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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 March 31, 2016

 

Commission file number:  000-55205

(Exact name of registrant as specified in its charter)

 

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, or a smaller reporting company.

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes ☐       No ☒

 

State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date:  As of May 10, 2016, the issuer had 210,750,690 shares of its Class A common stock issued and outstanding and 16,000,000 shares of its Class B common stock issued and outstanding.

TABLE OF CONTENTS

 

 

PART I - FINANCIAL INFORMATION

 

Item 1.  Financial Statements.

Alpine 4 Technologies Ltd.

Financial Statements

(Unaudited)

 

 

Contents

 

 

 

 

ALPINE 4 TECHNOLOGIES, LTD.
CONDENSED CONSOLIDATED BALANCE SHEETS
		March 31,				December 31,
		2016				2015
		(unaudited)
ASSETS
CURRENT ASSETS:
Cash		$	342,786			$	174,988
Accounts receivable			179				4,086
Inventory			222,930				222,930
Total current assets			565,895				402,004
Intangible asset, net			141,667				-
TOTAL ASSETS		$	707,562			$	402,004
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Accounts payable		$	504,822			$	434,381
Accrued expenses			12,500				13,019
Advances from related parties			342,500				-
Deferred revenue			998				1,617
Notes payable, related parties			108,635				111,635
Convertible notes payable, net of discount of $162,422 and $271,532 (including related parties of $0 and $14,698)			131,928				59,318
Total current liabilities			1,101,383				619,970
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, 209,200,690 and 58,699,808 shares issued and outstanding			20,920				5,870
Class B Common stock, $0.0001 par value, 100,000,000 shares authorized, 16,000,000 and 0 shares issued and outstanding			1,600				1,600
Additional paid-in capital			13,883,108				13,783,778
Accumulated deficit			(14,299,449	)			(14,009,214	)
Total stockholders' deficit			(393,821	)			(217,966	)
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT		$	707,562			$	402,004

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

ALPINE 4 TECHNOLOGIES, LTD.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
		Three Months Ended March 31,
		2016				2015
Revenue		$	7,115			$	-
Cost of revenue			82
Gross Profit			7,033				-
Operating expenses:
General and administrative expenses			167,148				8,547,325
Total operating expenses			167,148				8,547,325
Loss from operations			(160,115	)			(8,547,325	)
Other expenses
Interest expense			(130,120	)			-
Total other expenses			(130,120	)			-
Loss before income tax			(290,235	)			(8,547,325	)
Income tax			-				-
Net loss		$	(290,235	)		$	(8,547,325	)
Weighted average shares outstanding :
Basic			167,059,562				93,664,279
Diluted			167,059,562				93,664,279
Loss per share
Basic		$	(0.00	)		$	(0.09	)
Diluted		$	(0.00	)		$	(0.09	)

ALPINE 4 TECHNOLOGIES, LTD.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(unaudited)
		Three Months Ended March 31,
		2016				2015
OPERATING ACTIVITIES:
Net loss		$	(290,235	)		$	(8,547,325	)
Adjustments to reconcile net loss to net cash used in operating activities:
Amortization			8,333				-
Issuance of common stock to consultants for services			-				8,408,000
Amortization of debt discounts			117,610				-
Change in current assets and liabilities:
Accounts receivable			3,907				-
Accounts payable			(13,179	)			76,136
Accrued expenses			3,981				(8,479	)
Deferred revenue			(619	)			-
Net cash used in operating activities			(170,202	)			(71,668	)
FINANCING ACTIVITIES:
Proceeds from issuances of notes payable, related party			-				74,535
Repayments of notes payable, related party			(3,000	)			-
Proceeds from convertible notes payable			8,500				-
Proceeds from the sale of common stock			5,000				-
Advances from related party			327,500				-
Net cash provided by financing activities			338,000				74,535
NET INCREASE IN CASH			167,798				2,867
CASH, BEGINNING BALANCE			174,988				758
CASH, ENDING BALANCE		$	342,786			$	3,625
CASH PAID FOR:
Interest		$	-			$	-
Income taxes		$	-			$	-
SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING ACTIVITIES:
Common stock issued for convertible note payable and accrued interest		$	49,500			$	-
Discount on convertible debentures		$	8,500			$	-
Issuance of 150,000,000 shares of common stock for acquisition		$	51,380			$	-

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

Alpine 4 Technologies Ltd.

Notes to Condensed Consolidated Financial Statements

For the Three Months Ended March 31, 2016

(Unaudited)

Note 1 – Organization and Basis of Presentation

The unaudited condensed consolidated 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 March 28, 2016. The results for the three months ended March 31, 2016, are not necessarily indicative of the results to be expected for the year ending December 31, 2016.

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 effect 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 was a technology holding company with a heavy concentration in the automotive industry. The Company provides a distinctive and powerful advantage to management, sales, finance, and service departments at automotive dealerships in order to increase productivity, profitability and customer retention through the Company's flagship program, 6th Sense Auto. The 6th Sense Auto program uses disruptive technology to improve inventory management, reduce costs, increase sales and enhance service. The 6th Sense Auto program serves a two-fold solution addressing both business to business and business to consumer market needs.

Note 2 - Summary of Significant Accounting Policies

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.

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.

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.

 

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.  All of the Company's inventory at March 31, 2016 and December 31, 2015 was finished goods inventory.

 

The Company has a portfolio of consumer and professional software applications called 6thSenseAuto, which consists primarily of the Company's two products previously branded as  LotWatch™ and ServiceWatch™.

LotWatch™ is a product for dealerships to give them vehicle inventory information. Our telematics devices use information gathered from the OBD (On Board Diagnostics) port, and by utilizing both GPS technology and cellular based service, the LotWatch™ module provides specific, real-time, accurate information about a dealership's fleet of new vehicles. This information can be easily accessed and viewed on Alpine 4's interface anywhere the dealership have internet access.

ServiceWatch™ is a product for the driving consumer that also uses information gathered from the OBD port.  By utilizing both GPS technology and cellular based service, the ServiceWatch™ module provides vehicle specific real-time, accurate information to a dealership's service department to increase sales all while improving their level of service.

When the Company enters into an agreement with a car dealership that wants to utilize its LotWatch™ service, a telematics device must be installed in each vehicle.  The Company will generally charge the car dealership a flat fee to install its telematics device in each vehicle.  The Company recognizes revenue when all the devices have been installed.  At the end of each month, the Company will charge the dealership a fee based on the average number of cars on the dealers lot during the month and revenue is recognized at that time (end of the month).

The Company will account 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 ServiceWatch™ 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 of the vehicle is purchased, the Company recognizes revenue for the retail value of the telematics device that has been installed in the vehicle and the remaining amount is recognized over the service period of generally 24 to 36 months.

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.

 

The Company accounts for equity instruments issued in exchange for the receipt of goods or services from other than employees in accordance with Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("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.

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.

 

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 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 31, 2016, including interim reporting periods with that reporting period.

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. The adoption of ASU 2015-02 is not expected to have a material effect on the Company's financial statements. Early adoption is permitted.

In September, 2015, the FASB issued ASU No. 2015-16, Business Combinations (Topic 805).  Topic 805 requires that an acquirer retrospectively adjust provisional amounts recognized in a business combination, during the measurement period. To simplify the accounting for adjustments made to provisional amounts, the amendments in the Update require that the acquirer recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amount is determined. The acquirer is required to also record, in the same period's financial statements, the effect on earnings of changes in depreciation, amortization, or other income effects, if any, as a result of the change to the provisional amounts, calculated as if the accounting had been completed at the acquisition date.  In addition an entity is required to present separately on the face of the income statement or disclose in the notes to the financial statements the portion of the amount recorded in current-period earnings by line item that would have been recorded in previous reporting periods if the adjustment to the provisional amounts had been recognized as of the acquisition date.  The adoption of ASU 2015-016 is not expected to have a material effect on the Company's financial statements.

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 does not anticipate the adoption of this ASU will have a significant impact on its 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, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company has incurred losses since inception and had accumulated a deficit of $14,299,449 as of March 31, 2016.  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 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 plans to issue additional shares of common stock for cash and services during the next 12 months.

 

Note 4 – Notes Payable, Related Parties

At March 31, 2016, and December 31, 2015, notes payable consisted of the following:

 

Note 5 – Convertible Notes Payable, Including Related Parties

During the year ended December 31, 2015, and the three months ended March 31, 2016, the Company entered into convertible note agreements with investors, including related parties.  The convertible notes are unsecured; bear interest at 10-20% annually, and are due from April 21, 2016, to March 17, 2017.  All of the convertible notes payable contain a provision that allows the note holder to convert the outstanding balance into shares of the Company's common stock at $0.10 per shares.  The Company determined that the convertible notes payable contained a beneficial conversion feature which is limited to the face amount of the note.  This beneficial conversion feature amounting to $390,150 and $8,500 for the year ended December 31, 2015 and the three months ended March 31, 2016, respectively, and has been recorded in the financial statements to additional paid-in capital and as a discount to the convertible notes payable. The debt discount is being amortized over the terms of the convertible notes payable.  For the three months ended March 31, 2016 and 2015, the Company recognized interest expense of $117,610 and $0, respectively, related to the amortization of the debt discount.

Convertible notes payable at March 31, 2016, and December 31, 2015, consisted of the following:

A rollforward of the convertible notes payable is provided below:

 

Note 6 – Stockholders' Equity

The Company is authorized to issue 5,000,000 shares of $.0001 par value preferred stock. As of May 10, 2016, no shares of preferred stock were outstanding.

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 three months ended March 31, 2016:

Note 7 – Related Party Transactions

Notes Payable

Note 4 describes the terms of a note payable to an officer of the Company, and Note 5 describes the terms of a convertible note payable to another officer of the Company.

 

Note 8 – Agreements

 

Note 9 – Business Combination

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

The software purchased in the acquisition is being amortized over 36 months.

AutoTek did not generate any revenue from the date of acquisition to March 31, 2016.

The unaudited pro forma information below present statement of operations data as if the transaction with AutoTek took place on January 1, 2015.

Note 10 – Subsequent Events

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. (formerly ALPINE 4 Inc. and Alpine 4 Automotive Technologies Ltd.) (the "Company") was incorporated in the State of Delaware on April 22, 2014.  Between inception and August 2014, the Company was in the developmental stage and conducted virtually no business operations.  On August 5, 2014, the Company entered into a Licensing Agreement (the "License Agreement") with AutoTek Incorporated ("AutoTek").  Pursuant to the License Agreement, AutoTek granted to Alpine 4 an exclusive, transferable (including sublicensable) worldwide perpetual license of the source code that could be developed into the LotWatch and ServiceWatch Products, to make, use, iport, lease, and sell products incorporating the LotWatch and ServiceWatch products (the "Licensed Products").  The Company was required to pay to AutoTek royalty payments equal to $10 per ServiceWatch device activated using the Licensed Technology.

 

Following the entry into the Licensing Agreement, the Company and AutoTek negotiated an Asset Purchase and Share Exchange Agreement (the "Asset Purchase Agreement"), pursuant to which the Company would purchase the source code asset from AutoTek.  The Company agreed to pay $30,000, and to offer to all of the AutoTek shareholders to issue shares of the Company's common stock in exchange for shares of AutoTek's stock tendered.  The closing of the asset purchase transaction was conditioned upon receipt of the approval of a majority of the AutoTek shareholders, which was received at a meeting of AutoTek shareholders held on December 21, 2015.  Following the approval by the AutoTek shareholders, the Company and AutoTek worked together to complete the asset purchase transaction, which closed on February 4, 2016. Also on February 4, 2016, the Company closed a share exchange transaction with the AutoTek shareholders, pursuant to which AutoTek shareholders exchanged an aggregate of 25,000,000 shares of AutoTek common stock for 150,000,000 shares of the Company's Class A common stock.

Following the closing of the asset purchase transaction, the Company has continued to use the source code acquired from AutoTek, as well as targeting and acquiring other potential businesses and assets, and deploying those assets to the Company's customer base which consists of automotive dealerships in the United States.  The Company 4 has used AutoTek's source code to design, develop and market telematics devices and software for the Automotive Industry, as discussed in more detail below.  

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.

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 Core Business

We are a technology holding company with a heavy concentration in the automotive industry. We provide a distinctive and powerful advantage to management, sales, finance and service departments at automotive dealerships in order to increase productivity, profitability and customer retention through our flagship program, 6thSenseAuto ("6SA") (formerly LotWatch and ServiceWatch, discussed in more detail below), which uses disruptive technology to improve inventory management, reduce costs, increase sales and enhance service. The 6SA program serves a two-fold solution addressing both business to business and business to consumer market needs. The 6SA product is discussed in more detail below.

Market Size and Growth

There are approximately 60,000 auto dealerships in the United States. This includes new car dealerships affiliated with an auto manufacturer and independent used car dealerships ranging from small lots to megadealers such as AutoNation. In 2014, 40.5 million used vehicles were sold, representing approximately two and half times the number of new vehicles sold. Moreover, total used vehicle sales by new car dealers increased 8 percent in 2014 to 15 million units in 2015, the highest level since 2005.  As such, with almost 55.5 million vehicles sold domestically each year, the Company's management believes that our 6SA program has a $12 billion dollar market opportunity.

Diversification

In addition to our push for marketplace adoption of our 6SA product, we have also been actively pursuing diversification through planned acquisitions of other businesses, including the recent acquisition of Quality Circuit Assembly, Inc., a California corporation ("QCA") (discussed more below).   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.  

For the greater part of 2016, Alpine 4's primary interests will lie in the following: automotive and green energy technologies; logistics' companies that provide energy infrastructure manufacturing; or those companies that support these industries.  At the core of our acquisition strategy is our focus on existing smaller middle market operating companies with revenues of $5 to $50 million.  In this target-rich environment, we believe that businesses generally sell at more reasonable multiples, present greater opportunities for operational and strategic improvements and have greater potential for growth.

Developed Products

Alpine 4 has a portfolio of consumer and professional software applications called 6thSenseAuto ("6SA"), which consists primarily of the Company's two products previously branded as LotWatch™ and ServiceWatch™, which together are now presented as 6SA.

6th Sense Auto ("6SA") can provide automobile dealerships with industry-leading sales team management information.  Utilizing our proprietary business intelligence platform, 6SA can help dealership sales departments; track customers from the time they enter a dealer's lot; let sales managers know in real-time when a salesperson is with a customer, on a test drive; or permit dealers and managers to review vehicles in inventory.  The 6SA system delivers a wide range of operational efficiencies, which the Company believes will maximize everything dealership sales managers need to know into one unique dashboard.

Inventory Management and Vehicle Location:  The 6SA Inventory Management System easily allows dealership personnel to locate vehicles in inventory so their sales team can easily guide a customer to the exact car they are looking for, which allows them to:

Customer Retention & Fix Ops Management:  The 6SA Customer Retention Platform ("CRP") provides vehicle-specific, real-time, accurate information to a dealership's service department.   According to data provided by the National Automobile Dealers Association, it is estimated that at least 30% percent of a new car dealership's profit comes from its service department, and as such, new car dealerships spend roughly $34 per month retaining a new customer!

6th Sense Auto Customer Retention Platform reduces that monthly expense by passing that expense to the consumer.

The CRP lets the service department know in real-time the status of a customer's vehicle.  The system can track information with respect to any Diagnostic Trouble codes ("DTC") or check engine lights, actual mileage of the vehicle, and if there are any recommended services that are needed at the time, and also communicates that information to the consumer via email, text, or phone.

Management believes that this will increases a dealership's profitability by:

Customer Vehicle Knowledge & Location System:  The 6SA Vehicle Knowledge & Location System is a consumer product that gives automobile owners real-time information about their car such as:

 

As of the date of this Report, Alpine 4 had concluded installations at four automobile dealerships in Arizona, California, and Indiana for the 6SA system.

Alpine 4 personnel provide training in the installation of the devices, creation of the customized user interface, and use of the inventory management system.  Additionally, personnel introduce and explain the details of the products to a dealership's sales staff, train the finance managers on the benefits of ServiceWatch and the registration process, and provide other training and support as agreed upon with the dealership.

 

Results of Operations 

Our revenues for the three months ended March 31, 2016 and 2015, were $7,115 and $0, respectively.  We began selling our products and services during the second half of 2015, and expect our revenue to grow significantly over the next 12 months. 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 second quarter of 2015  and which will continue through 2016.  

Our cost of revenues for the three months ended March 31, 2016 and 2015, were $82 and $0, respectively.  We expect our cost of revenue to increase over the next 12 months as our revenue increases.  

Our general and administrative expenses for the three months ended March 31, 2016 and 2015 were $167,148 and $8,547,325, respectively.  For the three months ended March 31, 2015, $8,408,000 of our general and administrative expenses was a non-cash expense related to the issuance of our common stock for services.   We expect that our general and administrative expenses will increase significantly over the next 12 months as we ramp up our operations.  As Alpine 4 increases its advertising and brand and product/service awareness campaigns beginning in the first half of 2015, and as Alpine 4 hires additional personnel as needed and as operations permit, management anticipates that such actions will result in significantly increased expenses to the Company.  The addition of more dealerships also will increase expenses relating to installations, customer management, and operational costs.

Our interest expense for the three months ended March 31, 2016 and 2015 was $130,120 and $0, respectively.  The increase in interest expense is due to the issuance of convertible debentures in the latter half of 2015.  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, 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 2015.  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 2016.

Management expects to have sufficient working capital for continuing operations from either the sale of its products or through the raising of additional capital through private offerings of our securities. 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 also may elect to seek bank financing or to engage in debt financing through a placement agent.  If the Company is unable to raise sufficient capital from operations or through sales of its securities or other means, we may need to delay implementation of our business plans.

The Company used cash from operating activities of $170,202 and $71,668 for the three months ended March 31, 2016 and 2015, respectively.  The increase is due to the increase in non-cash expenses in 2016.

The Company generated cash from financing activities of $338,000 and $74,535 for the three months ended March 31, 2016 and 2015, respectively.  The increase is due to an advance from a related party in 2016.

 

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 ("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 and inventory valuation. 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

Alpine 4 has a portfolio of consumer and professional software applications called 6thSenseAuto, which consists primarily of the Company's two products previously branded as  LotWatch™ and ServiceWatch™.

LotWatch™ is a product for dealerships to give them vehicle inventory information. Our telematics devices use information gathered from the OBD (On Board Diagnostics) port, and by utilizing both GPS technology and cellular based service, the LotWatch™ module provides specific, real-time, accurate information about a dealership's fleet of new vehicles. This information can be easily accessed and viewed on Alpine 4's interface anywhere the dealership have internet access.

ServiceWatch™ is a product for the driving consumer that also uses information gathered from the OBD port.  By utilizing both GPS technology and cellular based service, the ServiceWatch™ module provides vehicle specific real-time, accurate information to a dealership's service department to increase sales all while improving their level of service.

When the Company enters into an agreement with a car dealership that wants to utilize its LotWatch™ service, a telematics device must be installed in each vehicle.  The Company will generally charge the car dealership a flat fee to install its telematics device in each vehicle.  The Company recognizes revenue when all the devices have been installed.  At the end of each month, the Company will charge the dealership a fee based on the average number of cars on the dealers lot during the month and revenue is recognized at that time (end of the month).

The Company will account 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 ServiceWatch™ 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 of the vehicle is purchased, the Company recognizes revenue for the retail value of the telematics device that has been installed in the vehicle and the remaining amount is recognized over the service period of generally 24 to 36 months.

Inventory

Inventory is valued at the lower of the inventory's cost (weighted average basis) or the current market price of the inventory. Management compares the cost of inventory with its market value and an allowance is made to write down inventory to market value, if lower.  

Recent Developments

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, March 31, 2016. 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, 2016: (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 March 31, 2016, 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 1A. Risk Factors

Not required for Smaller Reporting Companies.  Investors may review the Company's registration statement on Form S-4, as amended, filed with the U.S. Securities and Exchange Commission, which includes risk factors relating to the Company, its business and operations, and ownership of the Company's securities.

Item 2.                      Unregistered Sales of Equity Securities and Use of Proceeds.

During the quarter ended March 31, 2016, the Company sold an aggregate of 5,882 shares of its restricted Class A common stock in private offerings.  The Company raised an aggregate of approximately $5,000.  Additionally, the Company issued 495,000 shares of its restricted class A common stock in connection with the conversion of convertible notes payable.

Subsequent to March 31, 2016, the Company issued an additional 1,550,000 shares of its Class A common stock. All of the 1,550,000 shares were issued in connection with employee and consultant compensation arrangements.

The shares of 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.

Item 3.                      Defaults Upon Senior Securities

 

None.

 

Item 4.                      Mining Safety Disclosures

 

Not applicable.

Item 5.                      Other Information.

None. 

 

Item 6.                      Exhibits.

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.