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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

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

For the Fiscal Year ended December 31, 2021

☐ 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 of 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)

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

Securities registered pursuant to 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

Securities registered pursuant to Section 12(g) of the Exchange Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act Yes ☐ No ☒

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes ☒ No ☐

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, every Interactive Data File required to be submitted 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 such files). Yes ☒ No ☐

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. 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 May 24, 2022, there were 3,650,165 shares of Class A Common Stock, and 0 shares of Class B Common Stock, outstanding.

Table of Contents

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-K (this “Annual Report”) contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, 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 Annual 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 history of, and expectation of future, losses;

●

our limited operating history;

●

the success of our growth strategy;

●

our ability to generate revenue or achieve profitability;

●

our ability to identify and successfully integrate acquisitions;

●

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

●

our ability to attract and retain key personnel, including our strategic operating partners;

●

general business, financial market and economic conditions;

●

the impact on our business and the overall economy of public health epidemics, including the recent coronavirus pandemic;

●

competition in the markets in which we operate;

●

seasonality of our operating businesses and the impact of weather conditions;

●

costs of raw materials, fuel prices and wages;

●

product shortages, loss of key suppliers, failure to develop relationships with qualified suppliers or dependence on third-party suppliers and manufacturers;

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fluctuations in new commercial and residential construction and housing sectors;

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our ability to attract, retain and maintain positive relations with our employees;

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compliance with government regulations;

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the marketability of our Class A Common Stock;

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the volatility of the price of our Class A Common Stock; and

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our lack of effective internal controls.

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.

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PART I
Item 1.	Business	1
Item 1A.	Risk Factors	6
Item 1B.	Unresolved Staff Comments	21
Item 2.	Properties	21
Item 3.	Legal Proceedings	22
Item 4.	Mine Safety Disclosures	22

PART II
Item 5.	Quantitative and Qualitative Disclosures About Market Risk	22
Item 6.	Controls and Procedures
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	23
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	27
Item 8.	Financial Statements and Supplementary Data	F-1
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	28
Item 9A.	Controls and Procedures	28
Item 9B.	Other Information	28
Item 9C.	Disclosure Regarding Foreign Jurisdictions that Prevent Inspections	28

PART III
Item 10.	Directors, Executive Officers and Corporate Governance	31
Item 11.	Executive Compensation	33
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholders Matters	33
Item 13.	Certain Relationships and Related Transactions, and Director Independence	34
Item 14.	Principal Accountant Fees and Services	34

PART IV
Item 15.	Exhibits, Financial Statements and Schedules	36
Item 16.	Form 10-K Summary	37

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Item 1. Business

Company History and Acquisition

Andover National Corporation, (“We”, or “The Company”), was organized in the State of Utah on March 20, 2014 as Acadia Technologies, Inc. We changed our name to Edgar Express, Inc. (“Edgar Express”) on September 15, 2016.

On September 25, 2018, we entered into a Stock Purchase Agreement (the “Purchase Agreement”) by and among us, our stockholders (collectively, the “Sellers”), John D. Thomas, P.C., as the Sellers’ representative, and Windber National LLC, The Peter A. Cohen Revocable Trust, Blumenthal Family Investment Joint Venture, L.P., and Jeffrey C. Piermont (collectively, the “Buyers”), pursuant to which the Buyers paid $450,000 in aggregate cash consideration for (i) 2,340,000 shares of our Class A Common Stock, par value $0.001, from the Sellers, which shares constituted 99.96% of our issued and outstanding shares as of September 25, 2018 and (ii) the extinguishment and payment in full of (A) an aggregate of approximately $307,371 in our notes payable, and (B) an aggregate of approximately $54,187 in loans payable by us (the “Acquisition”). As a result of the Acquisition, the Buyers held a controlling interest in us. The above share amounts have been adjusted to reflect the Reincorporation (as defined below).

Effective February 14, 2019, we completed a change of domicile to Delaware from Utah (the “Reincorporation”) by means of a merger of Edgar Express with and into us, its wholly-owned subsidiary. In connection with the Reincorporation, and effective upon the effectiveness of the Reincorporation, each issued and outstanding share of common stock, par value $0.001 per share, of Edgar Express automatically converted into and became one-fifth (1/5th) of one validly issued, fully paid and non-assessable share of our Class A Common Stock without any action on the part of Edgar Express’ stockholders.

On October 4, 2019, Andover Environmental Solutions, LLC, our wholly-owned subsidiary (“Andover Environmental”), entered into a Membership Interest Purchase Agreement with Heath L. Legg, pursuant to which Andover Environmental purchased 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 this acquisition was to expand our business into new markets, and to increase the revenue through acquisitions using cash we have available through recent sales of equity securities. We were able to obtain control through the cash purchase of membership interests in a newly formed subsidiary.

On February 3, 2020, Potter’s Professional Lawn Care, LLC, our indirect subsidiary (“Potter’s Buyer”), entered into an Asset Purchase and Contribution Agreement (the “Purchase Agreement”) with Potter’s Professional Lawn Care, Inc., a Florida corporation (“Potter’s Seller”), and the shareholders of Potter’s Seller party thereto, pursuant to which Potter’s Buyer purchased from Potter’s Seller a sixty percent (60)% interest in all of Potter’s Seller’s right, title and interest in and to all of Potter’s Seller’s property and assets, for $1,680,000 in cash, subject to certain adjustments.

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

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On January 20, 2021, Zodega Landscape Services, LLC (“Zodega Buyer”), our indirect subsidiary, entered into an Asset Purchase and Contribution Agreement (the “Zodega Purchase Agreement”) with Litton Enterprises Inc. (d/b/a Zodega-TIS Services), a Texas corporation (“Zodega Seller”), ANC Green Solutions - Zodega, LLC (“ANC Zodega”), our indirect subsidiary, and Messrs. Robert Dihu and Larry Litton Jr., pursuant to which, among other things, (i) Zodega Buyer purchased an undivided fifty-one percent (51)% interest in all of Zodega Seller’s right, title and interest in and to all of Zodega Seller’s property and assets (the “Zodega Acquired Assets”), in consideration for 51,290 shares of our Class A Common Stock (including 5,129 holdback shares), with a value of approximately $0.6 million, subject to certain adjustments, as set forth on the Zodega Purchase Agreement, (ii) Zodega Seller conveyed, transferred, assigned and delivered to ANC Zodega an undivided forty-nine percent (49)% interest in the Acquired Assets in exchange for equity securities of ANC Zodega’s and (iii) at the closing, for and in consideration of the transfer of the Majority Interest, Zodega Seller conveyed, transferred, assigned, and delivered to ANC Zodega, 51,290 ANC Shares (including 5,129 holdback shares), the aggregate value of such ANC Shares being equal to $564,185 and shall assume the Assumed Liabilities. The closing of the transactions contemplated by the Zodega Purchase Agreement occurred on January 20, 2021.

Following our initial acquisition of the Zodega business, Zodega has completed four bolt-on acquisitions of businesses providing landscaping and hardscaping, landscape design, lawn and landscape maintenance and related services in Texas.

On January 26, 2021, the Company’s subsidiary ANC Green Solutions- Zodega made a capital call, as defined in the limited liability agreement of ANC Zodega, of $1.0 million, to fund the acquisition of substantially all of the assets and property of Texas Seasons Corporation through the Company’s indirect subsidiary and ANC Zodega’s wholly-owned subsidiary Zodega Landscape Services, LLC. In connection with funding the capital call for the acquisition, the Company entered into a promissory note agreement with Litton Enterprises Inc. for $0.3 million. The promissory note agreement bears interest at a rate of the Wall Street Journal Prime Rate (“WSJ Prime”) plus 7.0%, is guaranteed personally by Messrs. Larry Litton Jr. and Robert Dihu, and is due to be repaid by the minority interest holder to the Company on the fourth anniversary of the note agreement.

On February 18, 2021, the Company’s subsidiary, ANC Green Solutions- Zodega made a capital call, as defined in the limited liability agreement of ANC Zodega, of $0.3 million, to fund the acquisition of substantially all of the assets and property of Greentex Landscaping Inc., through the Company’s indirect subsidiary and ANC Zodega’s wholly-owned subsidiary Zodega Landscape Services, LLC. In connection with funding the capital call for the acquisition, the Company entered into a promissory note agreement with Litton Enterprises Inc. for $0.1 million. The promissory note agreement bears interest at a rate of WSJ Prime plus 7.0%, is guaranteed personally by Messrs. Larry Litton Jr. and Robert Dihu, and is due to be repaid by the minority interest holder to the Company on the fourth anniversary of the note agreement.

On February 19, 2021, the Company’s subsidiary, ANC Green Solutions- Zodega made a capital call, as defined in the limited liability agreement of ANC Zodega, of $2.0 million, to fund the acquisition of substantially all of the assets and property of C.J.’s Yardworks, Inc. through the Company’s indirect subsidiary and ANC Zodega’s wholly-owned subsidiary Zodega Landscape Services, LLC. In connection with funding the capital call for the acquisition, the Company entered into a promissory note agreement with Litton Enterprises Inc. for $0.9 million. The promissory note agreement bears interest at a rate of WSJ Prime plus 7.0%, is guaranteed personally by Messrs. Larry Litton Jr. and Robert Dihu, and is due to be repaid by the minority interest holder to the Company on the fourth anniversary of the note agreement.

On March 12, 2021, the Company’s subsidiary, ANC Green Solutions- Zodega made a capital call, as defined in the limited liability agreement of ANC Zodega, of $0.8 million, to fund the acquisition of substantially all of the assets and property of Lillard Lawn & Landscaping, Inc. through the Company’s indirect subsidiary and ANC Zodega’s wholly-owned subsidiary Zodega Landscape Services, LLC. In connection with funding the capital call for the acquisition, the Company entered into a promissory note agreement with Litton Enterprises Inc. for $0.2 million. The promissory note agreement bears interest at a rate of WSJ Prime plus 7.0%, is guaranteed personally by Messrs. Larry Litton Jr. and Robert Dihu, and is due to be repaid by the minority interest holder to the Company on the fourth anniversary of the note agreement.

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On April 18, 2022, Andover Environmental Solutions, LLC entered into a Membership Interest Purchase Agreement with Litton Enterprises Inc. and Messrs. Robert Dihu and Larry Litton Jr., pursuant to which, among other things, the sale of fifty-one percent (51)% interest of ANC Zodega, will consolidate indirect ownership of all of the Zodega Opco Assets (“Zodega Opco Assets”) (collectively, the “Litton Sale”). The aggregate purchase price for the Purchased Interests (the “Purchase Price”) was equal to: (i) the Promissory Note, Pledge, and Guaranty by Purchaser and the pledgors and guarantors specified therein in the principal amount of $1.8 million which is to be received on or by May 27, 2022, and (ii) 51,290 shares of Class “A” Common Stock. As part of the sale, the Litton and Zodega loans (“Litton and Zodega loans”) to ANC Zodega were forgiven. The total amount lent to Litton and Zodega, both including interest, was $1,330,558 and $849,903, respectively. The loans were originally lent for purposes of infusing ANC Zodega with cash upon the initial purchase in January 2021.

The Company filed a Form 15 with the Securities and Exchange Commission (“SEC”) on November 30, 2021 to suspend its public reporting filing responsibilities due to the significant costs of operating as a public reporting company. As a result, the Company will cease to file Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K pursuant to Section 13(a) or 15(d) of the Exchange Act with the SEC and stockholders will cease to receive annual reports and proxy statements.

Emerging Growth Company Status

We are an “emerging growth company,” as defined in the Jumpstart our Business Startups Act of 2012 (“JOBS Act”), and we may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies, including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved. We cannot predict if investors will find our Class A Common Stock less attractive because we may rely on these exemptions. If some investors find our Class A Common Stock less attractive as a result, there may be a less active trading market for our Class A Common Stock and the price of our Class A Common Stock may be more volatile.

Section 107 of the JOBS Act provides that an “emerging growth company” can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act of 1933 (the “Securities Act”) for complying with new or revised accounting standards. In other words, an “emerging growth company” can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected not to opt out of the transition period pursuant to Section 107(b).

We could remain an “emerging growth company” until the last day of our fiscal year following the fifth anniversary of our initial public offering, or until the earliest of (i) the last day of the first fiscal year in which our annual gross revenues exceed $1.07 billion, (ii) the date that we become a “large accelerated filer” as defined in Rule 12b-2 under the Exchange Act, which would occur if the market value of our Class A Common Stock that is held by non-affiliates exceeds $700 million as of the last business day of our most recently completed second fiscal quarter, or (iii) the date on which we have issued more than $1.07 billion in non-convertible debt during the preceding three-year period.

Notwithstanding the above, we are also currently a “smaller reporting company”, meaning that we are not an investment company, an asset-backed issuer, or a majority-owned subsidiary of a parent company that is not a smaller reporting company and have a public float of less than $250 million and annual revenues of less than $100 million during the most recently completed fiscal year. In the event that we are still considered a “smaller reporting company,” at such time we cease being an “emerging growth company,” the disclosure we will be required to provide in our SEC filings will increase but will still be less than it would be if we were not considered either an “emerging growth company” or a “smaller reporting company”. Specifically, similar to “emerging growth companies”, “smaller reporting companies” are able to provide simplified executive compensation disclosures in their filings; are exempt from the provisions of Section 404(b) of the Sarbanes-Oxley Act requiring that independent registered public accounting firms provide an attestation report on the effectiveness of internal control over financial reporting; and have certain other decreased disclosure obligations in their SEC filings, including, among other things, only being required to provide two years of audited financial statements in annual reports. Decreased disclosures in our SEC filings due to our status as an “emerging growth company” or “smaller reporting company” may make it harder for investors to analyze our results of operations and financial prospects.

Overview

Historically, we used our permanent capital base to buy majority stakes in successful private companies with an orientation towards growth. Our current principal focus is essential environmental services and related industries primarily located in the Southern United

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States. These include but are not limited to companies in the commercial landscaping, commercial and residential tree care, and pest control.

Unlike traditional private equity funds, our investment approach and structure allow our minority operating partners to preserve their successful operating cultures and unique brand identities. Maintaining large minority stakes in their businesses also aligns our interests and has allowed us to build a large pipeline of attractive acquisition opportunities. We find many owners in our target markets desire some liquidity, but still want to manage and grow their businesses by leveraging their experience and local relationships. We believe these owners will achieve greater success by partnering with us, as they gain not only access to stable sources of capital but have more freedom to manage their operations with a focus on growth. We typically acquire no less than 51% and no more than 70% of a company with the balance remaining with the operating partner.

Presently, we are focused on essential environmental services, which we define as commercial landscaping, commercial and residential tree care, and pest control. These markets are estimated to be worth approximately $65.0 billion, $24.0 billion, and $12.0 billion, respectively, per year in the United States, according to the US Department of Commerce and industry trade journals. These are highly fragmented industries, offering services that are non-discretionary, and not subject to significant technological disruption. The growth rates of these industries have also outpaced general economic growth for many years, based on industry trade journals. We also typically see significant amounts of contractual revenue in the companies we acquire, with relatively low rates of customer attrition.

We believe many emerging secular trends support demand for the environmental services we provide, and that these will further enhance the durability and growth of our chosen industries for decades. These trends are more prevalent in the Southeast, and include steady population growth, stable economic activity, severe and persistent tropical weather, and relatively longer growing seasons. The intense concentration of demand for our environmental services in the Southeastern United States and the business-friendly operating environment makes this an ideal geographic area on which to focus.

As of this filing date, we have successfully closed on four platform businesses. We have also successfully closed on three bolt-on businesses for ANC Zodega. In connection to the Litton Sale, we disposed of the one platform and three bolt-on businesses. The remaining three bolt-on businesses generated approximately $9.6 million in revenue during 2021. In the years prior to our acquisitions, our newly acquired businesses showed steady growth and consistent profitability.

Our principal business office and mailing address is 333 Avenue of the Americas, Suite 2000, Miami, Florida, 31331. Our telephone number is (786) 871-3333. Our Company website is www.andovernational.com and we can be contacted at IR@andovernational.com.

Business

We believe a critical component of creating successful partnerships is the alignment of interests which results from allowing our partners to retain large ownership stakes in the companies they built. This approach incentivizes continued value creation as our partners share in our collective long-term upside. Additionally, we can leverage our partners’ local market knowledge to help us expand the scale and scope of these businesses, both organically and through acquisitions.

We avoid the use of excessive debt or esoteric financial engineering to acquire companies. Unlike traditional private equity investors, we do not expect our success will be solely driven by monetizing our portfolio companies through an eventual sale, but primarily through the growth of our companies. This allows us to take a long-term view on increasing the value of our businesses and growing their profits, which we believe makes Andover an increasingly attractive acquirer. We also seek to partner with owners who share a strong sense of commitment to their employees, clients, and community—traits we believe are critical to everyone’s long-term success.

Importantly, we want our operating partners to continue leveraging their well-established local brand names. We believe their identity is important within their local markets and is a competitive advantage. In our industries, customers enjoy doing business with local owners, and we believe letting our operating partners maintain their identity and operating philosophy is valuable.

Our acquisition strategy is driven by a “local” roll-up approach. We seek and partner with high quality operators across our geographic focus areas and service lines, acquire a majority interest in these companies, and use these “local platforms” to execute full buyouts of smaller businesses. This approach allows our local business partners to leverage their best-practices, strong operating culture, and regional branding on a much larger scale across their market. This model also allows us to benefit from traditional cost and revenue synergies, while still maintaining the unique characteristics which have allowed our platform companies to thrive in their local markets.

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Our initial platform acquisition was in October 2019 for Superior Services located in Huntsville, Alabama which is a commercial landscaping and pest-control business. Superior Services has ambitions to become one of the largest pest control and landscaping providers in southern Tennessee and northern Alabama, which are both economically vibrant areas with fast-growing demand for these services. Superior Services also has a small mosquito control franchise business.

Our second platform acquisition was in February 2020 for Potter’s Lawn and Landscaping of Pompano Beach, Florida which is a commercial landscaping and pest control business focusing on municipalities and home-owners associations, which are widespread throughout the state. This platform company continues to grow, and our operating partner aims to expand along the east coast of Florida towards Vero Beach, a corridor that is seeing strong population and economic growth. Furthermore, this platform company has an expanding base of pest control customers which will grow as it continues cross selling these services to commercial landscaping clients.

Our third platform acquisition was in February 2020 for Smith’s Tree Care, located in Newport News, Virginia which is a commercial tree care business. This platform company has large amounts of commercial, governmental and university work that is stable and growing. Moreover, our operating partners at Smith’s Tree Care are focused on a meaningful opportunity to grow organically by expanding their operational footprint beyond their current market.

Our fourth platform acquisition was in January 2021 for Zodega Landscape Services, LLC in Houston, Texas which is a commercial and residential landscaping company. This platform company has a customer mix that is varied including significant amounts of residential and commercial work on a contractual basis. Since our transaction, Zodega has completed four bolt-on acquisitions as of this filing date, including three businesses focused in the Dallas, Texas area. Zodega’s acquisition activity has been focused on growing its recurring maintenance business, while still maintaining a healthy pipeline of higher margin installation work which is expected to augment maintenance revenues. On April 18, 2022, we sold our interest in Zodega Landscaping, LLC.

On a combined basis, our remaining three operating companies currently have thousands of customers and hundreds of employees. These companies have generated positive historical cash flow, owing to their modest capital expenditure requirements and their relatively high margins. They exemplify the types of businesses partners and geographies we seek due to their significant upside potential.

The pandemic negatively impacted our three operating businesses from labor shortages due to increased costs of goods sold. Each operating business applied for and received PPP Loans (as defined below) which helped stabilize operations. In addition, our operations in Texas were negatively impacted by a major power crisis resulting from three severe winter storms. In response, we have undertaken measures to reduce costs, including suspending our public reporting filing responsibilities as well as reducing headcount and eliminating our physical office space.

Competition

There are well over 100,000 commercial operators within our target verticals of landscaping, tree care and pest control with the vast majority being sole-proprietorships.

There are also a number of larger players in the United States, including: Orkin, Terminix, BrightView, TruGreen Cos, Rentokil, The Davey Tree Expert, Cook’s Pest Control, Yellowstone, Bartlett Tree, Asplundh Tree Service, Gunnison Tree Services, Xylem Tree Service, SCG Partners, SavATree, Anticimex and Gothic Landscape. The largest competitor in the landscaping and tree care space is BrightView, with an approximately 2.6% share of the U.S. market as of 2018, and the largest competitor in pest control is Orkin, with an approximately 12.3% share of the U.S. market as of 2018. These larger players offer brand name recognition as well as best practices and economies of scale. Our model is distinct in that we offer founders the ability to maintain their local brands as well as active management in terms of strategic direction and control.

Seasonality

Our commercial landscaping, tree care and pest control service operations in Florida, Texas, Virginia and Alabama experience seasonal variability during the winter months. Typically, our revenues and net income have been significantly higher in the spring and summer seasons.

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Employees

As of December 31, 2021, we had six employees at the corporate level and our operating businesses had an aggregate of approximately 200 employees.

Available Information

We file electronically with the SEC our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The SEC maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. The address of that website is www.sec.gov.

Item 1A. Risk Factors

The following risk factors may be important to understanding any statement in this Annual Report on Form 10-K or elsewhere. Our business, financial condition and operating results can be affected by a number of factors, whether currently known or unknown, including but not limited to those described below. Any one or more of such factors could directly or indirectly cause our actual results of operations and financial condition to vary materially from past or anticipated future results of operations and financial condition. Any of these factors, in whole or in part, could materially and adversely affect our business, financial condition, results of operations and stock price.

Summary of Risk Factors

Our business is subject to numerous risks and uncertainties, including those highlighted in this section below, that represent challenges that we face in connection with the successful implementation of our strategy. The occurrence of one or more of the events or circumstances described in more detail in the risk factors below, alone or in combination with other events or circumstances, may have an adverse effect on our business, cash flows, financial condition and results of operations. Such risks include, but are not limited to:

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We have historically incurred losses as we sought to grow the business, and we anticipate that we will continue to incur losses for the foreseeable future.

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We may have difficulty integrating the operations of companies or businesses that we may acquire and may incur substantial costs in connection therewith.

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Our senior management team have limited or no operational experience in the day-to-day operations of the industries in which our businesses operate.

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If we decide to acquire a business outside of the expertise of our officers and directors, we cannot assure you that our officers and directors will have sufficient knowledge relating to the targets, the jurisdiction in which they operate, or their industry to make an informed decision regarding such business acquisitions.

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Substantial resources could be expended in researching business acquisitions that are not consummated, which could materially adversely affect subsequent attempts to locate and consummate business acquisitions.

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We are dependent upon our key personnel, including our strategic operating partners.

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Our business is affected by general business, financial market and economic conditions, which could adversely affect our financial position, results of operations and cash flows.

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Our business, results of operations and financial condition may be materially adversely impacted by public health epidemics, including the recent coronavirus pandemic and other outbreaks.

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Our industry and the markets in which we operate are highly competitive and increased competitive pressures could reduce our share of the markets we serve and adversely affect our business, financial position, results of operations and cash flows.

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Our business success depends on our ability to preserve long-term customer relationships.

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Seasonality affects the demand for our services and our results of operations and cash flows.

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Our operations are impacted by weather conditions.

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Increases in raw material costs, fuel prices, wages and other operating costs could adversely impact our business, financial position, results of operations and cash flows.

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Product shortages, loss of key suppliers, failure to develop relationships with qualified suppliers or dependence on third-party suppliers and manufacturers could affect our financial health.

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If we are unable to accurately estimate the overall risks, requirements or costs when our operating partners bid on or negotiate contracts that are ultimately awarded to us, we may achieve lower than anticipated profits or incur contract losses.

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Our results of operations are subject to periodic fluctuations. Our services have been, and in the future may be, adversely impacted by declines in the new commercial and residential construction and housing sectors, as well as in spending on repair and upgrade activities. Such variability in this part of our business could result in lower revenues and reduced cash flows and profitability.

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Our future success depends on our ability to attract, retain and maintain positive relations with trained workers.

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Our business could be adversely affected by a failure to properly verify the employment eligibility of our employees.

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Some of the equipment that our employees use is dangerous, and an increase in accidents resulting from the use of such equipment could negatively affect our reputation, results of operations and financial position.

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Our use of subcontractors to perform work under certain customer contracts exposes us to liability and financial risk.

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If we fail to comply with requirements imposed by applicable law or other governmental regulations, we could become subject to lawsuits, investigations and other liabilities and restrictions on our operations that could significantly and adversely affect our business.

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Compliance with environmental, health and safety laws and regulations, including laws pertaining to the use of pesticides, herbicides and fertilizers, or liabilities thereunder, as well as the risk of potential litigation, could result in significant costs that adversely impact our reputation, business, financial position, results of operations and cash flows.

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Public perceptions that the products we use and the services we deliver are not environmentally friendly or safe may adversely impact the demand for our services.

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We may not be able to adequately protect our intellectual property, which could harm the value of our brand and adversely affect our business.

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We are a non-reporting company.

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Our Class A Common Stock is not quoted or traded in any market, limiting liquidity opportunities for investors.

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The price of our Class A Common Stock is likely to be volatile and fluctuate substantially, which could result in substantial losses for purchasers of our Class A Common Stock.

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We have not voluntarily implemented various corporate governance measures, in the absence of which, shareholders may have more limited protections against interested director transactions, conflicts of interest, and similar matters.

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Our election not to opt out of JOBS Act extended accounting transition period may not make our financial statements easily comparable to other companies.

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We may fail to maintain effective internal controls over external financial reporting or such controls may fail or be circumvented.

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Adverse litigation judgments or settlements resulting from legal proceedings relating to our business operations could materially adversely affect our business, financial position and results of operations.

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Any failure, inadequacy, interruption, security failure or breach of our information technology systems, whether owned by us or outsourced or managed by third parties, could harm our ability to effectively operate our business and could have a material adverse effect on our business, financial position and results of operations.

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If we fail to protect the security of personal information about our customers, employees or third parties, we could be subject to interruption of our business operations, private litigation, reputational damage and costly penalties.

Risks Relating to the Company

We have historically incurred losses and we anticipate that we will continue to incur losses for the foreseeable future.

We have funded our operations to date principally from the sale of securities. In addition, as we acquire other businesses, we incur ongoing depreciation and amortization charges, which are typically spread over several years, as well as the costs of completing such acquisitions, which are expensed as incurred. For these reasons, we may continue to incur significant losses. These losses, among other things, have had and will continue to have an adverse effect on our stockholders’ equity and working capital and we cannot assure you that we will be able to be successful in implementing our business strategy.

We face early stage risks and other risks that we have not yet identified.

We have a limited operating history. As a company in the early stages of its business strategy, we may experience under-capitalization, cash shortages, setbacks in employee recruitment or acquisitions for growth opportunities, and other risks common to emerging

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businesses. No assurance can be given that we will be able to successfully implement any or all of our business plan, or if implemented, that we will accomplish the desired objectives of operation, expansion, or creation of additional revenues and earnings.

We are reliant on the success of our expansion plans.

Our growth strategy depends to a significant degree upon our ability to successfully acquire, develop, and profitably operate new businesses, in industries and markets that we choose to enter. The successful acquisition and development of new businesses will depend on a number of factors, including the identification and availability of suitable assets, businesses or acquisition candidates, the determination of new industries in which to expand, the availability of adequate financing, the hiring, training, and retention of qualified employees, the ability of management to effectively control the expansion process, and other factors, some or all of which may be beyond our control. As a result, there can be no assurance that we will be able to implement our growth strategy, to acquire new businesses on a timely and cost-efficient basis, or to operate our new businesses profitably. If the expected operating efficiencies from such transactions do not materialize, if we fail to integrate new businesses into our existing portfolio, or if the costs of such integration exceed expectations, our operating results and financial condition would be adversely affected.

If future acquisitions do not achieve sufficient profitability relative to expenses and investment, our business and ability to finance our operations could be materially adversely affected.

A key element of our growth strategy is the acquisition or development of other related businesses. The potential negotiation of future acquisitions could require us to incur significant costs and expose us to significant risks, including:

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risks relating to the condition of assets acquired and exposure to residual liabilities of prior businesses;

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operating risks, including equipment, technology, and supply problems, regulatory requirements, and approvals necessary for acquisitions;

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risks that potential acquisitions may require the disproportionate attention of our senior management;

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risks related to our ability to retain experienced personnel of the acquired company; and

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risks that certain acquisitions may require regulatory approvals, which could be refused or delayed, and which could result in unforeseen regulatory expenses or unfavorable regulatory conditions.

These issues could have a material adverse effect on our business and our ability to finance our operations. The businesses and other assets we acquire in the future may not achieve sufficient revenue or profitability to justify our investment, and any difficulties we may encounter in the integration process could interfere with our operations and reduce operating margins. Acquisitions have, and could in the future, also result in dilutive issuance of our equity securities, incurrence of debt and contingent liabilities, and fluctuations in quarterly results and expenses. We may need to make substantial capital and operating expenditures which may negatively impact our results in the near term, and the acquisitions may never meet our expectations.

Increased operating expenses associated with the expansion of our business may negatively impact our operating income.

Increased operating expenses associated with any expansion of our business may negatively impact our income as we, among other things:

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seek to acquire related businesses;

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expand geographically;

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make significant capital expenditures to support our ability to provide services in our existing businesses; and

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incur increased general and administrative expenses as we grow.

As a result of these factors, we may not achieve, sustain, or increase our profitability on an ongoing basis.

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We may have difficulty integrating the operations of companies or businesses that we may acquire and may incur substantial costs in connection therewith.

A significant component of our growth strategy is the acquisition of other operations. We have evaluated, and expect to continue to evaluate, a wide array of potential strategic transactions. From time to time, we may engage in discussions regarding potential acquisitions. The costs and benefits of future acquisitions are uncertain. Any of these transactions could be material to our business, financial condition, and results of operations. In addition, the process of integrating the operations of an acquired company may create unforeseen operating difficulties and expenditures. The key areas where we may face risks and uncertainties include:

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the need to implement or remediate appropriate controls, policies, and procedures at companies that, prior to the acquisition, lacked these controls, policies, and procedures;

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disruption of ongoing business, diversion of resources and of management time and focus from operating our business to acquisitions and integration challenges;

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our ability to achieve anticipated benefits of acquisitions by successfully marketing the service offerings of acquired businesses to our existing partners and customers, or by successfully marketing our existing service offerings to customers and partners of acquired businesses;

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the negative impact of acquisitions on our results of operations as a result of large one-time charges, substantial debt or liabilities acquired or incurred, amortization or write down of amounts related to deferred compensation, goodwill, and other intangible assets, or adverse tax consequences, substantial depreciation, or deferred compensation charges;

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the need to ensure that we comply with all regulatory requirements in connection with and following the completion of acquisitions;

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the possibility of acquiring unknown or unanticipated contingencies or liabilities;

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retaining employees and clients and otherwise preserving the value of the assets of the businesses we acquire; and

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the need to integrate each acquired business’s accounting, information technology, human resource, and other administrative systems to permit effective management.

If we identify appropriate acquisition targets, we may be unable to acquire businesses on terms that we consider acceptable due to a variety of factors, including competition from other strategic or financial buyers. Furthermore, in order to achieve the growth we seek, we may acquire numerous smaller market participants, which could require significant attention from management and increase risks, costs, and uncertainties associated with integration.

Our senior management team have limited or no operational experience in the day-to-day operations of the industries in which our businesses operate.

Our senior management team has limited or no operational experience in the industries in which we operate. Our management team relies on the knowledge and talent of the operating partners and employees in our operating subsidiaries to successfully operate these businesses on a day-to-day basis. We may not be able to retain, hire or train personnel as quickly or efficiently as we need or on terms that are acceptable to us. An inability to efficiently operate our businesses would have a material adverse effect on our business, financial conditions, results of operations, and prospects.

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Our management’s expertise is concentrated primarily in finance and investing, with substantial collective experience allocating capital to build, manage, and operate public and private companies. Should a favorable business opportunity present itself in an industry or area that is outside of our management’s expertise, our ability to assess the growth potential, financial condition, experience and skill of incumbent management, competitive position, regulatory environment, and other criteria in evaluating such a business opportunity may be adversely affected. If we determine to enter into an acquisition with a prospective target business which is outside of the expertise of our management, no assurance can be given that we will be able to complete such an acquisition successfully.

We anticipate that the investigation of each specific target business and the negotiation, drafting, and execution of relevant agreements, disclosure documents, and other instruments will require substantial management time and attention and substantial costs for accountants, attorneys, and other third-party fees and expenses. If we decide not to enter into an agreement with respect to a specific proposed acquisition we have investigated, the costs incurred up to that point for the proposed transaction likely would not be recoverable. Furthermore, even if an agreement is reached relating to a specific target business, we may fail to consummate the business acquisition for any number of reasons, many of which are beyond our control. Any such event will result in a loss to us of the related costs incurred which could materially adversely affect subsequent attempts to locate and consummate a business acquisition.

We are dependent upon our key personnel, including our strategic operating partners.

Our ability to develop, expand, and maintain a competitive position in light of market developments will depend, in large part, on our ability to attract and retain qualified personnel. The successful operation of our growth strategy is tied to our hiring of key operations managers, salespeople and other employees that are both experienced in the relevant industry and located in the geographic locations into which we wish to expand. Further, we rely greatly on our executive management team to determine our business strategy, select appropriate targets for expansion and acquisition, and manage our overall portfolio of businesses. Competition for such personnel is substantial, and no assurance can be given that we will be able to attract and retain such personnel.

Since November 1, 2021, Jeffrey C. Piermont, the Company’s former President and Chief Operating Officer and Milun K. Patel, the Company’s former Chief Financial Officer, have separated from the Company.

In addition, our business strategy is premised on locating operating partners who retain an ownership stake following our acquisition. We believe that a critical part of our success is retaining and motivating these operating partners because of their collective industry knowledge, marketing skills and relationships with vendors and customers. Should any of these individuals leave us, we could have difficulty replacing them with qualified individuals and it could have a material adverse effect on our future results of operations.

Our business is affected by general business, financial market and economic conditions, which could adversely affect our financial position, results of operations and cash flows.

Our business and results of operations are significantly affected by general business, financial market and economic conditions. General business, financial market and economic conditions that could impact the level of activity in the commercial landscape, pest control and tree care industries include the level of commercial construction activity, the condition of the real estate markets where we operate, interest rate fluctuations, inflation, unemployment and wage levels, changes and uncertainties related to government fiscal and tax policies including change in tax rates, duties, tariffs, or other restrictions, capital spending, bankruptcies, volatility in both the debt and equity capital markets, liquidity of the global financial markets, the availability and cost of credit, investor and consumer confidence, global economic growth, local, state and federal government regulation, and the strength of regional and local economies in which we operate. New or increased tariffs may impact the costs of some of our supplies and equipment. The degree of our exposure is dependent on (among other things) the type of goods, rates imposed and timing of the tariffs. These factors could also negatively impact the timing or the ultimate collection of accounts receivable, which would adversely impact our business, financial position, results of operations and cash flows.

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During an economic downturn, our customers may decrease their spending on landscape, tree care, and pest control services by seeking to reduce expenditures for such services, in particular enhancement services, engaging a lower cost service provider or, in some cases, performing maintenance themselves rather than outsourcing to third parties like us.

Our business, results of operations and financial condition may be materially adversely impacted by public health epidemics, including the recent coronavirus pandemic and other outbreaks.

Our business, results of operations and financial condition may be materially adversely impacted if a public health epidemic, including the recent coronavirus outbreak, interferes with our ability, or the ability of our employees, workers, contractors, suppliers and other business partners to perform our and their respective responsibilities and obligations relative to the conduct of our business. A public health epidemic, including the coronavirus outbreak, poses the risk of disruptions from the temporary closure of third-party suppliers and manufacturers, disruptions related to the health of the employees of our operating businesses, the decreased willingness or ability of our customers to utilize our services and shutdowns that may be requested or mandated by governmental authorities. The extent to which the coronavirus impacts our results will depend on future developments, which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity of the coronavirus and the actions to contain the coronavirus or treat its impact, among others.

Risks Relating to Our Operating Businesses

We operate in markets with relatively few large competitors. Barriers to entry in the landscape services industry are generally low, while the barriers to entry in tree care and pest control maintenance service are generally moderate. All of our markets are highly competitive consisting of various sized entities, ranging from small or local operators to large regional and national businesses, as well as potential customers that choose not to outsource their landscape, tree care and pest control maintenance services. Any of our competitors may foresee the course of market development more accurately than we do, provide superior service, have the ability to deliver similar services at a lower cost, develop stronger relationships with our customers and other consumers in the industries in which we operate, adapt more quickly to evolving customer requirements than we do, devote greater resources to the promotion and sale of their services or access financing on more favorable terms than we can obtain.

Our customers consider the quality and differentiation of the services we provide, our customer service and price when deciding whether to use our services. We may not be able to, or may choose not to, compete with certain competitors on the basis of price. If we are unable to differentiate our services on the basis of high levels of service, quality and strong relationships, a greater proportion of our customers may switch to lower cost services providers or perform such services themselves. If we are unable to compete effectively with our existing competitors or new competitors enter the markets in which we operate, or our current customers stop outsourcing their landscape, tree care and pest control maintenance services, our financial position, results of operations and cash flows may be materially and adversely affected.

In addition, former employees may start landscape, tree care and pest control services businesses similar to ours and compete directly with us. Our industry faces low barriers to entry, making the possibility of former employees starting similar businesses more likely. Any increased competition from businesses started by former employees may reduce our market share and adversely affect our business, financial position, results of operations and cash flows.

We are also subject to the risks that our operating partners may seek to start businesses similar to ours and compete directly with us. While we customarily sign non-competition agreements with our operating partners, which typically continue for two years following the termination of employment, such agreements do not fully protect us against competition from former operating partners. Enforceability of these non-competition agreements varies from state to state, and state courts will generally examine all of the facts and circumstances at the time a party seeks to enforce a non-competition agreement. Consequently, we cannot predict with certainty whether, if challenged, a court will enforce any particular non-competition agreement. Any increased competition from businesses started by former employees may reduce our market share and adversely affect our business, financial position, results of operations and cash flows.

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Our business success depends on our ability to preserve long-term customer relationships.

Our success depends on our ability to retain our current customers, renew our existing customer contracts and obtain new business. Our ability to do so generally depends on a variety of factors, including the quality, price and responsiveness of our services, as well as our ability to market these services effectively and differentiate ourselves from our competitors. We largely seek to differentiate ourselves from our competitors on the basis of high levels of service, breadth of service offerings and strong relationships and may not be able to, or may choose not to, compete with certain competitors on the basis of price. There can be no assurance that we will be able to obtain new business, renew existing customer contracts at the same or higher levels of pricing or that our current customers will not cease operations, elect to self-operate or terminate contracts with us.

We primarily provide services pursuant to agreements that are cancellable by either party upon 30-days’ notice or no notice at all. Consequently, our customers can unilaterally terminate all services pursuant to the terms of our service agreements, without penalty.

Seasonality affects the demand for our services and our results of operations and cash flows.

The demand for our landscaping, tree care and pest control service operations in Virginia, Florida, and Alabama are affected by the seasonal nature of our services in certain regions. In geographies that do not have a year-round growing season, the demand for our services decreases during the winter months. Typically, our revenues and net income have been higher in the spring and summer seasons, which correspond with our second and third fiscal quarters. Our businesses may experience lower activity levels during the winter months. Such seasonality causes our results of operations to vary from quarter to quarter. Due to the relative seasonal nature of the services we provide, we can experience seasonality in our employment and working capital needs. Our employment and working capital needs can correspond with the increased demand for our services in the spring and summer months and employment levels and operating costs are generally at their highest during such months. Consequently, our results of operations and financial position can vary from year-to-year, as well as from quarter-to-quarter. If we are unable to effectively manage the seasonality and year-to-year variability, our results of operations, financial position and cash flow may be adversely affected.

Our operations are impacted by weather conditions.

The demand for the services we provide is affected by weather conditions, including, without limitation, potential impacts from climate change, droughts, severe storms and significant rain or snowfall, all of which may impact the timing and frequency of the performance of our services, or our ability to perform the services at all. For example, severe weather conditions, such as excessive heat or cold, may result in maintenance services being omitted for part of a season or beginning or ending earlier than anticipated, which could result in lost revenues or require additional services to be performed for which we may not receive corresponding incremental revenues. Variability in the frequency of which we must perform our services can affect the margins we realize on a given contract.

Certain extreme weather events, such as hurricanes and tropical storms, can result in increased enhancement revenues related to cleanup and other services. However, such weather events may also impact our ability to deliver our contracted services or cause damage to our facilities or equipment. These weather events can also result in higher fuel costs, higher labor costs and shortages of raw materials and products. As a result, a perceived earnings benefits related to extreme weather events may be moderated.

Additionally, droughts could cause shortage in the water supply and governments may impose limitations on water usage, which may change customer demand for landscape maintenance and irrigation services. There is a risk that demand for our services will change in ways that we are unable to predict.

Increases in raw material costs, fuel prices, wages and other operating costs could adversely impact our business, financial position, results of operations and cash flows.

Our financial performance may be adversely affected by increases in the level of our operating expenses, such as fuel, fertilizer, chemicals, wages and salaries, employee benefits, health care, subcontractor costs, vehicle, facilities and equipment leases, insurance costs and other insurance premiums as well as various regulatory compliance costs, all of which may be subject to inflationary pressures. While we seek to manage price and availability risks related to raw materials, such as fuel, fertilizer, chemicals and mulch, through procurement strategies, these efforts may not be successful and we may experience adverse impacts due to rising prices of such products. In addition, we closely monitor wage, salary and benefit costs in an effort to remain competitive in our markets. Attracting and maintaining a high quality workforce is a priority for our business, and if wage, salary or benefit costs increase, including as a result of minimum wage legislation, our operating costs will increase, and have increased in the past.

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We cannot predict the extent to which we may experience future increases in operating expenses as well as various regulatory compliance costs. To the extent such costs increase, we may be prevented, in whole or in part, from passing these cost increases through to our existing and prospective customers, which could have a material adverse impact on our business, financial position, results of operations and cash flows.

Product shortages, loss of key suppliers, failure to develop relationships with qualified suppliers or dependence on third-party suppliers and manufacturers could affect our financial health.

Our ability to offer a wide variety of services to our customers is dependent upon our ability to obtain adequate supplies, materials and products from manufacturers, distributors and other suppliers. Any disruption in our sources of supply, particularly of the most commonly used items, including fertilizer, chemicals and mulch, could result in a loss of revenues, reduced margins and damage to our relationships with customers. Supply shortages may occur as a result of unanticipated increases in demand or difficulties in production or delivery or other factors beyond our control, including economic downturns, geopolitical unrest, new tariffs or tariff increases, trade issues and policies, and other factors, any of which could adversely affect a supplier’s ability to manufacture or deliver products or could result in an increase in our product costs.

Additionally, as part of our procurement strategy, we source certain materials and products we use in our business from a limited number of suppliers. If our suppliers experience difficulties or disruptions in their operations or if we lose any significant supplier, we may experience increased supply costs or may experience delays in establishing replacement supply sources that meet our quality and control standards. The loss of, or a substantial decrease in the availability of, supplies and products from our suppliers or the loss of key supplier arrangements could adversely impact our business, financial position, results of operations and cash flows.

If we are unable to accurately estimate the overall risks, requirements or costs when we bid on or negotiate contracts that are ultimately awarded to us, we may achieve lower than anticipated profits or incur contract losses.

A significant portion of our contracts are subject to competitive bidding and/or are negotiated on a fixed- or capped-fee basis for the services covered. Such contracts generally require that the total amount of work, or a specified portion thereof, be performed for a single price irrespective of our actual costs. If our cost estimates for a contract are inaccurate, or if we do not execute the contract within our cost estimates, then cost overruns may cause the contract not to be as profitable as we expected or could cause us to incur losses.

A significant portion of our revenues are derived from development activities associated with new commercial and residential real estate development, including hospitality, leisure, and homeowners associations which have experienced periodic declines, some of which have been severe. The strength of these markets depends on, among other things, housing starts, local occupancy rates, demand for commercial and residential space, residential and non-residential construction spending activity, business investment and general economic conditions, which are a function of many factors beyond our control, including interest rates, employment levels, availability of credit, consumer spending, consumer confidence and capital spending. During a downturn in the real estate development industry, customers may decrease their spending on services by generally reducing the size and complexity of their new development projects. Additionally, when interest rates rise, there may be a decrease in the spending activities of our current and potential customers. Fluctuations in real estate development markets could have an adverse effect on our business, financial position, results of operations or cash flows.

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Our future success depends on our ability to attract, retain and maintain positive relations with trained workers.

Our future success and financial performance depend substantially on our ability to attract, train and retain workers, including account, branch and regional management personnel. The landscape, pest control and tree care services industries are labor intensive, and industry participants, including us, experience high turnover rates among hourly workers and competition for qualified supervisory personnel. In addition, like many service providers who conduct a portion of their operations in seasonal climates, we employ a portion of our field personnel for only part of the year. The adoption of various pandemic recovery measures by the U.S. government is aimed at supporting citizens who lost their jobs due to COVID-19 pandemic. Such individuals may be attractive employment prospects for Andover, but COVID-19 enhanced unemployment benefits in some jurisdictions where we hire may exceed local prevailing wages and may make it more difficult for us to hire a sufficient number of employees to support our contractual commitments or may result in higher costs, lower contract profitability, higher turnover and reduced operational efficiencies, which could, in the aggregate, have a material adverse impact on our results of operations.

As of December 31, 2021, we did not have any employees represented by a union pursuant to collective bargaining agreements. If a significant number of our employees were to attempt to unionize, and/or successfully unionized, including in the wake of any future legislation that makes it easier for employees to unionize, our business could be disrupted and negatively affected. Any inability by us to negotiate collective bargaining arrangements could result in strikes or other work stoppages disrupting our operations, and new union contracts could increase operating and labor costs. If these labor organizing activities were successful, it could further increase labor costs, decrease operating efficiency and productivity in the future, or otherwise disrupt or negatively impact our operations.

Our business could be adversely affected by a failure to properly verify the employment eligibility of our employees.

We use the “E-Verify” program, an Internet-based program run by the U.S. government, to verify employment eligibility for all new employees throughout our company. However, use of E-Verify does not guarantee that we will successfully identify all applicants who are ineligible for employment. Although we use E-Verify and require all new employees to provide us with government-specified documentation evidencing their employment eligibility, some of our employees may, without our knowledge, be unauthorized workers. The employment of unauthorized workers may subject us to fines or penalties, and adverse publicity that negatively impacts our reputation and may make it more difficult to hire and keep qualified employees. We are subject to regulations of U.S. Immigration and Customs Enforcement, or ICE, and we are audited from time to time by ICE for compliance with work authentication requirements. While we believe we are in compliance with applicable laws and regulations, if we are found not to be in compliance as a result of any audits, we may be subject to fines or other remedial actions.

Termination of a significant number of employees in specific markets or across our company due to work authorization or other regulatory issues would disrupt our operations, and could also cause additional adverse publicity and temporary increases in our labor costs as we train new employees. We could also become subject to fines, penalties and other costs related to claims that we did not fully comply with all recordkeeping obligations of federal and state immigration compliance laws. Our reputation and financial performance may be materially harmed as a result of any of these factors. Furthermore, immigration laws have been an area of considerable political focus in recent years, and the U.S. Congress and the Executive Branch of the U.S. government from time to time consider or implement changes to federal immigration laws, regulations or enforcement programs.

Further changes in immigration or work authorization laws may increase our obligations for compliance and oversight, which could subject us to additional costs and potential liability and make our hiring process more cumbersome, or reduce the availability of potential employees.

Many of the services that we provide pose the risk of serious personal injury to our employees. Our employees regularly use dangerous equipment, such as lawn mowers, edgers, wood chippers, chain saws, boom cranes, bucket trucks and other power equipment. As a result, there is a significant risk of work-related injury and workers’ compensation claims. To the extent that we experience a material increase in the frequency or severity of accidents or workers’ compensation claims, or unfavorable developments on existing claims or fail to comply with worker health and safety regulations, our operating results and financial position could be materially and adversely affected. In addition, the perception that our workplace is unsafe may damage our reputation among current and potential employees, which may impact our ability to recruit and retain employees, which may adversely affect our business and results of operations.

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Our use of subcontractors to perform work under certain customer contracts exposes us to liability and financial risk.

We use subcontractors to perform work in situations in which we are not able to self-perform the work involved. If we are unable to hire qualified subcontractors, our ability to successfully complete a project or perform services could be impaired. If we are not able to locate qualified third-party subcontractors or the amount we are required to pay for subcontractors exceeds what we have estimated, especially in a fixed- or capped-fee contract, these contracts may not be as profitable as we expected or we could incur losses. In addition, contracts which require work to be performed by subcontractors may yield a lower margin than contracts where we self-perform the work.

Such arrangements may involve subcontracts where we do not have direct control over the performing party. A failure to perform, for whatever reason, by one or more of our subcontractors, or the alleged negligent performance of, the agreed-upon services may damage our reputation or expose us to liability. Although we have in place controls and programs to monitor the work of our subcontractors, there can be no assurance that these controls or programs will have the desired effect, and we may incur significant damage to our reputation or liability as a result of the actions or inaction of one or more of our subcontractors, any of which could have a material adverse effect on our business, financial position and results of operations.

Furthermore, while we screen subcontractors on a variety of criteria, including insurance, the level of insurance carried by our subcontractors varies. If our subcontractors are unable to cover the cost of damages or physical injuries caused by their actions, whether through insurance or otherwise, we may be held liable, regardless of any indemnification agreements in place.

We are subject to governmental regulation at the federal, state, and local levels in many areas of our business, such as employment laws, wage and hour laws, discrimination laws, immigration laws, human health and safety laws, transportation laws, environmental laws, false claims or whistleblower statutes, disadvantaged business enterprise statutes, tax codes, antitrust and competition laws, intellectual property laws, governmentally funded entitlement programs and cost and accounting principles, the Foreign Corrupt Practices Act, other anti-corruption laws, lobbying laws, motor carrier safety laws and data privacy and security laws. We may be subject to review, audit or inquiry by applicable regulators from time to time.

While we attempt to comply with all applicable laws and regulations, there can be no assurance that we are in full compliance with all applicable laws and regulations or interpretations of these laws and regulations at all times or that we will be able to comply with any future laws, regulations or interpretations of these laws and regulations.

If we fail to comply with applicable laws and regulations, including those referred to above, we may be subject to investigations, criminal sanctions or civil remedies, including fines, penalties, damages, reimbursement, injunctions, seizures or disgorgement of the ability to operate our motor vehicles. The cost of compliance or the consequences of non-compliance, could have a material adverse effect on our business and results of operations. In addition, government agencies may make changes in the regulatory frameworks within which we operate that may require either the corporation as a whole or individual business to incur substantial increases in costs in order to comply with such laws and regulations.

We are subject to a variety of federal, state and local laws and regulations relating to environmental, health and safety matters. In particular, in the United States, products containing pesticides generally must be registered with the U.S. Environmental Protection Agency, or EPA, and similar state agencies before they can be sold or applied. The pesticides we use are manufactured by independent third parties and are evaluated by the EPA as part of its ongoing exposure risk assessment and may be subject to similar evaluation by similar state agencies. The EPA, or similar state agencies, may decide that a pesticide we use will be limited or will not be re-registered for use in the United States. We cannot predict the outcome or the severity of the effect of the EPA’s, or a similar state agency’s, continuing evaluations. The failure to obtain or the cancellation of any such registration, or the partial or complete ban of such pesticides, could have an adverse effect on our business, the severity of which would depend on the products involved, whether other products could be substituted and whether our competitors were similarly affected.

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The use of certain pesticides, herbicides and fertilizer products is also regulated by various federal, state and local environmental and public health and safety agencies. These regulations may require that only certified or professional users apply the product or that certain products only be used on certain types of locations. These laws may also require users to post notices on properties at which products have been or will be applied, notification to individuals in the vicinity that products will be applied in the future, or labeling of certain products or may restrict or ban the use of certain products. We can give no assurance that we can prevent violations of these or other regulations from occurring. Even if we are able to comply with all such regulations and obtain all necessary registrations and licenses, we cannot assure you that the pesticides, herbicides, fertilizers or other products we apply, or the manner in which we apply them, will not be alleged to cause injury to the environment, to people or to animals, or that such products will not be restricted or banned in certain circumstances. For example, we could be named in or subject to personal injury claims stemming from alleged environmental torts, similar to those that have been brought against certain manufacturers of herbicides. The costs of compliance, consequences of non-compliance, remediation costs and liabilities, unfavorable public perceptions of such products or products liability lawsuits could have a material adverse effect on our reputation, business, financial position, results of operations and cash flows.

In addition, federal, state and local agencies regulate the use, storage, treatment, disposal, handling and management of hazardous substances and wastes, emissions or discharges from our facilities or vehicles and the investigation and clean-up of contaminated sites, including our sites, customer sites and third-party sites to which we send wastes. We could incur significant costs and liabilities, including investigation and clean-up costs, fines, penalties and civil or criminal sanctions for non-compliance and claims by third parties for property and natural resource damage and personal injury under these laws and regulations. If there is a significant change in the facts or circumstances surrounding the assumptions upon which we operate, or if we are found to violate, or be liable under, applicable environmental and public health and safety laws and regulations, it could have a material adverse effect on future environmental capital expenditures and other environmental expenses and on our reputation, business, financial position, results of operations and cash flows. In addition, potentially significant expenditures could be required to comply with environmental laws and regulations, including requirements that may be adopted or imposed in the future.

Public perceptions that the products we use and the services we deliver are not environmentally friendly or safe may adversely impact the demand for our services.

In providing our services, we use, among other things, fertilizers, herbicides and pesticides. Public perception that the products we use and the services we deliver are not environmentally friendly or safe or are harmful to humans or animals, whether justified or not, or our improper application of these chemicals, could reduce demand for our services, increase regulation or government restrictions or actions, result in fines or penalties, impair our reputation, involve us in litigation, damage our brand names and otherwise have a material adverse impact on our business, financial position, results of operations and cash flows.

We may not be able to adequately protect our intellectual property, which could harm the value of our brand and adversely affect our business.

Our ability to implement our business plan successfully depends in part on our ability to further build brand recognition using our trademarks, service marks and other proprietary intellectual property, including our names and logos. While it is our policy to protect and defend vigorously our rights to our intellectual property, we cannot predict whether steps taken by us to protect our intellectual property rights will be adequate to prevent infringement or misappropriation of these rights. Although we believe that we have sufficient rights to all of our trademarks, service marks and other intellectual property rights, we may face claims of infringement that could interfere with our business or our ability to market and promote our brands. Any such litigation may be costly, divert resources from our business and divert the attention of management. Moreover, if we are unable to successfully defend against such claims, we may be prevented from using our trademarks, service marks or other intellectual property rights in the future and may be liable for damages, which in turn could materially adversely affect our business, financial position or results of operations.

Although we make a significant effort to avoid infringing known proprietary rights of third parties, the steps we take to prevent misappropriation, infringement or other violation of the intellectual property of others may not be successful and from time to time we may receive notice that a third party believes that our use of certain trademarks, service marks and other proprietary intellectual property may be infringing certain trademarks or other proprietary rights of such third party. Responding to and defending such claims, regardless of their merit, can be costly and time-consuming, can divert management’s attention and other resources, and we may not prevail. Depending on the resolution of such claims, we may be barred from using a specific mark or other rights, may be required to enter into licensing arrangements from the third party claiming infringement (which may not be available on commercially reasonable terms, or at all), or may become liable for significant damages.

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If any of the foregoing occurs, our ability to compete could be affected or our business, financial position and results of operations may be adversely affected.

Risks Relating to Ownership of our Class A Common Stock

We are a non-reporting company.

In November 2021, we filed a Form 15 with the SEC to deregister our stock. As a result, we no longer have an obligation to publicly disclose financial and other information. Following the filing of this Annual Report on Form 10-K, we will cease to file Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K pursuant to Section 13(a) or 15(d) of the Exchange Act with the SEC, and stockholders will cease to receive annual reports and proxy statements. We do intend to continue to prepare audited annual financial statements and periodic unaudited financial statements and plan to make audited annual financial statements available to our stockholders. Nonetheless, our stockholders will have significantly less information about the Company and our business, operations, and financial performance than they have previously. We do intend to continue to hold stockholder meetings as required under Delaware law, including annual meetings, or to take actions by written consent of our stockholders in lieu of meetings.

As a result of our deregistration and delisting, we are no longer subject to the provisions of the Sarbanes-Oxley Act or the liability provisions of the Exchange Act. Our executive officers, directors and 10% stockholders are no longer required to file reports relating to their transactions in our common stock with the SEC. In addition, our executive officers, directors and 10% stockholders are no longer subject to the recovery of profits provision of the Exchange Act, and persons acquiring 5% of our common stock are no longer required to report their beneficial ownership under the Exchange Act. Additionally, we do not have the ability to access the public capital markets or to use public securities in attracting and retaining executives and other employees, and we have a decreased ability to use stock to acquire other companies. Furthermore, our public reporting obligations could be reinstated if on the first day of any fiscal year we have more than 300 stockholders of record, in which instance we would be required to resume reporting pursuant to Section 15(d) of the Exchange Act.Our Class A Common Stock is not quoted or traded in any market, limiting liquidity opportunities for investors.

Our Class A Common Stock is not quoted or traded in any market, limiting liquidity opportunities for investors.

Our Class A Common Stock is not quoted on any market or exchange, and it is possible that our Class A Common Stock will never be quoted or listed on any market or exchange. Even if our Class A Common Stock becomes listed or commences trading, the volume trading in our Class A Common Stock may be insufficient for stockholders to liquidate Class A Common Stock at a profit, or at all. As a result, an investor in our Class A Common Stock may find it difficult to dispose of shares of our Class A Common Stock or obtain a fair price for our Class A Common Stock in the market if one develops. Investors in our Class A Common Stock should expect to hold our Class A Common Stock indefinitely.

The price of our Class A Common Stock is likely to be volatile and fluctuate substantially, which could result in substantial losses for purchasers of our Class A Common Stock.

If our Class A Common Stock becomes quoted or traded on any market, our Class A Common Stock price is likely to be volatile. The stock market in general has experienced extreme volatility that has often been unrelated to the operating performance of particular companies. As a result of this volatility, you may not be able to sell your Class A Common Stock at or above your original purchase price. The market price for our Class A Common Stock may be influenced by many factors, many of which are out of our control, including those discussed in this “Risk Factors” section.

If our quarterly operating results fall below the expectations of investors or securities analysts, the price of our Class A Common Stock could decline substantially. Furthermore, any quarterly fluctuations in our operating results may, in turn, cause the price of our stock to fluctuate substantially. We believe that quarterly comparisons of our financial results are not necessarily meaningful and should not be relied upon as an indication of our future performance.

The stock market in general, and market prices for the securities of companies like ours in particular, have from time to time experienced volatility that often has been unrelated to the operating performance of the underlying companies. These broad market and industry fluctuations may adversely affect the market price of our Class A Common Stock, regardless of our operating performance.

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In several recent situations when the market price of a stock has been volatile, holders of that stock have instituted securities class action litigation against the company that issued the stock. If any of our stockholders were to bring a lawsuit against us, the defense and disposition of the lawsuit could be costly and divert the time and attention of our management and harm our operating results.

Federal legislation, including the Sarbanes-Oxley Act of 2002, as amended (the “Sarbanes-Oxley Act”), has resulted in the adoption of various corporate governance measures designed to promote the integrity of the corporate management and the securities markets. Some of these measures have been adopted in response to legal requirements. Others have been adopted by companies in response to the requirements of national securities exchanges, such as the NYSE or The Nasdaq Stock Market, on which their securities are listed. Among the corporate governance measures that are required under the rules of national securities exchanges are those that address board of directors’ independence and audit committee oversight. We have not yet adopted any of these corporate governance measures, and since our securities are not yet listed on a national securities exchange, we are not required to do so. It is possible that if we were to adopt some or all of these corporate governance measures, stockholders would benefit from somewhat greater assurances that internal corporate decisions were being made by disinterested directors and that policies had been implemented to define responsible conduct. Investors should bear in mind our current lack of corporate governance measures in formulating their investment decisions.

Our election not to opt out of JOBS Act extended accounting transition period may not make our financial statements easily comparable to other companies.

Pursuant to the Jumpstart Our Businesses Act of 2012, as amended (the “JOBS Act”), as an emerging growth company we can elect to opt out of the extended transition period for any new or revised accounting standards. We have elected not to opt out of such extended transition period, which means that when a standard is issued or revised and it has different application dates for public or private companies, we, as an emerging growth company, can adopt the application date for private companies. Our financial statements may therefore not be comparable to those of companies that comply with such new or revised accounting standards.

The JOBS Act will also allow us to postpone the date by which we must comply with certain laws and regulations intended to protect investors and to reduce the amount of information provided in reports filed with the SEC. The JOBS Act is intended to reduce the regulatory burden on emerging growth companies. We meet the definition of an emerging growth company and so long as we qualify as an “emerging growth company,” we will, among other things:

●

be exempt from the provisions of Section 404(b) of the Sarbanes-Oxley Act, requiring that our independent registered public accounting firm provide an attestation report on the effectiveness of our internal control over financial reporting;

●

be exempt from the “say on pay” provisions (requiring a non-binding shareholder vote to approve compensation of certain executive officers) and the “say on golden parachute” provisions (requiring a non-binding shareholder vote to approve golden parachute arrangements for certain executive officers in connection with mergers and certain other business combinations) of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, as amended, (the “Dodd-Frank Act”) and certain disclosure requirements of the Dodd-Frank Act relating to compensation of our chief executive officer;

●

be permitted to omit the detailed compensation discussion and analysis from proxy statements and reports filed under the Exchange Act and instead provide a reduced level of disclosure concerning executive compensation; and

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be exempt from any rules that may be adopted requiring mandatory audit firm rotation or a supplement to the auditor’s report on the financial statements.

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We intend to take advantage of some or all of the reduced regulatory and reporting requirements that will be available to us so long as we qualify as an “emerging growth company.” We have elected not to opt out of the extension of time to comply with new or revised financial accounting standards available under Section 102(b) of the JOBS Act. Among other things, this means that our independent registered public accounting firm will not be required to provide an attestation report on the effectiveness of our internal control over financial reporting so long as we qualify as an emerging growth company, which may increase the risk that weaknesses or deficiencies in the internal control over financial reporting go undetected. Likewise, so long as we qualify as an emerging growth company, we may elect not to provide certain information, including certain financial information and certain information regarding compensation of executive officers that would otherwise have been required to provide in filings with the SEC, which may make it more difficult for investors and securities analysts to evaluate us. As a result, investor confidence and the market price of our Class A Common Stock may be adversely affected.

We may fail to maintain effective internal controls over external financial reporting or such controls may fail or be circumvented.

Federal securities laws require us to report on our internal controls over financial reporting, and our business and financial results could be adversely affected if we, or our independent registered public accounting firm, determine that these controls are not effective. If we do not maintain adequate financial and management personnel, processes, and controls, we may not be able to accurately report our financial performance on a timely basis and we may be otherwise unable to comply with the periodic reporting requirements of the SEC, each of which could have a material adverse effect on the confidence in our financial reporting and our credibility in the marketplace. The impact of these events could also make it more difficult for us to attract and retain qualified persons to serve on our board of directors, our committees and as executive officers.

Management’s evaluation identified the following material weaknesses as of December 31, 2021: insufficient personnel resources within the accounting function to segregate the duties over financial transaction processing and reporting, and lack of formal review process including multiple levels of review over financial reporting areas. Based on the foregoing evaluation, our principal executive officer and principal financial officer concluded that, as of December 31, 2021, our disclosure controls and procedures were not adequate.

Delaware law and certain provisions in our certificate of incorporation and bylaws may prevent efforts by our stockholders to change the direction or management of the Company.

We are a Delaware corporation, and the anti-takeover provisions of Delaware law impose various impediments to the ability of a third party to acquire control of us, even if a change of control would be beneficial to our existing stockholders. In addition, our certificate of incorporation, as amended, and bylaws contain provisions that may make the acquisition of the Company more difficult, including, but not limited to, the following:

●

setting forth specific procedures regarding how our stockholders may nominate directors for election at stockholder meetings;

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permitting our board of directors to issue preferred stock without stockholder approval; and

●

limiting the rights of stockholders to amend our bylaws.

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Our certificate of incorporation designates the Court of Chancery of the State of Delaware as the sole and exclusive forum for certain types of actions and proceedings that may be initiated by our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers, employees, or agents.

Our certificate of incorporation provides that, unless we consent in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware will, to the fullest extent permitted by applicable law, be the sole and exclusive forum for (i) any derivative action or proceeding brought on our behalf, (ii) any action asserting a claim of breach of a fiduciary duty owed by any of our directors, officers, employees, or agents to us or our stockholders, (iii) any action asserting a claim arising pursuant to any provision of the Delaware General Corporation Law, our certificate of incorporation, or our bylaws, (iv) any action to interpret, apply, enforce, or determine the validity of our certificate of incorporation or our bylaws, or (v) any action asserting a claim against us that is governed by the internal affairs doctrine. Any person or entity purchasing or otherwise acquiring any interest in shares of our capital stock will be deemed to have notice of, and consented to, the provisions of our certificate of incorporation described in the preceding sentence. This choice of forum provision may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers, employees, or agents, which may discourage such lawsuits against us and such persons. Alternatively, if a court were to find these provisions of our certificate of incorporation inapplicable to, or unenforceable in respect of, one or more of the specified types of actions or proceedings, we may incur additional costs associated with resolving such matters in other jurisdictions, which could adversely affect our business, financial condition, or results of operations.

General Risk Factors

From time to time, we are subject to allegations, and may be party to legal claims and regulatory proceedings, relating to our business operations. Such allegations, claims or proceedings may, for example, relate to personal injury, property damage, general liability claims relating to properties where we perform services, vehicle accidents involving our vehicles and our employees, regulatory issues, contract disputes or employment matters and may include class actions. Such allegations, claims and proceedings have been and may be brought by third parties, including our customers, employees, governmental or regulatory bodies or competitors. Defending against these and other such claims and proceedings is costly and time consuming and may divert management’s attention and personnel resources from our normal business operations, and the outcome of many of these claims and proceedings cannot be predicted. If any of these claims or proceedings were to be determined adversely to us, a judgment, a fine or a settlement involving a payment of a material sum of money were to occur, or injunctive relief were issued against us, our business, financial position and results of operations could be materially adversely affected.

Currently, we carry a broad range of insurance for the protection of our assets and operations. However, such insurance may not fully cover all material expenses related to potential allegations, claims and proceedings, or any adverse judgments, fines or settlements resulting therefrom, as such insurance programs are often subject to significant deductibles or retentions or may not cover certain types of claims.

We are also responsible for our legal expenses relating to such claims. We reserve currently for anticipated losses and related expenses. We periodically evaluate and adjust our claims reserves to reflect trends in our own experience as well as industry trends. However, ultimate results may differ from our estimates, which could result in losses over our reserved amounts.

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Each of our operating subsidiaries is dependent on automated information technology systems and networks to manage and support a variety of business processes and activities. Our ability to effectively manage our business and coordinate the sourcing of supplies, materials and products and our services depend significantly on the reliability and capacity of these systems and networks. Such systems and networks are subject to damage or interruption from power outages or damages, telecommunications problems, data corruption, software errors, network failures, security breaches, acts of war or terrorist attacks, fire, flood and natural disasters. Our servers or cloud-based systems could be affected by physical or electronic break-ins, and computer viruses or similar disruptions may occur. A system outage may also cause the loss of important data or disrupt our operations. Our existing safety systems, data backup, access protection, user management, disaster recovery and information technology emergency planning may not be sufficient to prevent or minimize the effect of data loss or long-term network outages.

In addition, we may have to upgrade our existing information technology systems from time to time in order for such systems to support the needs of our business and growth strategy, and the costs to upgrade such systems may be significant. We rely on certain hardware, telecommunications and software vendors to maintain and periodically upgrade many of these systems so that we can continue to support our business. Costs and potential problems and interruptions associated with the implementation of new or upgraded systems and technology or with maintenance or adequate support of existing systems could disrupt or reduce the efficiency of our operations. We also depend on our information technology staff. If we cannot meet our staffing needs in this area, we may not be able to fulfill our technology initiatives while continuing to provide maintenance on existing systems.

We could be required to make significant capital expenditures to remediate any such failure, malfunction or breach with our information technology systems or networks. Any material disruption or slowdown of our systems, including those caused by our failure to successfully upgrade our systems, and our inability to convert to alternate systems in an efficient and timely manner could have a material adverse effect on our business, financial position and results of operations.

We rely on, among other things, commercially available systems, software, tools and monitoring to provide security for processing, transmission and storage of confidential information of customers, employees and third parties. Activities by third parties, advances in computer and software capabilities and encryption technology, new tools and discoveries and other events or developments may facilitate or result in a compromise or breach of these systems. Any compromises, breaches or errors in applications related to these systems could cause damage to our reputation and interruptions in our operations and could result in a violation of applicable laws, regulations, orders, industry standards or agreements and subject us to costs, penalties and liabilities. We are subject to risks caused by data breaches and operational disruptions, particularly through cyber-attack or cyber-intrusion, including by computer hackers, foreign governments and cyber terrorists. The frequency of data breaches of companies and governments has increased in recent years as the number, intensity and sophistication of attempted attacks and intrusions from around the world have increased. The occurrence of any of these events could have a material adverse impact on our reputation, business, financial position, results of operations and cash flow. Although we maintain insurance coverage for various cybersecurity risks, there can be no guarantee that all costs incurred will be fully insured.

Item 1B. Unresolved Staff Comments

None.

Item 2. Properties

Our principal executive offices are located at 333 Avenue of the Americas, Suite 2000, Miami, Florida 33131. We have access to the facilities at this location on an as-needed basis at a cost of approximately $250 per month. We believe that our office facilities are suitable and adequate for our operations as currently conducted and contemplated.

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Item 3. Legal Proceedings

On October 27, 2021, CJ’s Yardworks, Inc. filed a lawsuit against the Company’s then-subsidiary, Zodega Landscape Services, LLC. Currently, CJ’s Yardworks, Inc. (plaintiff and counter-defendant in the case) asserts claims against Zodega Landscape Services, LLC (defendant, counter-plaintiff, and third-party plaintiff in the case), two of Zodega’s employees (defendants in the case), and Zodega’s current owner (defendant in the case) in connection with Zodega’s purchase of assets related to the CJ’s Yardworks business in February 2021 (the “CJ Acquisition Transaction”).

CJ’s Yardworks asserts claims of breach of contract, conversion, and fraudulent conveyance. CJ’s Yardworks alleges that Zodega has collected and failed to remit accounts receivables that still belong to CJ’s Yardworks, and that Zodega is late on payments under a promissory note owed to it by Zodega. CJ’s Yardworks seeks monetary damages, prejudgment and post-judgment interest, and other remedies deemed appropriate by the court on a joint and several liability basis. One of the owners of CJ’s Yardworks has also asserted that Zodega has breached the consulting agreement and real property lease entered into in connection with the CJ Acquisition Transaction and seeks monetary damages.

Zodega counter-sued CJ’s Yardworks and its owners (as third-party defendants) for breach of contract, fraud, negligent misrepresentation, and unjust enrichment. Zodega’s counter-claims assert that CJ’s Yardworks and its owners misrepresented financial and other material information to Zodega in connection with the CJ Acquisition Transaction to inflate the purchase price of the acquisition and breached contractual representations, warranties, covenants, and obligations under the transaction documents for the CJ Acquisition Transaction. Zodega seeks monetary damages, attorneys’ fees, exemplary and treble damages, and any other relief deemed appropriate by the court.

Zodega and CJ’s Yardworks have filed answers to the respective complaints, and discovery has begun. The lawsuit is currently pending in the District Court of Harris County, Texas, 152nd Judicial District (Case No. 2021-70626).

From time to time, we are also a party to certain legal proceedings incidental to the normal course of our operating businesses. 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 4. Mine Safety Disclosures

Not applicable.

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Market Information

Our Class A Common Stock is not quoted or traded on any market but was previously quoted on the OTCQB under the symbol “AANC” from February 14, 2019 to November 12, 2019, and on the OTCQB under the symbol “EXXP” from September 25, 2018 to February 13, 2019. Prior to that, there was no public market for our Class A Common Stock.

As of April 22, 2022, we had approximately 166 holders of record of our Class A Common Stock, and 3,650,165 of our Class A Common Stock outstanding.

Dividends and Distributions

We have not paid any cash dividends on our Class A Common Stock since inception. All earnings were retained for use in developing and/or expanding our business.

Sales of Unregistered Securities

None.

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Item 6. Selected Financial Data

Not applicable.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion of our financial condition and results of operations should be read in conjunction with the financial statements and the related notes thereto included elsewhere in this Annual Report on Form 10-K. This discussion and analysis contains forward-looking statements that are based on our management’s current beliefs and assumptions, which statements are subject to substantial risks and uncertainties. Our actual results may differ materially from those expressed or implied by these forward-looking statements as a result of many factors. Please also see “Cautionary Note Regarding Forward Looking Statements” at the beginning of this Annual Report on Form 10-K.

Overview

We were organized in the State of Utah on March 20, 2014 as Acadia Technologies, Inc. We changed our name to Edgar Express, Inc. (“Edgar Express”) on September 15, 2016.

On September 25, 2018, we entered into a Stock Purchase Agreement (the “Purchase Agreement”) by and among us, our stockholders (collectively, the “Sellers”), John D. Thomas, P.C., as the Sellers’ representative, and Windber National LLC, The Peter A. Cohen Revocable Trust, and Blumenthal Family Investment Joint Venture, L.P.(collectively, the “Buyers”), pursuant to which the Buyers paid $450,000 in aggregate cash consideration for (i) 2,340,000 shares of our Class A Common Stock, par value $0.001, from the Sellers, which shares constituted 99.96% of our issued and outstanding shares as of September 25, 2018 and (ii) the extinguishment and payment in full of (A) an aggregate of approximately $307,371 in our notes payable, and (B) an aggregate of approximately $54,187 in loans payable by us (the “Acquisition”). As a result of the Acquisition, the Buyers held a controlling interest in us. The above share amounts have been adjusted to reflect the Reincorporation (as defined below).

Effective February 14, 2019, we completed a change of domicile to Delaware from Utah (the “Reincorporation”) by means of a merger of Edgar Express with and into us, its wholly-owned subsidiary. In connection with the Reincorporation, and effective upon the effectiveness of the Reincorporation, each issued and outstanding share of common stock, par value $0.001 per share, of Edgar Express automatically converted into and became one-fifth (¹/₅^th) of one validly issued, fully paid and non-assessable share of our Class A Common Stock without any action on the part of Edgar Express’ stockholders.

On October 4, 2019, Andover Environmental Solutions, LLC, our wholly-owned subsidiary (“Andover Environmental”), entered into a Membership Interest Purchase Agreement with Heath L. Legg, pursuant to which Andover Environmental purchased 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 “Business Combination”). The primary reason for this acquisition was to expand our existing business into new markets, and to increase the revenue through acquisitions using cash we have available through recent sales of equity securities. We were able to obtain control through the cash purchase of membership interests in a newly formed subsidiary.

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On January 20, 2021, Zodega Landscape Services, LLC (“Zodega Buyer”), our indirect subsidiary, entered into an Asset Purchase and Contribution Agreement (the “Zodega Purchase Agreement”) with Litton Enterprises Inc. (d/b/a Zodega-TIS Services), a Texas corporation (“Zodega Seller”), ANC Green Solutions - Zodega, LLC (“ANC Zodega”), our indirect subsidiary, and Messrs. Robert Dihu and Larry Litton Jr., pursuant to which, among other things, (i) Zodega Buyer purchased an undivided fifty-one percent (51)% interest in all of Zodega Seller’s right, title and interest in and to all of Zodega Seller’s property and assets (the “Zodega Acquired Assets”), in consideration for shares of our Class A Common Stock, (ii) Zodega Seller conveyed, transferred, assigned and delivered to ANC Zodega an undivided forty-nine percent (49)% interest in the Zodega Acquired Assets (the “Zodega Contributed Assets”) in exchange for equity securities of ANC Zodega, and (iii) ANC Zodega conveyed, transferred, assigned and delivered the Zodega Contributed Assets to Zodega Buyer. The closing of the transactions contemplated by the Zodega Purchase Agreement occurred on January 20, 2021. Following our initial acquisition of the Zodega business, Zodega has completed four bolt-on acquisitions of businesses providing landscaping and hardscaping, landscape design, lawn and landscape maintenance and related services.

On March 2, 2022, Peter Cohen, the Company’s Chairman and CEO, mutually agreed to Mr. Cohen’s resignation as CEO effective immediately. Mr. William Greenblatt, a member of the Board of Directors of the Company, was elected as interim CEO, effective immediately. Mr. Cohen remained as Chairman of the Board of the Company.

On March 31, 2022, Milun K. Patel, the Company’s CFO and Head of Business Development, was terminated from his position, effective immediately.

On April 18, 2022, Andover Environmental Solutions, LLC, a Delaware limited liability company, entered into a Membership Interest Purchase Agreement with Litton Enterprises Inc. and Messrs. Robert Dihu and Larry Litton Jr., pursuant to which, among other things, the sale of the fifty-one percent (51)% interest of ANC Zodega, will consolidate indirect ownership of all of the Zodega Opco Assets. The aggregate purchase price for the Purchased Interests (the “Purchase Price”) was equal to: (i) the Promissory Note, Pledge, and Guaranty by Purchaser and the pledgors and guarantors specified therein in the principal amount of One Million Eight Hundred Thousand and No/100 Dollars ($1,800,000.00) which is to be received on or by May 27, 2022, and (ii) 51,290 shares of class “A” common stock of Andover National Corporation, a Delaware corporation. In relation to this sale, the Litton and Zodega loans to ANC Zodega were forgiven. The Litton and Zodega loans were unsecured related party agreements to infuse ANC Zodega with cash upon acquisition. The total amount lent to Litton and Zodega, both including interest, was $1,330,558 and $849,903, respectively. In 2021, Zodega contributed approximately 48% of Andover National consolidated revenues and approximately $3.6 million in loss from operations, $3.6 million in net loss, and $1.8 million in net loss attributable to common shareholders.

On May 20, 2022, the Company and Mr. Greenblatt, Interim CEO, mutually agreed to Mr. Greenblatt’s resignation as Interim CEO effective immediately. Company Director and Chairman Peter Cohen assumed responsibility as Interim CEO effective immediately. Mr. Greenblatt remains as a Director of the Company.

Recent Developments

Deregistration Under the Exchange Act

COVID-19-Related Considerations

The COVID-19 outbreak, which surfaced in Wuhan, China in December 2019 and which was subsequently declared a pandemic by the World Health Organization in March 2020, has had a pronounced effect on the domestic and global economies. In March and April 2020, our businesses began to feel the impact of the COVID-19 pandemic which resulted in a temporary decline in the demand for our services. Subsequently, demand for our services stabilized and eventually normalized to historical levels. As the demand for our services returned to historical levels, we began to experience some shortages of skilled labor to perform certain of our select services. We have continued to experience difficulties in hiring additional seasonally required employees to staff our various businesses and we have been required to implement safety protocols that has reduced our efficiency. Additionally, certain of our employees have experienced illness related to the pandemic which temporarily reduced our capacity. The extent of the impact of COVID-19 on our business, financial results, liquidity and cash flows will depend largely on future developments, including new information that may emerge concerning

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the severity and action taken to contain or prevent further spread within the U.S. and the related impact on consumer confidence and spending, all of which are highly uncertain and cannot be predicted.

Results of Operations

Reclassifications

The Company revised its consolidated financial statements for 2020 to correct the classification of certain expenses between General and Administrative Expense and Cost of Services. The revision resulted in an increase to Cost of Services and an equal and offsetting decrease to General and Administrative Expense. There is no impact on loss from operations, net loss, net loss attributable to noncontrolling interest, net loss attributable to common shareholders, or net loss per common share. In addition, there is no impact on the Company’s consolidated balance sheet, consolidated statement of equity and redeemable noncontrolling interest, or the consolidated statement of cash flow.

Comparison of the Year ended December 31, 2021 and 2020


					Increase
	Year Ended		Year Ended		(Decrease)
	December 31, 2021		December 31, 2020		in Dollars
Revenues	$	18,686,786	$	7,702,866	$	10,983,920
Operating costs and expenses:
Cost of services provided		11,938,605		4,977,482		6,961,123
General and administrative expenses		11,128,758		5,863,147		5,265,611
Goodwill and intangible asset impairment loss		7,017,538		—		7,017,538
Sales and marketing		525,111		207,497		317,614
Total operating costs and expenses		30,610,012		11,048,126		19,561,886
Loss from operations		(11,923,226)		(3,345,260)		(8,577,966)
Other income		449,832		225,189		224,643
Net loss		(11,473,394)		(3,120,071)		(8,353,323)
Less: Net income (loss) attributable to noncontrolling interest		(3,162,232)		105,204		(3,267,436)
Net loss attributable to common shareholders	$	(8,311,162)	$	(3,225,275)	$	(5,085,887)

Revenue

Our revenue was generated from residential and commercial lawn care programs and services, which include lawncare, landscaping and hardscaping, irrigation and pest-control services, in addition to pest-control franchisor revenue. In addition, revenue is generated from tree care services, which includes tree service, tree removal, stump grinding, mulching, logging and related services. We generated revenues of approximately $18.7 million during the year ended December 31, 2021 as compared to revenue of $7.7 million during the year ended December 31, 2020. The increase in revenue was primarily attributable to the acquisition of ANC Zodega in the first quarter of 2021 and a full year of revenue from ANC Potter’s and ANC Smith’s.

Costs of services provided

Costs of services provided represents costs directly related to the provision of the lawn care, landscaping, tree care and pest-control services and include direct labor, materials and equipment depreciation. Costs of services provided during the year ended December 31, 2021 increased $7.0 million as compared to costs of services provided in the year ended December 31, 2020 primarily due to the acquisitions of ANC Zodega in the first quarter of 2021 and a full year of ANC Potter’s and ANC Smith’s costs.

General and administrative expenses

General and administrative expenses were $11.1 million during the year ended December 31, 2021 as compared to $5.9 million during the year ended December 31, 2020. The increase was attributable to the acquisition of ANC Zodega in the first quarter of 2021, a full year of ANC Potter’s and ANC Smith’s expenses, and an increase in professional fees.

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Goodwill and intangible asset impairment loss

Goodwill and intangible asset impairment loss was $7.0 million during the year ended December 31, 2021 as compared to $0 during the year ended December 31, 2020. The increase was attributable to the impairment of goodwill and intangible assets for ANC Zodega and ANC Green.

Sales and marketing expenses

Sales and marketing expenses increased by approximately $0.3 million during the year ended December 31, 2021 as compared to the year ended December 31, 2020, which was primarily due to the acquisition of ANC Zodega in the first quarter of 2021 and a full year of ANC Green’s and ANC Smith’s expenses.

Other income (expense)

Other income (expense) was approximately $0.4 million for the year ended December 31, 2021, as compared to $0.2 million for the year ended December 31, 2020. The increase was attributable to $0.4 million of other income related to forgiveness of a PPP Loan and investment income from our holdings of highly liquid investments.

Liquidity and Capital Resources

As of December 31, 2021, we had cash of $19.0 million and total equity of $25.0 million. Net working capital was $18.9 million.

Our principal capital requirements are to fund our working capital needs and to make investments in line with our business strategy. We calculate working capital as current assets less current liabilities. Our principal sources of liquidity are existing cash, and cash flows from financing activities. We believe that our cash on hand will be sufficient to meet our future operating and capital expenditure cash requirements for at least the next twelve months from the date of this report.

Cash Flow Summary

The following table summarizes selected items in our consolidated statements of cash flows:


	For the Year Ended
	December 31,
	2021		2020
Net cash used in operating activities	$	(3,083,692)	$	(1,312,819)
Net cash used in investing activities	$	(2,903,608)	$	(4,139,699)
Net cash provided by financing activities	$	10,640,878	$	8,347,246

Operating Activities

During the year ended December 31, 2021, cash used in operating activities was $3.1 million primarily as a result of our net loss of $11.5, as well as increases in accounts receivable and prepaid expenses and other current assets of $1.2 million and $0.5 million, respectively, offset, in part, by goodwill and intangible asset impairment loss of $7.0 million, depreciation and amortization expense of $1.8 million, and stock-based compensation of $1.4 million. During the year ended December 31, 2020, cash used in operating activities was $1.3 million primarily as a result of our net loss offset, in part, by stock-based compensation of $1.0 million, depreciation and amortization expense of $1.2 million and changes in operating assets and liabilities.

Investing Activities

During the year ended December 31, 2021, we used $2.9 million of cash in investing activities primarily as a result of our acquisition of ANC Zodega and the subsidiaries for $1.2 million, the issuance of a related party loan of $1.4 million, and the purchase of fixed assets for $0.5 million, offset, in part by proceeds from the repayment of related party loans of $0.2. During the year ended December 31, 2020, we used $4.1 million of cash in investing activities primarily as a result of our acquisitions of ANC Potter’s and ANC Smith’s, net of cash acquired, for $1.5 million and $1.7 million, respectively.

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Financing Activities

During the year ended December 31, 2021, $10.6 million of cash was provided by financing activities, primarily from the net proceeds from the issuance of shares in private placements of $11.5 million, proceeds from related party loans of $1.8 million and proceeds from notes payable of $0.7 million, offset, in part by payment of deferred consideration of $1.6 million, repayment of related party loans of $1.4 million and repayment of notes payable of $0.3 million. During the year ended December 31, 2020, $8.3 million of cash was provided by financing activities from the issuance of shares in a private placement and the proceeds from borrowings under notes payable.

Contractual Obligations

We have deferred purchase consideration associated with the acquisitions of ANC Green Solutions I, ANC Potter’s, ANC Smith’s and ANC Zodega of approximately $0.6 million in aggregate, of which $0.5 million is payable within the next twelve months and $0.1 million is classified as a long-term obligation.

We are also party to loan agreements, the proceeds of which were used to purchase certain equipment and trucks, as well as acquisition loans, and other sources of financing for the Company. As of December 31, 2021 and December 31, 2020, $2.7 million and $1.1 million, respectively, was outstanding under the loan agreements. The loans have remaining terms ranging from less than 1 year to less than 5 years.

Critical Accounting Policies

The preparation of our financial statements requires us to make estimates and judgments that affect the reported amounts of our assets, liabilities, revenues and expenses, and related disclosures of contingent liabilities. The following are the areas that we believe require the greatest amount of judgments or estimates in the preparation of the financial statements: deferred income tax assets, accrued expenses, fair value of equity instruments, amounts recorded in business combinations, fair values assigned to intangible assets acquired, impairment of goodwill and long-lived assets, and reserves for any other commitments or contingencies. Management reviews critical accounting estimates on an ongoing basis and as needed prior to the release of annual financial statements. See also Note 2 to our consolidated financial statements, which discusses the significant assumptions used in applying accounting policies.

Critical Accounting Estimates

The preparation of the consolidated financial statements in conformity with GAAP 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, amounts recorded in business combinations, and reserves for any other commitments or contingencies. Management also makes critical accounting estimates that affect certain accounts including fair values assigned to intangible assets acquired and impairment of goodwill and long-lived assets. Any adjustments applied to estimates are recognized in the period in which such adjustments are determined.

Recent Accounting Pronouncements

For a discussion of recently issued financial accounting standards, see Note 2 to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K.

Item 7A. Quantitative and Qualitative Disclosure About Market Risk

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

Table of Contents

Item 8. Financial Statements and Supplementary Data

Index to Financial Statements

ANDOVER NATIONAL CORPORATION

December 31, 2021


	Page
Report of Independent Registered Public Accounting Firm (PCAOB ID: 206)	F-2

Consolidated Balance Sheets	F-3

Consolidated Statements of Operations	F-4

Consolidated Statements of Equity and Redeemable Noncontrolling Interest	F-5

Consolidated Statements of Cash Flows	F-6

Notes to Consolidated Financial Statements	F-7

F-1

Table of Contents

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders and Board of Directors of

Andover National Corporation

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Andover National Corporation and its subsidiaries (collectively, the “Company”) as of December 31, 2021 and 2020, and the related consolidated statements of operations, equity and redeemable noncontrolling interest, 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, 2021 and 2020, and the results of their operations and their 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. 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 2018.

Houston, Texas

May 20, 2022

F-2

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Andover National Corporation

CONSOLIDATED BALANCE SHEETS


	December 31,
	2021		2020
ASSETS
Current assets:
Cash	$	18,956,277	$	14,302,699
Accounts receivable, net		1,581,588		490,987
Prepaid expenses and other current assets		582,382		49,547
Inventory		341,026		—
Loans receivable - related party		1,210,750		—
Interest receivable - related party loan		119,808		—
Total current assets		22,791,831		14,843,233

Non-current assets:
Property and equipment, net		3,482,938		2,147,918
Right of use assets, net		549,719		258,523
Goodwill		3,731,281		7,913,123
Intangible assets, net		4,565,152		3,967,690
Total non-current assets		12,329,090		14,287,254

TOTAL ASSETS	$	35,120,921	$	29,130,487

LIABILITIES, MEZZANINE EQUITY AND EQUITY
Current liabilities:
Accounts payable and accrued liabilities	$	1,979,567	$	685,364
Current portion of deferred consideration		476,762		1,575,443
Current portion of notes payable		848,060		385,963
Current portion of debt, related party		162,066		—
Unearned revenue		113,691		—
Current portion of lease liabilities		292,852		82,225
Total current liabilities		3,872,998		2,728,995

Non-current liabilities:
Notes payable, net of current portion		1,883,827		753,458
Related party debt, net of current portion		247,000		—
Lease liabilities, net of current portion		268,782		176,298
Deferred consideration, net of current portion		136,965		346,884
Total long-term liabilities		2,536,574		1,276,640

Total liabilities		6,409,572		4,005,635

COMMITMENTS AND CONTINGENCIES - NOTE 14

Mezzanine equity:
Redeemable noncontrolling interest		3,684,140		3,265,892
Stockholders’ equity
Preferred stock, $0.001 par value; 5,000,000 shares authorized, none issued and outstanding as of December 31, 2021, and 2020, respectively		—		—
Class A Common stock, $0.001 par value; 60,000,000 shares authorized, 3,696,326 and 2,416,866 shares issued and outstanding as of December 31, 2021, and 2020, respectively		3,696		2,417
Class B Common stock, $0.001 par value; 7,500,000 shares authorized, zero and 81,198 shares issued and outstanding as of December 31, 2021, and 2020, respectively		—		81
Additional paid-in capital		38,812,335		25,704,408
Accumulated deficit		(14,870,523)		(6,559,361)
Total stockholders’ equity		23,945,508		19,147,545
Noncontrolling interest		1,081,701		2,711,415
Total equity		25,027,209		21,858,960
TOTAL LIABILITIES, MEZZANINE EQUITY AND EQUITY	$	35,120,921	$	29,130,487

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

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Andover National Corporation

CONSOLIDATED STATEMENTS OF OPERATIONS




	For the Year Ended December 31,
	2021		2020
Revenues:
Revenues, net	$	18,686,786	$	7,702,866
Total revenue		18,686,786		7,702,866
Operating costs and expenses:
Cost of services provided		11,938,605		4,977,482
General and administrative		11,128,758		5,863,147
Goodwill and intangible assets impairment loss		7,017,538		—
Sales and marketing		525,111		207,497
Total operating costs and expenses		30,610,012		11,048,126
Loss from operations		(11,923,226)		(3,345,260)

Other income (expense):
Other income		56,916		—
Forgiveness of note payable		378,346		191,400
Investment income		—		34,976
Interest income		127,446		6,036
Interest expense		(112,876)		(7,223)
Total other income		449,832		225,189
Net loss		(11,473,394)		(3,120,071)
Less: Net income (loss) attributable to noncontrolling interest		(3,162,232)		105,204
Net loss attributable to common shareholders	$	(8,311,162)	$	(3,225,275)

Net loss per common share
Net loss per share attributable to Class A and Class B Common shareholders - Basic and Diluted	$	(2.33)	$	(1.62)
Weighted average shares outstanding
Weighted average Class A and Class B Common shares outstanding - Basic and Diluted		3,573,657		1,996,044

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

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Andover National Corporation

CONSOLIDATED STATEMENTS OF EQUITY AND REDEEMABLE NONCONTROLLING INTEREST


											Total		Non-				Redeemable
	Class A Common Stock			Class B Common Stock			Additional		Accumulated		Stockholders’		controlling				Noncontrolling
	Shares	Amount		Shares	Amount		Paid In Capital		Deficit		Equity		Interest		Total Equity		Interest
Balance at January 1, 2021	2,416,866	$	2,417	81,198	$	81	$	25,704,408	$	(6,559,361)	$	19,147,545	$	2,711,415	$	21,858,960	$	3,265,892
Impact on noncontrolling interest from acquisition of ANC Zodega	—		—	—		—		—		—		—		1,950,766		1,950,766		—
Stock-based compensation	—		—	—		—		1,386,805		—		1,386,805		—		1,386,805		—
Issuance of Class A Common Stock for vested RSUs	64,048		64	—		—		(64)		—		—		—		—		—
Repurchase of warrant issued for cash	—		—	—		—		(75,000)		—		(75,000)		—		(75,000)		—
Conversion of Class B shares into Class A shares	81,198		81	(81,198)		(81)		—		—		—		—		—		—
Cancellation of restricted stock units	—		—	—		—		(255,713)		—		(255,713)		—		(255,713)		—
Issuance of Class A Common Stock in private placement, net of issuance costs	1,088,053		1,088	—		—		11,487,760		—		11,488,848		—		11,488,848		—
Issuance of Class A Common Stock in Zodega transaction, net of issuance cost	46,161		46	—		—		564,139		—		564,185		—		564,185		—
Net income (loss)	—		—	—		—		—		(8,311,162)		(8,311,162)		(3,580,480)		(11,891,642)		418,248
Balance at December 31, 2021	3,696,326	$	3,696	—	$	—	$	38,812,335	$	(14,870,523)	$	23,945,508	$	1,081,701	$	25,027,209	$	3,684,140


Balance at January 1, 2020	1,683,691		1,684	81,198		81		17,554,713		(3,334,086)		14,222,392		2,727,427		16,949,819		—
Impact on noncontrolling interest from acquisition of ANC Potter’s	—		—	—		—		—		—		—		—		—		1,145,363
Impact on noncontrolling interest from acquisition of ANC Smith’s	—		—	—		—		—		—		—		—		—		2,000,197
Stock-based compensation	—		—	—		—		980,649		—		980,649		—		980,649		—
Issuance of Class A Common Stock for vested RSUs	49,424		49	—		—		(49)		—		—		—		—		—
Issuance of Class A Common Stock for vested restricted stock	10,000		10	—		—		(10)		—		—		—		—		—
Issuance of Class A Common Stock in private placement, net of issuance costs	673,751		674	—		—		7,169,105		—		7,169,779		—		7,169,779		—
Distributed to noncontrolling interest	—		—	—		—		—		—		—		(400)		(400)		(484)
Net income (loss)	—		—	—		—		—		(3,225,275)		(3,225,275)		(15,612)		(3,240,887)		120,816
Balance at December 31, 2020	2,416,866		2,417	81,198		81		25,704,408		(6,559,361)		19,147,545		2,711,415		21,858,960		3,265,892

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

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Andover National Corporation

CONSOLIDATED STATEMENTS OF CASH FLOW


	For the Year Ended December 31,
	2021		2020
Cash Flows from Operating Activities
Net loss	$	(11,473,394)	$	(3,120,071)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		1,809,583		1,158,436
Stock-based compensation		1,386,805		980,649
Impairment loss on goodwill and intangible assets		7,017,538		—
Cancellation of restricted stock units		(255,713)		—
Bad debt expense		70,013		24,695
Account earnout adjustments		3,843		—
Forgiveness of note payable		(378,346)		(191,400)
Non-cash lease expense		251,218		—
Changes in operating assets and liabilities (excluding the effects of business acquisitions):
Accounts receivable		(1,160,614)		(82,168)
Prepaid expenses and other current assets		(532,835)		(15,654)
Inventory		(282,766)		—
Interest receivable - related party loan		(119,808)		—
Accounts payable and accrued expenses		706,396		(67,306)
Unearned revenue		113,691		—
Lease liabilities		(239,303)		—
Net cash used in operating activities		(3,083,692)		(1,312,819)
Cash Flows from Investing Activities
Purchases of property and equipment		(508,477)		(996,795)
Disposal of property and equipment		27,500		37,490
Issuance of loans receivable - related party		(1,408,750)		—
Proceeds from repayment of loans receivable - related party		198,000		—
Acquisition of ANC Potter’s, net of cash acquired		—		(1,529,280)
Acquisition of ANC Smith’s, net of cash acquired		—		(1,651,114)
Acquisition of ANC Zodega, net of cash acquired		(1,211,881)		—
Net cash used in investing activities		(2,903,608)		(4,139,699)
Cash Flows from Financing Activities
Proceeds from notes payable		700,000		1,238,796
Repayment of notes payable		(318,983)		(60,445)
Payment of deferred consideration		(1,559,443)		—
Proceeds from issuance of related party debt		1,780,000		—
Repayment of related party notes payable		(1,374,544)		—
Repurchase of warrant issued for cash		(75,000)		—
Distribution to noncontrolling interest		—		(884)
Proceeds from the issuance of shares in private placement, net of issuance costs		11,488,848		7,169,779
Net cash provided by financing activities		10,640,878		8,347,246
Net increase in cash		4,653,578		2,894,728

Cash, beginning of period		14,302,699		11,407,971
Cash, end of period	$	18,956,277	$	14,302,699

Supplemental disclosure of cash and non-cash transactions:
Cash paid for interest	$	65,784	$	7,184
Cash paid for income taxes	$	—	$	—
Non-cash investing and financing activities
Capital expenditures in accounts payable	$	194,290	$	—
Capital expenditures financed with notes payable	$	665,606	$	13,348
Issuance of Class A shares for vested RSUs	$	64	$	59
Shares issued in acquisition of Zodega	$	564,185	$	—
Acquisition holdback amount	$	28,826	$	—
Recognition of ROU asset and lease liabilities	$	201,414	$	—
Loan - part of purchase cost	$	820,000	$	—
Recognition of deferred consideration payable in acquisition of ANC Potter’s	$	—	$	146,844
Recognition of redeemable noncontrolling interest in acquisition of ANC Potter’s	$	—	$	1,145,363
Recognition of deferred consideration payable in acquisition of ANC Smith’s	$	—	$	1,275,443
Recognition of redeemable noncontrolling interest in acquisition of ANC Smith’s	$	—	$	2,000,197
Recognition of deferred consideration payable in acquisition of ANC Zodega	$	247,000	$	—
Recognition of non-redeemable noncontrolling interest in acquisition of ANC Zodega	$	1,950,766	$	—

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

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Andover National Corporation

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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. 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”).

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, for $4.0 million, subject to certain adjustments (the “Business Combination”).

ANC Green Solutions I, LLC, formerly known as Legg Holdings, Inc. (“ANC Green Solutions I” or “Legg”), is an operator and franchisor of commercial and residential landscaping, lawn care and pest control services, operating under the commercial trade name Superior Services. ANC Green Solution I’s core service offerings provide residential homeowners and commercial customers with year-round monitoring and treatment by focusing on weed and insect control, irrigation, seeding, fertilization, general landscape maintenance and installation services. Additionally, ANC Green Solutions I is a master franchisor for outdoor insect control service businesses operating independently throughout the United States.

On February 3, 2020, ANC Green Solutions – Potter’s, LLC, a wholly-owned subsidiary of the Company (“ANC Potter’s”), entered into an Asset Purchase and Contribution Agreement with Potter’s Professional Lawn Care, Inc, and its shareholders, pursuant to which ANC Potter’s purchased a sixty (60)% interest in Potter’s Professional Lawncare, Inc.’s property and assets, for $1.68 million, subject to certain adjustments. Potter’s Professional Lawn Care, Inc., a Florida corporation, is engaged in the business of commercial and residential fully-integrated lawn maintenance and landscape services including lawn care, new landscape design and installation, pest control, irrigation and arbor care.

On February 28, 2020, Smith’s Tree Care, LLC, a wholly-owned subsidiary of the Company (“Smith’s Buyer”), 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”). Pursuant to the Smith Acquisition Agreement, among other things, (a) Smith’s Buyer acquired a sixty percent (60)% interest in all of property and assets of Smith Tree Care, Inc. and Utro Crane Company, Inc, (together, 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.

On January 20, 2021, the Company, through an indirect wholly-owned subsidiary, entered into an Asset and Equity Purchase and Contribution Agreement (the “Zodega Purchase Agreement”) with Litton Enterprises Inc. D/B/A Zodega-TIS Services, a Texas corporation (“Zodega Seller”), the Zodega Seller shareholders and ANC Green Solutions-Zodega, LLC, a Delaware limited liability company (“ANC Zodega”), pursuant to which, among other things, (i) the Company purchased an undivided fifty-one percent (51)% interest in all of Zodega Seller’s right, title and interest in and to all of Zodega Seller’s property and assets (the “Acquired Assets”), in consideration for 51,290 shares of our Class A Common Stock (including 5,129 holdback shares), with a value of approximately $0.6 million, subject to certain adjustments, as set forth on the Zodega Purchase Agreement, (ii) Zodega Seller conveyed, transferred, assigned and delivered to ANC Zodega an undivided forty-nine percent (49)% interest in the Acquired Assets in exchange for equity securities of ANC Zodega’s and (iii) at the closing, for and in consideration of the transfer of the Majority Interest, Zodega Seller conveyed, transferred, assigned, and delivered to ANC Zodega, 51,290 ANC Shares (including 5,129 holdback shares), the aggregate value of such ANC Shares being equal to $564,185 and shall assume the Assumed Liabilities. The acquisition was accounted for as a business combination using the acquisition method of accounting for all identifiable assets acquired and liabilities assumed at fair value as of the date control is obtained.

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Andover National Corporation

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

On January 26, 2021, the Company’s subsidiary ANC Green Solutions- Zodega made a capital call, as defined in the limited liability agreement of ANC Zodega, of $1.0 million, to fund the acquisition of substantially all of the assets and property of Texas Seasons Corporation through the Company’s indirect subsidiary and ANC Zodega’s wholly-owned subsidiary Zodega Landscape Services, LLC. In connection with funding the capital call for the acquisition, the Company entered into a promissory note agreement with Litton Enterprises Inc. for $0.3 million. The promissory note agreement bears interest at a rate of WSJ Prime plus 7.0% and is due to be repaid by the minority interest holder to the Company on the fourth anniversary of the note agreement. The guarantors of this Note are Robert Dihu and Larry Litton Jr., the sole shareholders of the Borrower, and each of their respective spouses.

On February 18, 2021, the Company’s subsidiary ANC Green Solutions- Zodega made a capital call, as defined in the limited liability agreement of ANC Zodega, of $0.3 million, to fund the acquisition of substantially all of the assets and property of Greentex Landscaping Inc., through the Company’s indirect subsidiary and ANC Zodega’s wholly-owned subsidiary Zodega Landscape Services, LLC. In connection with funding the capital call for the acquisition, the Company entered into a promissory note agreement with Litton Enterprises Inc. for $0.1 million. The promissory note agreement bears interest at a rate of WSJ Prime plus 7.0% and is due to be repaid by the minority interest holder to the Company on the fourth anniversary of the note agreement. The guarantors of this Note are Robert Dihu and Larry Litton Jr., the sole shareholders of the Borrower, and each of their respective spouses.

On February 19, 2021, the Company’s subsidiary ANC Green Solutions- Zodega made a capital call, as defined in the limited liability agreement of ANC Zodega, of $2.0 million, to fund the acquisition of substantially all of the assets and property of C.J.’s Yardworks, Inc. through the Company’s indirect subsidiary and ANC Zodega’s wholly-owned subsidiary Zodega Landscape Services, LLC. In connection with funding the capital call for the acquisition, the Company entered into a promissory note agreement with Litton Enterprises Inc. for $0.9 million. The promissory note agreement bears interest at a rate of WSJ Prime plus 7.0% and is due to be repaid by the minority interest holder to the Company on the fourth anniversary of the note agreement. The guarantors of this Note are Robert Dihu and Larry Litton Jr., the sole shareholders of the Borrower, and each of their respective spouses.

On March 12, 2021, the Company’s subsidiary ANC Green Solutions- Zodega made a capital call, as defined in the limited liability agreement of ANC Zodega, of $0.8 million, to fund the acquisition of substantially all of the assets and property of Lillard Lawn & Landscaping, Inc. through the Company’s indirect subsidiary and ANC Zodega’s wholly-owned subsidiary Zodega Landscape Services, LLC. In connection with funding the capital call for the acquisition, the Company entered into a promissory note agreement with Litton Enterprises Inc. for $0.2 million. The promissory note agreement bears interest at a rate of WSJ Prime plus 7.0% and is due to be repaid by the minority interest holder to the Company on the fourth anniversary of the note agreement. The guarantors of this Note are Robert Dihu and Larry Litton Jr., the sole shareholders of the Borrower, and each of their respective spouses.

Note 2 – Summary of Significant Accounting Policies

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 consolidated subsidiaries which are directly or indirectly owned by the Company.

Use of Estimates

Management makes estimates that affect certain accounts including deferred income tax assets, accrued expenses, fair value of equity instruments, amounts recorded in business combinations, fair values assigned to intangible assets acquired, impairment of goodwill and long-lived assets, and reserves for any other commitments or contingencies. Any adjustments applied to estimates are recognized in the period in which such adjustments are determined.

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Andover National Corporation

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Reclassifications

Certain amounts in prior period have been reclassified to conform with current period presentation. The revision resulted in an increase to Cost of Services and an equal and offsetting decrease to General and Administrative Expense. There is no impact on loss from operations, net loss, net loss attributable to noncontrolling interest, net loss attributable to common shareholders, or net loss per common share. In addition, there is no impact on the Company’s consolidated balance sheet, consolidated statement of equity and redeemable noncontrolling interest, or the consolidated statement of cash flow for the year ended December 31, 2020.

Principles of Consolidation

The Company’s policy is to consolidate all entities in which it has a controlling financial interest. For consolidated entities that are less than wholly-owned, the third party’s holding of equity interest is presented as noncontrolling interests in the Company’s consolidated balance sheets and consolidated statements of equity and redeemable noncontrolling interest. The portion of net income (loss) attributable to the noncontrolling interests is presented as net income (loss) attributable to noncontrolling interests in the Company’s consolidated statements of operations.

The accompanying consolidated financial statements include the accounts of Andover National Corporation and its consolidated subsidiaries, ANC Green Solutions I, ANC Potter’s, ANC Smith’s and ANC Zodega’s. All material inter-company balances and transactions have been eliminated. On April 18, 2022, the Company sold its 51% interest in ANC Zodega.

Redeemable Noncontrolling Interest

The Company classifies noncontrolling interests that contain an option of the noncontrolling shareholders to require the Company to purchase their interest as redeemable noncontrolling interests within mezzanine equity on the Company’s consolidated balance sheet.

Cash

The Company considers all cash on hand and in banks, including certificates of deposit and highly liquid investments with maturities of three months or less from the date of purchase to be cash.

Concentration and Credit Risk

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.

Concentrations of credit risk with respect to trade accounts receivable are limited due to the number of customers comprising the customer base. No customer accounted for more than 10% of total revenue for the years ended December 31, 2021 and 2020.

Accounts Receivable, net

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.

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Andover National Corporation

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table provides a roll forward of the allowance for doubtful accounts:


	Year Ended December 31,
	2021		2020
Allowance for doubtful accounts, beginning of period	$	27,162	$	2,467
Bad debt expense		70,013		24,695
Allowance for doubtful accounts, end of period	$	97,175	$	27,162

Prepaid expenses and other current assets

Prepaid expenses consist of payments that the Company has made in advance for goods or services to be received in the future. Prepaid expenses primarily consist of payments associated with the professional services. Other current assets primarily consist of a certificate of deposit in relation to a line of credit with ANC Zodega for $250,000.

Inventory

The Company’s inventories represent nursery and landscape materials and finished goods, and are accounted for using the first-in, first-out (FIFO) method and valued at the lower of cost or net realizable value.

Interest receivable - related party loan

Interest receivable - related party loan consists of interest on the promissory note receivable with Litton Enterprises Inc., as detailed in footnote 13, which were issued in the first quarter of 2021. The promissory note agreements bear interest at a rate of WSJ Prime plus 7.0%, due and payable on the fourth anniversary of the date of this note. The balance of interest receivable - related party loan as of December 31, 2021 was $0.1 million. On April 18, 2022, the related party loan was sold by the Company, as part of the sale of its 51% interest in ANC Zodega.

Property and Equipment, net

Property and equipment, net, stated at cost, are depreciated using the straight-line method over the estimated useful life of the asset, or for leasehold improvements, over the shorter of the estimated useful life or the lease term. As of December 31, 2021 and 2020, the estimated useful lives (in years) of each of the Company’s classes of property and equipment were as follows:


		Useful Lives
		(in years)
Vehicles		5-10
Equipment		5-7
Buildings		15
Leasehold improvements		5
Office equipment		5-7

Equipment replacement, maintenance and repair costs, which do not extend the lives of the assets, are charged to operating expense as incurred.

Impairment of Long-Lived Assets

Long-lived assets, which include property and equipment and finite-lived intangible assets, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The Company considers the following to be some examples of important indicators that may trigger an impairment review: (i) historical, current and/ or projected operating or cash flow losses associated with the use of the asset; (ii) significant changes in the extent or manner in which the assets are used; (iii) significant changes in the business climate in which the assets are used, such as negative industry or economic trends, or increased competitive pressures; (iv) a significant decline in the market price of the asset; and (v) legal or regulatory changes. The

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Andover National Corporation

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Company evaluates assets for potential impairment indicators at least annually and more frequently upon the occurrence of such events. The Company does not test for impairment in the year of acquisition of premises and equipment, so long as those premises and equipment are acquired from unrelated third parties.

The Company assesses the recoverability of its long-lived assets by comparing the projected undiscounted net cash flows associated with the related long-lived asset or group of long-lived assets over their remaining estimated useful lives against their respective carrying amounts. In cases where estimated future net undiscounted cash flows are less than the carrying value, an impairment loss is recognized equal to an amount by which the carrying value exceeds the fair value of the asset or asset group. Fair value is generally determined using the assets expected future discounted cash flows or market value, if readily determinable. If long- lived assets are determined to be recoverable, but the newly determined remaining estimated useful lives are shorter than originally estimated, the net book values of the long-lived assets are depreciated and amortized prospectively over the newly determined remaining estimated useful lives.

Leases

The Company accounts for its leases under Accounting Standard Codification (“ASC”) Topic 842, Leases. The Company determines if an arrangement is a lease at inception. Operating leases are included in right-of-use (“ROU”) assets and lease liabilities on the consolidated balance sheets.

Lease ROU assets and operating lease liabilities are initially recognized based on the present value of the future minimum lease payments over the lease term at commencement date calculated using the Company’s incremental borrowing rate applicable to the lease asset, unless the implicit rate is readily determinable. ROU assets also include any lease payments made at or before lease commencement and exclude any lease incentives received. The Company’s lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Leases with an initial term of 12 months or less are not recorded on the balance sheet and expense is recognized on a straight-line basis over the lease term. The Company accounts for lease and non-lease components as a single lease component for all its leases.

Goodwill

Goodwill represents the excess acquisition cost over the fair value of the net tangible and identifiable intangible assets acquired. Goodwill is not amortized and is subject to annual impairment testing on or between annual tests if an event or change in circumstance occurs that would more likely than not reduce the fair value of a reporting unit below its carrying value. In testing for goodwill impairment, the Company has the option to first assess qualitative factors to determine whether the existence of events or circumstances lead to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If, after assessing the totality of events and circumstances, the Company concludes that it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, then performing a quantitative analysis is not required. If the Company concludes otherwise, the Company is required to perform a quantitative analysis. The quantitative analysis is performed at the reporting unit level by comparing the estimated fair value of a reporting unit with its respective carrying value. If the estimated fair value exceeds the carrying value, goodwill at the reporting unit level is not impaired. If the estimated fair value is less than the carrying value, then a goodwill impairment will be recognized. As of December 31, 2021, the Company recognized a total of $6,825,388 in goodwill impairment loss.

Intangible Assets, net

Intangible assets deemed to have finite lives are amortized on a straight-line basis over their estimated useful lives, where the useful life is the period over which the asset is expected to contribute directly, or indirectly, to the Company’s future cash flows. Intangible assets are reviewed for impairment on an interim basis when certain events or circumstances exist. For amortizable intangible assets, impairment exists when the carrying amount of the intangible asset exceeds its fair value. As of December 31, 2021, the Company recognized a total of $192,150 in intangible asset impairment loss. At least annually, the remaining useful life is evaluated.

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Table of Contents

Andover National Corporation

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Business Combinations

The Company applies the provisions of Accounting Standard Codification (“ASC”) Topic 805, Business Combinations, in the accounting for business acquisitions. ASC 805 requires the Company to recognize separately from goodwill the assets acquired and the liabilities assumed at their acquisition date fair values. Goodwill as of the acquisition date is measured as the excess of consideration transferred over the net of the acquisition date fair values of the identifiable assets acquired and the liabilities assumed. While the Company uses its best estimates and assumptions to accurately apply preliminary value to assets acquired and liabilities assumed at the acquisition date, where applicable, these estimates are inherently uncertain and subject to refinement. As a result, during the measurement period, which may be up to one year from the acquisition date, the Company records adjustments in the current period, rather than a revision to a prior period. Upon the conclusion of the measurement period or final determination of the values of the assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded in the consolidated statements of operations. Accounting for business combinations requires management to make significant estimates and assumptions, especially at the acquisition date, including estimates for intangible assets, contractual obligations assumed, restructuring liabilities, preacquisition contingencies, and contingent consideration, where applicable. Although the Company believes the assumptions and estimates made have been reasonable and appropriate, they are based in part on historical experience and information obtained from management of the acquired companies and are inherently uncertain. Unanticipated events and circumstances may occur that may affect the accuracy or validity of such assumptions, estimates, or actual results.

Revenue Recognition

The Company recognizes revenue from contracts with customers in accordance with ASC Topic 606, Revenue from Contracts with Customers (the “revenue standard”). The core principle of the revenue standard is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. A good or service is transferred to a customer when, or as, the customer obtains control of that good or service. The following five steps are applied to achieve that core principle:

●

Step 1: Identify the contract with the customer

●

Step 2: Identify the performance obligations in the contract

●

Step 3: Determine the transaction price

●

Step 4: Allocate the transaction price to the performance obligation in the contract

●

Step 5: Recognize revenue when the company satisfies a performance condition

The Company’s revenue is primarily generated from residential and commercial lawn care programs and services. The Company generally recognizes revenue from the sale of services as the services are performed, which is typically ratably over the term of the contract(s), which the Company believes to be the best measure of progress. 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.

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.

The Company also grants franchises to operators in exchange for an initial franchise license fee and continuing royalty payments. Franchise revenue is recognized over the license term as the Company has determined that all obligations under the franchise agreements represent a single performance obligation that is satisfied over time.

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Andover National Corporation

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Cost of services provided

Cost of services provided represents costs directly related to the provision of the lawncare programs and services, and include direct labor, materials and equipment depreciation. The Company recognizes the costs of services provided as the associated revenues are recognized.

Stock-based compensation

The Company accounts for its stock-based compensation arrangements in accordance with ASC Topic 718, Compensation – Stock Compensation, which requires the measurement of compensation expense for all stock-based compensation granted to employees and non-employees at fair value on the date of grant and recognition of compensation expense over the related service period. Forfeitures are accounted for as they occur. Stock-based awards with graded-vesting schedules are recognized on a straight-line basis over the requisite service period for each separately vesting portion of the award.

Net Loss Per Common Share

Basic net loss per share is calculated by dividing the net loss applicable to the common stockholders by the weighted average number of shares of common stock outstanding during the reporting periods. Diluted net loss per share includes the dilutive effect, if any, from the potential exercise or conversion of securities, such as warrants and restricted stock units that would result in the issuance of incremental shares of common stock.

In computing the basic and diluted net loss per share applicable to common stockholders for the years ended December 31, 2021 and 2020, the weighted average number of shares remains the same for both calculations due to the fact that when a net loss exists, dilutive shares are not included in the calculation as the impact is anti-dilutive. Common stock equivalents are not considered in the calculation of earnings per share due to their anti-dilutive impact. Included within common stock equivalents are the restricted stock units (“RSUs”) and performance restricted stock units (“PSUs”) outstanding as of December 31, 2021, which are not considered in the calculation of earnings per share due to their anti-dilutive impact. As of December 31, 2021, there are 176,098 PSUs outstanding, which are inclusive of all historical RSUs converted to PSUs during the year ended December 31, 2021.

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, 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.

Fair Value Measurements

Fair value measurements are based on the premise that fair value is an exit price representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, the following three-tier fair value hierarchy has been used in determining the inputs used in measuring fair value:

Level 1- Quoted prices in active markets for identical assets or liabilities on the reporting date.

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Andover National Corporation

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Level 2- Pricing inputs are based on quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active and model-based valuation techniques for which all significant assumptions are observable in the market or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3- Pricing inputs are generally unobservable and include situations where there is little, if any, market activity for the investment. The inputs into the determination of fair value require management’s judgment or estimation of assumptions that market participants would use in pricing the assets or liabilities. The fair values are therefore determined using factors that involve considerable judgment and interpretations, including but not limited to private and public comparables, third-party appraisals, discounted cash flow models and fund manager estimates.

Financial instruments measured at fair value are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. Management’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability. The use of different assumptions and/or estimation methodologies may have a material effect on estimated fair values. Accordingly, the fair value estimates disclosed, or initial amounts recorded may not be indicative of the amount that the Company or holders of the instruments could realize in a current market exchange.

As of December 31, 2021, and 2020, the recorded values of cash, accounts receivable, and accounts payable approximate the fair values due to the short-term nature of the instruments. The recorded values of long-term debt are adjusted for interest to approximate the fair values.

Income Taxes

Income taxes are accounted for under the asset and liability method. Deferred income taxes are recorded for temporary differences between financial statement carrying amounts and the tax basis of assets and liabilities. Deferred tax assets and liabilities reflect the tax rates expected to be in effect for the years in which the differences are expected to reverse. A valuation allowance is provided if it is more-likely than not that some or all of the deferred tax assets will not be realized.

The Company also follows the provisions of accounting for uncertainty in income taxes which prescribes a model for the recognition and measurement of a tax position taken or expected to be taken in a tax return, and provides guidance on derecognition, classification, interest and penalties, and disclosure. In accordance with this guidance, tax positions must meet a more-likely than not recognition threshold and measurement attribute for the financial statement recognition and measurement of tax position.

The Company’s policy is to account for income tax related interest and penalties in the provision for income taxes in the accompanying consolidated statements of operations.

Segment Information

The Company operates under one segment which provides residential and commercial lawncare services.

Retirement Plans

The Company maintains defined contribution retirement plans for eligible employees under Section 401(k) of the Internal Revenue Code. Participants can make voluntary contributions up the Internal Revenue Service limit of $19,500 ($26,000 for employees 50 years or over) for 2021. The Company contributed approximately $46,000 and $27,000 of match to employee contributions during the years ended December 31, 2021 and 2020, respectively.

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Table of Contents

Andover National Corporation

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Recent Issued Accounting Pronouncements

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments- Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). This guidance introduces a new model for recognizing credit losses on financial instruments based on an estimate of current expected credit losses. ASU 2016-13 also provides updated guidance regarding the impairment of available-for-sale debt securities and includes additional disclosure requirements. The new guidance is effective for public business entities that meet the definition of a Smaller Reporting Company as defined by the Securities and Exchange Commission for interim and annual periods beginning after December 15, 2022. Early adoption is permitted. The Company is currently evaluating the impact of this standard on its consolidated financial statements and related disclosures.

In January 2017, the FASB issued ASU No. 2017-04, Intangibles- Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment (“ASU 2017-04”), which simplifies goodwill impairment testing. This new guidance is effective for public business entities that meet the definition of a Smaller Reporting Company as defined by the Securities and Exchange Commission for annual or interim goodwill impairment tests in fiscal years beginning after December 15, 2022. Early adoption is permitted. The Company adopted this standard in 2021. There was no impact on the financial statements or related disclosures of the Company from the adoption of this standard.

Note 3 – Revenue

Contract Balances

Changes in the Company’s contract assets and liabilities were as follows:


	Year Ended
	December 31,			December 31,
	2021			2020		Change
Contract assets	$	1,581,588	$	490,987	$	1,090,601
Contract liabilities		113,691		—		113,691
Net contract assets	$	1,467,897	$	490,987	$	976,910

The Company’s contract assets and contract liabilities during the years ended December 31, 2021, and 2020, reflect accounts receivable and unearned revenue, respectively.

Remaining Performance Obligations

As of December 31, 2021 the Company had an immaterial amount of remaining performance obligations associated with contracts with an original duration of greater than one year. The Company will generally recognize revenue as the services are performed, which is typically ratably over the terms of the contracts, which the Company believes to be the best measure of progress. 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. The Company does not expect to recognize a significant amount of revenue in future periods as most of its contracts have a duration of one year or less.

Disaggregation of Revenue

The following table presents the Company’s revenue disaggregated by source:


	For the Year Ended December 31,
	2021		2020
Lawncare and tree care service revenue	$	18,600,426	$	7,620,131
Franchise revenue		86,360		82,735
Total revenue	$	18,686,786	$	7,702,866

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Andover National Corporation

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The Company’s revenue is primarily generated from residential and commercial lawn care programs and services, which includes lawncare, landscaping and hardscaping, irrigation, and mosquito, termite and pest control services and from tree care services, which includes tree trimming service, tree removal, stump grinding, mulching, logging and related services. The Company also grants franchises to operators in exchange for an initial franchise license fee and continuing royalty payments. Franchise revenue is recognized over the license term as the Company has determined that all obligations under the franchise agreements represent a single performance obligation that is satisfied over time. The Company generally recognizes revenue from the sale of services as the services are performed, which is typically ratably over the term of the contract(s), which the Company believes to be the best measure of progress. 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.

Payment terms vary by customer, but payments are generally due at the point of service. The Company incurs certain direct incremental costs to obtain contracts with customers, such as sales-related commissions, where the recognition period for the related revenue is less than one year. These costs are expensed as incurred and recorded in general and administrative expense in the consolidated statement of operations.

Note 4 – Business Combinations

ANC Green Solutions Potter’s

As described in Note 1, on February 3, 2020, the Company acquired a 60% membership interest in ANC Potter’s for $1.68 million in cash, consisting of approximately $1.5 million paid at closing and $0.147 million in deferred consideration to be paid on the two-year anniversary of the closing of the acquisition.

The following table presents the allocation of the purchase price to the assets acquired and liabilities assumed for the acquisition of ANC Potter’s (in thousands):


Total purchase price, net of cash acquired	$	1,529

Assets acquired:
Accounts receivable and other current assets		107
Property and equipment		234
Right-of-use asset		113
Identifiable intangible assets		1,285
Total assets acquired	$	1,739
Liabilities assumed:
Accounts payable and accrued liabilities	$	84
Lease liability		113
Notes payable		139
Deferred cash consideration		147
Non-controlling interest in ANC Green Solutions- Potters		1,145
Total liabilities assumed	$	1,628
Estimated fair value of net assets acquired:	$	111

Goodwill	$	1,418

The Company identified tradename, customer relationship and non-compete intangible assets. The tradename, customer relationship and non-compete intangible assets are amortized on a straight-line basis over its estimated useful life (see Note 6).

The goodwill recognized results from such factors as an assembled workforce and management’s industry know-how and is expected to be deductible for income tax purposes.

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Andover National Corporation

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The ANC Potter’s acquisition resulted in a redeemable noncontrolling interest, which has been 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 noncontrolling interest was determined using a market approach based on the transaction price observed in the ANC Potter’s acquisition.

The consolidated statement of operations for the year ended December 31, 2020 includes revenue of approximately $1.8 million and loss from operations of approximately $0.2 million, including intangible amortization expense, contributed by ANC Potter’s.

In the year ended December 31, 2020, the Company incurred $0.1 million of transaction costs related to the acquisition of ANC Potter’s, which are recorded in general and administrative expenses.

ANC Green Solutions Smith’s

As described in Note 1, on February 28, 2020, the Company acquired a 60% membership interest in ANC Smith’s for $3.0 million cash, consisting of $2.6 million paid at closing and an aggregate of $0.4 million in deferred consideration, and working capital adjustment, to be paid on the one- and two-year anniversary of the closing of the acquisition. In addition, the ANC Smith’s acquisition agreement provides that the Smith Seller is entitled to an amount, if any, by which the final working capital, as defined in the agreement, delivered by the Smith Seller is greater than the target working capital provided for in the agreement, (the “Smith Working Capital Adjustment”). As of December 31, 2021, the Company settled the Smith Working Capital Adjustment due to Smith Seller for approximately $1.0 million.

The following table presents the allocation of the purchase price to the assets acquired and liabilities assumed for the acquisition of ANC Smith’s (in thousands):


Total purchase price, net of cash acquired	$	1,651

Assets acquired:
Accounts receivable and other current assets		167
Property and equipment		1,117
Identifiable intangible assets		1,537
Total assets acquired	$	2,821

Liabilities assumed:
Accounts payable and accrued liabilities	$	80
Deferred cash consideration		1,276
Non-controlling interest in ANC Green Solutions- Smith		2,000
Total liabilities assumed	$	3,356
Estimated fair value of net assets acquired:	$	(535)

Goodwill	$	2,186

The Company identified tradename, customer relationship and non-compete intangible assets. The tradename, customer relationships and non-compete intangible assets will be amortized on a straight-line basis over its estimated useful life (see Note 6).

The goodwill recognized results from such factors as an assembled workforce and management’s industry know-how and is expected to be deductible for income tax purposes.

The ANC Smith’s acquisition resulted in a redeemable noncontrolling interest, which has been 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 noncontrolling interest was determined using a market approach based on the transaction price observed in the acquisition of ANC Smith’s.

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Table of Contents

Andover National Corporation

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The consolidated statement of operations for the year ended December 31, 2020 includes revenue of approximately $3.3 million and income from operations, including amortization expense, of approximately $0.3 million contributed by ANC Smith’s.

During the year ended December 31, 2020, the Company incurred $0.1 million of transaction costs related to the acquisition of ANC Smith’s, which are recorded in general and administrative expenses.

ANC Zodega and subsidiaries

As described in Note 1, on January 20, 2021, the Company acquired a 51% membership interest in ANC Green Solutions- Zodega, in exchange for consideration of 46,161 shares of the Company’s Class A common stock, as well as 5,129 holdback shares, with a total value of approximately $0.6 million.

On January 26, 2021, the Company’s subsidiary ANC Green Solutions- Zodega acquired all of the assets and property of Texas Seasons Corporation through the Company’s indirect subsidiary and ANC Zodega’s wholly-owned subsidiary Zodega Landscape Services, LLC for $0.7 million cash, consisting of $0.5 million paid at closing and a gross potential payout of $0.2 million in deferred consideration.

On February 18, 2021, the Company’s subsidiary ANC Green Solutions- Zodega acquired all of the assets and property of Greentex Landscaping Inc., through the Company’s indirect subsidiary and ANC Zodega’s wholly-owned subsidiary Zodega Landscape Services, LLC for $0.2 million cash, consisting of $0.2 million paid at closing and an aggregate of approximately $0.1 million in deferred consideration to be paid on the one-two-and three year anniversary of the closing of the acquisition.

On February 19, 2021, the Company’s subsidiary ANC Green Solutions- Zodega acquired all of the assets and property of C.J.’s Yardworks, Inc. through the Company’s indirect subsidiary and ANC Zodega’s wholly-owned subsidiary Zodega Landscape Services, LLC for $2.0 million, consisting of $1.5 million paid at closing, a $0.4 million promissory note, and transaction expenses of $0.1 million.

On March 12, 2021, the Company’s subsidiary ANC Green Solutions- Zodega acquired all of the assets and property of Lillard Lawn & Landscaping, Inc. through the Company’s indirect subsidiary and ANC Zodega’s wholly-owned subsidiary Zodega Landscape Services, LLC for $0.8 million, consisting of $0.4 million paid at closing and a $0.4 million promissory note.

After the 2021 quarterly financial statements were issued, the Company received a final valuation report from a third-party valuation firm. After considering the results of that valuation report, the Company has estimated that the fair value of the identifiable intangible assets and property and equipment acquired is $1.8 million and $0.8 million, respectively. As a result, the fair value of the identifiable intangible assets acquired was increased by $1.8 million and the fair value of the property and equipment acquired was increased by $0.1 million, on December 31, 2021, due to this new information, with a corresponding net decrease to goodwill of $2.0 million. In addition, the change to the provisional amount of identifiable intangible assets resulted in an increase in amortization expense and accumulated amortization of $0.1 million, which all relates to the 2021 reporting period. The change to the provisional amount of property and equipment resulted in an increase to depreciation expense and accumulated depreciation of less than $0.1 million, which all relates to the 2021 reporting period.

The following table presents the allocation of the purchase price to the assets acquired and liabilities assumed for all of the acquisitions of ANC Zodega and subsidiaries (in thousands):

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Andover National Corporation

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Purchase Price Allocation- Zodega and subsidiaries


Stock purchase price	$	564
Cash purchase price, net of cash acquired		1,212
Total purchase price	$	1,776

Assets acquired:
Accounts receivable and other current assets		58
Property and equipment		812
Right-of-use asset		341
Customer relationships		1,427
Tradenames		354
Total assets acquired	$	2,992

Liabilities assumed:
Holdback	$	29
Accounts payable and accrued expenses		91
Contract liability		93
Warranty liability		180
Notes payable		108
Promissory notes		820
Lease liability		341
Deferred cash consideration		247
Non-controlling interest in Zodega subsidiaries		1,951
Total liabilities assumed	$	3,860
Estimated fair value of net assets acquired:	$	(868)

Goodwill	$	2,644

The goodwill recognized results from such factors as an assembled workforce and management’s industry know-how and is expected to be deductible for income tax purposes.

The ANC Zodega acquisition resulted in a noncontrolling interest. The acquisition-date fair value of the noncontrolling interest was determined using a market approach based on the transaction price observed in the ANC Zodega’s acquisition.

The year ended December 31, 2021 includes the operations of Zodega Landscape Services, LLC for the period from January 20, 2021, the date of acquisition, to December 31, 2021, the operations of Zodega Landscape Services, LLC - Texas Seasons for the period from January 26, 2021, the date of acquisition, to December 31, 2021, the operations of Zodega Landscape Services, LLC - Greentex Landscaping from February 18, 2021, the date of acquisition, to December 31, 2021, the operations of Zodega Landscape Services, LLC - C.J.’s Yardworks, Inc. from February 19, 2021, the date of acquisition, to December 31, 2021, and the operations of Zodega Landscape Services, LLC - Lillard Lawn & Landscaping, Inc. from March 12, 2021, date of acquisition, to December 31, 2021. The consolidated statement of operations for the year ended December 31, 2021 includes approximately $9.0 million and $3.6 million of revenue and net loss respectively, contributed by ANC Zodega.

During the year ended December 31, 2021, the Company incurred $0.2 million of transaction costs related to the acquisition of ANC Zodega, which are recorded in general and administrative expenses.

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Andover National Corporation

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Unaudited Pro forma Financial Information

The following unaudited proforma financial information presents the combined results of operations of the Company and gives effect to the ANC Potter’s, ANC Smith’s and ANC Zodega and Subsidiaries’ acquisitions discussed above for the year ended December 31, 2020, as if the acquisitions had occurred as of the beginning of the first period presented instead of on February 3, 2020, February 28, 2020, January 20, 2021, January 26, 2021, February 18, 2021, February 19, 2021, and March 12, 2021, respectively.

The pro forma financial information is presented for illustrative purposes only and is not necessarily indicative of the results of operations that would have been realized if the ANC Potters, ANC Smith and ANC Zodega and Subsidiaries’ acquisition had been completed on January 1, 2020, nor does it purport to project the results of operations of the combined company in future periods. The pro forma financial information does not give effect to any anticipated integration costs related to the acquired company and does not include the pro forma effect of the other business combinations which occurred during the periods presented.

The proforma financial information for the Company, ANC Potter’s, ANC Smith’s and ANC Zodega and Subsidiaries is as follows. Pro forma adjustments for ANC Potter’s and ANC Smith’s are not included in 2021 proforma information as the acquisitions occurred on February 3, 2020 and February 28, 2020, respectively:

For purposes of the pro forma disclosures above, the primary pro forma adjustments for the year ended December 31, 2021 include the elimination of transaction costs of approximately $0.2 million, and additional intangible asset amortization of approximately $0.3 million. The primary pro forma adjustments for the year ended December 31, 2020 include the elimination of transaction costs of approximately $0.2 million, and additional intangible asset amortization of $0.1 million.

Note 5 - Property and Equipment, net

Property and equipment consisted of the following:


	December 31,
	2021		2020
Vehicles	$	644,374	$	469,399
Equipment		3,759,250		1,815,095
Land		174,585		174,585
Buildings		51,947		51,947
Leasehold improvements		102,886		66,886
Office equipment		4,077		5,892
Total property and equipment		4,737,119		2,583,804
Less: Accumulated depreciation		(1,254,181)		(435,886)
Property and equipment, net	$	3,482,938	$	2,147,918

Depreciation expense was $0.8 million and $0.4 million for the years ended December 31, 2021 and 2020, respectively.

During the year ended December 31, 2021, the Company purchased property and equipment totaling $0.5 million in cash.

During the year ended December 31, 2021, the Company had $0.2 million of capital expenditures in accounts payable and $0.7 million of capital expenditures financed with notes payable.

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Andover National Corporation

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 6- Goodwill and Intangible Assets

Changes in goodwill for the years ended December 31, 2021 and 2020 consist of the following:


	Goodwill
Balance at December 31, 2019	$	4,309,766
Acquisition of ANC Smith’s		2,185,748
Acquisition of ANC Potter’s		1,417,609
Balance at December 31, 2020		7,913,123
Acquisition of Zodega subsidiaries		2,643,546
Impairment of Zodega and Superior Services goodwill		(6,825,388)
Balance at December 31, 2021	$	3,731,281

As of December 31, 2021 and 2020, the Company’s intangible assets consisted of the following:


		December 31, 2021
	Weighted average
	amortization period			Accumulated			Impairment
	(in years)	Gross		Amortization			Loss	Net
Tradenames	6.5	$	1,285,800	$	(252,666)	$	—	$	1,033,134
Customer relationships	4.9		4,716,100		(1,387,112)		(192,150)	$	3,136,838
Non-compete agreements	4.7		564,000		(168,820)		—	$	395,180
		$	6,565,900	$	(1,808,598)	$	(192,150)	$	4,565,152


		December 31, 2020
	Weighted average
	amortization period			Accumulated
	(in years)	Gross		Amortization		Net
Tradenames	7.5	$	932,000	$	(125,708)	$	806,292
Customer relationships	5.7		3,289,000		(611,709)	$	2,677,291
Non-compete agreements	6.6		564,000		(79,893)	$	484,107
		$	4,785,000	$	(817,310)	$	3,967,690

Intangible asset impairment loss related to Superior Services customer relationships was $0.2 million and $0.0 million for the years ended December 31, 2021 and 2020, respectively.

Amortization expense was $1.0 million and $0.7 million for the years ended December 31, 2021 and 2020, respectively.

The estimated aggregate amortization expense for intangible assets over the next five fiscal years and thereafter is as follows:


2022	$	989,404
2023		989,404
2024		973,154
2025		727,469
2026		388,590
Thereafter		497,131
Total	$	4,565,152

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Andover National Corporation

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 7- Leases

The Company leases facilities under agreements classified as operating leases that expire in 2023, 2024 and 2026. The Company’s leases include renewal options; however, renewal options have not been included in the calculation of the lease liabilities and right of use assets as the Company is not reasonably certain to exercise the options. Leases with an initial term of 12 months or less are not recorded on the balance sheet and expense is recognized on a straight-line basis over the lease term. The Company does not act as a lessor or have any leases classified as financing leases.

In connection with the ANC-Zodega Subsidiaries acquisitions, as described in Note 1, the Company assumed lease agreements with third party vendors. The leases resulted in a $0.2 million right of use asset and a $0.2 million lease liabilities.

During the year ended December 31, 2021, the Company entered into three new lease agreements, with interest rates ranging from 4% to 7%. Monthly payments for the new leases range from $488 to $4,950. Total rent payments made on new leases during the year ended December 31, 2021 totaled $68,035. The lease agreements are for machinery, equipment, and office space.

At December 31, 2021 and 2020, the Company had operating lease liabilities of $0.6 million and $0.3 million, respectively, and right of use assets of $0.5 million and $0.3 million, respectively.

Lease expenses during the year ended December 31, 2021 and 2020 are as follows:


	Year Ended December 31,
	2021		2020
Operating lease expense	$	292,095	$	89,500
Short-term lease rent expense		68,517		78,574
	$	360,612	$	168,074

The weighted-average remaining lease term as of December 31, 2021 was 3.7 years. The weighted-average discount rate was 6%.

Supplemental cash flow information related to the Company’s leases is as follows:

Lease Maturity

The Company’s future maturity of its operating lease liability is as follows:


2022	$	292,852
2023		251,584
2024		55,176
Thereafter		—
Total future minimum lease payments	$	599,612
Less imputed interest		(37,978)
Total		561,634
Less: current portion of lease liabilities		(292,852)
Lease liabilities, net of current portion	$	268,782

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Andover National Corporation

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 8 – Accounts Payable and Accrued Liabilities

As of December 31, 2021 and 2020, the Company’s accounts payable and accrued liabilities consisted of the following:


	Year Ended December 31,
	2021		2020
Accounts payable	$	1,308,593	$	317,038
Accrued professional fees		320,510		197,597
Accrued franchise tax		—		77,600
Accrued payroll		303,331		26,423
Due to noncontrolling interest		47,133		66,706
Accounts payable and accrued liabilities	$	1,979,567	$	685,364

Note 9– Notes Payable and Related Party Notes Payable

As of December 31, 2021 and 2020, the Company’s notes payable consisted of the following:


	Year Ended December 31,
	2021		2020
Equipment notes	$	1,682,325	$	761,075
Promissory notes		799,562		—
Line of credit		250,000		—
PPP loans		—		378,346
		2,731,887		1,139,421
Less: current portion of notes payable		(848,060)		(385,963)
Notes payable, net of current portion	$	1,883,827	$	753,458

As of December 31, 2021 and 2020, the Company’s related party notes payable consisted of the following:


	Year Ended December 31,
	2021		2020
Related party notes payable	$	409,066	$	—
Less: current portion of related party notes payable		(162,066)		—
Related party notes payable, net of current portion	$	247,000	$	—

The Company’s future maturity of its notes payable and related party notes payable are as follows:


	As of December 31,
	2021
2022	$	848,060
2023		571,977
2024		571,977
2025		571,977
2026		167,896
Thereafter		—
Total	$	2,731,887

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Andover National Corporation

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


	As of December 31,
	2021
2022	$	162,066
2023 and thereafter		247,000
Total	$	409,066

Related party note

During the year ended December 31, 2021, ANC Zodega entered into an unsecured related party loan agreement with a related party, Litton Enterprises. This loan represents a cash infusion for Zodega from Litton Enterprises, with $247,000 due on the fifth anniversary of the date of this Note, and the rest is due on demand. During the year ended December 31, 2021, proceeds from issuance of the related party note were $1.8 million and repayments on the related party note were $1.4 million.

Line of credit

During the year ended December 31, 2021, ANC Zodega entered into a line of credit agreement (“LOC”) for a total of $0.3 million. The LOC was entered into on November 10, 2021, with a maturity date of November 9, 2022. The LOC is between ANC Zodega and Bank of Texas.

Equipment notes

During the year ended December 31, 2021, ANC Smith’s entered into a secured loan agreement with an aggregate principal balance of $0.5 million for purchase of certain equipment. The equipment note bears interest at a fixed rate of 2.85% and are due to be repaid in monthly installments over a five year term.

During the year ended December 31, 2020, ANC Smith’s entered into secured loan agreements with an aggregate principal balance of $0.7 million for the purchase of certain equipment. The equipment notes bear interest at a fixed rate of 2.85% and are due to be repaid in monthly installments over their five year terms.

ANC Potter’s is party to equipment loan agreements, the proceeds of which were used to purchase certain equipment and a truck. The loans have remaining terms ranging from less than one year to less than five years, with approximate monthly principal payments of $3,370, and bear a weighted average annual interest rate of 5.1%. There were no security interests granted under the terms of the equipment notes.

ANC Zodega assumed secured loan agreements, as part of the acquisition discussed in Note 1, with an aggregate principal balance of $0.1 million for the purchase of certain equipment. The equipment notes bear interest at multiple interest rates and are due to be repaid in monthly installments over the six year terms.

The Company made aggregate principal payments of approximately $315,000 and $60,000 on its equipment notes for the year ended December 31, 2021 and 2020, respectively.

Promissory notes

On February 19, 2021, the Company entered into an agreement with CJ’s Yardworks, Inc. to issue a promissory note of $400,000, which bears interest at 5.0% of the principal amount. The payments for this note began three months after closing (May 19, 2021). The promissory note matures on May 19, 2026. The note is to be repaid by sixty equal payments of $7,548 which commenced in May 2021.

On March 12, 2021, the Company entered into an agreement with Lillard Lawn & Landscape Inc. to issue a promissory note of $420,000, which bears interest at 6.0% of the principal amount. The payments for this note shall not begin until the first business day of the seventh full calendar month after closing (October 12, 2021), and no interest shall accrue on the note until such time. The promissory note matures on October 12, 2026. The note is to be repaid by sixty equal payments of $8,120 which commenced in October 2021.

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Andover National Corporation

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

During the year ended December 31, 2021, the Company made aggregate principal payments of approximately $44,000 on its promissory notes.

PPP loans

In April 2020, ANC Green Solutions I, ANC Potter’s and ANC Smith’s each qualified for and received a loan (the “PPP Loans”) pursuant to the Paycheck Protection Program, a program implemented by the U.S. Small Business Administration (“SBA”) under the Coronavirus Aid, Relief, and Economic Security Act, from qualified lenders. The PPP Loans bear interest at a fixed rate of 1.0% per annum, have terms of two years, and are unsecured and guaranteed by the SBA. The principal amounts of the PPP Loans are subject to forgiveness under the Paycheck Protection Program upon the Company’s request to the extent that the PPP Loan proceeds are used to pay expenses permitted by the Paycheck Protection Program, including payroll costs, covered rent and mortgage obligations, and covered utility payments incurred by the borrower.

During the year ended December 31, 2020, the Company applied for forgiveness of the PPP Loans with respect to these covered expenses. ANC Smith’s forgiveness application was accepted in November 2020 and the Company recognized $0.2 million in Forgiveness of note payable in its consolidated statement of operations for the year ended December 31, 2020.

In March 2021, ANC Potter’s PPP loan forgiveness application was accepted and the Company recognized $0.2 million in Forgiveness of note payable in its consolidated statement of operations for the year ended December 31, 2021.

In March 2021, ANC Green Solutions’ PPP Loan forgiveness application was accepted and the Company recognized $0.16 million in Forgiveness of note payable in its consolidated statement of operations for the year ended December 31, 2021.

Note 10 – Stockholders Equity

Preferred Stock

The Company is authorized to issue 5.0 million shares of preferred stock, par value $0.001 as of December 31, 2021 and December 31, 2020. No shares of preferred stock were issued or are outstanding as of December 31, 2021 and December 31, 2020.

Common Stock

The Company has authorized 67.5 million shares of common stock, $0.001 par value per share as of December 31, 2021 and 2020, of which 60.0 million shares are designated as Class A Common Stock and of which 7.5 million are designated as Class B Common Stock. Both classes of common stock qualify for and share equally in dividends, if declared by the Company’s board of directors (the “Board”). In the event of liquidation, dissolution, distribution of assets or winding-up of the Company, the holders of both classes of common stock have equal rights to receive all the assets of the Company, after rights of the holders of the preferred stock, if any, have been satisfied.

Class A Common Stock

Holders of Class A Common Stock are entitled to one vote per share on matters to be voted upon by stockholders. Holders of Class A Common Stock have no preemptive rights to subscribe for or to purchase any additional shares of Class A Common Stock or other obligations convertible into shares of Class A Common Stock which the Company may issue in the future.

All of the outstanding shares of Class A Common Stock are fully paid and non-assessable. Holders of our Class A Common Stock are not liable for further calls or assessments.

During the year ended December 31, 2021, the Company issued 64,048 shares of its class A Common Stock for vested restricted stock units (“RSUs”). The shares were issued for the vested RSUs on a 1:1 basis.

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Andover National Corporation

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

During the year ended December 31, 2021, the Company entered into separate subscription agreements with certain accredited investors, pursuant to which the Company, in private placements, issued and sold to the accredited investors an aggregate of 1,088,053 shares of its Class A Common Stock, at an offering price of $11.00 per share, for gross proceeds to the Company of $12.0 million and net proceeds of $11.5 million. Of the 1,088,053 shares of Class A Common Stock, shares were issued to related parties for gross proceeds to the Company of $9.3 million and net proceeds of $8.8 million.

As noted in Note 1, the Company purchased an undivided fifty-one percent (51)% interest in all of Zodega Seller’s right, title and interest in and to all of Zodega Seller’s property and assets in consideration for 51,290 shares (including 5,129 holdback shares) of the Company’s Class A common stock, with a value of approximately $0.6 million, subject to certain adjustments, as set forth in the Zodega Purchase Agreement. On April 18, 2022, the Company entered into a Membership Interest Purchase Agreement with Litton Enterprises, a related party, to sell its 51% interest in ANC Zodega. Refer to Note 16 for details.

During the year ended December 31, 2020, the Company entered into separate subscription agreements with certain accredited investors, pursuant to which the Company, in a private placement, issued and sold to the accredited investors an aggregate of 673,751 shares of its Class A Common Stock, at an offering price of $11.00 per share, for gross proceeds to the Company of $7.4 million and net proceeds of $7.1 million.

As of December 31, 2021 and 2020, there were 3,696,326 and 2,416,866 shares of Class A Common Stock outstanding, respectively.

Class B Common Stock

Holders of Class B Common Stock are entitled to fifty votes per share on matters to be voted upon by stockholders. Holders of our Class B Common Stock are entitled to elect, exclusively and as a separate class, three of the Company’s six members of the Board, who may not be removed without cause without the affirmative vote of holders of a majority of the outstanding shares of Class B Common Stock, voting as a separate class.

Holders of the Class B Common Stock may, at any time, convert their Class B Common Stock into one share of Class A Common Stock. The Class B conversion ratio is subject to adjustments upon the occurrence of certain events.

On November 1, 2021, 81,198 shares of Class B Common Stock were converted into 81,198 shares of Class A Common Stock.

As of December 31, 2021 and 2020, there were 0 and 81,198 shares of Class B Common Stock outstanding, respectively.

Warrants

As of December 31, 2021, the Company had no outstanding warrants.

The Class W-1 and Class W-2 warrants, (together, the “Warrants”) were issued by the Company and were fully vested. On February 2, 2021, all outstanding Warrants were terminated and a refund of $75,000 was returned to the Warrant Holders for the original purchase price for the Warrants.

The Warrants are subject to anti-dilution adjustments in connection with stock splits, tender offers, and certain other events (as described in the respective warrant agreements), and (y) provide for a right for the holders of the Warrants to choose to require that the Warrants be assumed by a successor entity or that the holder of Warrants receive the same consideration as stockholders upon certain change in control events.

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Andover National Corporation

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

A summary of warrant activity during the period December 31, 2020 through December 31, 2021 is as follows:


		Weighted		Weighted average
		average		remaining contractual
	Warrants	exercise price		life (in years)
Outstanding as of December 31, 2019	2,250,000	$	13.75	8.70
Outstanding as of December 31, 2020	2,250,000		13.75	7.70
Forfeited	(2,250,000)		13.75	—
Outstanding as of December 31, 2021	—	$	—	—

Note 11 - Stock-based Compensation

The Andover National Corporation 2019 Equity Incentive Plan (the “Plan”) provides for the issuance of incentive and non-incentive stock options, stock grants and stock-based awards. Options and restricted stock units granted generally vest over a period of one to four years and have a maximum term of ten years from the date of grant.

As of December 31, 2021 an aggregate of 289,577 shares of common stock were authorized under the Plan, subject to an “evergreen” provision that will automatically increase the maximum number of shares of Common Stock that may be issued under the terms of the Plan. As of December 31, 2021, no shares of common stock were available for future grants under the Plan.

The fair value of the Company’s restricted stock and restricted stock unit grants were determined by reference to recent or anticipated cash transactions involving the sale of the Company’s common stock.

The Company recorded total stock-based compensation expense of$1.1 million and $1.0 million during the years ended December 31, 2021 and 2020, respectively. Of the $1.1 million stock-based compensation expense recorded in 2021, $1.1 million relates to the Restricted Stock Units and $0.0 million relates to the Performance Restricted Stock Units. This is due to the reversal of previously recognized stock-based compensation expense for Jeffrey C. Piermont’s Restricted Stock Units due to forfeiture.

Restricted Stock Units

Below is a table summarizing the unvested restricted stock units through December 31,2021:


			Weighted average
			grant-date fair
	Units		value
Unvested as of December 31, 2019		150,000	$	11.00
Granted		18,182		11.00
Vested		(49,424)		11.00
Forfeited		(13,750)		11.00
Unvested as of December 31, 2020		105,008	$	11.00
Granted		139,500		11.00
Vested		(64,048)		11.00
Cancelled		(180,460)		11.00
Unvested as of December 31, 2021		—	$	—

The fair value of restricted stock units that vested during year ended December 31, 2021 and 2020 was approximately $0.7 million and $0.5 million, respectively.

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Andover National Corporation

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Performance Restricted Stock Units

On October 5, 2021, the Board granted a total of 225,579 performance restricted stock units (“PSUs”) to certain directors, officers, and advisors of the Company in exchange for the cancellation of 180,460 previously issued and unvested restricted stock units (“RSUs”). The PSUs add a performance vesting condition that will only be satisfied upon the occurrence of a “Liquidity Event” as defined in the PSU Agreement to include the listing of a class of the Company’s equity securities on a national securities exchange or the occurrence of a Change of Control (as defined in the Plan). The PSUs were granted under the Plan. Each PSU represents a contingent right to receive one share of the Company’s Class A Common Stock. In addition to the performance vesting condition described above, the grants are also subject to time-based vesting conditions set forth in the individual PSU agreements. The time-based vesting conditions range from 0 to 3 years.

On November 1, 2021, Jeffrey C. Piermont, the Company’s President and Chief Operating Officer, resigned from the Company. In connection with the resignation, Mr. Piermont forfeited each of his outstanding shares of performance restricted stock units (49,481 in total).

On March 31, 2022, Milun Patel, the Company’s Chief Financial Officer, was terminated from the Company. In relation to this termination, Mr. Patel forfeited all unvested equity awards on March 31, 2022.

Below is a table summarizing the unvested performance restricted stock units through December 31, 2021:


			Weighted average
			grant-date fair
	Units		value
Unvested as of December 31, 2020		—	$	—
Granted		225,579		11.00
Vested		—		11.00
Forfeited		(49,481)		(11.00)
Unvested as of December 31, 2021		176,098	$	—
Total unrecognized expense remaining	$	515,021
Weighted average years expected to be recognized over		0.95

Note 12 - Loss Per Common Share

The Company calculates basic loss per share by dividing net loss applicable to common stockholders by the weighted average number of shares of common stock outstanding during each period. Diluted loss per share includes the dilutive effect, if any, from the potential exercise or conversion of securities, such as warrants, stock options and restricted stock units, that would result in the issuance of incremental shares of common stock. For the year ended December 31, 2021 and 2020, the earnings per share amounts are the same for Class A Common and Class B Common stock because the holders of each class are legally entitled to equal per share distributions whether through dividends or in liquidation.

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Andover National Corporation

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The calculations of basic and diluted income (loss) per common share are as follows:


	For the Year Ended December 31,
	2021		2020

Numerator:
Net loss attributable to common shareholders	$	(8,311,162)	$	(3,225,275)

Denominator:
Weighted average Class A common shares outstanding		3,502,581		1,914,846
Weighted average Class B common shares outstanding		71,076		81,198
Weighted average Class A and Class B common shares outstanding - Basic		3,573,657		1,996,044
Dilutive effect of potential common shares		—		—
Weighted average Class A and Class B common shares outstanding - Diluted		3,573,657		1,996,044

Net loss per share attributable to Class A and Class B Common shareholders - Basic	$	(2.33)	$	(1.62)
Net loss per share attributable to Class A and Class B Common shareholders - Diluted	$	(2.33)	$	(1.62)

The following potentially dilutive securities outstanding for the years ended December 31, 2021 and 2020 have been excluded from the computation of diluted weighted average shares outstanding, as they would be antidilutive.


	December 31,
	2021	2020
Unvested Restricted Stock Units	—	105,008
Unvested Performance Restricted Stock Units	176,098	—
Warrants	—	2,250,000
	176,098	2,355,008

Note 13 – Related Party Transactions

The Company occupies a portion of commercial office space that is leased by Peter Cohen LLC, which provides the space to the Company at cost on a month-to-month basis for approximately $6,000 per month. There is no security deposit associated with this agreement. The Company paid approximately $69,000 and $79,000 to Mr. Cohen during the years ended December 31, 2021 and 2020, respectively. This sub-lease agreement was subsequently terminated in April 2022.

In December 2020, the Company entered into a subscription agreement at an offering price of $11.00 per share, with Cacti Asset Management, LLC, controlled by board member Joshua Pechter, for 18,182 shares of Class A Common Stock in exchange for $200,002 cash.

In January 2021, the Company sold 454,546 shares to Valuequest Partners, LLC for gross proceeds to the Company of $5.0 million. Valuequest Partners, LLC maintains the Company’s board member William Greenblatt as a board member.

In January 2021, the Company entered into a subscription agreement at an offering price of $11.00 per share with The Brandon T. Greenblatt, 2015 Trust, The Maggie S. Greenblatt, 2015 Trust, and The Steven J. Greenblatt 2015 Trust for 109,090 shares of Class A Common Stock each in exchange for an aggregate of $1,199,990 cash. The trusts are affiliated with Interim Chief Executive Officer and board member William Greenblatt.

In February 2021, the Company and each of Blumenthal Family Investment Joint Venture, L.P. and The Peter A. Cohen Revocable Trust (the “Warrant Holders”) entered into Warrant Cancellation Agreements in order to terminate the Warrants and to refund the Warrant Holders the original purchase price for the Warrants. The Warrant Holders were an entity controlled by an advisor, an officer of the Company and an entity controlled by an officer, respectively.

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Andover National Corporation

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

In February 2021, the Company entered into a subscription agreement at an offering price of $11.00 per share, with Cacti Asset Management, controlled by board member Joshua Pechter, for 18,182 shares of Class A Common Stock in exchange for $200,000 cash.

In February 2021, the Company entered into a subscription agreement at an offering price of $11.00 per share, with PENSCO Trust Company Custodian FBO Peter Cohen SEP IRA, on behalf of Peter A. Cohen, for 45,455 shares of Class A Common Stock in exchange for $500,000 cash.

In November 2021, Jeffrey C. Piermont resigned as President and Chief Operating Officer of the Company. Upon resignation, Mr. Piermont forfeited each of his outstanding shares of performance restricted stock units (49,481 in total).

In connection with the funding of the capital calls for the ANC-Zodega Subsidiaries acquisitions, as described in Note 1, the Company entered into unsecured promissory note agreements with Litton Enterprises Inc. for $1.4 million. The outstanding balance of the promissory note receivable as of December 31, 2021 was approximately $1.2 million. The promissory note agreements bear interest at a rate of WSJ Prime plus 7.0%, payable semiannually. The Company recognized $119,808 in interest income during the year ended December 31, 2021 related to this agreement. The outstanding balance of the promissory note was included as part of the sale of ANC Zodega to Litton Enterprises in April 2022.

In connection with the Business Combination, the Company entered into two lease agreements with the minority interest holders of ANC Green Solutions I. The lease agreement is for a period of five years. The Company paid $51,000 during both the years ended December 31, 2021 and 2020, related to this lease agreement.

In connection with the Potters Acquisition, the Company entered into a lease agreement with the minority interest holders of ANC Potter’s. The lease agreement is for a period of three years. The Company paid $42,000 and $38,500 during the years ended December 31, 2021 and 2020, respectively, related to this lease agreement

Note 14 - Commitments and Contingencies

Legal Proceedings

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Andover National Corporation

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 15 – Income Taxes

The Company accounts for income taxes under FASB ASC 740 (“ASC 740”). Deferred income tax assets and liabilities are determined based upon differences between financial reporting and tax bases of assets and liabilities, which are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse.

For financial reporting purposes, the Company’s consolidated loss before income taxes is $11,473,394.

The reconciliation between the Company’s effective tax rate on income from continuing operations and statutory tax rate for the years ended December 31, 2021 and 2020 is as follows:


	December 31,
	2021		2020
Statutory federal income tax rate	21.0	%	21.0	%
State income taxes, net of federal taxes	3.6	%	3.6	%
Non-controlling interest	—	%	—	%
Other permanent items	(0.2)	%	(0.2)	%
Change in valuation allowance	(24.4)	%	(24.4)	%
Income taxes provision	—	%	—	%

The following items comprise the Company’s net deferred tax assets and liabilities as of December 31, 2021:


	December 31,
	2021	2020
Deferred tax assets:
Net operating loss carryforwards	2,455,649	1,334,445
Stock-based compensation	243,362	141,914
Amortization	450,496	973
Passthrough entity	305,262	178,676
Other	45	45
Total deferred income tax assets	3,454,814	1,656,053
Deferred tax liabilities:
Depreciation	—	—
	—	—
Valuation allowance	(3,454,814)	(1,656,053)
Deferred tax asset, net of allowance	—	—

As of the years ended December 31, 2021 and 2020, the Company has federal and state net operating loss carryforwards of approximately $10.4 million and $5.6 million, respectively. Federal and State net operating losses carryforward indefinitely.

The utilization of the Company’s net operating losses may be subject to a U.S. federal limitation due to the “change in ownership provisions” under Section 382 of the Internal Revenue Code and other similar limitations in various state jurisdictions. Such limitations may result in a reduction of the amount of net operating loss carryforwards in future years and possibly the expiration of certain net operating loss carryforwards before their utilization.

As of December 31, 2021, the net deferred tax assets less deferred tax liabilities for 2021 were fully offset by the deferred tax liability and a valuation allowance on the remaining balance. A valuation allowance of $3,454,814, has been recorded in order to measure only

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Andover National Corporation

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

the portion of the deferred tax asset that more likely than not will be realized. The valuation allowance changed by $1,798,761 in the year 2021. The amount of the deferred tax asset considered realizable, however, could be adjusted if estimates of future taxable income are improved or if objective negative evidence in the form of cumulative losses is no longer present and additional weight may be given to subjective evidence such as our projections for growth in the relevant jurisdictions.

As required by the uncertain tax position guidance in ASC No. 740, Income Tax the Company recognizes the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit. For tax positions meeting the more-likely-than-not threshold, the amount recognized in the financial statements is the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement with the relevant tax authority. The Company applied the uncertain tax position guidance in ASC No. 740, Accounting for Income to all tax positions for which the statute of limitations remained open. Any estimates of tax contingencies contain assumptions and judgments about potential actions by taxing jurisdictions. Any interest and penalties related to uncertain tax positions would be included as part of the income tax provision. The Company’s conclusions regarding uncertain tax positions may be subject to review and adjustment at a later date based upon ongoing analysis of or changes in tax laws, regulations and interpretations thereof as well as other factors.

The Company files tax returns as prescribed by the tax laws of the jurisdictions in which it operates. In the normal course of business, the Company is subject to examinations by federal, and state and local jurisdictions, where applicable. The Company has no operations in foreign countries. There are currently no pending tax examinations. The Company’s tax years are still open under statute from 2018 to the present. To the extent the Company has tax attribute carryforwards, the tax years in which the attribute was generated may still be adjusted upon examination by the Internal Revenue Service and state and local tax authorities to the extent utilized in a future period.

The Company is also subject to certain non-income taxes such as value added taxes, sales taxes, and property taxes. The Company has taken certain positions that management feels, although not free from doubt, should not result in a successful challenge by certain tax authorities.

Note 16 - Subsequent Events

On January 1, 2022, ANC Zodega entered into a lease agreement (the “Lease”) with VIG Lang Business Park, LLC (the “Landlord”) to rent real property. The term of the lease is 42 months, beginning on the start date, with options to extend for additional terms. The lease payments begin at approximately $1,098 per month, increasing on an annual basis each July throughout the lease term.

On February 1, 2022, ANC Zodega entered into a secured promissory note (the “Note”) with Andover Environmental Solutions, LLC for a principal amount of $392,238. The principal balance of the Note matures and is payable on the second anniversary of the date of the Note. The interest rate on this Note is 7.25% on an annual basis, payable semiannually.

On March 2, 2022, the Company and Peter Cohen, the Company’s CEO and co-founder mutually agreed to Mr. Cohen’s resignation as CEO effective immediately. Mr. Cohen remained as Chairman of the Board of the Company. Company Director William Greenblatt assumed responsibility as Interim CEO effective March 2 to May 20, 2022.

On March 31, 2022, Milun Patel, the Company’s Chief Financial Officer, was terminated from the Company. The Board of Directors of the Company has assumed responsibility for duties previously performed by Mr. Patel. In relation to this termination, Mr. Patel forfeited all unvested equity awards on March 31, 2022.

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Andover National Corporation

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

On April 18, 2022, Andover Environmental Solutions, LLC, a Delaware limited liability company, entered into a Membership Interest Purchase Agreement with Litton Enterprises Inc. and Messrs. Robert Dihu and Larry Litton Jr., pursuant to which, among other things, the sale of the fifty-one percent (51)% interest of ANC Zodega, will consolidate indirect ownership of all of the Zodega Opco Assets. The aggregate purchase price for the Purchased Interests (the “Purchase Price”) was equal to: (i) the Promissory Note, Pledge, and Guaranty by Purchaser and the pledgors and guarantors specified therein in the principal amount of One Million Eight Hundred Thousand and No/100 Dollars ($1,800,000.00) which is to be received on or by May 27, 2022, and (ii) 51,290 shares of class “A” common stock of Andover National Corporation, a Delaware corporation. In relation to this sale, the Litton and Zodega loans to ANC Zodega were forgiven. The total amount lent to Litton and Zodega, both including interest, was $1,330,558 and $849,903, respectively. In 2021, Zodega contributed approximately 48% of Andover National consolidated revenues and approximately $3.6 million in loss from operations, $3.6 million in net loss, and $1.8 million in net loss attributable to common shareholders.

On May 20, 2022, the Company and Mr. Greenblatt, Interim CEO, mutually agreed to Mr. Greenblatt’s resignation as Interim CEO effective immediately. Company Director Peter Cohen assumed responsibility as Interim CEO effective immediately. Mr. Greenblatt remains as a Director of the Company.

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Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

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

Item 9A. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

As of the end of the period covered by this Annual Report on Form 10-K, 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.

Under the supervision of and with the participation of our management, we assessed the effectiveness of our internal control over financial reporting as of December 31, 2021, using the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework (2013). A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.

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 year ended December 31, 2021 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.

Item 9B. Other Information

Not applicable.

Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections

Not applicable.

Item 10. Directors, Executive Officers and Corporate Governance

Management and Board of Directors

As of December 31, 2021, our board of directors consisted of five (5) members. The following table sets forth the names and ages of all of our directors.

Year Ended December 31,

Description

Net loss attributable to common shareholders

(8,151,096)

(2,704,897)

Andover National Corp 10-K