Financial Officer, (Principal Financial Officer)
 
 
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