10-Q 1 f10q_aanc09302019.htm FORM 10-Q

   UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

☑         QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2019

 

OR

 

☐      TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

Commission file number:    000-55882

 

ANDOVER NATIONAL CORPORATION

(Exact Name of Registrant as Specified in Its Charter)

 

Delaware   83-2216345
(State or Other Jurisdiction of  
Incorporation or Organization)		   (I.R.S. Employer  
Identification No.)
     
333 Avenue of the Americas, Suite 2000, Miami, Florida   33131
(Address of Principal Executive Offices)   (Zip Code)

 

(786) 871-3333

(Registrant’s telephone number, including area code)

 

Securities registered under Section 12(b) of the Act:

 

Title of each class Trading Symbol(s) Name of each exchange on which registered
Not Applicable Not Applicable Not Applicable

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 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, 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, smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act:

 

Large accelerated filer  ☐ Accelerated filer  ☐
Non-accelerated filer  ☒ Smaller reporting company  ☒
Emerging growth company  ☒  

 

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(a) of the Exchange Act.       ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). 

Yes        ☐                 No        ☒

 

As of November 12, 2019, there were 1,501,356 shares of Class A Common Stock, and 81,198 shares of Class B Common Stock, outstanding. 

   

 

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

This Quarterly Report on Form 10-Q (this “Quarterly Report”) contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), that are intended to be covered by the “safe harbor” created by those sections. Forward-looking statements, which are based on certain assumptions and describe our future plans, strategies and expectations, can generally be identified by the use of forward-looking terms such as “believe,” “expect,” “may,” “will,” “should,” “would,” “could,” “seek,” “intend,” “plan,” “goal,” “project,” “estimate,” “anticipate,” “strategy,” “future,” “likely” or the negative thereof or other variations thereon or other comparable terminology. All statements other than statements of historical facts included in this Quarterly Report regarding our strategies, prospects, financial condition, operations, costs, plans and objectives are forward-looking statements. Examples of forward-looking statements include, but are not limited to, statements we make regarding expectations for revenues, cash flows and financial performance and the anticipated results of our ongoing development and business strategies.

 

Forward-looking statements are neither historical facts nor assurances of future performance. Instead, they are based only on our current beliefs, expectations and assumptions regarding the future of our business, future plans and strategies, projections, anticipated events and trends, the economy and other future conditions. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict and many of which are outside of our control. Our actual results and financial condition may differ materially from those indicated in the forward-looking statements. Therefore, you should not rely on any of these forward-looking statements. Important factors that could cause our actual results and financial condition to differ materially from those indicated in the forward-looking statements include, but are not limited to, the following:

 

  ● our ability to continue as a going concern;

 

  ● our ability to generate revenue or achieve profitability;

 

  ● the success of our growth strategy;

 

  ● our ability to obtain additional financing on acceptable terms, if at all;

  

  ● our ability to attract and retain key personnel;

 

  ● the volatility of the price of our Class A common stock, par value $0.001 per share (the “Class A Common Stock”);

 

  ● the marketability of our Class A Common Stock; and

 

  ● general economic and financial conditions.

 

Any forward-looking statement made by us in this report is based only on information currently available to us and speaks only as of the date on which it is made. Except as required by law, we undertake no obligation to publicly update any forward-looking statement, whether written or oral, that may be made from time to time, whether as a result of new information, future developments or otherwise.

 

 

 

 

 

 

 

 2 

 

 

 

 

 

ANDOVER NATIONAL CORPORATION 

 

For the Nine Months Ended September 30, 2019

 

TABLE OF CONTENTS

  PAGE
PART I  
Item 1.  Financial Statements 4
Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations 11
Item 3.  Quantitative and Qualitative Disclosure About Market Risk 13
Item 4.  Controls and Procedures 13
   
PART II  
Item 1.  Legal Proceedings 15
Item 1A.  Risk Factors 15
Item 2.  Recent Sales of Unregistered Securities; Use of Proceeds from Registered Securities 15
Item 3.  Defaults Upon Senior Securities 15
Item 4.  Mine Safety Disclosures 15
Item 5.  Other Information 15
Item 6.  Exhibits 15

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 3 

 

PART I - FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

ANDOVER NATIONAL CORPORATION 

 

BALANCE SHEETS

 

   September 30,  December 31,
   2019  2018
Assets   (Unaudited)      
Cash and cash equivalents  $13,298,414   $368,564 
Prepaid expenses   56,167    —   
Total assets  $13,354,581   $368,564 
           
Liabilities and stockholders' equity          
Liabilities:          
Accounts payable and accrued liabilities  $64,935   $280,814 
Total liabilities   64,935    280,814 
           
Stockholders' Equity:          
Preferred stock, $0.001 par value; 5,000,000 shares authorized, none issued   —      —   
Class A common stock, $0.001 par value; 60,000,000 shares authorized, 1,460,757 and 2,340,000 shares issued and outstanding, respectively   1,461    2,340 
Class B common stock, $0.001 par value; 7,500,000 shares authorized, 121,797 and 1,500,000 shares issued and outstanding, respectively   122    1,500 
Additional paid-in capital   15,348,394    1,039,970 
Accumulated deficit   (2,060,331)   (956,060)
Total stockholders' equity   13,289,646    87,750 
Total liabilities and stockholders' equity  $13,354,581   $368,564 

 

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

 

 

 4 

 

ANDOVER NATIONAL CORPORATION

 

STATEMENTS OF OPERATIONS

(Unaudited)

 

   Three Months Ended  Nine Months Ended
   September 30,  September 30,  September 30,  September 30,
   2019  2018  2019  2018
Service revenue  $2,275   $6,478   $14,659   $32,888 
                     
Operating expenses:                    
General & administrative   495,699    141,814    1,229,448    193,194 
Total operating expenses   495,699    141,814    1,229,448    193,194 
                     
Loss from operations   (493,424)   (135,336)   (1,214,789)   (160,306)
                     
Other income (expense)                    
Unrealized gains from investment   65,045    —      110,518    —   
Interest expense   —      (5,806)   —      (18,048)
Total other income (expense)   65,045    (5,806)   110,518    (18,048)
                     
Net Loss  $(428,379)  $(141,142)  $(1,104,271)  $(178,354)
                     
Net loss per common share class A - basic and diluted  $(0.14)  $(0.06)  $(0.37)  $(0.08)
Net loss per common share class B - basic and diluted  $(0.42)  $(2.89)  $(0.83)  $(10.82)
                     
Weighted average common shares outstanding - basic and diluted class A   3,098,046    2,340,000    2,963,334    2,340,000 
Weighted average common shares outstanding - basic and diluted class B   1,020,625    48,913    1,338,452    16,484 

 

 

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

 

 

 5 

 

ANDOVER NATIONAL CORPORATION

 

STATEMENT OF STOCKHOLDERS’ EQUITY (DEFICIT)

(Unaudited) 

   SHARES 
   Class A Common  Class B Common  Class A Common  Class B Common  Additional  Accumulated   
   Shares  Shares  Shares  Shares  Paid-in Capital  Deficit  Total
Balance - December 31, 2017   2,340,000    —     $2,340   $—     $39,760   $(419,849)  $(377,749)
Class B stock issued for cash   —      1,500,000    —      1,500    448,500    —      450,000 
Stock purchase warrants issued for
cash		   —      —      —      —      100,000    —      100,000 
Debt repayment   —      —      —      —      451,710    —      451,710 
Net loss   —      —      —      —      —      (178,354)   (178,354)
Balance - September 30, 2018   2,340,000    1,500,000   $2,340   $1,500   $1,039,970   $(598,203)  $445,607 
                                    
Balance - December 31, 2018   2,340,000    1,500,000   $2,340   $1,500   $1,039,970   $(956,060)  $87,750 
Class A stock issued for cash   1,437,100    —      1,438    —      14,227,562    —      14,229,000 
Class A stock issued for services   1,050    —      1    —      77,166    —      77,167 
Share forfeiture   (2,317,393)   (1,378,203)   (2,318)   (1,378)   3,696    —      —   
Net loss   —      —      —      —      —      (1,104,271)   (1,104,271)
Balance - September 30, 2019   1,460,757    121,797   $1,461   $122   $15,348,394   $(2,060,331)  $13,289,646 
                                    
                                    
Balance - June 30, 2018   2,340,000    —     $2,340   $—     $39,760   $(457,061)  $(414,961)
Class B stock issued for cash   —      1,500,000    —      1,500    448,500    —      450,000 
Stock purchase warrants issued for
cash		   —      —      —      —      100,000    —      100,000 
Debt repayment   —      —      —      —      451,710    —      451,710 
Net loss   —      —      —      —      —      (141,142)   (141,142)
Balance - September 30, 2018   2,340,000    1,500,000   $2,340   $1,500   $1,039,970   $(598,203)  $445,607 
                                    
Balance - June 30, 2019   3,778,150    1,500,000   $3,779   $1,500   $15,319,698   $(1,631,952)  $13,693,025 
Class A stock issued for services   —      —      —      —      25,000    —      25,000 
Share forfeiture   (2,317,393)   (1,378,203)   (2,318)   (1,378)   3,696    —      —   
Net loss   —      —      —      —      —      (428,379)   (428,379)
Balance - September 30, 2019   1,460,757    121,797   $1,461   $122   $15,348,394   $(2,060,331)  $13,289,646 

 

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

 

 6 

 

ANDOVER NATIONAL CORPORATION

 

STATEMENTS OF CASH FLOWS

(Unaudited)

 

   Nine Months Ended
   September 30,  September 30,
   2019  2018
Cash flows from operating activities:          
Net loss  $(1,104,271)  $(178,354)
Adjustments to reconcile net loss:          
Stock compensation   77,167    —   
Provision for doubtful accounts   —      871 
Changes in operating assets and liabilities:          
Accounts receivable   —      (7,443)
Prepaid expenses   (56,167)   —   
Accounts payable and accrued liabilities   (215,879)   153,104 
Cash used in operating activities   (1,299,150)   (31,822)
           
Cash flows from financing activities:          
Net proceeds from loans payable   —      27,637 
Net proceeds from sales of class A common stock   14,229,000    —   
Net proceeds from sales of class B common stock   —      450,000 
Proceeds from sale of warrants   —      100,000 
Cash provided by financing activities   14,229,000    577,637 
           
Increase (decrease) in cash   12,929,850    545,815 
Cash, beginning of period   368,564    4,397 
Cash, end of period  $13,298,414   $550,212 
           
Cash paid for interest  $—     $48 
Cash paid for taxes  $—     $—   
           
Supplemental schedule of noncash financing activities:          
Share forfeiture  $3,696   $—   
Debt retired in conjunction with share purchase from former owners  $—     $451,710 

 

 

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

 

 7 

 

ANDOVER NATIONAL CORPORATION 

 

Notes to the Financial Statements (Unaudited)

For the nine months ended September 30, 2019

 

Note 1 – Nature of the Business

 

Andover National Corporation (the “Company”) was organized in the State of Utah on July 11, 2007, and reincorporated on March 20, 2014. The Company is a full XML, XBRL and HTML compliant EDGAR and XBRL filing company. The Company provides these filing services to a limited number of small public companies that are required to file reports with the Securities and Exchange Commission (the “ SEC”) pursuant to the Exchange Act, or file registration statements or other documents with the SEC pursuant to the Securities Act.

 

Effective February 14, 2019, the Company completed a change of domicile to Delaware from Utah (the “Reincorporation”) by means of a merger of the Company with and into the Company’s wholly-owned subsidiary, Andover National Corporation, a Delaware corporation (“Andover”). The Company and Andover entered into an agreement and plan of merger on January 9, 2019, which was previously disclosed and attached as an appendix to the definitive information statement on Schedule 14C filed with the SEC on January 22, 2019. The certificate of merger was accepted by the state of Delaware on February 7, 2019. The Reincorporation was approved by a majority of the Company’s stockholders acting by written consent, dated January 9, 2019. All share and per share amounts have been retrospectively restated to reflect the Reincorporation.

 

On October 4, 2019, Andover Environmental Solutions, LLC (”Andover Environmental”), a wholly-owned subsidiary of the Company, acquired a controlling interest in ANC Green Solutions I, LLC, a Delaware limited liability company (see Note 7 – Subsequent Events).

 

Note 2 – Summary of Significant Accounting Policies

 

Basis of Presentation

 

The accompanying unaudited financial statements and related notes have been prepared pursuant to the rules and regulations of the SEC. Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been omitted pursuant to such rules and regulations. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the nine months ended September 30, 2019 are not necessarily indicative of the results that may be expected for the year ended December 31, 2019. For further information, refer to the financial statements and footnotes thereto included in Andover’s annual financial statements for the year ended December 31, 2018, included in the Company’s Annual Report on Form 10-K filed with the SEC on March 15, 2019.

 

Net Earnings (Loss) Per Common Share

 

The Company computes earnings per share under ASC 260-10, “Earnings   Per Share ” Basic earnings (loss) per share is computed by dividing the net income (loss) attributable to the common stockholders (the numerator) by the weighted average number of shares of common stock outstanding (the denominator) during the reporting periods. Diluted loss per share is computed by increasing the denominator by the weighted average number of additional shares that could have been outstanding from securities convertible into common stock (using the “treasury stock” method), unless their effect on net loss per share is anti-dilutive. There were 3,150,000 and 0 potentially dilutive shares, which include outstanding common stock options, warrants, convertible preferred stock and convertible notes, as of September 30, 2019 and September 30, 2018, respectively.

 

The potential shares, which are excluded from the determination of basic and diluted net loss per share as their effect is anti-dilutive, are as follows:

 

   

September 30,

2019

  

September 30,

2018

Warrants to purchase common stock     3,150,000       —    
    Potential equivalent shares excluded     3,150,000       —    

 

 8 

Cash and Cash Equivalents

 

The Company’s financial instruments included cash and cash equivalents, including investments in U.S. Treasury Bills which mature within 90 days of the reported balance sheet date. These investments are highly liquid, and the fair values of cash and cash equivalents approximated carrying values because of the short-term nature of these instruments. The Company’s policy is to report these as cash equivalents, and to report at fair values.

 

The Company has elected ASC Topic 825, Financial Instruments, whereby the carrying amounts reported in the balance sheets for cash and cash equivalents each qualify as financial instruments and are a reasonable estimate of their fair values because of the short period of time between the origination of such instruments and their expected realization and their current market rate of interest.

 

Note 3 – Going Concern

 

In connection with the preparation of unaudited financial statements for the nine months ended September 30, 2019, management evaluated whether there were conditions and events, considered in the aggregate, that raised substantial doubt about the Company’s ability to continue as a going concern within one year from the date that the financial statements are issued. The Company considered the following:

 

● At September 30, 2019, the Company had accumulated deficit of $2,060,331;
● At September 30, 2019, the Company had working capital of $13,289,646; and
● For the nine months ended September 30, 2019, the Company used $1,299,150 in cash from operations.

 

Ordinarily, conditions or events that raise substantial doubt about an entity’s ability to continue as a going concern relate to the entity’s ability to meet its obligations as they become due. The Company evaluated its ability to meet its obligations as they become due within one year from the date that the financial statements are issued by considering the following:

 

● The Company raised $14.2 million through the sale of Class A Common Stock during the nine months ended September 30, 2019; and
● Excluding $64,935 in accounts payable and accrued liabilities, the Company has no debt.

 

Management concluded that the above factors alleviate doubts about the Company’s ability to maintain enough cash for operations to satisfy its obligations for the next twelve months from the issuance date of these financial statements.

 

As of September 30, 2019, the Company had $13,298,414 in cash and cash equivalents.

 

Note 4 – Accounts Payable and Accrued Liabilities

 

As of September 30, 2019 and December 31, 2018, current liabilities consisted of the following:

 

    September 30,  
2019		   December 31,  
2018
Accounts payable   $ 42,223     $ 53,027  
Due to related party     22,712       227,787  
Total   $ 64,935     $ 280,814  

 

Note 5 – Capital Stock

 

The authorized capital of the Company consisted of 72,500,000 shares of capital stock, including 60,000,000 shares of Class A Common Stock, 7,500,000 shares of Class B common stock, par value $0.001 per share (the “Class B Common Stock”) and 5,000,000 shares of preferred stock with a par value of $0.001 per share.

 

As of September 30, 2019, there were a total of 1,460,757 shares of Class A Common Stock issued and outstanding, and 121,797 shares of Class B Common Stock issued and outstanding.

 

 9 

Reincorporation

 

In connection with the Reincorporation, and effective upon the effectiveness of the Reincorporation, each of the Company’s issued and outstanding shares of common stock, par value $0.001 per share, automatically converted into and became one-fifth ( 1  /  5 th  ) of one validly issued, fully paid and non-assessable share of Class A Common Stock of Andover, without any action on the part of the Company’s stockholders. In addition, each of the Company’s issued and outstanding shares of Series A preferred stock, par value $0.001 per share, automatically converted into and became one-fifth ( 1  /  5 th  ) of one validly issued, fully paid and non-assessable share of Class B Common Stock of Andover, without any action on the part of the Company’s stockholders. All share and per-share amounts have been retrospectively restated.

 

Newly Issued Shares

 

During the nine months ended September 30, 2019, the Company entered into separate subscription agreements with certain accredited investors (the “Investors”), pursuant to which the Company, in a private placement, issued and sold to the Investors an aggregate of 1,437,100 shares of its Class A Common Stock at an offering price of $10.00 per share, for gross proceeds of $14,371,000, and incurred offering costs of $142,000.

 

During the nine months ended September 30, 2019, the Company issued 1,050 shares for services valued at $10,500.

 

During the nine months ended September 30, 2019, the Company agreed to issue 10,000 fully vested shares for services for a total value of $100,000. During the nine months ended September 30, 2019, the Company expensed $66,667 related to this agreement representing eight months of expense. These shares were not issued as of September 30, 2019.

 

During the nine months ended September 30, 2019, the Company did not issue any additional shares of Class B Common Stock.

 

Forfeited Shares

 

On September 3, 2019, the Company entered into stock forfeiture and release agreements (the “Agreements”) individually or with entities controlled by each of Daniel E. Schmerin, the Company’s former Chief Executive Officer, Jeffrey C. Piermont, the Company’s President and Chief Operating Officer, Peter A. Cohen, the Company’s Executive Chairman and Chief Executive Officer, and George S. Blumenthal, the Company’s Senior Advisor pursuant to which (i) each of Messrs. Schmerin, Piermont and Cohen agreed to forfeit to the Company, for no consideration, 584,820 shares of Class A Common Stock, (ii) Mr. Blumenthal agreed to forfeit to the Company, for no consideration, 562,933 shares of Class A Common Stock, and (iii) each of Messrs. Schmerin, Piermont and Cohen agreed to forfeit to the Company, for no consideration, 459,401 shares of Class B Common Stock.

 

Note 6 – Related Party Transactions

 

As of September 30, 2019, $237,830 of the legal expenses and $22,712 of the accounts payable were related to a certain law firm. One of the officers of the Company is related to one of the partners of this firm through marriage. The partner does not perform legal services for the Company, is not consulted on any matters pertaining to the Company, and is not compensated directly from the fees paid to the law firm by the Company.

 

As of September 30, 2019, $58,596 of the rent expense was related to the Company’s Executive Chairman, Peter Cohen. The Company occupies a portion of commercial office space that is leased by Mr. Cohen who provides the space to the Company on a month-to-month basis for $6,500 per month. There is no formal lease agreement or security deposit associated with this agreement.

 

Note 7 – Subsequent Events

 

Purchase of Controlling Interest through subsidiary, Andover Environmental Solutions, LLC

 

On October 4, 2019, Andover Environmental, a wholly-owned subsidiary of the Company, entered into a Membership Interest Purchase Agreement with Heath L. Legg, pursuant to which Andover Environmental purchased from seller sixty percent (60%) of the membership interests of ANC Green Solutions I, LLC, a Delaware limited liability company, for $4,000,000 in cash, subject to certain adjustments. The primary reason for the business combination was to expand the existing business into new markets, and to increase the revenue through acquisition using cash the Company had available through recent sales of equity securities. The Company was able to obtain control through cash purchase of membership interests in a new formed subsidiary. Additional disclosure required is impracticable since the required disclosure information is not yet available to the Company.

 

 10 

Appointment of Peter A. Cohen as Chief Executive Officer

 

On October 21, 2019, the Board appointed the Company’s Executive Chairman, Peter A. Cohen, to serve as Chief Executive Officer, principal executive officer, principal financial officer and principal accounting officer. Mr. Cohen has served as the Company’s Executive Chairman since February 2019.

 

Mr. Cohen has served as Vice Chairman of the board of directors of Scientific Games Corporation since September 2004 and as a member of the board of directors of PolarityTE, Inc. since June 2018. Mr. Cohen previously served as Chairman of Cowen Inc. (formerly known as Cowen Group, Inc.), a diversified financial services company, from 2009 through June 2018, and served as its Chief Executive Officer from 2009 through December 2017. Mr. Cohen was a founding partner and principal of Ramius LLC, a private investment management firm formed in 1994 that acquired Cowen in late 2009. From 1990 to 1994, Mr. Cohen served as Chairman and Chief Executive Officer of Republic New York Securities, as Vice Chairman of the board of directors of Republic New York Corporation, as well as a member of its executive management committee. Mr. Cohen was Chairman and Chief Executive Officer of Shearson American Express from 1983 to 1990. Over his career, Mr. Cohen also founded several companies, including RCG Longview (a real estate management business), Hale & Hearty Soup (a New York-based quick service restaurant chain), Linkem S.p.A. (a wireless broadband company operating in Italy), and Omnitel Pronto Italia (a cellular telephone company now operating as Vodafone in Italy). Mr. Cohen is currently a Trustee Emeritus of Mount Sinai Medical Center and has served on its board of directors for approximately thirty years. He earned a Bachelor of Science degree from Ohio State University, and a Master of Business Administration degree from Columbia University.

 

Resignation of Daniel E. Schmerin as Chief Executive Officer and from Board of Directors

 

On October 20, 2019, the Company and Daniel E. Schmerin mutually agreed to Mr. Schmerin’s resignation as Chief Executive Officer, effective as of October 20, 2019, and his separation of employment from the Company, effective as of October 31, 2019. Mr. Schmerin also resigned as a member of the Board of Directors (the “Board”) of the Company, effective as of October 20, 2019. Mr. Schmerin’s resignation was not as a result of any disagreement with the Company on any matters related to the Company’s operations, policies or practices.

 

In connection with the entry into the separation agreement, Mr. Schmerin has agreed to (a) convert his 40,599 shares of Class B Common Stock of the Company beneficially owned by Mr. Schmerin into 40,599 shares of Class A Common Stock, and (b) cancel all warrants to purchase common stock beneficially held by Mr. Schmerin.

 

Please see the Company’s Form 8-K filed October 21, 2019 related to the matters regarding Mr. Cohen and Mr. Schmerin for further details.

 

 

 

 

 

 

 

 

 

 

 11 

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

Forward-Looking Statements

 

The following discussion of the financial condition and results of operations of Andover National Corporation (hereafter, the “Company,” “we,” “our,” or “us”) should be read in conjunction with the unaudited financial statements and related Notes thereto included herein. This discussion may contain forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act of 1934, including, without limitation, statements regarding the Company’s expectations, beliefs, intentions, or future strategies that are signified by the words “expects,” “anticipates,” “intends,” “believes,” or similar language. Actual results could differ materially from those projected in the forward-looking statements. Prospective investors should carefully consider the information set forth herein, and the Company cautions investors that its business and financial performance is subject to substantial risks and uncertainties.

 

Overview

 

We were initially organized in the State of Utah on March 20, 2014, as Acadia Technologies, Inc. Our initial business model included outsourced technical support services in addition to our current suite of regulatory services comprising administrative support, merchant and regulatory filing services to include full-service XML, XBRL and HTML compliant EDGAR and XBRL filings. We changed our name to Edgar Express, Inc. on September 15, 2016. Regulatory filing services, which comprise the bulk of our revenue at this time, are provided to a limited number of small public companies that are required to file reports with the Securities and Exchange Commission (the “SEC”) pursuant to the Exchange Act, or file registration statements or other documents with the SEC pursuant to the Securities Act.

 

Effective February 14, 2019, we completed a change of domicile to Delaware from Utah (the “Reincorporation”) by means of a merger of the Company with and into the Company’s wholly-owned subsidiary, Andover National Corporation, a Delaware corporation (“Andover”). The Company and Andover entered into an agreement and plan of merger on January 9, 2019, which was previously disclosed and attached as an appendix to our definitive information statement on Schedule 14C filed with the SEC on January 22, 2019. The certificate of merger was accepted by the state of Delaware on February 7, 2019. The Reincorporation was approved by a majority of the Company’s stockholders acting by written consent, dated January 9, 2019. We changed our name to Andover National Corporation in connection with the Reincorporation. Our business office and mailing address is 333 Avenue of the Americas, Suite 2000, Miami, Florida 33131. Our telephone number is (786) 871-3333.

 

General and administrative expenses have been comprised of administrative wages and benefits, occupancy and office expenses, outside legal, accounting and other professional fees, travel and other miscellaneous office and administrative expenses. Selling and marketing expenses include selling and marketing wages and benefits, advertising and promotional expenses, as well as travel and other miscellaneous related expenses.

 

Recent Developments

 

Additional Financing

 

For the nine months ended September 30, 2019, we issued and sold an aggregate of 1,437,100 shares of our Class A Common Stock for total gross proceeds of $14,371,000.

 

The shares of Class A Common Stock issued and sold pursuant to the subscription agreements have not been registered under the Securities Act, or any state securities laws and may not be offered or sold in the United States absent registration or an applicable exemption from the registration requirements. The shares of Class A Common Stock were issued in reliance upon the exemptions from registration under the Securities Act provided by Section 4(a)(2) and Rule 506 of Regulation D promulgated thereunder. The investors are “accredited investors” as that term is defined in Rule 501 of Regulation D and acquired the shares of Class A Common Stock for investment only and not with a present view toward, or for resale in connection with, the public sale or distribution thereof.

 

 

 

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On September 3, 2019, we entered into stock forfeiture and release agreements (the “Agreements”) individually or with entities controlled by each of Daniel E. Schmerin, our former Chief Executive Officer, Jeffrey C. Piermont, our President and Chief Operating Officer, Peter A. Cohen, our Executive Chairman and Chief Executive Officer, and George S. Blumenthal, our Senior Advisor (collectively, the “Shareholders”) pursuant to which (i) each of Messrs. Schmerin, Piermont and Cohen agreed to forfeit to the Company, for no consideration, 584,820 shares of Class A Common Stock, (ii) Mr. Blumenthal agreed to forfeit to the Company, for no consideration, 562,933 shares of Class A Common Stock, and (iii) each of Messrs. Schmerin, Piermont and Cohen agreed to forfeit to the Company, for no consideration, 459,401 shares of Class B Common Stock. As a result of such forfeiture, there are 1,460,757 shares and 121,797 shares of Class A Common Stock and Class B Common Stock, respectively, issued and outstanding as of the date of this report.

 

On October 4, 2019, Andover Environmental entered into a Membership Interest Purchase Agreement with Heath L. Legg, pursuant to which Andover Environmental purchased from Seller sixty percent (60%) of the membership interests of ANC Green Solutions I, LLC, a Delaware limited liability company, for $4,000,000 in cash, subject to certain adjustments.

 

Results of Operations

 

Three Months Ended September 30, 2019 and 2018

 

Revenues

 

We generated net revenues of $2,275 during the three months ended September 30, 2019, compared to $6,478 during the three months ended September 30, 2018. Our revenue was generated from regulatory filing services provided to publicly traded companies.

 

General and Administrative

 

Our general and administrative expenses for the three months ended September 30, 2019, were $495,699, an increase of $353,885, or 250%, as compared to $141,814 for the three months ended September 30, 2018. General and administrative expenses consisted primarily of wages and related taxes, which were $250,833 during the three months ended September 30, 2019, compared to $13,580 during the three months ended September 30, 2018, and professional fees (consisting mostly of legal fees) which were $153,122 during the three months ended September 30, 2019, compared to $127,411 during the three months ended September 30, 2018.

 

Net Loss

 

As a result of the foregoing, for the three months ended September 30, 2019, we recorded a net loss of $428,379 compared to a net loss of $141,142 for the three months ended September 30, 2018.

 

Nine Months Ended September 30, 2019 and 2018

 

Revenues

 

We generated net revenues of $14,659 during the nine months ended September 30, 2019, compared to $32,888 during the nine months ended September 30, 2018. Our revenue was generated from regulatory filing services provided to publicly traded companies.

 

General and Administrative

 

Our general and administrative expenses for the nine months ended September 30, 2019, were $1,229,448, an increase of $1,036,254, or 536%, as compared to $193,194 for the nine months ended September 30, 2018. General and administrative expenses consisted primarily of wages and related taxes, which were $714,053 during the nine months ended September 30, 2019, compared to $42,715 during the nine months ended September 30, 2018, and professional fees (consisting mostly of legal fees) which were $318,011 during the nine months ended September 30, 2019, compared to $143,013 during the nine months ended September 30, 2018.

 

Net Loss

 

As a result of the foregoing, for the nine months ended September 30, 2019, we recorded a net loss of $1,104,271 compared to a net loss of $178,354 for the nine months ended September 30, 2018.

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Liquidity and Capital Resources

 

As of September 30, 2019, our primary source of liquidity consisted of $13,298,414 in cash. We hold our cash reserves in commercial checking accounts with local financial institutions and have invested available cash in US Treasury securities through local financial institutions. Since inception we have financed our operations primarily through the private placement of our capital stock, and the sale of warrants.

 

Operating Activities

 

During the nine months ended September 30, 2019, we used $1,299,150 of cash in operating activities, primarily as a result of our net loss of $1,104,271, stock compensation of $77,167, and $(272,046) in changes in operating assets and liabilities.

 

During the nine months ended September 30, 2018, we used $31,822 of cash in operating activities, primarily as a result of our net loss of $178,354, provision for doubtful accounts of $871, and $145,661 in changes in operating assets and liabilities.

 

Investing Activities

 

During the nine months ended September 30, 2019 and 2018, we did not have investing activities.

 

Financing Activities

 

During the nine months ended September 30, 2019, our financing activities provided $14,229,000 in net proceeds from sales of Class A Common Stock.

 

During the nine months ended September 30, 2018, our financing activities provided $577,637, including $27,637 in proceeds from loans payable which have been repaid, $450,000 in proceeds from sale of preferred stock and $100,000 in proceeds from sale of warrants.

 

Off-Balance Sheet Arrangements

 

We do not have any off-balance sheet arrangements.

 

Contractual Obligations

 

As a “smaller reporting company” as defined by Item 10 of Regulation S-K, the Company is not required to provide this information.

 

Critical accounting policies

 

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amount of assets and liabilities, the disclosure of contingent assets and liabilities and the reported amounts of revenue and expenses during the reported periods. Our accounting policies are described in Note 1 to our audited financial statements for 2018 appearing in our Annual Report on Form 10-K for the year ended December 31, 2018.

 

Item 3. Quantitative and Qualitative Disclosure About Market Risk

 

As a smaller reporting company, we are not required to provide this information.

 

Item 4. Controls and Procedures

 

Evaluation of Disclosure Controls and Procedures

 

As of the end of the period covered by this Form 10-Q, management performed, with the participation of our principal executive officer and principal financial officer, an evaluation of the effectiveness of our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act. Our disclosure controls and procedures are designed to ensure that information required to be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, to allow timely decisions regarding required disclosures. Management’s evaluation identified the following material weakness as of September 30, 2019: insufficient personnel resources within the accounting function to segregate the duties over financial transaction processing and reporting.  Based on the foregoing evaluation, our principal executive officer and principal financial officer concluded that, as of September 30, 2019, our disclosure controls and procedures were not effective.

 

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Changes in Internal Control over Financial Reporting

 

There was no change to our internal controls or in other factors that could affect these controls during the nine months ended September 30, 2019 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. However, our management is currently seeking to improve our controls and procedures in an effort to remediate the deficiency described above.

 

PART II – OTHER INFORMATION

 

Item 1.  Legal Proceedings

 

We are not currently subject to any legal proceedings, and to the best of our knowledge, no such proceeding is threatened, the results of which would have a material impact on our financial condition or results of operations. Nor, to the best of our knowledge, are any of our officers or directors involved in any legal proceedings in which we are an adverse party.

 

From time to time, we are also a party to certain legal proceedings incidental to the normal course of our business including the enforcement of our rights under contracts with purchasers and suppliers. While the outcome of these legal proceedings cannot at this time be predicted with certainty, we do not expect that these proceedings will have a material effect upon our financial condition or results of operations.

 

Item 1A.  Risk Factors

 

As a smaller reporting company, we are not required to provide the information required by this item.

 

Item 2. Recent Sales of Unregistered Securities; Use of Proceeds from Registered Securities

 

None.

 

Item 3. Defaults Upon Senior Securities

 

Not applicable.

 

Item 4. Mine Safety Disclosures

 

Not applicable.

 

Item 5. Other Information

 

Not applicable.

 

Item 6. Exhibits

 

The following documents are filed as exhibits to this Form 10-Q:

  

Exhibit  
Number		   Description  
10.1   Form of Stock Forfeiture and Release Agreement (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on September 4, 2019)
31.1   Certification of Periodic Report by Principal Executive Officer pursuant to Rule 13a-14(a)/15d-14a and pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith)
31.2   Certification of Periodic Report by Principal Financial Officer and Principal Accounting Officer pursuant to Rule 13a-14(a)/15d-14a and pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith)
32.1   Certification of Periodic Report by Principal Executive Officer and Principal Financial and Accounting Officer pursuant to U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith)
101.INS   XBRL Instance Document (filed herewith)
101.SCH   XBRL Taxonomy Schema (filed herewith)
101.CAL   XBRL Taxonomy Extension Calculation Linkbase (filed herewith)
101.DEF   XBRL Taxonomy Extension Definition Linkbase (filed herewith)
101.LAB   XBRL Taxonomy Extension Label Linkbase (filed herewith)
101.PRE   XBRL Taxonomy Extension Presentation Linkbase (filed herewith)

 

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SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

  

  ANDOVER NATIONAL CORPORATION
  (Registrant)
   
Date: November 12, 2019 By: /s/ Peter A. Cohen
    Peter A. Cohen
    Chief Executive Officer
    Principal Executive Officer and  
Principal Financial and Accounting Officer

 

 

 

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