8-K/A

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 8-K/A

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): February 28, 2020

ANDOVER NATIONAL CORPORATION

(Exact Name of Registrant as Specified in Charter)

Delaware	000-55882	83-2216345
(State of Other Jurisdiction	(Commission File	(IRS Employer
of Incorporation)	Number)	Identification No.)

333 Avenue of the Americas, Suite 2000
Miami, FL	33131-2185
(Address of Principal Executive Offices)	(Zip Code)

Registrant’s telephone number, including area code: (786) 871-3333

(Former Name or Former Address, if Changed Since Last Report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

¨ Written communications pursuant to Rule 425 under the Securities Act

¨ Soliciting material pursuant to Rule 14a-12 under the Exchange Act

¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act

¨ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act

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 is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

Emerging growth company x

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.  ☐

Explanatory Note

This Amendment No. 1 to Current Report on Form 8-K/A is being filed with the Securities and Exchange Commission (the “SEC”) solely to amend and supplement Item 9.01 of the Current Report on Form 8-K (the “Original 8-K”) filed by Andover National Corporation (the “Company”) on March 4, 2020, reporting under Item 2.01 the completion of the acquisition by Smith’s Tree Care, LLC (“Buyer”), a Delaware limited liability company and an indirect subsidiary of the Company, pursuant to an Asset and Equity Purchase and Contribution Agreement (the “Purchase Agreement”) dated as of February 28, 2020, of (i) an undivided sixty percent (60%) interest in all of Smith’s Tree Care, Inc.’s, a Virginia corporation (“Seller”), right, title and interest in and to all of Seller’s property and assets (the “Acquired Assets”), in consideration for an aggregate purchase price payable by Buyer of approximately $3.0 million, subject to certain adjustments, as set forth in the Purchase Agreement and (ii) Seller conveyed, transferred, assigned and delivered to ANC Green Solutions - Smith’s, LLC, a Delaware limited liability company and indirect subsidiary of the Company (“ANC Smith’s”), an undivided forty percent (40%) interest in the Acquired Assets in exchange for equity securities of ANC Smith’s. Under Item 9.01 of the Original 8-K, the Company stated that (a) the historical financial statements of the Seller required by Item 9.01(a) of Form 8-K would be filed as an amendment to the Original 8-K not later than 71 days after the date the Original 8-K was required to be filed, and (b) as permitted by Item 9.01(b)(2) of Form 8-K, the Company would file the pro forma financial information required by Item 9.01(b) of Form 8-K as an amendment to the Original 8-K not later than 71 days after the date the Original 8-K was required to be filed.

Due to the outbreak of coronavirus disease 2019 (“COVID-19”), on April 29, 2020, the Company filed a Current Report on Form 8-K to avail itself of an extension to file this Amendment to Current Report on Form 8-K, originally due on May 15, 2020, relying on an order issued by the Securities and Exchange Commission on March 25, 2020 pursuant to Section 36 of the Securities Exchange Act of 1934, as amended (Release No. 34-88465) (the “Order”) regarding exemptions granted to certain public companies. The COVID-19 pandemic has caused severe disruptions across the United States which prevented the Company and its audit firm from traveling to the Seller’s business to complete the work necessary to complete the required audit thus preventing the Company from timely filing the required Item 9.01 financial statements to the Amendment. As such, the Company is therefore relying on the Order in connection with the filing of this Amendment to Current Report on Form 8-K. 

Item 9.01 Financial Statements and Exhibits

(a) Financial statements of businesses acquired

The audited consolidated balance sheets of the Seller as of December 31, 2019 and 2018, the related audited consolidated statements of operations, changes in shareholders’ equity, and cash flows of the Seller for the years ended December 31, 2019 and 2018, the notes related thereto and the Independent Auditor's Report, are attached hereto as Exhibit 99.1 and incorporated herein by reference.

(b) Pro forma financial information

The unaudited pro forma combined consolidated balance sheet of the Company and the Seller as of December 31, 2019 and the unaudited pro forma combined consolidated statements of operations for the year ended December 31, 2019, and the notes related thereto are attached hereto as Exhibit 99.2 and incorporated herein by reference.

(c) Exhibits

The following exhibits are included with this Current Report on Form 8-K

99.1	Audited consolidated financial statements of Smith’s Tree Care, Inc. as of and for the years ended December 31, 2019 and 2018.
99.2	Unaudited pro forma combined consolidated balance sheet of the Company as of December 31, 2019 and statements of operations for the year ended December 31, 2019.

1

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 hereunto duly authorized.

	ANDOVER NATIONAL CORPORATION
Date:  June 22, 2020	By:	/s/ Milun Patel
	Name:	Milun Patel
	Title:	Chief Financial Officer

2

EX-99.1

Exhibit 99.1 

Financial Statements and Supplementary Data.

Index to Financial Statements

Smith’s Tree Care, Inc.

December 31, 2019 and 2018

	Page
Report of Independent Registered Public Accounting Firm	F-1
Consolidated Balance Sheets as of December 31, 2019 and 2018	F-2
Consolidated Statements of Operations for the years ended December 31, 2019 and 2018	F-3
Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2019 and 2018	F-4
Consolidated Statements of Cash Flows for the years ended December 31, 2019 and 2018	F-5
Notes to Consolidated Financial Statements for the years ended December 31, 2019 and 2018	F-6

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders and Board of Directors of

Smith’s Tree Care, Inc.

Miami, Florida

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Smith’s Tree Care and its subsidiaries (collectively, the “Company”) as of December 31, 2019 and 2018, and the related consolidated statements of operations, stockholders’ equity, and cash flows for the years then ended, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2019 and 2018, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB and in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

/s/ MaloneBailey, LLP

www.malonebailey.com

We have served as the Company's auditor since 2020.

Houston, Texas

June 22, 2020

Smith’s Tree Care, Inc.

Consolidated Balance Sheets

Assets	December 31, 2019		December 31, 2018
Assets
Cash	$	808,955	$	414,978
Accounts receivable, net		234,190		335,291
Total Current Assets		1,043,145		750,269
Property and equipment, net		1,139,974		918,823
Total Assets		2,183,119		1,669,092
Liabilities and Stockholders’ Equity
Current Liabilities
Accounts payable		41,615		28,365
Accrued liabilities		40,853		16,155
Notes payable - related party		9,755		9,755
Notes payable		-		219,573
Total Current Liabilities		92,223		273,848
Total Liabilities		92,223		273,848
Stockholders’ Equity
Common stock, no par value, 5,000 shares authorized; 5,000 shares were issued and outstanding at December 31, 2019 and 2018, respectively		-		-
Additional paid in capital		36,885		36,885
Retained earnings		2,054,011		1,358,359
Total Stockholders’ Equity		2,090,896		1,395,244
Total Liabilities and Stockholders’ Equity	$	2,183,119	$	1,669,092

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

Smith’s Tree Care, Inc.

Consolidated Statements of Operations

	Year ended			Year ended
	December 31, 2019			December 31, 2018
Revenue	$	3,608,252		$	2,911,778
Operating Expenses
Direct cost		915,982			828,722
General and administrative		1,659,592			1,440,282
Depreciation expense		301,744			157,486
(Gain)/ loss on sale of fixed assets		(7,500	)		92,455
Total operating expenses		2,869,818			2,518,945
Operating income		738,434			392,833
Other expenses
Interest expense		(2,397	)		(9,901	)
Total other expenses		(2,397	)		(9,901	)
Net Income	$	736,037		$	382,932
Income per share - basic and diluted	$	147.21		$	76.59
Weighted average common shares outstanding - basic and diluted		5,000			5,000

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

Smith’s Tree Care, Inc.

Consolidated Statements of Stockholders’ Equity

	Common		Additional Paid in		Retained			Total Stockholders'
	Stock		Capital		Earnings			Equity
Balance as of December 31, 2017		5,000	$	36,885	$	1,002,597		$	1,039,482
Shareholder distribution		-		-		(27,170	)		(27,170	)
Net income		-		-		382,932			382,932
Balance as of December 31, 2018		5,000		36,885		1,358,359			1,395,244
Shareholder distribution		-		-		(40,385	)		(40,385	)
Net income		-		-		736,037			736,037
Balance as of December 31, 2019		5,000	$	36,885	$	2,054,011		$	2,090,896

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

Smith’s Tree Care, Inc.

Consolidated Statements of Cash Flows

	Year ended			Year ended
	December 31, 2019			December 31, 2018
Cash Flows from Operating Activities
Net income	$	736,037		$	382,932
Adjustments to reconcile net income to net cash provided in operating activities
Depreciation		301,744			157,486
(Gain)/loss on sale of fixed assets		(7,500	)		92,455
Bad debt expense		102,556			92,645
Changes in operating assets and liabilities:
Accounts receivable		(1,455	)		(103,558	)
Other current assets		-			(2,951	)
Accounts payable and accrued liabilities		37,948			13,792
Net cash provided by operating activities		1,169,330			632,801
Cash Flows from Investing Activities
Payments for purchase of fixed assets		(515,395	)		(341,485	)
Net cash used investing activities		(515,395	)		(341,485	)
Cash Flows from Financing Activities
Repayment of notes payable		(219,573	)		(49,284	)
Repayment of notes payable- related party		-			(5,100	)
Shareholder distribution		(40,385	)		(27,170	)
Net cash used in financing activities		(259,958	)		(81,554	)
Net Increase in cash		393,977			209,762
Cash, beginning of period		414,978			205,216
Cash, end of period	$	808,955		$	414,978
Cash paid for interest	$	2,397		$	9,901
Cash paid for taxes	$	-		$	-
Supplemental schedule of noncash financial activities:
None	$	-		$	-

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

Smith’s Tree Care, Inc.

Notes to Consolidated Financial Statements

For the years ended December 31, 2019 and 2018

Note 1 – Nature of the Business

Smith’s Tree Care, Inc., a Delaware corporation, (the “Company”) offers tree service, tree removal, tree care, stump grinding, and other tree care services. The Company handles various projects including land clearing for commercial and residential development.

D. Smith Properties, LLC, a Virginia limited liability company, holds certain real estate that is used for the normal operations of Smith’s Tree Care.

Utro Crane Company, Inc., a Virginia corporation, is the legal title holder for certain equipment used in the normal operations of Smith’s Tree Care.

Note 2 – Summary of Significant Accounting Policies

Use of Estimates

The preparation of the financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period. Actual results could differ from those estimates.

Management makes estimates that affect certain accounts including deferred income tax assets, accrued expenses, fair value of equity instruments and reserves for any other commitments or contingencies. Any adjustments applied to estimates are recognized in the period in which such adjustments are determined.

Principles of Consolidation

The Company’s consolidated financial statements include all accounts of the Company and its consolidated subsidiary and/or entities as of reporting period ending date(s) and for the reporting period(s) then ended. All inter-company balances and transactions have been eliminated.

Basis of Presentation

These consolidated financial statements have been prepared by the Company in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and include the accounts of the Company and its wholly owned subsidiaries which are directly or indirectly owned by the Company.

Cash and Cash Equivalents

The Company considers all cash on hand and in banks, including accounts in book overdraft positions, certificates of deposit and other highly liquid investments with maturities of one year or less, when purchased, to be cash. As of December 31, 2019 and 2018, the Company had no cash equivalents. The Company maintains its cash in bank deposit accounts which, at times, may exceed federally insured limits. The Company has not experienced any losses in such accounts and periodically evaluates the credit worthiness of the financial institutions and has determined the credit exposure to be negligible.

Accounts Receivable

Accounts receivable are recorded at the invoiced amount and do not bear interest. The Company reserves for all accounts that are deemed to be uncollectible and reviews its allowance for doubtful accounts regularly. The allowance is based on the age of receivables and a specific identification of receivables considered at risk. Account balances are written off against the allowance when the potential for recovery is considered remote.

Capitalization of Fixed Assets

The Company capitalizes expenditures related to property and equipment, subject to a minimum rule, that have a useful life greater than one year for: (1) assets purchased; (2) existing assets that are replaced, improved or the useful lives have been extended; or (3) all land, regardless of cost. Acquisitions of new assets, additions, replacements and improvements (other than land) costing less than the minimum rule in addition to maintenance and repair costs, including any planned major maintenance activities, are expensed as incurred.

Revenue Recognition

The Company’s revenue is generated from tree care programs and services. The Company generally recognizes revenue from the sale of services as the services are performed. The Company recognizes revenues as it completes services to its customers in an amount reflecting the total consideration it expects to receive from the customer.

Revenue is recognized according to the following five step model: (1) identify the contract with a customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract, and (5) recognize revenues when a performance obligation is satisfied. The Company determined that for contracts containing multiple performance obligations, stand-alone selling price is readily determinable for each performance obligation. The transaction price will include estimates of variable consideration, such as returns and provisions for doubtful accounts and sales incentives, to the extent it is probable that a significant reversal of revenue recognized will not occur. In all cases, when a sale is recorded by the Company, no significant uncertainty exists surrounding the purchaser’s obligation to pay.

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, “Revenue from Contracts with Customers” (“ASC Topic 606”). This standard provides a single set of guidelines for revenue recognition to be used across all industries and requires additional disclosures. The updated guidance introduces a five-step model to achieve its core principal of the entity recognizing revenue to depict the transfer of goods or services to customers at an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The Company adopted the updated guidance effective January 1, 2017 using the full retrospective method.

Related Party Transactions

The Company accounts for related party transactions in accordance with ASC 850 (“Related Party Disclosures”). A party is considered to be related to the Company if the party directly or indirectly or through one or more intermediaries, controls, is controlled by, or is under common control with the Company. Related parties also include principal owners of the Company, its management, members of the immediate families of principal owners of the Company and its management and other parties with which the Company may deal if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests. A party which can significantly influence the management or operating policies of the transacting parties or if it has an ownership interest in one of the transacting parties and can significantly influence the other to an extent that one or more of the transacting parties might be prevented from fully pursuing its own separate interests is also a related party.

Net Earnings (Loss) Per Common Share

The Company computes earnings per share under ASC Subtopic 260-10, “Earnings Per Share” (“ASC 260-10”). 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 no potentially dilutive shares, which include outstanding common stock options, warrants, and convertible notes, as December 31, 2019 and 2018.

Income Taxes

Smith’s Tree Care, Inc. is Subchapter S pass-through entities for income tax purposes prior to its acquisition by the Company on February 28, 2020. Accordingly, the Company was not subject to income taxes prior to the acquisition and therefore there is no tax provision related to the income.

Recent Accounting Pronouncements

In February 2016, the FASB issued ASU No. 2016-02, “Leases.” ASU 2016-02 requires a lessee to record a right of use asset and a corresponding lease liability on the balance sheet for all leases with terms longer than 12 months. ASU 2016-02 is effective for all interim and annual reporting periods beginning after December 15, 2018. Early adoption is permitted. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest period presented in the financial statements. The Company evaluated the impact that the application of the new standard has on its consolidated financial statements and related disclosure and determined that it has no material impact.

Other recent accounting pronouncements issued by the FASB, including its Emerging Issues Task Force, the American Institute of Certified Public Accountants, and the SEC did not or in management’s opinion will not have a material impact on the Company’s present or future consolidated financial statements.

Note 3 – Fixed Assets

As of December 31, 2019 and 2018, the Company’s fixed assets consisted of the following:

	December 31, 2019			December 31, 2018
Special Equipment	$	1,678,290		$	1,257,725
Land		174,585			174,585
Building		89,265			135,098
Improvement		48,308			74,082
Furniture and Equipment		5,573			5,573
Total property and equipment		1,996,021			1,647,063
Less: Accumulated depreciation		(856,047	)		(728,240	)
Property and equipment, net	$	1,139,974		$	918,823

The depreciation expense incurred for the years ended December 31, 2019 and 2018 was $301,744 and $157,486, respectively.

Note 4 – Notes Payable

On November 9, 2015, D Smith Properties borrowed $240,000 from a bank in connection with purchase of real property, The terms of the loan agreement was for a 10 year, fully amortized loan, bearing an annualized interest rate of 3.75% calculated on a 360 days basis. The loan agreement also called for monthly installments of approximately $2,408 which included principal and interest. During the years ended December 31, 2019 and 2018, the Company repaid $175,730 and $21,765 in principal. As of December 31, 2019 and 2018, the outstanding balance was $0 and $175,730, respectively.

On December 31, 2016, Smith’s Tree Care, Inc, borrowed $120,091 from a bank in connection with purchase of vehicles The terms of the loan agreement was for a 5 year, fully amortized loan, bearing an annualized interest rate of 4.5% calculated on a 360 day basis. The loan agreement also called for monthly installments of approximately $2,261 which included principal and interest. During the years ended December 31, 2019 and 2018, the Company repaid $43,844 and $27,518 in principal. As of December 31, 2019 and 2018, the outstanding balance was $0 and $43,844, respectively.

Note 5 – Capital Stock

As of December 31, 2019 and 2018, there were 5,000 founder shares outstanding, and no par value.

Note 6 – Related Party Transactions

Shareholder distributions for shareholder one for the years ended December 31, 2019 and 2018 was $20,193 and $13,585, respectively.

Shareholder distributions for shareholder two for the years ended December 31, 2019 and 2018 was $20,192 and $13,585, respectively.

As of December 31, 2017, the Company borrowed working capital from shareholder two in the aggregate amount of $14,855. These notes were non-interest bearing and due on demand. During the years ended 31, 2019 and 2018, the Company repaid $5,100 and $0 in principal, respectively. As of December 31, 2019 and 2018, $9,755 were outstanding.

Note 7 – Subsequent Events

On February 28, 2020, the Company, and an indirect subsidiary of Andover National Corporation (“Andover Sub”), entered into an Asset and Equity Purchase and Contribution Agreement (the “Purchase Agreement”) with Smith’s Tree Care, Inc., a Virginia corporation (“Seller”), Utro Crane Company, Inc., a Delaware limited liability company and Andover Sub, Utro Crane Company, Inc., a Virginia corporation, and ANC Green Solutions - Smith’s, Inc., a Delaware limited liability company and Andover Sub (“ANC Smith’s”), pursuant to which, among other things, (i) the Company purchased an undivided sixty percent (60%) interest in all of Seller’s right, title and interest in and to all of Seller’s property and assets (the “Acquired Assets”), in consideration for an aggregate purchase price payable by the Company of approximately $3.0 million, subject to certain adjustments, as set forth in the Purchase Agreement and (ii) Seller conveyed, transferred, assigned and delivered to ANC Smith’s an undivided forty percent (40%) interest in the Acquired Assets in exchange for equity securities of ANC Smith’s.

EX-99.2

Exhibit 99.2

Unaudited Pro Forma Condensed Combined Financial Information

On February 28, 2020, Smith’s Tree Care, LLC (“Smith’s Buyer”), a wholly-owned subsidiary of Andover National Corporation (the “Company” or “Andover”), entered into an Asset and Equity Purchase and Contribution Agreement (the “Smith Acquisition Agreement”) with Smith’s Tree Care, Inc., a Virginia corporation (“Smith’s Seller”), Utro Crane Company, Inc., a Virginia corporation, Utro Crane Company, LLC, a Delaware limited liability company and indirect subsidiary of the Company, and ANC Green Solutions - Smith’s, LLC, a Delaware limited liability company and indirect subsidiary of the Company (“ANC Smith’s”) (the “Smith Acquisition”). Pursuant to the Smith Acquisition Agreement, among other things, (a) Smith’s Buyer acquired a sixty percent (60%) interest in all of the property and assets of Smith’s Seller and Utro Crane Company, Inc, (together, “Smith” or the “Seller Parties”) for an aggregate purchase price of approximately $3.0 million, subject to certain adjustments and (b) Smith’s Seller conveyed, transferred, assigned and delivered to ANC Smith’s an undivided forty percent (40%) interest in the acquired assets in exchange for equity securities of ANC Smith’s. The Seller Parties are engaged in the business of commercial and residential fully-integrated tree care, tree service, tree removal, stump grinding, mulching, logging, and related services.

The unaudited pro forma condensed combined financial information presented below has been prepared on the basis set forth in the notes below and have been presented to illustrate the estimated effects of the Smith Acquisition. The Smith Acquisition is being accounted for as a business combination using the acquisition method with the Company as the accounting acquirer in accordance with Financial Accounting Standards Board Accounting Standards Codification (“ASC”) Topic 805, Business Combinations. The unaudited pro forma condensed combined financial information has been prepared as if the Smith Acquisition had been completed on December 31, 2019, for balance sheet purposes, and on January 1, 2019, for statement of operations purposes.

On October 4, 2019, Andover Environmental Solutions, LLC, a wholly-owned subsidiary of the Company, entered into a Membership Interest Purchase Agreement with Heath L. Legg, pursuant to which Andover Environmental Solutions, LLC purchased sixty percent (60%) of the membership interests of ANC Green Solutions I, LLC, a Delaware limited liability company (the “Predecessor Business Combination”). As a result of the Predecessor Business Combination, the Company is the acquirer for accounting purposes and ANC Green Solutions I, LLC is the acquiree and accounting predecessor. The Company’s financial statement presentation distinguishes the Company’s financial performance into two distinct periods, the period up to the closing date of the Predecessor Business Combination (labeled “Predecessor”) and the period including and after that date (labeled “Successor”).

The historical financial information of the Company has been derived from the Company’s audited consolidated financial statements as of December 31, 2019 (Successor) and for the period October 4, 2019 through December 31, 2019 (Successor) and for the period January 1, 2019 through October 3, 2019 (Predecessor). The historical financial information of Smith has been derived from the audited consolidated financial statements of the Seller Parties as of and for the year ended December 31, 2019, included in Exhibit 99.1 to the Company’s Form 8-K filed with the SEC on June 22, 2020.

The following unaudited pro forma condensed combined balance sheet as of December 31, 2019 and the unaudited pro forma condensed combined statement of operations for the twelve months ended December 31, 2019 (collectively, the “Pro Forma Statements”) have been prepared in compliance with the requirements of SEC Regulation S-X Article 11 using accounting policies in accordance with U.S. GAAP.

The pro forma adjustments presented below are based on preliminary estimates and currently available information and assumptions that management believes are reasonable and appropriate under the circumstances and are factually supported based on information currently available. The notes to the unaudited pro forma condensed combined financial information provide a discussion of how such adjustments were derived and presented in the Pro Forma Statements. Changes in facts and circumstances or discovery of new information may result in revised estimates. As a result, there may be material adjustments to the Pro Forma Statements. Certain historical Smith financial statement caption amounts have been reclassified or combined to conform to presentation and the disclosure requirements of the combined company.

The unaudited pro forma condensed combined financial information included below is not necessarily indicative of future results and should be read in conjunction with the historical financial statements of the Company included in its Annual Report on Form 10-K for the year ended December 31, 2019 and in its Quarterly Report on Form 10-Q for the quarter ended March 31, 2020 as well as the audited consolidated financial statements of the Seller Parties included in Exhibit 99.1 to the Company’s Form 8-K filed with the SEC on June 22, 2020.

The unaudited pro forma condensed combined financial information, which has been provided for illustrative purposes only, by its nature addresses a hypothetical situation and, therefore, does not purport to represent the Company’s actual results or financial position or what they would have been had the Smith Acquisition occurred on the date assumed, and may not be indicative of future results or financial position.

Unaudited Pro Forma Condensed Combined Balance Sheet as of December 31, 2019

						Pro Forma					Pro Forma
	Andover (a)			Smith (a)		Adjustments			Note 3		Combined
	(Successor)
ASSETS
Current assets:
Cash and cash equivalents	$	11,407,971		$	808,955	$	(2,600,000	)		(b)	$	9,616,926
Accounts receivable, net		160,803			234,190							394,993
Prepaid expenses and other current assets		31,702										31,702
Total current assets		11,600,476			1,043,145		(2,600,000	)				10,043,621
Non-current assets:
Property and equipment, net		245,953			1,139,974							1,385,927
Right-of-use asset, net		220,294										220,294
Goodwill		4,309,766					2,162,928			(g)		6,472,694
Intangible assets, net		1,881,208					1,537,000			(f)		3,418,208
Total non-current assets		6,657,221			1,139,974		3,699,928					11,497,123
TOTAL ASSETS	$	18,257,697		$	2,183,119	$	1,099,928				$	21,540,744
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable and accrued liabilities	$	587,584		$	82,468						$	670,052
Current portion of deferred consideration		200,000					1,000,382			(b)		1,200,382
Notes payable - related party		-			9,755		(9,755	)		(e)		-
Lease liabilities		42,970										42,970
Total current liabilities		830,554			92,223		990,627					1,913,404
Non-current liabilities:
Lease liabilities, net of current portion		177,324										177,324
Deferred consideration, net of current portion		300,000					200,000			(b)		500,000
Total non-current liabilities		477,324			-		200,000					677,324
Total liabilities		1,307,878			92,223		1,190,627					2,590,728
COMMITMENTS AND CONTINGENCIES
Mezzanine equity:
Redeemable noncontrolling interest							2,000,197			(d)		2,000,197
Stockholders' equity:
Class A Common stock		1,684										1,684
Class B Common stock		81										81
Additional paid-in capital		17,554,713			36,885		(36,885	)		(c)		17,554,713
(Accumulated deficit) Retained earnings		(3,334,086	)		2,054,011		(2,054,011	)		(c)		(3,334,086	)
Total stockholders' equity		14,222,392			2,090,896		(2,090,896	)				14,222,392
Noncontrolling interest		2,727,427										2,727,427
Total equity		16,949,819			2,090,896		(2,090,896	)				16,949,819
TOTAL LIABILITIES, MEZZANINE EQUITY AND EQUITY	$	18,257,697		$	2,183,119	$	1,099,928				$	21,540,744

See accompanying notes to unaudited pro forma condensed combined financial information

Unaudited Pro Forma Condensed Combined Statement of Operations — Year Ended December 31, 2019

				ANC Green						Pro Forma					Pro Forma
	Andover (a)			Solutions I, LLC (a)			Smith (a)			Adjustments			Note 3		Combined
	(Successor)			(Predecessor)
Revenues:
Revenue	$	683,265		$	1,957,025		$	3,608,252							$	6,248,542
Total revenues		683,265			1,957,025			3,608,252			-					6,248,542
Operating costs and expenses:
Cost of services provided		280,847			928,275			1,217,726								2,426,848
General and administrative		1,491,902			586,092			1,659,592			278,075			(h)		4,015,661
Gain on sale of fixed assets								(7,500	)							(7,500	)
Sales and marketing		12,003			117,352											129,355
Total operating costs and expenses		1,784,752			1,631,719			2,869,818			278,075					6,564,364
Income (loss) from operations		(1,101,487	)		325,306			738,434			(278,075	)				(315,822	)
Other income (expense):
Investment income		37,589														37,589
Other income		809			120,644											121,453
Interest income		94			3,858											3,952
Interest expense		-			(345	)		(2,397	)							(2,742	)
Total other income (expense)		38,492			124,157			(2,397	)		-					160,252
Net income (loss)		(1,062,995	)		449,463			736,037			(278,075	)				(155,570	)
Less: Net income attributable to noncontrolling interest		60,760			-						183,185			(i)		243,945
Net income (loss) attributable to common shareholders	$	(1,123,755	)	$	449,463		$	736,037		$	(461,260	)			$	(399,515	)
Net loss per common share
Net loss per share attributable to Class A and Class B Common shareholders- Basic	$	(0.70	)												$	(0.25	)
Net loss per share attributable to Class A and Class B Common shareholders- Diluted	$	(0.70	)												$	(0.25	)
Weighted average shares outstanding
Weighted average Class A and Class B Common shares outstanding- Basic		1,612,172														1,612,172
Weighted average Class A and Class B Common shares outstanding- Diluted		1,612,172														1,612,172

See accompanying notes to unaudited pro forma condensed combined financial information

Notes to the Unaudited Pro Forma Condensed Combined Financial Information

Note 1 — Basis of Presentation and Description of Transactions

The unaudited pro forma condensed combined financial information was prepared in accordance with U.S. GAAP and pursuant to the rules and regulations of SEC Regulation S-X and presents the pro forma financial position and results of operations of the combined companies based upon the historical data of the Company and Smith.

Description of Transaction

On February 28, 2020, Smith’s Tree Care, LLC (“Smith’s Buyer”), a wholly-owned subsidiary of Andover National Corporation (the “Company” or “Andover”), entered into an Asset and Equity Purchase and Contribution Agreement (the “Smith Acquisition Agreement”) with Smith’s Tree Care, Inc., a Virginia corporation (“Smith’s Seller”), Utro Crane Company, Inc., a Virginia corporation, Utro Crane Company, LLC, a Delaware limited liability company and indirect subsidiary of the Company, and ANC Green Solutions - Smith’s, LLC, a Delaware limited liability company and indirect subsidiary of the Company (“ANC Smith’s”) (the “Smith Acquisition”). Pursuant to the Smith Acquisition Agreement, among other things, (a) Smith’s Buyer acquired a sixty percent (60%) interest in all of the property and assets of Smith’s Seller and Utro Crane Company, Inc, (together, “Smith” or the “Seller Parties”) for an aggregate purchase price of approximately $3.0 million, subject to certain adjustments and (b) Smith’s Seller conveyed, transferred, assigned and delivered to ANC Smith’s an undivided forty percent (40%) interest in the acquired assets in exchange for equity securities of ANC Smith’s. The Seller Parties are engaged in the business of commercial and residential fully-integrated tree care, tree service, tree removal, stump grinding, mulching, logging, and related services.

Basis of Presentation

The historical consolidated financial statements have been adjusted in the pro forma condensed combined financial statements to give effect to pro forma events that are (1) directly attributable to the Smith Acquisition, (2) factually supportable and (3) with respect to the pro forma condensed combined statement of operations, expected to have a continuing impact on the combined results of the Company following the Smith Acquisition.

The Smith Acquisition is being accounted for as a business combination using the acquisition method with the Company as the accounting acquirer in accordance with ASC Topic 805, Business Combinations. As the accounting acquirer, the Company has estimated the fair value of Smith’s assets acquired and liabilities assumed and conformed the accounting policies of Smith to its own accounting policies.

The pro forma combined financial statements do not necessarily reflect what the combined company’s financial condition or results of operations would have been had the acquisition occurred on the dates indicated. They also may not be useful in predicting the future financial condition and results of operations of the combined company. The actual financial position and results of operations may differ significantly from the pro forma amounts reflected herein due to a variety of factors.

Note 2— Preliminary purchase price allocation

As described in Note 1, on February 28, 2020, the Company acquired a 60% membership interest in Smith’s Seller for $3.0 million cash, consisting of $2.6 million paid at closing and an aggregate of $0.4 million in deferred consideration to be paid on the one- and two- year anniversary of the closing of the Smith Acquisition. In addition, the Smith Acquisition Agreement provides that Smith’s Seller is entitled to an amount, if any, by which the final working capital, as defined in the Smith Acquisition Agreement, delivered by Smith’s Seller is greater than the target working capital provided for in the Smith Acquisition Agreement, (the “Working Capital Adjustment”). The Company’s preliminary estimate of the Working Capital Adjustment due to Smith’s Seller, as if the Smith Acquisition had been completed on December 31, 2019, was $0.8 million.

 The following table presents the preliminary allocation of the purchase price to the assets acquired, liabilities assumed and noncontrolling interests for the Smith Acquisition:

Accounts receivable	$	234,190
Property and equipment		1,139,974
Intangible assets		1,537,000
Goodwill		2,162,928
Accounts payable and accrued expenses		(82,468	)
Deferred cash consideration		(1,200,382	)
Redeemable noncontrolling interest in ANC Smith’s		(2,000,197	)
Cash paid at closing, net of cash acquired	$	1,791,045

Under the acquisition method of accounting, the total consideration transferred is allocated to the acquired tangible and intangible assets and assumed liabilities of Smith based on their estimated fair values as of the transaction close date. Identified intangible assets relate to the following:

	Estimated Useful Life		Preliminary Fair Value
Tradename		8	$	443,000
Customer relationship		5		1,016,000
Non-compete provisions		4		78,000
			$	1,537,000

The preliminary purchase price allocation has been used to prepare pro forma adjustments in the unaudited pro forma condensed combined balance sheet and statement of operations. The final purchase price allocation will be determined when the Company has completed the detailed valuations and necessary calculations. The final allocation could differ materially from the preliminary allocation used in the pro forma adjustments. The final allocation may include changes in fair values of intangibles assets as well as goodwill and other changes to assets and liabilities.

Amortization related to the fair value adjustments to the intangible assets is reflected as a pro forma adjustment in the unaudited pro forma condensed combined statement of operations based on the estimated useful lives, as further described in Note 3(h). The fair value of the intangible assets and related amortization are preliminary and are based on preliminary valuations prepared by third-party advisors and reviewed by management. As discussed above, the amount that will ultimately be allocated to intangible assets and the related amount of amortization, may differ materially from this preliminary allocation. In addition, the amortization impacts will ultimately be based upon the periods in which the associated economic benefits or detriments are expected to be derived. Therefore, the amount of amortization following the Smith Acquisition may differ significantly between periods based upon the final value assigned and amortization methodology used for each of the intangible assets.

Note 3— Pro forma adjustments

The pro forma adjustments are based on preliminary estimates and assumptions that are subject to change. The following adjustments have been reflected in the unaudited pro forma condensed combined financial information:

a) The historical financial information of the Company has been derived from the audited consolidated financial statements of the Company as of December 31, 2019 (Successor) and for the period October 4, 2019 through December 31, 2019 (Successor) and for the period January 1, 2019 through October 3, 2019 (Predecessor). The historical financial information of Smith has been derived from the audited consolidated financial statements of the Seller Parties as of and for the year ended December 31, 2019, included in Exhibit 99.1 to the Company’s Form 8-K filed with the SEC on June 22, 2020.

b) Adjustment to reflect the consideration transferred by the Company, which includes:

· Cash paid at the closing of the Smith Acquisition of $2.6 million;

· Deferred consideration of $0.4 million, of which $0.2 million is due on the one-year anniversary of the Smith Acquisition and included in Current portion of deferred consideration in the pro forma balance sheet, and $0.2 million is due on the two-year anniversary of the Smith Acquisition and included in Deferred consideration, net of current portion in the pro forma balance sheet; and

· The Working Capital Adjustment as of December 31, 2019 of approximately $0.8 million, which is included in Current portion of deferred consideration in the pro forma balance sheet.

c) Adjustment to eliminate Smith’s historical additional paid-in capital and retained earnings.

d) Represents the recognition of redeemable noncontrolling interest retained by the Seller Parties in the Smith Acquisition. The redeemable noncontrolling interest is classified as mezzanine equity due to the option of the noncontrolling shareholders to require the Company to purchase their interest. The acquisition-date fair value of the redeemable noncontrolling interest was determined using a market approach based on the transaction price observed in the Smith Acquisition.

e) Adjustment to eliminate the Notes payable – related party, which was not transferred to the Company in the Smith Acquisition.

f) Represents the preliminary purchase price allocated to the intangible assets based on the estimated fair values as follows:

Tradename: The fair value of the tradename was determined using an income approach based upon management’s assessment of prospective revenues, a royalty rate selected from a range of comparable licensing transactions and a discount rate based upon the Company’s weighted average cost of capital.

Customer relationships: The fair value of the customer relationships was determined using an income approach based upon management’s assessment of prospective financial information and a discount rate based upon the Company’s weighted average cost of capital.

Non-compete provisions: The fair value of the non-compete provisions, was determined using an income approach based upon management’s assessment of prospective financial information, including an estimated impact of competition, and a discount rate based upon the Company’s weighted average cost of capital.

g) Represents the preliminary purchase price allocated to goodwill in the Smith Acquisition. Goodwill represents the excess of the consideration transferred over the preliminary fair value of the net tangible and intangible assets acquired and liabilities assumed. Goodwill will not be amortized, but instead will be tested for impairment at least annually and whenever events or circumstances have occurred that may indicate a possible impairment. In the event management determines that the value of goodwill has become impaired, the combined company will incur an accounting charge for the amount of the impairment during the period in which the determination is made.

h) Represents the future annual amortization of the intangible assets based upon their estimated useful lives. The estimated useful lives were determined based on a review of the time period over which the economic benefit of each intangible asset is estimated to be generated.

i) Adjustment to allocate Smith’s net income to redeemable noncontrolling interest holders. The net income allocated to noncontrolling interest is computed by applying the 40% ownership interest in Smith retained by the Seller Parties.