Company Quick10K Filing
Quick10K
Dropcar
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$1.26 4 $5
10-Q 2019-06-30 Quarter: 2019-06-30
10-Q 2019-03-31 Quarter: 2019-03-31
10-K 2018-12-31 Annual: 2018-12-31
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-Q 2017-10-31 Quarter: 2017-10-31
10-Q 2017-07-31 Quarter: 2017-07-31
10-K 2017-04-30 Annual: 2017-04-30
10-Q 2017-01-31 Quarter: 2017-01-31
10-Q 2016-10-31 Quarter: 2016-10-31
10-Q 2016-07-31 Quarter: 2016-07-31
10-K 2016-04-30 Annual: 2016-04-30
10-Q 2016-01-31 Quarter: 2016-01-31
10-Q 2015-10-31 Quarter: 2015-10-31
10-Q 2015-07-31 Quarter: 2015-07-31
10-K 2015-04-30 Annual: 2015-04-30
10-Q 2015-01-31 Quarter: 2015-01-31
10-Q 2014-10-31 Quarter: 2014-10-31
10-Q 2014-07-31 Quarter: 2014-07-31
10-K 2014-04-30 Annual: 2014-04-30
10-Q 2014-01-31 Quarter: 2014-01-31
8-K 2019-09-06
8-K 2019-08-19
8-K 2019-08-14 Earnings, Exhibits
8-K 2019-06-28
8-K 2019-05-15 Earnings, Exhibits
8-K 2019-03-29 Amendment
8-K 2019-03-26 Enter Agreement, Exhibits
8-K 2019-03-08 Shareholder Rights, Amend Bylaw, Exhibits
8-K 2019-02-14 Officers
8-K 2019-02-06 Officers
8-K 2019-01-15 Earnings, Regulation FD, Exhibits
8-K 2018-12-23 M&A, Officers, Exhibits
8-K 2018-12-10 Enter Agreement, Exhibits
8-K 2018-11-15 Shareholder Vote
8-K 2018-11-14 Earnings, Exhibits
8-K 2018-09-25
8-K 2018-08-31 Enter Agreement, Exhibits
8-K 2018-08-16 Other Events, Exhibits
8-K 2018-08-14 Earnings, Exhibits
8-K 2018-07-26 Amend Bylaw, Exhibits
8-K 2018-07-11 Officers, Exhibits
8-K 2018-05-15 Earnings, Exhibits
8-K 2018-04-19 Enter Agreement, Sale of Shares, Shareholder Rights, Exhibits
8-K 2018-04-18 Earnings, Exhibits
8-K 2018-03-12 Other Events
8-K 2018-03-08 Enter Agreement, Sale of Shares, Shareholder Rights, Amend Bylaw, Regulation FD, Exhibits
8-K 2018-02-16 Earnings, Exhibits
8-K 2018-01-30 M&A, Shareholder Rights, Accountant, Control, Officers, Amend Bylaw, Code of Ethics, Other Events, Exhibits
8-K 2018-01-17 Shareholder Vote, Other Events, Exhibits
CHT Chunghwa Telecom 267,709
USM United States Cellular 2,986
NSSC Napco Security Technologies 597
INSG Inseego 298
RNET Rignet 153
TLK Frankly 82
MARK Remark Holdings 36
SUNW Sunworks 11
XGTI XG Technology 1
CTY Qwest 0
DCAR 2019-06-30
Part I – Financial Information
Item 1 – Financial Statements.
EX-31.1 dcar_ex311.htm
EX-31.2 dcar_ex312.htm
EX-32.1 dcar_ex321.htm
EX-32.2 dcar_ex322.htm

Dropcar Earnings 2019-06-30

DCAR 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 dcar_10q.htm QUARTERLY REPORT Blueprint
 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
(Mark One)
 
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended June 30, 2019
 
or
 
¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from __________________ to __________________
 
Commission File Number:   001-34643
 
DropCar, Inc.
(Exact name of registrant as specified in its charter)
 
Delaware
98-0204758
(State or other jurisdiction of
(I.R.S. Employer
incorporation or organization)
Identification No.)
 
DropCar, Inc.
1412 Broadway, Suite 2105
New York, New York 10018
(646) 342-1595
(Registrant’s telephone number, including area code)
 
Not Applicable 
(Former name, former address and former fiscal year, if changed since last report)
 
Securities registered pursuant to Section 12(b) of the Act:
 
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common stock par value $0.0001 per share
DCAR
The Nasdaq Stock Market
 
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 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. (Check one):
 
Large accelerated filer
 
 
Accelerated filer
 
Non-accelerated filer
 
 
Smaller reporting company
 
 
 
 
 
Emerging growth company
 
 
If an emerging growth company, indicate by a 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 August 12, 2019, there were 4,042,713 shares of the registrant’s common stock, $0.0001 par value per share, issued and outstanding.

 
 
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
 
Certain statements in this report contain or may contain forward-looking statements. These statements, identified by words such as “plan,” “anticipate,” “believe,” “estimate,” “should,” “expect” and similar expressions, include our expectations and objectives regarding our future financial position, operating results and business strategy. These statements are subject to known and unknown risks, uncertainties and other factors which may cause actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. These forward-looking statements were based on various factors and were derived utilizing numerous assumptions and other factors that could cause our actual results to differ materially from those in the forward-looking statements. These factors include, but are not limited to, our inability to obtain adequate financing, our inability to expand our business, existing or increased competition, stock volatility and illiquidity, and the failure to implement our business plans or strategies. Most of these factors are difficult to predict accurately and are generally beyond our control. You should consider the areas of risk described in connection with any forward-looking statements that may be made herein. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this report. Readers should carefully review this report in its entirety, including but not limited to our financial statements and the notes thereto and the risks described in our Annual Report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”) on April 3, 2019, as subsequently amended on April 12, 2019, and other reports we file with the SEC. We advise you to carefully review the reports and documents we file from time to time with the SEC, particularly our quarterly reports on Form 10-Q and our current reports on Form 8-K. Except for our ongoing obligations to disclose material information under the Federal securities laws, we undertake no obligation to publicly release any revisions to any forward-looking statements, to report events or to report the occurrence of unanticipated events.
 
 
OTHER INFORMATION
 
When used in this report, the terms, “we,” the “Company,” “our,” and “us” refer to DropCar, Inc., a Delaware corporation (previously named WPCS International Incorporated), and its consolidated subsidiaries.
 
 
TABLE OF CONTENTS
 
 
 
PageNo.
PART I – FINANCIAL INFORMATION
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Part II – OTHER INFORMATION
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Part I – Financial Information
 
Item 1 – Financial Statements.
 
 
DropCar, Inc., and Subsidiaries
 
 
Condensed Consolidated Balance Sheets
 
 
(Unaudited)
 
 
 
 
 
 
 
 
 
 
June 30,
 
 
December 31,
 
 
 
2019
 
 
2018
 
 
 
 
 
 
 
 
ASSETS
 
 
 
 
 
 
 
 
 
 
 
 
 
CURRENT ASSETS:
 
 
 
 
 
 
Cash
 $3,448,501 
 $4,303,480 
Accounts receivable, net
  395,146 
  295,626 
Prepaid expenses and other current assets
  367,068 
  328,612 
Total current assets
  4,210,715 
  4,927,718 
 
    
    
Property and equipment, net
  30,787 
  39,821 
Capitalized software costs, net
  548,652 
  659,092 
Operating lease right-of-use asset
  6,619 
  - 
Other assets
  3,525 
  3,525 
 
    
    
TOTAL ASSETS
 $4,800,298 
 $5,630,156 
 
    
    
LIABILITIES AND STOCKHOLDERS' EQUITY
    
    
 
    
    
CURRENT LIABILITIES:
    
    
Accounts payable and accrued expenses
 $2,028,818 
 $2,338,560 
Deferred revenue
  303,744 
  253,200 
Lease liability
  960 
  - 
Total current liabilities
  2,333,522 
  2,591,760 
 
    
    
COMMITMENTS AND CONTINGENCIES
    
    
 
    
    
STOCKHOLDERS' EQUITY:
    
    
Preferred stock, $0.0001 par value, 5,000,000 shares authorized
    
    
Series seed preferred stock, 842,405 shares authorized, zero issued and outstanding
  - 
  - 
Series A preferred stock, 1,963,877 shares authorized, zero issued and outstanding
  - 
  - 
Convertible Series H, 8,500 shares designated, 8 shares issued and outstanding
  - 
  - 
Convertible Series H-1, 9,488 shares designated zero shares issued and outstanding
  - 
  - 
Convertible Series H-2, 3,500 shares designated zero shares issued and outstanding
  - 
  - 
Convertible Series H-3, 8,461 shares designated 2,189 shares issued and outstanding
  - 
  - 
Convertible Series H-4, 30,000 shares designated 5,028 and 26,619 shares issued and outstanding as of June 30, 2019 and December 31, 2018, respectively
  1 
  3 
Common stock, $0.0001 par value; 100,000,000 shares authorized, 4,042,713 and 1,633,394 issued and outstanding as of June 30, 2019 and December 31, 2018, respectively
  404 
  163 
Additional paid in capital
  35,146,753 
  32,791,951 
Accumulated deficit
  (32,680,382)
  (29,753,721)
 
    
    
TOTAL STOCKHOLDERS' EQUITY
  2,466,776 
  3,038,396 
 
    
    
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
 $4,800,298 
 $5,630,156 

 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
 
4
 
 
 
DropCar, Inc., and Subsidiaries
 
 
Condensed Consolidated Statements of Operations
 
 
(Unaudited)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
For the Three Months
Ended June 30,
 
 
For the Six Months
Ended June 30,
 
 
 
2019
 
 
2018
 
 
2019
 
 
2018
 
 
 
 
 
 
(Restated)
 
 
 
 
 
(Restated)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
SERVICE REVENUES
 $1,246,544 
 $1,873,997 
 $2,345,987 
 $3,566,072 
 
    
    
    
    
COST OF REVENUE
  1,115,787 
  2,528,781 
  2,242,832 
  4,824,562 
 
    
    
    
    
GROSS PROFIT (LOSS)
  130,757 
  (654,784)
  103,155 
  (1,258,490)
 
    
    
    
    
OPERATING EXPENSES
    
    
    
    
Research and development
  48,330 
  63,971 
  117,312 
  178,132 
Selling, general and administrative expenses
  945,388 
  3,341,601 
  2,718,485 
  6,252,398 
Depreciation and amortization
  98,967 
  84,177 
  206,716 
  163,409 
TOTAL OPERATING EXPENSES
  1,092,685 
  3,489,749 
  3,042,513 
  6,593,939 
 
    
    
    
    
OPERATING LOSS
  (961,928)
  (4,144,533)
  (2,939,358)
  (7,852,429)
 
    
    
    
    
Other income (expense), net
  10,973 
  718 
  12,697 
  (1,081,499)
 
    
    
    
    
LOSS FROM CONTINUING OPERATIONS
  (950,955)
  (4,143,815)
  (2,926,661)
  (8,933,928)
 
    
    
    
    
DISCONTINUED OPERATIONS
    
    
    
    
Income from operations of discontinued component
  - 
  151,565 
  - 
  460,943 
INCOME FROM DISCONTINUED OPERATIONS
  - 
  151,565 
  - 
  460,943 
 
    
    
    
    
Income taxes
 -
 -
 -
 -
 
    
    
    
    
NET LOSS
 $(950,955)
 $(3,992,250)
 $(2,926,661)
 $(8,472,985)
 
    
    
    
    
Deemed dividend on exchange of warrants
  - 
  (316,861)
  - 
  (316,861)
 
    
    
    
    
NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS
 $(950,955)
 $(4,309,111)
 $(2,926,661)
 $(8,789,846)
 
    
    
    
    
LOSS PER SHARE FROM CONTINUING OPERATIONS:
    
    
    
    
   Basic
 $(0.24)
 $(3.12)
 $(0.96)
 $(7.65)
   Diluted
 $(0.24)
 $(3.12)
 $(0.96)
 $(7.65)
EARNINGS PER SHARE FROM DISCONTINUED OPERATIONS:
    
    
    
    
   Basic
 $-
 $0.11 
 $-
 $0.39 
   Diluted
 $-
 $0.11 
 $-
 $0.39 
NET LOSS PER SHARE:
    
    
    
    
   Basic
 $(0.24)
 $(3.24)
 $(0.96)
 $(7.53)
   Diluted
 $(0.24)
 $(3.24)
 $(0.96)
 $(7.53)
WEIGHTED AVERAGE SHARES OUTSTANDING
    
    
    
    
   Basic
  3,954,152 
  1,328,654 
  3,040,993 
  1,167,432 
   Diluted
  3,954,152 
  1,328,654 
  3,040,993 
  1,167,432 

 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
 
5
 
 
DropCar Inc., and Subsidiaries
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(Unaudited)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Series Seed
 
 
Series A
 
 
Series H
 
 
Series H-3
 
 
Series H-4
 
 
 
 
 
 
 
 
Additional
 
 
 
 
 
 
 
 
 
Preferred Stock
 
 
Preferred Stock
 
 
Preferred Stock
 
 
Preferred Stock
 
 
Preferred Stock
 
 
Common Stock
 
 
Paid-in
 
 
Accumulated
 
 
 
 
 
 
Shares
 
 
Amount
 
 
Shares
 
 
Amount
 
 
Shares
 
 
Amount
 
 
Shares
 
 
Amount
 
 
Shares
 
 
Amount
 
 
Shares
 
 
Amount
 
 
Capital
 
 
(Deficit)
 
 
Total
 
Balances, January 1, 2019
  - 
  - 
  - 
  - 
  8 
  - 
  2,189 
  - 
  26,619 
  3 
  1,633,394 
  163 
  32,791,951 
  (29,753,721)
  3,038,396 
Issuance of common stock for cash net of costs of $15,000
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  478,469 
  48 
  1,984,953 
  - 
  1,985,001 
Exercise of warrants
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  277,778 
  28 
  16,639 
  - 
  16,667 
Conversion of Series H-4 preferred stock into common stock
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  (21,591)
  (2)
  1,412,420 
  141 
  (139)
  - 
  - 
Stock based compensation for options issued to employees
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  (19,361)
  - 
  (19,361)
Stock based compensation for restricted stock units issued to employees
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  289,842 
  - 
  289,842 
Stock based compensation for common stock issued to service providers
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  116,666 
  12 
  222,188 
  - 
  222,200 
Net Loss
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  (1,975,706)
  (1,975,706)
Balance, March 31, 2019
  - 
  - 
  - 
  - 
  8 
  - 
  2,189 
  - 
  5,028 
  1 
  3,918,727 
  392 
  35,286,073 
  (31,729,427)
  3,557,039 
Issuance of common stock upon vesting of restricted stock units
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  244,644 
  24 
  (24)
  - 
  - 
Common stock reserved and retired for excess tax benefits from stock based compensation
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  (120,658)
  (12)
  (183,321)
  - 
  (183,333)
Stock based compensation for options issued to employees
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  44,025 
  - 
  44,025 
Net Loss
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  (950,955)
  (950,955)
Balance, June 30, 2019
  - 
 $- 
  - 
 $- 
  8 
 $- 
  2,189 
 $- 
  5,028 
 $1 
  4,042,713 
 $404 
 $35,146,753 
 $(32,680,382)
 $2,466,776 
 
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
Balances, January 1, 2018
  275,691 
 $27 
  611,944 
 $61 
  - 
 $- 
  - 
 $- 
  - 
 $- 
  374,285 
 $37 
 $5,115,158 
 $(9,604,897)
 $(4,489,614)
Issuance of common stock for cash
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  10,057 
  1 
  299,999 
  - 
  300,000 
Conversion of debt into common stock
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  136,785 
  14 
  3,682,488 
  - 
  3,682,502 
Interest on lock-up shares in relation to convertible debt
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  85,571 
  9 
  672,135 
  - 
  672,144 
Exchange of shares in connection with Merger
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  490,422 
  49 
  9,792,174 
  - 
  9,792,223 
Conversion of outstanding Preferred Stock in connection with Merger
  (275,691)
  (27)
  (611,944)
  (61)
  - 
  - 
  - 
  - 
  - 
  - 
  147,939 
  15 
  73 
  - 
  - 
Issuance of Series H preferred stock in connection with Merger
  - 
  - 
  - 
  - 
  8 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
Issuance of Series H-3 preferred stock in connection with Merger
  - 
  - 
  - 
  - 
  - 
  - 
  2,189 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
Issuance of Series H-4 preferred stock and warrants in private placement, net of costs of $101,661
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  25,472 
  3 
  - 
  - 
  5,898,336 
  - 
  5,898,339 
Stock based compensation for options issued to employees
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  17,210 
  - 
  17,210 
Stock based compensation for restricted stock units issued to employees
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  275,528 
  - 
  275,528 
Stock based compensation for common stock issued to service providers
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  56,929 
  6 
  447,144 
  - 
  447,150 
Series H-4 preferred stock and warrants issued to service provider
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  1,371 
  - 
  - 
  - 
  - 
  - 
  - 
Net Loss
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  (4,480,735)
  (4,480,735)
Balance, March 31, 2018 (Restated)
  - 
  - 
  - 
  - 
  8 
  - 
  2,189 
  - 
  26,843 
  3 
  1,301,988 
  131 
  26,200,245 
  (14,085,632)
  12,114,747 
Conversion of accrued interest into common stock
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  4,518 
    
  159,584 
    
  159,584 
Stock based compensation for options issued to employees
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  67,306 
  - 
  67,306 
Stock based compensation for restricted stock units issued to employees
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  808,808 
  - 
  808,808 
Stock based compensation for common stock issued to service providers
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  3,333 
  - 
  31,800 
  - 
  31,800 
Deemed dividend on exchange of merger warrants to Series I warrants and common stock
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
    
    
  48,786 
  5 
  316,856 
  (316,861)
  - 
Net Loss
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  (3,992,250)
  (3,992,250)
Balance, June 30, 2018 (Restated)
  - 
 $- 
  - 
 $- 
  8 
 $- 
  2,189 
 $- 
  26,843 
 $3 
  1,358,625 
 $136 
 $27,584,599 
 $(18,394,743)
 $9,189,995 
 
 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
 
6
 
 
 DropCar, Inc., and Subsidiaries
Condensed Consolidated Statements of Cash Flows 
(Unaudited) 
 
 
 
For the Six Months Ended June 30,
 
 
 
2019
 
 
2018
 
 
 
 
 
 
 (Restated)
 
CASH FLOWS FROM OPERATING ACTIVITIES:
 
 
 
 
 
 
Net loss
 $(2,926,661)
 $(8,472,985)
Income from discontinued operations
  - 
  (460,943)
Loss from continuing operations
  (2,926,661)
  (8,933,928)
Adjustments to reconcile net loss to net cash used in operating activities:
    
    
Depreciation and amortization
  210,048 
  163,409 
Amortization of debt discount
  - 
  176,000 
Loss of disposition of asset
  3,641 
  - 
Stock based compensation
  638,119 
  1,647,802 
Non-cash interest expense
  - 
  696,013 
Amortization of operating lease right-of-use asset
  16,421 
  - 
Changes in operating assets and liabilities:
    
    
Accounts receivable
  (99,520)
  (102,789)
Prepaid expenses and other assets
  (47,886)
  (503,690)
Accounts payable and accrued expenses
  (411,156)
  (79,850)
Lease liabilities
  (12,650)
  - 
Deferred revenue
  50,544 
  (13,908)
 
    
    
NET CASH USED IN OPERATING ACTIVITIES - CONTINUING OPERATIONS
  (2,579,100)
  (6,950,941)
NET CASH USED IN OPERATING ACTIVITIES - DISCONTINUED OPERATIONS
  - 
  (1,131,108)
NET CASH USED IN OPERATING ACTIVITIES
  (2,579,100)
  (8,082,049)
 
    
    
CASH FLOWS FROM INVESTING ACTIVITIES:
    
    
Purchase of property and equipment
  - 
  (43,108)
Capitalization of software costs
  (94,489)
  (208,143)
Proceeds from sale of fixed asset
  275 
  - 
 
    
    
NET CASH USED IN INVESTING ACTIVITIES - CONTINUING OPERATIONS
  (94,214)
  (251,251)
NET CASH PROVIDED BY INVESTING ACTIVITIES - DISCONTINUED OPERATIONS
  - 
  3,997,483 
NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES
  (94,214)
  3,746,232 
 
    
    
CASH FLOWS FROM FINANCING ACTIVITIES:
    
    
Proceeds from the sale of common stock, net
  1,985,001 
  300,000 
Common stock reserved and retired in connection with excess tax benefits paid
  (183,333)
  - 
Proceeds from the sale of Series H-4 preferred stock
  - 
  6,000,000 
Financing costs from the sale of Series H-4 preferred stock and warrants
  - 
  (101,661)
Proceeds from issuance of common stock in connection with exercise of K warrants
  16,667 
  - 
 
    
    
NET CASH PROVIDED BY FINANCING ACTIVITIES - CONTINUING OPERATIONS
  1,818,335 
  6,198,339 
NET CASH USED IN FINANCING ACTIVITIES - DISCONTINUED OPERATIONS
  - 
  (22,424)
NET CASH PROVIDED BY FINANCING ACTIVITIES
  1,818,335 
  6,175,915 
 
    
    
Net increase (decrease) in cash
  (854,979)
  1,840,098 
 
    
    
Cash, beginning of period
  4,303,480 
  372,011 
 
    
    
Cash, end of period
 $3,448,501 
 $2,212,109 
 
    
    
SUPPLEMENTAL CASH FLOW INFORMATION:
    
    
Stock based compensation included in accounts payable and accrued expenses
 $106,137 
 $- 
 Issuance of common stock for accrued stock based compensation
 $4,724
 
 $-
 
 Assets acquired under operating leases
 $23,040
 
 $-
 
 
    
    
NON-CASH FINANCING ACTIVITIES:
    
    
Stock issued to WPCS Shareholder in the merger, net of cash received of 4,947,023
 $- 
 $4,845,200 
Series H-4 offering cost paid in H-4 shares and warrants
 $- 
 $568,648 
Stock issued for convertible note payable
 $- 
 $3,682,502 
Stock issued for accrued interest on convertible note payable
 $- 
 $159,584 
 
 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
 
7
DropCar, Inc., and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
 
1.       
The Company
 
The Company is a provider of automotive vehicle support, fleet logistics, and concierge services for both consumers and the automotive industry. Its cloud-based Enterprise Vehicle Assistance and Logistics (“VAL”) platform and mobile application (“app”) assists consumers and automotive-related companies to reduce the costs, hassles and inefficiencies of owning a car, or fleet of cars, in urban centers.
 
In July 2018, the Company launched its Mobility Cloud platform which provides automotive-related businesses with a 100% self-serve SaaS version of its VAL platform to manage their own operations and drivers, as well as customer relationship management (“CRM”) tools that enable their clients to schedule and track their vehicles for service pickup and delivery. The Company’s Mobility Cloud also provides access to private application programming interfaces (“APIs”) which automotive-businesses can use to integrate the Company’s logistics and field support directly into their own applications and processes natively, to create more seamless client experiences. The Company earned de minimis revenues from Mobility Cloud in 2019. The Company did not earn any revenues from Mobility Cloud in 2018.
 
On the enterprise side, original equipment manufacturers (“OEMs”), dealers, and other service providers in the automotive space are increasingly being challenged with consumers who have limited time to bring in their vehicles for maintenance and service, making it difficult to retain valuable post-sale service contracts or scheduled consumer maintenance and service appointments. Additionally, many of the vehicle support centers for automotive providers (i.e., dealerships, including body work and diagnostic shops) have moved out of urban areas thus making it more challenging for OEMs and dealers in urban areas to provide convenient and efficient service for their consumer and business clientele. Similarly, shared mobility providers and other fleet managers, such as rental car companies and car share programs, face a similar urban mobility challenge: getting cars to and from service bays, rebalancing vehicle availability to meet demand in fleeting and de- fleeting vehicles to and from dealer lots, auction sites and to other locations.
 
In July 2018, the Company began assessing demand for a Self-Park Spaces monthly parking plan whereby consumers could designate specific garages for their vehicles to be stored at a base monthly rate, with personal 24/7 access for picking up and returning their vehicle directly, and the option to pay a la carte on a per hour basis for a driver to perform functions such as picking up and returning their vehicle to their front door. This model aligns more directly with how the Company has structured the enterprise Business-to-Business (“B2B”) side of its business, where an interaction with a vehicle on behalf of its drivers typically generates new revenue. The Company consumer Self-Park Spaces plan combined with its on-demand hourly valet service are the only consumer plans offered from September 1, 2018 onwards. Subscriber plans prior to this date continued to receive service on a prorated basis through the end of August 2018. Additionally, the Company is scaling back its DropCar 360 Services on Demand Service (“360 Services”) for the Consumer portion of the market. As a result of this shift, in August 2018, the Company began to significantly streamline its field teams, operations and back office support tied to its pre-September 1, 2018 consumer subscription plans. The scaling back of these services and the discontinuation of the Company’s monthly parking with front door valet (“Steve”) service resulted in a decrease in revenue.
 
To date, the Company operates primarily in the New York metropolitan area. In May, June, and August 2018, the Company expanded operations with its B2B business in San Francisco, Washing DC, and Los Angeles, respectively. These three new market expansions are with an OEM customer.
 
Merger and Exchange Ratio
 
On January 30, 2018, DC Acquisition Corporation (“Merger Sub”), a wholly-owned subsidiary of WPCS International Incorporated (“WPCS”), completed its merger with and into DropCar, Inc. (“Private DropCar”), with Private DropCar surviving as a wholly owned subsidiary of WPCS. This transaction is referred to as the “Merger.” The Merger was effected pursuant to an Agreement and Plan of Merger and Reorganization (the “Merger Agreement”), dated September 6, 2017, by and among WPCS, Private DropCar and Merger Sub.
 
As a result of the Merger, each outstanding share of Private DropCar share capital (including shares of Private DropCar share capital issued upon the conversion of outstanding convertible debt) automatically converted into the right to receive approximately 0.3273 shares of WPCS’s common stock, par value $0.0001 per share (the “Exchange Ratio”).
 
 
8
DropCar, Inc., and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
 
 
Following the closing of the Merger, holders of WPCS’s common stock immediately prior to the Merger owned approximately 22.9% on a fully diluted basis, and holders of Private DropCar common stock immediately prior to the Merger owned approximately 77.1% on a fully diluted basis, of WPCS’s common stock.
 
The Merger has been accounted for as a reverse acquisition under the acquisition method of accounting where Private DropCar is considered the accounting acquirer and WPCS is the acquired company for financial reporting purposes. Private DropCar was determined to be the accounting acquirer based on the terms of the Merger Agreement and other factors, such as relative voting rights and the composition of the combined company’s board of directors and senior management, which was deemed to have control. The pre-acquisition financial statements of Private DropCar became the historical financial statements of WPCS following the Merger. The historical financial statements, outstanding shares and all other historical share information have been adjusted by multiplying the respective share amount by the Exchange Ratio as if the Exchange Ratio had been in effect for all periods presented.
 
Immediately following the Merger, the combined company changed its name from WPCS International Incorporation to DropCar, Inc. The combined company following the Merger may be referred to herein as “the combined company,” “DropCar,” or the “Company.”
 
Discontinued Operations
 
On December 24, 2018, the Company completed the sale of WPCS International – Suisun City, Inc., a California corporation (the “Suisun City Operations”), its wholly-owned subsidiary, pursuant to the terms of a stock purchase agreement, dated December 10, 2018 (the “Purchase Agreement”) by and between the Company and World Professional Cabling Systems, LLC, a California limited liability company (the “Purchaser”). Upon the closing of the sale, the Purchaser acquired all of the issued and outstanding shares of common stock, no par value per share, of Suisun City Operations, for an aggregate purchase price of $3,500,000. The sale of Suisun City Operations represented a strategic shift that has had a major effect on the Company’s operations, and therefore, is presented as discontinued operations in the 2018 condensed consolidated statement of operations.
 
Trading of Company’s stock
 
The Company’s shares of common stock listed on The Nasdaq Capital Market, previously trading through the close of business on January 30, 2018 under the ticker symbol “WPCS,” commenced trading on The Nasdaq Capital Market, on a post-Reverse Stock Split adjusted basis, under the ticker symbol “DCAR” on January 31, 2018.
 
On September 25, 2018, the Company received a notification letter from The Nasdaq Stock Market ("Nasdaq") informing the Company that for the last 30 consecutive business days, the bid price of the Company’s securities had closed below $1.00 per share, which is the minimum required closing bid price for continued listing on The Nasdaq Capital Market pursuant to Listing Rule 5550(a)(2). In order to regain compliance, on March 8, 2019, the Company filed a certificate of amendment to its amended and restated certificate of incorporation with the Secretary of State of the State of Delaware to effect a one-for-six reverse stock split of its outstanding shares of common stock. On March 26, 2019, the Company received a notification letter from The Nasdaq Stock Market informing it that it had regained compliance with Listing Rule 5550(a)(2). As a result of the reverse stock split, every six shares of the Company’s outstanding pre-reverse split common stock were combined and reclassified into one share of common stock. Unless otherwise noted, all share and per share data included in these financial statements retroactively reflect the 1-for-6 reverse stock split.
 
2.       
Liquidity and Basis of Presentation
 
The Company has a limited operating history and the sales and income potential of its business and market are unproven. As of June 30, 2019, the Company has an accumulated deficit of $32.7 million and has experienced net losses each year since its inception. The Company anticipates that it will continue to incur net losses into the foreseeable future and will need to raise additional capital to continue. The Company’s cash is not sufficient to fund its operations for a 12 month period from the date of these financial statements. These factors raise substantial doubt about the Company’s ability to continue as a going concern.
 
 
 
9
DropCar, Inc., and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
 
 
Management’s plan includes raising funds from outside investors. However, there is no assurance that outside funding will be available to the Company, outside funding will be obtained on favorable terms or will provide the Company with sufficient capital to meet its objectives. These financial statements do not include any adjustments relating to the recoverability and classification of assets, carrying amounts or the amount and classification of liabilities that may be required should the Company be unable to continue as a going concern.
 
3.       
Basis of Presentation and Summary of Significant Accounting Policies
 
Basis of Presentation and Principles of Consolidation
 
The accompanying unaudited condensed consolidated financial statements were prepared using generally accepted accounting principles for interim financial information and the instructions to Form 10-Q and Article 8 of Regulation S-X. Accordingly, these unaudited condensed consolidated financial statements do not include all information or notes required by generally accepted accounting principles for annual financial statements and should be read in conjunction with the Company’s annual consolidated financial statements included within the Company’s Form 10-K for the fiscal year ended December 31, 2018, as filed with the SEC on April 3, 2019 and subsequently amended on April 12, 2019.
 
The preparation of the unaudited condensed consolidated financial statements in conformity with these accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements; and the reported amounts of expenses during the reported period. Ultimate results could differ from the estimates of management. The unaudited condensed consolidated financial statements include the accounts of DropCar, Inc. and subsidiaries, all of which are wholly owned. All significant intercompany transactions and balances have been eliminated in consolidation.
 
In the opinion of management, the unaudited condensed consolidated financial statements included herein contain all adjustments necessary to present fairly the Company's financial position and the results of its operations and cash flows for the interim periods presented. Such adjustments are of a normal recurring nature. The results of operations for the three and six months ended June 30, 2019 may not be indicative of results for the full year.
 
Significant Accounting Policies
 
In February 2016, the FASB issued Accounting Standards Codification (ASC) 842, Leases, which requires lessees to recognize most leases on their balance sheets as a right-of-use asset with a corresponding lease liability. Lessor accounting under the standard is substantially unchanged. Additional qualitative and quantitative disclosures are also required. The Company adopted the standard effective January 1, 2019 using the cumulative-effect adjustment transition method, which applies the provisions of the standard at the effective date without adjusting the comparative periods presented. The Company adopted all practical expedients and elected the following accounting policies related to this standard:
 
 
Short-term lease accounting policy election allowing lessees to not recognize right-of-use assets and liabilities for leases with a term of 12 months or less; and
 
 
The option to not separate lease and non-lease components for equipment leases.
 
 
The package of practical expedients applied to all of its leases, including (i) not reassessing whether any expired or existing contracts are or contain leases, (ii) not reassessing the lease classification for any expired or existing leases, and (iii) not reassessing initial direct costs for any existing leases.
 
Right-of-use assets and lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at the commencement date for leases exceeding 12 months. Minimum lease payments include only the fixed lease component of the agreement.
 
 
10
DropCar, Inc., and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
 
 
The Company’s operating leases do not provide an implicit rate that can readily be determined. Therefore, the Company uses a discount rate based on its incremental borrowing rate.
 
Operating lease expense is recognized on a straight-line basis over the lease term and is included in cost of sales and general and administrative expenses. Amortization expense for finance (capital) leases is recognized on a straight-line basis over the lease term and is included in cost of sales or general and administrative expenses, while interest expense for finance leases is recognized using the effective interest method.
 
Adoption of this standard resulted in the recognition of operating lease right-of-use assets of approximately $23,000 (including a reclassification from Prepaid expenses of a prepaid lease approximating $9,500) and corresponding lease liabilities of approximately $13,500 on the consolidated balance sheet as of January 1, 2019. The standard did not materially impact operating results or liquidity. Disclosures related to the amount, timing and uncertainty of cash flows arising from leases are included in Note 8, Leases.
 
In June 2018, the FASB issued ASU 2018-07, Compensation-Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting, which simplifies the accounting for nonemployee share-based payment transactions. The amendments specify that Topic 718 applies to all share- based payment transactions in which a grantor acquires goods or services to be used or consumed in a grantor’s own operations by issuing share-based payment awards. The guidance was adopted effective January 1, 2019, and the adoption of this ASU did not have a material effect on its consolidated financial statements.
 
Aside from the adoption of ASU 2016-02, as described above, there have been no other material changes to the significant accounting policies or recent accounting pronouncements previously disclosed in DropCar, Inc.'s 2018 annual consolidated financial statements included in the Company's Form 10-K for the fiscal year ended December 31, 2018.
 
Use of Estimates
 
The preparation of consolidated financial statements in conformity with U.S. generally accepted accounting principles (“US GAAP”) requires management to make estimates and assumptions that affect amounts reported therein. Generally, matters subject to estimation and judgement include amounts related to accounts receivable realization, asset impairments, useful lives of property and equipment and capitalized software costs, deferred tax asset valuation allowances, and operating expense accruals. Actual results could differ from those estimates.
 
Revenue Recognition
 
The Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, codified as ASC 606: Revenue from Contracts with Customers, which provides a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers.
 
Revenue from contracts with customers is recognized when, or as, the Company satisfies its performance obligations by transferring the promised goods or services to the customers. A good or service is transferred to a customer when, or as, the customer obtains control of that good or service. A performance obligation may be satisfied over time or at a point in time. Revenue from a performance obligation satisfied over time is recognized by measuring the Company’s progress in satisfying the performance obligation in a manner that depicts the transfer of the goods or services to the customer. Revenue from a performance obligation satisfied at a point in time is recognized at the point in time that the Company determines the customer obtains control over the promised good or service. The amount of revenue recognized reflects the consideration the Company expects to be entitled to in exchange for those promised goods or services (i.e., the “transaction price”). In determining the transaction price, the Company considers multiple factors, including the effects of variable consideration. Variable consideration is included in the transaction price only to the extent it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainties with respect to the amount are resolved. In determining when to include variable consideration in the transaction price, the Company considers the range of possible outcomes, the predictive value of its past experiences, the time period of when uncertainties expect to be resolved and the amount of consideration that is susceptible to factors outside of the Company’s influence, such as the judgment and actions of third parties.
 
The Company’s contracts are generally designed to provide cash fees to the Company on a monthly basis or an agreed upfront rate based upon demand services. The Company’s performance obligation is satisfied over time as the service is provided continuously throughout the service period. The Company recognizes revenue evenly over the service period using a time-based measure because the Company is providing a continuous service to the customer. Contracts with minimum performance guarantees or price concessions include variable consideration and are subject to the revenue constraint. The Company uses an expected value method to estimate variable consideration for minimum performance guarantees and price concessions.
 
 
 
11
DropCar, Inc., and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
 
 
Monthly Subscriptions
 
The Company offers a selection of subscriptions and on-demand services which include parking, valet, and access to other services. The contract terms are on a month-to-month subscription contract with fixed monthly or contract term fees. These subscription services include a fixed number of round-trip deliveries of the customer’s vehicle to a designated location. The Company allocates the purchase price among the performance obligations which results in deferring revenue until the service is utilized or the service period has expired.
 
On Demand Valet and Parking Services
 
The Company offers to consumers certain on demand services through its mobile application. The customer is billed at an hourly rate upon completion of the services. Revenue is recognized when the Company had satisfied all performance obligations which is upon completion of the service.
 
DropCar 360 Services on Demand Service
 
The Company offers to consumers certain services upon request including vehicle inspection, maintenance, car washes or to fill up with gas. The customers are charged a fee in addition to the cost of the third-party services provided. Revenue is recognized on a gross basis when the Company had satisfied all performance obligations which is upon completion of the service.
 
On Demand Business-To-Business
 
The Company also has contracts with car dealerships, car share programs and others in the automotive industry transporting vehicles. Revenue is recognized at the point in time all performance obligations are satisfied which is when the Company provides the delivery service of the vehicles.
 
Disaggregated Revenues
 
The following table presents our revenues from contracts with customers disaggregated by revenue source.
 
 
 
Three Months Ended June 30,
 
 
Six Months Ended June 30,
 
 
 
2019
 
 
2018
 
 
2019
 
 
2018
 
Subscription services
 $796,917 
 $1,282,961 
 $1,458,381 
 $2,639,556 
Services on-demand
  449,627 
  591,036 
  887,606 
  926,516 
Total revenues (1)(2)
 $1,246,544 
 $1,873,997 
 $2,345,987 
 $3,566,072 
(1) 
Represents revenues recognized by type of services.
(2) 
All revenues are generated in the United States.
 
The following presents our revenues from B2C and B2B customers.
 
 
 
Three Months Ended June 30,
 
 
Six Months Ended June 30,
 
 
 
2019
 
 
2018
 
 
2019
 
 
2018
 
    B2C 
 $889,707 
 $1,622,065 
 $1,653,684 
 $3,080,589 
    B2B 
  356,837 
  251,932 
  692,303 
  485,483 
 
     Total revenues
 
 $1,246,544 
 $1,873,997 
 $2,345,987 
 $3,566,072 
 
 
 
12
DropCar, Inc., and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
 
 
Employee Stock-Based Compensation
 
The Company recognizes all employee share-based compensation as an expense in the financial statements. Equity-classified awards principally related to stock options, restricted stock units (“RSUs”) and equity-based compensation, are measured at the grant date fair value of the award. The Company determines grant date fair value of stock option awards using the Black-Scholes option-pricing model. The fair value of RSUs are determined using the closing price of the Company’s common stock on the grant date. For service-based vesting grants, expense is recognized ratably over the requisite service period based on the number of options or shares. Stock-based compensation is reversed for forfeitures in the period of forfeiture.
 
Income (Loss) Per Share
 
Basic income (loss) per share is computed by dividing net loss attributable to common shareholders (the numerator) by the weighted-average number of common shares outstanding (the denominator) for the period. In periods when the Company has income, the Company calculates basic earnings per share using the two-class method, if required, pursuant to ASC 260 Earnings Per Share. The two-class method was required effective with the issuance of convertible preferred stock in the past because this class of stock qualified as a participating security, giving the holder the right to receive dividends should dividends be declared on common stock. Under the two-class method, earnings for a period are allocated on a pro rata basis to the common stockholders and to the holders of convertible preferred stock based on the weighted average number of common shares outstanding and number of shares that could be issued upon conversion. In periods of losses, diluted loss per share is computed on the same basis as basic loss per share as the inclusion of any other potential shares outstanding would be anti-dilutive.
 
The following securities were excluded from weighted average diluted common shares outstanding because their inclusion would have been antidilutive.
 
 
 
As of June 30,
 
 
 
2019
 
 
2018
 
Common stock equivalents:
 
 
 
 
 
 
Common stock options
  380,396 
  202,058 
Series A, H-1, H-3, H-4, I, J and Merger common stock purchase warrants
  585,306 
  585,307 
Series H, H-3, and H-4 Convertible Preferred Stock
  338,069 
  2,739,225 
Restricted shares (unvested)
  - 
  244,643 
Totals
  1,303,771 
  3,771,233 
 
Research and development costs, net
 
Costs are incurred in connection with research and development programs that are expected to contribute to future earnings. Such costs include labor, stock-based compensation, training, software subscriptions, and consulting. These amounts are charged to the condensed consolidated statement of operations as incurred. Total research and development expenses were $48,330 and $63,971 for the three months ended June 30, 2019 and 2018, respectively. Total research and development expenses were $117,312 and $178,132 for the six months ended June 30, 2019 and 2018, respectively.
 
Recently Issued Accounting Standards
 
From time to time, new accounting pronouncements are issued by the FASB or other standard setting bodies. Unless otherwise discussed, the Company believes that the impact of recently issued standards that are not yet effective will not have a material impact on its consolidated financial position or results of operations upon adoption.
 
In August 2018, the FASB issued ASU 2018-13, Changes to Disclosure Requirements for Fair Value Measurements, which will improve the effectiveness of disclosure requirements for recurring and nonrecurring fair value measurements. The standard removes, modifies, and adds certain disclosure requirements, and is effective for the Company beginning January 1, 2020. The Company is currently evaluating the impact this standard will have on the Company’s consolidated financial statements.
 
 
 
13
DropCar, Inc., and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
 
 
In June 2016, the FASB issued ASU 2016-13, “Financial Instruments – Credit Losses” to improve information on credit losses for financial assets and net investment in leases that are not accounted for at fair value through net income. ASU 2016-13 replaces the current incurred loss impairment methodology with a methodology that reflects expected credit losses. In April 2019 and May 2019, the FASB issued ASU No. 2019-04, “Codification Improvements to Topic 326, Financial Instruments-Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments” and ASU No. 2019-05, “Financial Instruments-Credit Losses (Topic 326): Targeted Transition Relief” which provided additional implementation guidance on the previously issued ASU. Management has not yet completed its assessment of the impact of the new standards on the Company’s financial statements. The Company is currently evaluating the effect the adoption of these ASUs will have on its condensed consolidated financial statements. These ASUs are effective for the Company in the first quarter of 2020.
 
The Company is currently evaluating the impact of the pending adoption of the new standard on its consolidated financial statements and intends to adopt the standard on January 1, 2020.
 
4.       
Concentrations
 
Accounts Receivable
 
The Company’s concentration of accounts receivable are as follows:
 
 
 
As of
 
 
 
June 30,
2019
 
 
December 31,
2018
 
Customer A
  44%
  58%
Customer B
  39%
  23%
 
Revenue Recognition
 
The concentration of revenue recognition for the three and six months ended June 30, 2019 and 2018, respectively are as follows:
 
 
 
For the three months ended June 30,
 
 
For the six months ended June 30,
 
 
 
2019
 
 
2018
 
 
2019
 
 
2018
 
Customer A
  10%
 - 
 12%
 - 
 
- 
Represents less than 10%
 
5.       
Discontinued Operations and Disposition of Operating Segment
 
On December 24, 2018, the Company completed the sale of WPCS International – Suisun City, Inc., a California corporation, its wholly-owned subsidiary, pursuant to the terms of a stock purchase agreement, dated December 10, 2018 by and between the Company and World Professional Cabling Systems, LLC, a California limited liability company. Upon the closing of the sale, the Purchaser acquired all of the issued and outstanding shares of common stock, no par value per share, of Suisun City Operations, for an aggregate purchase price of $3,500,000.
 
 
 
14
DropCar, Inc., and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
 
 
 
The operations and cash flows of the Suisun City Operations are presented as discontinued operations. The operating results of the Suisun City Operations for the three and six months ended June 30, 2018 were as follows:
 
 
 
For the Three Months Ended June 30, 2018
 
 
For the Six Months Ended June 30, 2018
 
 
 
 
 
 
 
 
Revenues
 $4,466,370 
 $7,648,849 
Cost of revenues
  3,601,403 
  5,927,679 
Gross profit
  864,967 
  1,721,170 
 
    
    
Selling, general and administrative expenses
  626,886 
  1,116,686 
Depreciation and amortization
  86,098 
  142,943 
Total Operating Expenses
  712,984 
  1,259,629 
 
    
    
Operating income
  151,983 
  461,541 
 
    
    
Interest expense, net
  (418)
  (598)
 
    
    
Net income from discontinued operations
 $151,565 
 $460,943 
 
6.       
Capitalized Software
 
Capitalized software consists of the following as of:
 
 
 
As of
 
 
 
June 30,
2019
 
 
December 31,
2018
 
Software
 $1,418,765 
 $1,324,275 
Accumulated amortization
  (870,113)
  (665,183)
Total
 $548,652 
 $659,092 
 
Minimum future amortization expense for capitalized software from June 30, 2019 is as follows:
 
Year
 
Amortization Expense
 
2019 (remaining six months)
 $183,219 
2020
  254,859 
2021
  104,969 
2022
  5,605 
Total amortization expense
 $548,652 
 
7.       
Convertible Notes Payable
 
During the year ended December 31, 2017, the Company issued convertible notes totaling $4,840,000 and warrants to acquire 146,358 shares of common stock at an exercise price of $59.04 per share in connection with the convertible notes (the “Notes”). The Notes all had a maturity date of one year from the date of issuance, and accrued interest at a rate of 6% per annum, compounded annually. The Notes were convertible at $35.40 per share and, including accrued interest, were converted into 141,303 shares of common stock in connection with the Merger.
 
In connection with the Merger, the holders of the Notes entered into lock-up agreements pursuant to which they have agreed not to sell the 85,573 shares of common stock received upon conversion of the Notes in connection with the Merger. The length of the lock-up period was up to 120 days. In accordance with ASC 815-40-15-6, the Company considers the lock-up agreements contingent options exchanged in a contemplated business combination. The lock-up agreements are considered “lock-up options” that are issued and accounted for upon the Merger. For the three and six months ended June 30, 2018, the Company recorded $0 and $672,144 as interest expense in relation to the lock-up agreements in the accompanying 2018 consolidated statement of operations.
 
 
15
DropCar, Inc., and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
 
 
8.       
Leases
 
The Company has various operating lease agreements with initial terms up to three years, all of which relate to vehicles. The Company’s office lease is on a month-to-month basis and so is not recognized on the balance sheet. Some leases include options to purchase, terminate or extend for one or more years. These options are included in the lease term when it is reasonably certain that the option will be exercised.
 
The Company determines if an arrangement is a lease at inception. Operating leases are included in operating right-of-use lease assets and lease liabilities on the consolidated balance sheets, totaling $6,619 and $960 at June 30, 2019, respectively, including $7,544 of operating right-of-use assets previously prepaid at lease commencement.
 
The Company’s weighted-average remaining lease term relating to its operating leases is 0.68 years and weighted-average remaining payments for operating lease liabilities is 0.50 years, with a weighted-average discount rate of 6.00%.
 
Operating lease expense is recognized on a straight-line basis over the lease term within selling, general and administrative expenses on the Company’s condensed consolidated statement of operations. The Company incurred lease expense of $8,258 and $12,459 for the three months ended June 30, 2019 and 2018, respectively. The Company incurred lease expense of $16,421 and $27,457 for the six months ended June 30, 2019 and 2018, respectively. The Company made cash payments of $18,250 for operating leases for the six months ended June 30, 2019.
 
9.
Commitments and Contingencies
 
Lease Agreements
 
The Company leases office space in New York City on a month-to-month basis, with a condition of a 60 day notice to terminate. For the three months ended June 30, 2019 and 2018, rent expense for the Company’s New York City office was $10,800 and $40,341, respectively. For the six months ended June 30, 2019 and 2018, rent expense for the Company’s New York City office was $33,700 and $69,341, respectively. The Company has taken the short term lease exception and not recorded a lease liability or right-of-use asset for this lease.
 
Litigation 
 
The Company is subject to various legal proceedings and claims, either asserted or unasserted, which arise in the ordinary course of business that it believes are incidental to the operation of its business. While the outcome of these claims cannot be predicted with certainty, management does not believe that the outcome of any of these legal matters will have a material adverse effect on its results of operations, financial positions or cash flows.
 
In February 2018, DropCar was served an Amended Summons and Complaint in the Supreme Court of the City of New York, Bronx county originally served solely on an individual, a former DropCar customer, for injuries sustained by plaintiffs alleging such injuries were caused by either the customer, a DropCar valet operating the customer’s vehicle or an unknown driver operating customer’s vehicle. DropCar to date has cooperated with the NYC Police Department and no charges have been brought against any employee of DropCar. DropCar has referred the matter to its insurance carrier. In June 2019, the Company reached a settlement covering all disputes in relation to the summons and complaint which was covered and paid for by the Company’s insurance carrier.
 
Other
 
As of December 31, 2018, the Company had accrued approximately $232,000 for the settlement of multiple employment disputes. During the six months ended June 30, 2019, approximately $88,000 of this amount was settled upon payment. For the six months ended June 30, 2019 and 2018, $11,000 and $30,000, respectively, was expensed and accrued for settlements. As of June 30, 2019, approximately $155,000 remains accrued for the settlement of employment disputes. As of June 30, 2019, the Company has entered into multiple settlement agreements with former employees for which it has agreed to make monthly settlement payments which will extend through December 31, 2019.
 
 
 
16
DropCar, Inc., and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
 
 
On March 23, 2018, DropCar was made aware of an audit being conducted by the New York State Department of Labor (“DOL”) regarding a claim filed by an employee. The DOL is investigating whether DropCar properly paid overtime for which DropCar has raised several defenses. In addition, the DOL is conducting its audit to determine whether the Company owes spread of hours pay (an hour’s pay for each day an employee worked or was scheduled for a period over ten hours in a day). If the DOL determines that monies are owed, the DOL will seek a backpay order, which management believes will not, either individually or in the aggregate, have a material adverse effect on DropCar’s business, consolidated financial position, results of operations or cash flows. As of June 30, 2019, the Company has accrued approximately $60,000 in relation to these matters.
 
10.     Stockholders’ Equity
 
Common Stock
 
On March 26, 2019, the Company entered into a Securities Purchase Agreement with certain existing investors, pursuant to which the Company sold, in a registered public offering by the Company directly to the investors an aggregate of 478,469 shares of common stock, par value $0.0001 per share, at an offering price of $4.18 per share for proceeds of $1,985,001 net of offering expenses of $15,000.
 
During the six months ended June 30, 2019, the Company issued 1,412,420 shares of common stock from the conversion of 21,591 shares of Series H-4 Convertible Preferred stock.
 
During the six months ended June 30, 2019, the Company granted 116,666 shares of common stock to a service provider and recorded $222,200 stock based compensation as a part of general and administrative expense in the Company’s consolidated statements of operations.
 
During the six months ended June 30, 2019, the Company issued 277,778 shares of common stock from the exercise of Series K warrants and received cash proceeds of $16,667.
 
Preferred Stock
 
In accordance with the Certificate of Incorporation, there are 5,000,000 authorized preferred shares at a par value of $0.0001. 
 
Voting Privileges and Protective Features of Preferred Stock
 
Each holder of outstanding shares of Preferred Stock are entitled to cast the number of votes equal to the number of whole shares of Common Stock into which the shares of such Preferred Stock held by such holder are convertible as of the record date for determining stockholders entitled to vote on such matter. The holders of record of a majority of outstanding Preferred Stock shall be entitled to elect the majority of the directors of the Company. In liquidation, the Preferred Stockholders receive their original purchase price plus any dividends if declared.
 
For so long as any shares of Preferred Stock remain outstanding, the vote or written consent of the holders of the majority of the outstanding shares of Preferred Stock is necessary for the Company to conduct certain corporate actions, including but not limited to liquidation, windup or dissolution of the Company; certain amendments to the certificate of incorporation or bylaws of the Company; authorization or issuance of shares of any additional class or series of capital stock unless the same ranks junior to the Preferred Stock with respect to liquidation preference, the payment of dividends and rights of redemption or increase in the authorized number of shares of any series of capital stock; authorize the creation of, or issue, or authorize the issuance of any debt security unless such indebtedness was approved by the Board of Directors, and increase or decrease the authorized number