Item
4.02
Non-Reliance on Previously Issued Financial Statements or a Related
Audit Report or Completed Interim Review.
On March 29, 2019, the Audit Committee (the “Audit
Committee”) of the Board of Directors (the
“Board”) of DropCar, Inc. (the “Company”),
concluded that a restatement of the unaudited interim condensed
consolidated financial statements included in each of the Quarterly
Reports on Form 10-Q for the quarters ended March 31, 2018, June
30, 2018, and September 30, 2018, originally filed by the Company
with the Securities and Exchange Commission on May 21, 2018, August
14, 2018 and November 14, 2018, respectively (the “Quarterly
Reports”), was required to correct certain errors related to
the expense recognition for equity issued in connection with
the
January 30, 2018,
completion of the business combination with DropCar, Inc., a then
privately-held Delaware corporation, in accordance with the terms
of a merger agreement, pursuant to which a merger subsidiary merged
with and into Private DropCar, with Private DropCar surviving as
our wholly owned subsidiary
and
should no longer be relied upon for the reasons identified below.
The adjustment has no impact on cash flows. The conclusion was made
in conjunction with EisnerAmper LLP, the Company's independent
registered public accounting firm, which advised the Audit
Committee on such matters on March 29, 2019.
Specifically, the Company incorrectly categorized $1,119,294 of
non-cash expenses as equity in the first quarter of 2018. These
adjustments impact all future quarter cumulative earnings and, as
such, the Company anticipates that it will file an amendment to
each of the Quarterly Reports in order to amend and restate its
financial results for the affected periods as soon as
practicable.
As previously disclosed in each of the Quarterly Reports, an
evaluation was performed under the supervision and with the
participation of the Company’s Chief Executive Officer and
Chief Financial Officer, its principal executive officer and
principal financial officer, respectively, of the effectiveness of
the Company’s disclosure controls and procedures (as defined
in Rule 13a-15(e) or 15d-15(e) under the Securities Exchange Act of
1934, as amended) as of the end of each such period. Based on their
evaluation, for each such period, the Company’s Chief
Executive Officer and Chief Financial Officer concluded that the
Company’s disclosure controls and procedures were not
effective due to the material weaknesses resulting from a limited
segregation of duties among the Company’s employees with
respect to its control activities and that this deficiency was the
result of the Company’s limited number of employees. For each
such period, the Company also identified material weaknesses
surrounding the financial closing process and the recording of debt
and equity transactions that occurred in each such period. These
deficiencies may have affected management’s ability to
determine if errors or inappropriate actions have taken place.
Management is required to apply its judgment in evaluating the
cost-benefit relationship of possible changes in our disclosure
controls and procedures. Following such evaluations, management
implemented certain measures including additional cash controls,
dual-signature procedures, and other review and approval processes
by the Company’s management team.
In evaluating its assessment of the Company’s disclosure
controls and procedures and internal control over financial
reporting as of December 31, 2018, management concluded that each
was not effective as of that date.
The Board, the Audit Committee and the Company's management have
discussed the matters disclosed in this Item 4.02 on Form 8-K with
EisnerAmper LLP.
Forward-Looking Statements
This Current Report on Form 8-K may contain
"forward-looking statements" within the meaning of the "safe
harbor" provisions of the Private Securities Litigation Reform Act
of 1995. Statements preceded by, followed by, or that include the
words "may," "could," "should," "pro forma," "looking forward,"
"would," "believe," "expect," "anticipate," "estimate," "intend,"
"plan," or similar expressions generally indicate a forward-looking
statement. These forward-looking statements involve risks and
uncertainties that are subject to change based on various important
factors (some of which, in whole or in part, are beyond the
Company's control). These risks and uncertainties include, but are
not limited to, the risk that additional information may arise
during the course of the Company's ongoing accounting review that
would require the Company to make additional adjustments or
revisions or to restate further the financial statements and other
financial data for the Quarterly Reports and/or additional
historical periods. All forward-looking statements and information
set forth herein are based on management's current beliefs and
assumptions as of the date hereof and speak only as of the date
they are made. For a more complete discussion of the assumptions,
risks and uncertainties related to our business, you are encouraged
to review the Company's filings with the Securities and Exchange
Commission. The Company does not undertake to update any
forward-looking statement whether written or oral, that may be made
from time to time by the Company.