UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

☒ Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

For the quarterly period ended September 30, 2018

 

☐ Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

COMMISSION FILE NO. 333-169802

 

ARISTA FINANCIAL CORP.

(Exact name of registrant as specified in its charter)

 

Nevada   27-1497347
(State or other jurisdiction of   (I.R.S. Employer
incorporation or organization)   Identification No.)
     
51 JFK Parkway, First Floor West, Short Hills, NJ   07078
(Address of principal executive offices)   (Zip Code)

 

(973) 218-2428

(Registrant’s telephone number, including area code)

 

Former name, former address and former fiscal year, if changed since last report: Not applicable .

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes ☐ No

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). ☒ Yes ☐ No

 

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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 check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒ No

 

As of November 19, 2018, the registrant had 3,429,083 shares of common stock, par value $0.0001 per share, issued and outstanding.

 

 

 

 

 

 

ARISTA FINANCIAL CORP.

Form 10-Q

September 30, 2018

 

INDEX

 

  Page
Part I. Financial Information  
   
Item 1. Financial Statements 1
   
Condensed Consolidated Balance Sheets – September 30, 2018 (unaudited) and December 31, 2017 1
   
Condensed Consolidated Statements of Operations – Three and Nine Months Ended September 30, 2018 and 2017 (unaudited) 2
   
Condensed Consolidated Statements of Cash Flows – Nine Months Ended September 30, 2018 and 2017 (unaudited) 3
   
Notes to Unaudited Condensed Consolidated Financial Statements 4
   
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 15
   
Item 3. Quantitative and Qualitative Disclosures about Market Risk 18
   
Item 4. Controls and Procedures 19
   
Part II. Other Information  
   
Item 1. Legal Proceedings 20
   
Item 1A. Risk Factors 20
   
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 20
   
Item 3. Defaults Upon Senior Securities 20
   
Item 4. Mine Safety Disclosures 20
   
Item 5. Other Information 20
   
Item 6. Exhibits 20
   
Signatures 21

 

i

 

 

PART I. FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

ARISTA FINANCIAL CORP. AND SUBSIDIARY

CONDENSED CONSOLIDATED BALANCE SHEETS

 

    September 30,     December 31,  
    2018     2017  
    (Unaudited)        
ASSETS            
CURRENT ASSETS:            
Cash     28,796       728  
Financing leases receivable, net     77,557       33,125  
Due from lease service provider     877       6,755  
Accrued interest receivable     -       1,026  
Prepaid expenses     98,500       780  
Subscription receivable     -       50,000  
Equipment held for sale     -       15,000  
Total Current Assets     205,730       107,414  
LONG-TERM ASSETS:                
Financing leases receivable, net     16,431       19,760  
Total Long-term Assets     16,431       19,760  
Total Assets     222,161       127,174  
LIABILITIES AND STOCKHOLDERS’ DEFICIT                
CURRENT LIABILITIES:                
Notes payable - related parties, net     12,500       35,284  
Note payable - net     -       34,109  
Accounts payable     151,680       81,266  
Line of credit - related party     60,000       -  
Accrued interest payable     14,663       11,102  
Accrued interest payable - related parties     2,113       186  
Due to related party     -       15,000  
Accrued expenses     100,514       43,542  
Total Current Liabilities     341,470       220,489  
LONG-TERM LIABILITIES:                
Convertible notes payable, net     432,263       306,516  
Total Long-term Liabilities     432,263       306,516  
Total Liabilities     773,733       527,005  
                 
Redeemable Series A Preferred stock, $0.0001 par value; 51 shares authorized 51 and 0 shares issued and outstanding as of September 30, 2018 and December 31, 2017     51,000       -  
                 
Commitments and Contingencies (See Note 10)                
STOCKHOLDERS’ DEFICIT:                
Preferred stock, $0.0001 par value, 10,000,000 shares authorized; 51 and 0 shares issued and outstanding as of September 30, 2018 and December 31, 2017                
Common stock: $0.0001 par value, 200,000,000 shares authorized; 3,272,083 and 3,088,333 shares issued and outstanding at September 30, 2018 and December 31, 2017     337       309  
Additional paid-in capital     1,004,339       534,353  
Accumulated deficit     (1,607,248 )     (934,493 )
Total Stockholders’ Deficit     (602,572 )     (399,831 )
Total Liabilities and Stockholders’ Deficit     222,161       127,174  

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

1

 

 

ARISTA FINANCIAL CORP. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

 

    For the three Months Ended     For the Nine Months Ended  
    September 30,     September 30,  
    2018     2017     2018     2017  
                         
REVENUES:                        
Interest on lease financings   $ 1,685     $ 3,016       8,139     $ 22,613  
                                 
Total revenues     1,685       3,016       8,139       22,613  
                                 
OPERATING EXPENSES:                                
Compensation and benefits     86,904       61,748       289,187       139,090  
Professional fees     54,734       20,908       247,382       64,750  
Provision for lease losses     (5,722 )     24,500       (13,935 )     24,500  
General and administrative expenses     7,691       6,920       37,628       16,656  
                                 
Total operating expenses     143,607       114,076       560,262       244,996  
                                 
LOSS FROM OPERATIONS     (141,922 )     (111,060 )     (552,123 )     (222,383 )
                                 
OTHER (INCOME) EXPENSES:                                
Interest expense     37,718       31,696       100,534       81,370  
Interest expense - related parties     3,530       2,812       21,703       2,812  
Gain on sale of equipment     -       -       -1,605       -  
                                 
Total other expenses     41,248       34,508       120,632       84,182  
                                 
LOSS BEFORE INCOME TAXES     (183,170 )     (145,568 )     (672,755 )     (306,565 )
                                 
PROVISION FOR INCOME TAXES     -       -       -       -  
                                 
NET LOSS   $ (183,170 )   $ (145,568 )   $ (672,755 )   $ (306,565 )
                                 
NET LOSS PER COMMON SHARE:                                
Basic and Diluted   $ (0.06 )   $ (0.14 )   $ (0.14 )   $ (0.29 )
                                 
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:                                
Basic and Diluted     3,204,693       1,042,000       4,829,008       1,042,000  

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

2

 

 

ARISTA FINANCIAL CORP. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

    For the Nine Months Ended  
    September 30,  
    2018     2017  
             
CASH FLOWS FROM OPERATING ACTIVITIES:            
Net loss   $ (672,755 )   $ (306,565 )
Adjustments to reconcile net loss to net cash used in operating activities:                
Depreciation expense     -       150  
Stock-based compensation     192,797       -  
Amortization of debt discount to interest expense     76,857       44,747  
Bad debt recovery     (4,176 )     24,500  
Change in operating assets and liabilities:                
Financing leases receivable     (36,927 )     35,608  
Due from lease service provider     5,878       -  
Accrued interest receivable     1,026       1,909  
Prepaid expenses     (1,552 )     (15,420 )
Accounts payable     70,414       22,900  
Accrued interest payable     3,561       6,291  
Accrued interest payable - related parties     4,973       -  
Accrued expenses     107,972       (469 )
                 
NET CASH USED IN OPERATING ACTIVITIES     (251,932 )     (186,349 )
                 
CASH FLOWS FROM INVESTING ACTIVITIES:                
Proceeds from sale of equipment held for sale     15,000       2,700  
                 
NET CASH PROVIDED BY INVESTING ACTIVITIES     15,000       2,700  
                 
CASH FLOWS FROM FINANCING ACTIVITIES:                
Proceeds from line of credit - related party     45,000       -  
Proceeds from note payable subscription receivable     50,000       -  
Proceeds from convertible notes     170,000       200,000  
                 
NET CASH PROVIDED BY FINANCING ACTIVITIES     265,000       200,000  
                 
NET INCREASE (DECREASE) IN CASH     28,068       16,351  
                 
CASH, beginning of period     728       91,687  
                 
CASH, end of period   $ 28,796     $ 108,038  
                 
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION                
Interest paid   $ 39,892     $ 33,145  
Income taxes paid   $ -     $ -  
                 
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:                
Issuance of common stock for services   $ 77,000     $ -  
Reclassification of due to related party to line of credit - related party   $ 15,000     $ -  
Issuance of Series A Preferred for officer compensation   $ 51,000     $ -  

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

3

 

 

 

ARISTA FINANCIAL CORP. AND SUBSIDIARY

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2018

 

NOTE 1 – ORGANIZATION AND NATURE OF OPERATIONS

 

Organization

 

Arista Financial Corp. (the “Company”) was incorporated in Nevada on December 15, 2009. Effective February 21, 2012, the Company filed with the State of Nevada a Certificate of Amendment to the Articles of Incorporation changing the Company’s name from Hunt for Travel, Inc. to Praco Corporation (“Praco”) and on January 2, 2018, the Company changed its name to Arista Financial Corp.

 

On April 19, 2017, the Company entered into the Share Exchange Agreement with Arista Capital Ltd. (“Arista Capital”), a Nevada corporation formed on June 10, 2014, and the Arista Capital Shareholders (the “Share Exchange Agreement”). Under generally accepted accounting principles, the acquisition by the Company of Arista Capital is considered to be a capital transaction in substance, rather than a business combination. That is, the acquisition is equivalent to the acquisition by Arista Capital of the Company with the issuance of stock by Arista Capital for the net assets of the Company. This transaction is reflected as a recapitalization and is accounted for as a change in capital structure. Accordingly, the accounting for the acquisition is identical to that resulting from a reverse acquisition. Under reverse merger accounting, the comparative historical financial statements of the Company, as the legal acquirer, are those of the accounting acquirer, Arista Capital. Accordingly, the Company’s financial statements prior to the closing of the reverse acquisition, reflect only the business of Arista Capital.

 

The Company is a finance company that provides financing to other small finance companies that do not have significant access to the capital markets. Typically, the Company does this by acquiring lease portfolios from such lenders at a purchase price that yields the Company an annual return and these lenders continue to service the portfolios purchased by the Company. The Company is currently focused on leases for trucks and construction equipment.

 

NOTE 2 – GOING CONCERN ANALYSIS AND MANAGEMENT PLANS

 

These condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. As reflected in our accompanying condensed consolidated financial statements, for the nine months ended September 30, 2018, the Company had a net loss of $672,755 and used cash in operating activities of $251,932. Additionally, the Company had an accumulated deficit of $1,607,248, a stockholders’ deficit of $602,572, and a working capital deficit of $135,740 at September 30, 2018, and minimal revenues for the nine months ended September 30, 2018. Management believes that these matters raise substantial doubt about the Company’s ability to continue as a going concern for twelve months from the issuance date of this report. Management cannot provide assurance that the Company will ultimately achieve profitable operations or become cash flow positive or raise additional debt and/or equity capital. Management believes that its capital resources are not currently adequate to continue operating and maintaining its business strategy for a period of twelve months from the issuance date of this report. Although the Company has historically raised capital from the issuance of promissory notes, there is no assurance that it will be able to continue to do so. Management believes that its ability to attract debt and equity financing in the capital markets is enhanced as a public reporting company. If the Company is unable to raise additional capital or secure additional lending in the near future, management expects that the Company will need to curtail or cease operations. These condensed consolidated financial statements do not include any adjustments related to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

 

4

 

 

NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Basis of presentation

 

The accompanying condensed consolidated financial statements have been prepared in conformity with U.S. GAAP pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim financial information. Accordingly, they do not include all of the information and notes required by U.S. GAAP for complete financial statements. The accompanying condensed consolidated financial statements include all adjustments, which consist of normal recurring adjustments and transactions or events discretely impacting the interim periods, considered necessary by management to fairly state our results of operations, financial position and cash flows. The operating results for interim periods are not necessarily indicative of results that may be expected for any other interim period or for the full year. These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in our 2017 Form 10-K as filed with the SEC on April 17, 2018.  

 

Principles of Consolidation

 

The accompanying unaudited condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, Arista Capital Ltd. All significant intercompany accounts and transactions have been eliminated in consolidation.

 

Significant Accounting Policies and Estimates

 

The Company’s significant accounting policies are disclosed in Note 2-Summary of Significant Accounting Policies in the 2017 Annual Report. Since the date of the 2017 Annual Report, there have been no material changes to the Company’s significant accounting policies. The preparation of the unaudited condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the unaudited condensed consolidated financial statements and the accompanying notes thereto. These estimates and assumptions include valuing equity securities and derivative financial instruments issued in financing transactions, deferred taxes and related valuation allowances, contingent real estate liability and the fair values of long-lived assets. Actual results could differ from the estimates.

 

Revenue recognition

 

Income from direct financing lease transactions is reported using the financing method of accounting, in which the Company’s investment in the leased property is reported as a receivable from the lessee to be recovered through future rentals. The interest income portion of each rental payment is calculated so as to generate a constant rate of return on the net receivable outstanding. Allowances for losses on direct financing leases are typically established based on historical charge-off and collection experience and the collectability of specifically identified lessees and billed and unbilled receivables. Direct financing leases are charged off to the allowance as they are deemed uncollectible. Direct financing leases are generally placed in a nonaccrual status (i.e., no revenue is recognized) and deemed impaired when payments are more than 90 days past due. Additionally, management periodically reviews the creditworthiness of all direct finance lessees with payments outstanding less than 90 days. Based upon management’s judgment, the related direct financing leases may be placed on nonaccrual status. Leases placed on nonaccrual status are only returned to an accrual status when the account has been brought current and management believes recovery of the remaining unpaid lease payments is probable. Until such time, all payments received are applied only against outstanding principal balances.

 

Stock-based compensation

 

Stock-based compensation is accounted for based on the requirements of the Share-Based Payment Topic of ASC 718 which requires recognition in the financial statements of the cost of employee and director services received in exchange for an award of equity instruments over the period the employee or director is required to perform the services in exchange for the award (presumptively, the vesting period). The ASC also requires measurement of the cost of employee and director services received in exchange for an award based on the grant-date fair value of the award.

 

5

 

 

Through March 31, 2018, pursuant to ASC 505-50 – “Equity-Based Payments to Non-Employees” , all share-based payments to non-employees, including grants of stock options, were recognized in the condensed consolidated financial statements as compensation expense over the service period of the consulting arrangement or until performance conditions are expected to be met. Using a Black-Scholes valuation model, the Company periodically reassessed the fair value of non-employee options until service conditions are met, which generally aligns with the vesting period of the options, and the Company adjusted the expense recognized in the consolidated financial statements accordingly. In June 2018, the FASB issued ASU No. 2018-07, Improvements to Nonemployee Share-Based Payment Accounting, which simplifies several aspects of the accounting for nonemployee share-based payment transactions by expanding the scope of the stock-based compensation guidance in ASC 718 to include share-based payment transactions for acquiring goods and services from non-employees. ASU No. 2018-07 is effective for annual periods beginning after December 15, 2018, including interim periods within those annual periods. Early adoption is permitted, but entities may not adopt prior to adopting the new revenue recognition guidance in ASC 606. The Company early adopted ASU No. 2018-07 in the second quarter of 2018, and the adoption did not have any impact on its consolidated financial statements.

 

Basic and diluted loss per share

 

Pursuant to ASC 260-10-45, basic loss per common share is computed by dividing net loss by the weighted average number of shares of common stock outstanding for the periods presented. Diluted loss per share is computed by dividing net loss by the weighted average number of shares of common stock, common stock equivalents and potentially dilutive securities outstanding during the period. Potentially dilutive common shares consist of common stock issuable for stock warrants (using the treasury stock method) and common shares issuable upon the conversion of convertible notes payable (using the as-if converted method). These common stock equivalents may be dilutive in the future.

 

All potentially dilutive common shares were excluded from the computation of diluted shares outstanding as they would have an anti-dilutive impact on the Company’s net losses and consisted of the following:

 

    September 30,
2018
    September 30,
2017
 
Stock warrants     1,343,749       935,000  
Stock options     300,000       -  
Convertible debt     344,070       393,332  
      1,987,819       1,328,332  

 

Recent accounting pronouncements

 

In August 2018, the FASB issued ASU 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement”. This update is to improve the effectiveness of disclosures in the notes to the financial statements by facilitating clear communication of the information required by U.S. GAAP that is most important to users of each entity’s financial statements. The amendments in this update apply to all entities that are required, under existing U.S. GAAP, to make disclosures about recurring or nonrecurring fair value measurements. The amendments in this update are effective for all entities for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. The Company is currently evaluating this guidance and the impact of this update on its consolidated financial statements.

 

Management does not believe that any other recently issued, but not yet effective accounting pronouncements, if adopted, would have a material effect on the accompanying condensed consolidated financial statements.

 

6

 

 

NOTE 4 – FINANCING LEASES RECEIVABLE

 

In December 2017, the Company repossessed one truck from one lessee that defaulted on their lease in 2017. At December 31, 2017, the truck held for sale had an estimated residual value of $15,000. On June 13, 2018, the Company sold the truck to a third party for $17,100. Accordingly, the Company recorded a gain on sale of equipment of $2,100 less servicing fees of $495 for a net gain on sale of equipment of $1,605 for the nine months ended September 30, 2018.

 

On September 28, 2018, the Company entered into a Purchase and Service Agreement with a third-party lease financing company (the “Seller”) to acquire a portfolio consisting of three leases for a cash purchase price of $67,207, an amount that is estimated a yield a return on investment of approximately 18%.

 

 

The Seller is responsible for administrating the leases, collecting all payments, and distributing funds to the Company. On a monthly basis, the Company shall pay the seller an administrative fee equal to 2% of the scheduled payment amount of each lease, 50% of all penalties or late fee charges collected, and 50% of all default interest collected. The seller shall remit the remaining amount received from the lessees to the Company. The finance leases require 36 monthly/weekly or bi-weekly payments through February 2020. Each lease is secured by ownership of the related transportation equipment. As of September 30, 2018 and December 31, 2017, financing leases receivable consists of leases for transportation equipment. At September 30, 2018 and December 31, 2017, financing leases receivable consisted of the following:

 

    September 30,
2018
    December 31,
2017
 
Total minimum financing leases receivable   $ 117,029     $ 89,370  
Unearned income     (12,597 )     (11,080 )
Total financing leases receivable     104,432       78,290  
Less: allowance for uncollectible financing leases receivable     (10,444 )     (25,405 )
Financing leases receivable, net     93,988       52,885  
Less: current portion of financing leases receivable, net     (77,557 )     (33,125 )
Financing leases receivable, net – long-term   $ 16,431     $ 19,760  

 

For the nine months ended September 30, 2018 and 2017, activities in the Company’s allowance for uncollectible financing leases receivable were are follows:

 

    For the Nine Months Ended
September 30,
 
    2018     2017  
Allowance for uncollectible financing leases receivable at beginning of period   $ 25,405     $ 79,000  
Provisions for credit losses     -       24,500  
Bad debt recovery     (14,961 )     (90,970 )
Allowance for uncollectible financing leases receivable at end of period   $ 10,444     $ 12,530  

 

At September 30, 2018, the aggregate amounts of future minimum gross lease payments receivable are as follows:

 

    Amount  
Year 1   $ 98,064  
Year 2     18,965  
         
Future minimum gross financing leases receivable   $ 117,029  

 

7

 

 

NOTE 5 – CONVERTIBLE DEBT

 

During the period from July 1, 2017 to September 30, 2017, the Company issued 12% convertible promissory notes to three individuals in the aggregate amount of $200,000. The unpaid principal and interest is payable three years from the date of the respective 12% Convertible Note through August 1, 2020. The Company may prepay any amount outstanding under the 12% Convertible Note by making a payment to note holder of an amount in cash equal to the principal amount multiplied by a prepayment penalty percentage of 5.0%. The Noteholders are entitled, at their option, at any time after the issuance of the 12% Convertible Notes, to convert all or any lesser portion of the outstanding principal amount and accrued but unpaid interest into the Company’s common stock at a conversion price of $3.00 per share. In connection with the 12% Convertible Notes, the Company issued to noteholders five-year warrants to acquire up to 300,000 shares of common stock at $4.00 per share.

 

On May 31, 2018 one of the three noteholders of the 12% Convertible Notes purchased one of the others’ 12% Convertible note which has an unpaid principal balance of $50,000 and had accrued interest of $1,132, for an aggregate purchase price of $51,132. Accordingly, this note had warrants to acquire 75,000 shares of the Company’s common stock at a price of $4.00 per share that was transferred to the new noteholder. As an incentive for purchasing the note, the Company issued to the noteholder 5,000 shares of the Company’s common stock which was recorded as professional fees during the three and nine months ended September 30, 2018. The shares were valued at a price of $0.80 per share, or $4,000 (see Note 8).

 

In May 2018, the Company issued an 8% promissory note to an individual in the amount of $50,000. The unpaid principal and interest are payable in November 2018. In connection with these 8% notes, in May 2018, the Company issued to this individual noteholder five-year warrants to acquire up to 25,000 shares of common stock at $0.01 per share. The warrants are exercisable for shares of the Company’s common stock upon the payment in cash of the exercise price and they are also exercisable on a cashless basis. The exercise price of the Warrants is subject to adjustment in the event of certain stock dividends and distributions, stock splits, stock combinations, reclassifications or similar events affecting the Company’s common stock. On June 15, 2018, the Company and noteholder restructured the 8% promissory note to an 11% convertible promissory note for the aggregate amount of $50,000. The unpaid principal and interest is now payable on June 15, 2021. The Company may prepay any amount outstanding under the 11% Convertible Note by making a payment to note holder of an amount in cash equal to the principal amount, plus accrued but unpaid interest through the date of such redemption date, multiplied by a prepayment penalty percentage of 5.0%. The Noteholder is entitled, at their option, at any time after the issuance of the 11% Convertible Note, to convert all or any lesser portion of the outstanding principal amount and accrued but unpaid interest into the Company’s common stock at a conversion price of $2.00 per share. In connection with the 11% Convertible Note, the Company issued to the noteholder five-year warrants to acquire up to 25,000 shares of common stock at $3.00 per share in replacement of the previous warrants associated with the 8% note valued at $16,939, using the below assumptions with the Black-Scholes option-pricing model. The warrants are exercisable for shares of the Company’s common stock upon the payment in cash of the exercise price and they are also exercisable on a cashless basis. The exercise price of the Warrants is subject to adjustment in the event of certain stock dividends and distributions, stock splits, stock combinations, reclassifications or similar events affecting the Company’s common stock.

 

On September 7, 2018, the Company issued a convertible note to a third-party lender totaling $137,500. The convertible note accrues interest at 8% per annum and matures with interest and principal both due on June 7, 2019. In addition, the Company issued a warrant to purchase 50,000 shares of Company common stock. The warrant entitles the holder to purchase the Company’s common stock at a purchase price of $1.25 per share for a period of three years from the issue date. The Company recorded a $45,565 debt discount relating to the warrants issued to the investor based on the fair value on the dates of issuance, $28,000 for the issuance of 20,000 shares of the Company’s common stock and an original issue discount of $10,000. The debt discount is being accreted over the life of the note. The convertible note and accrued interest is convertible at a conversion price of $1.00 per share, subject to adjustment.

 

These Convertible Notes contain certain adjustment provisions that apply in connection with any stock split, stock dividend, stock combination, recapitalization or similar transactions.

 

The Warrants are exercisable for shares of the Company’s common stock upon the payment in cash of the exercise price. The exercise price of the Warrants is subject to adjustment in the event of certain stock dividends and distributions, stock splits, stock combinations, reclassifications or similar events affecting the Company’s common stock. The warrants are also exercisable on a cashless basis.

 

The Company evaluated whether or not the convertible notes and warrants above contained embedded conversion options, which meet the definition of derivatives under ASC Topic 815.  The Company concluded that since the above convertible notes had a fixed conversion price, the convertible notes were not derivative instruments.

 

The convertible notes were analyzed to determine if the convertible notes have an embedded beneficial conversion feature (BCF). Based on this analysis, the Company concluded that the effective conversion price was greater than the fair value of the Company’s common stock on the note dates and therefore no BCF was recorded.

 

8

 

 

As discussed above, in connection with convertible notes payable, the Company granted an aggregate of 75,000 warrants to note holders (See Note 7 and 5). During the nine months ended September 30, 2018 and 2017, on the issuance date of the respective warrants, the fair value of the warrants of $62,503 and $64,095 was recorded as a debt discount and an increase to paid-in capital, respectively. The fair market value of each stock warrant was estimated on the date of grant using the Black-Scholes option-pricing model using the following weighted-average assumptions:

 

    2018     2017  
Dividend rate     0       0  
Term (in years)     5-3 years       5 Years  
Volatility     100.0 %     100.0 %
Risk-free interest rate     2.82-1.71 %     1.80-1.89 %

 

For the nine months ended September 30, 2018 and 2017, amortization of debt discount related to these convertible notes amounted to $46,250 and $44,178, respectively, which has been included in interest expense on the accompanying condensed consolidated statements of operations.

 

As of September 30, 2018 and December 31, 2017, accrued interest payable amounted to $11,784 and $11,102, respectively. The weighted average interest rate for the nine months ended September 30, 2018 and 2017 was approximately 2% and 10.0%, respectively.

 

At September 30, 2018 and December 31, 2017, the convertible debt consisted of the following:

 

    September 30,
2018
    December 31,
2017
 
Principal amount   $ 587,500     $ 400,000  
Less: unamortized debt discount     (155,237 )     (93,484 )
Convertible note payable, net – long-term   $ 432,263     $ 306,517  

 

At September 30, 2018, debt maturities are $337,500 in 2019 and $200,000 in 2020 .

 

NOTE 6 – NOTE PAYABLE

 

On December 31, 2017, the Company issued an 8% promissory note to a third party in the amount of $50,000. In connection with this promissory note, at December 31, 2017, the Company recorded a subscription receivable of $50,000. The funds were received in January 2018. The unpaid principal and interest was payable on June 8, 2018. In connection with this 8% note, on December 31, 2017, the Company issued to this noteholder five-year warrants to acquire up to 25,000 shares of common stock at $0.01 per share. The warrants are exercisable for shares of the Company’s common stock upon the payment in cash of the exercise price. The exercise price of the warrants is subject to adjustment in the event of certain stock dividends and distributions, stock splits, stock combinations, reclassifications or similar events affecting the Company’s common stock. On the issuance date of the warrants, the fair value of the warrants of $16,345 was recorded as a debt discount and an increase to paid-in capital, respectively.

 

On May 31, 2018, the noteholder elected to convert the unpaid principal of $50,000 and accrued interest of $1,665, into 65,000 shares of the Company’s common stock at a price of $0.80 per share. At September 30, 2018 and December 31, 2017, note payable consisted of the following:

 

    September 30,
2018
    December 31,
2017
 
Principal amount   $       -     $ 50,000  
Less: unamortized debt discount     -       (15,891 )
Notes payable, net   $ -     $ 34,109  

 

Upon conversion of the note and related interest on May 31, 2018, the Company expensed the remaining debt discount relating to the above warrants of $7,718 to interest expense on the accompanying condensed consolidated statements of operations. For the nine months ended September 30, 2018 and 2017, amortization of debt discount related to this note amounted to $15,891 and $0, respectively.

 

9

 

 

NOTE 7 – RELATED PARTY TRANSACTIONS

 

Notes payable – related parties

 

In December 2017, the Company issued 8% promissory notes to certain officers and directors of the Company in the aggregate amount of $50,000. The unpaid principal and interest were payable on June 8, 2018. In connection with these 8% notes, in December 2017, the Company issued to these related party noteholders five-year warrants to acquire up to 25,000 shares of common stock at $0.01 per share These warrants are exercisable for shares of the Company’s common stock upon the payment in cash of the exercise price and they are also exercisable on a cashless basis. The exercise price of the Warrants is subject to adjustment in the event of certain stock dividends and distributions, stock splits, stock combinations, reclassifications or similar events affecting the Company’s common stock.

 

As discussed above, in connection with the notes payable, the Company granted warrants to acquire an aggregate of 25,000 shares of common stock to note holders. In December 2017, on the issuance date of the respective warrants, the fair value of the warrants of $16,053 was recorded as a debt discount and an increase to paid-in capital, respectively.

 

On May 31, 2018 the noteholders elected to convert unpaid principal of $37,500 and accrued interest of $1,381, into 48,750 shares of the Company’s common stock at a price of $0.80 per share.

 

At September 30, 2018 and December 31, 2017, notes payable – related parties consisted of the following:

 

    September 30,
2018
    December 31,
2017
 
Principal amount   $ 12,500     $ 50,000  
Less: unamortized debt discount     -       (14,716 )
Notes payable – related parties, net   $ 12,500     $ 35,284  

 

On June 1, 2018, the Company and noteholder restructured the remaining 8% promissory note of $12,500 into a 10% promissory note with all unpaid principal and interest due on December 31, 2018.

 

In connection with related party convertible note and notes payable, the weighted average interest rate for the nine months ended September 30, 2018 and the year ended December 31, 2017 was approximately 8.0% and 9.9%, respectively.

 

Upon conversion on May 31, 2018, the Company expensed the remaining debt discount relating to the above warrants of $5,017 to interest expense on the accompanying condensed consolidated statements of operations. For the nine months ended September 30, 2018 and 2017, amortization of debt discount related to these related party convertible notes and notes payable amounted to $14,716 and $569, respectively, which has been included in interest expense – related parties on the accompanying condensed consolidated statements of operations.

 

As of September 30, 2018 and December 31, 2017, accrued interest payable - related parties amounted to $295 and $186, respectively. For the three months ended September 30, 2018 and 2017, interest expense - related parties amounted to $252 and $0, respectively. For the nine months ended September 30, 2018 and 2017, interest expense - related parties amounted to $3,644 and $0, respectively.

 

Due to related party

 

In December 2017, a director of the Company advanced $15,000 to the Company for working capital purposes. The advance is non-interest bearing and is payable on demand, On January 1, 2018, the advance was converted into a line of credit promissory note.

 

10

 

 

Line of credit – related party

 

On January 1, 2018, the Company entered into a line of credit promissory note with a company owned by a director of the Company in the principal amount of $50,000 or such lesser amount as may be borrowed by the Company. This line of credit promissory note shall bear interest at the rate of 12% per annum and such interest shall be paid each month. The entire outstanding principal amount of this Note shall be due and payable on December 31, 2018. On the Maturity Date, if this Note has not been paid in full, it shall bear interest from inception at the rate of 18% per annum until paid in full. On January 1, 2018, the Company reclassified $15,000 of advances received by this related party entity into this promissory note. On August 1, 2018 the Company amended the terms of the line of credit agreement dated January 1, 2018 with the related party lender to increase the principal amount from $50,000 to $60,000. All other terms under the line of credit remain the same. Additionally, during the nine months ended September 30, 2018, the Company borrowed an additional $45,000 pursuant to the line of credit agreement. At September 30, 2018, amounts due under the line of credit amounted to $60,000.

 

Subsequent to September 30, 2018 the Company amended the terms of the line of credit agreement dated January 1, 2018 with the related party lender to further increase the principal amount from $60,000 to $80,000. All other terms under the line of credit remain the same.

 

Office rent - related party

 

The Company rents its office space from a Director of the Company on a month-to-month basis for $750 per month. For the three months ended September 30, 2018 and 2017, rent expense – related party amounted to $2,250 and $2,250, respectively, and is included in general and administrative expenses on the accompanying condensed consolidated statements of operations. For the nine months ended September 30, 2018 and 2017, rent expense – related party amounted to $6,750 and $6,750, respectively, and is included in general and administrative expenses on the accompanying condensed consolidated statements of operations.

 

NOTE 8 – REDEEMABLE SERIES A PREFERRED

 

Preferred Stock

 

The Company has 10,000,000 shares of preferred stock authorized. Preferred stock may be issued in one or more series. The Company’s board of directors is authorized to issue the shares of preferred stock in such series and to fix from time to time before issuance thereof the number of shares to be included in any such series and the designation, powers, preferences and relative, participating, optional or other rights, and the qualifications, limitations or restrictions thereof, of such series. 

 

On September 4, 2018, the Company filed a Certificate of Designation for the Series A Preferred with the Secretary of State of Nevada (the “Certificate of Designation”) designating 51 shares of its authorized preferred stock as Series A Super Voting Preferred Stock. The shares of Series A Preferred have a par value of $0.0001 per share. The Series A Preferred is not entitled to receive any dividends or liquidation preference and are not convertible into shares of the Company’s common stock.

 

The holders of the Series A Preferred shall in the aggregate have a voting power equal to 51% of the total votes of all of the outstanding common and preferred stock of the Company entitled to vote. Accordingly, each share of Series A Preferred shall have voting rights equal to (x) 0.019607 multiplied by the total issued and outstanding shares of common stock and preferred stock eligible to vote on a matter (the “Numerator”) divided by (y) 0.49, minus (z) the Numerator. For example, if the total issued and outstanding shares of common stock and preferred stock equal 5,000,000 shares, then the voting rights of one share of the Series A Preferred shall be equal to 102,036 ((5,000,000 x 0.019607) / 0.49) – (5,000,000 x 0.019607). With respect to all matters upon which stockholders are entitled to vote or give consent, the holders of the outstanding shares of Series A Preferred shall vote with the holders of the common stock and any outstanding preferred stock without regard to class, except as to those matters on which separate class voting is required by applicable law or the Company’s Articles of Incorporation or Bylaws.

 

11

 

 

The holders of a majority of the outstanding Series A Preferred may require the Company to redeem all of the outstanding shares of Series A Preferred at any time at a redemption price of $1,000 per share. In addition, the Series A Preferred shall be automatically, and without required action by the Company or the holders thereof, be redeemed by the Company at $1,000 per share on the date that Paul Patrizio ceases, for any reason, to serve as an officer, director or consultant of the Company, it being understand that if Mr. Patrizio continues without interruption to serve in at least one such capacity, this shall not be considered a cessation of service.

 

During the nine months ended September 30, 2018, the Company issued 51 shares of Series A Preferred, valued at $51,000, for officer compensation.

 

NOTE 9 – STOCKHOLDERS’ DEFICIT

 

Common stock issued for services

 

On March 1, 2018 and effective on March 15, 2018, the Company entered into a six-month consulting agreement for business development services. In connection with the consulting agreement, the Company issued 60,000 shares of its common stock. The shares were valued at their fair value of $69,000 or $1.15 per common share which was the fair value on the date of grant based on the closing quoted share price on the date of grant. In connection with these shares, the Company recorded stock-based consulting fees of $69,000.

 

Effective on September 15, 2018, the Company entered into a six-month consulting agreement for business development services. In connection with the consulting agreement, the Company issued 75,000 shares of its common stock. The shares were valued at their fair value of $108,750 or $1.45 per common share which was the fair value on the date of grant based on the closing quoted share price on the date of grant. In connection with these shares, the Company recorded stock-based consulting fees of $12,583 and prepaid expenses of $96,167 which will be amortized over the remaining agreement term.

 

On June 13, 2018, the Company issued 5,000 shares of its common stock at a price of $0.80 per share or $4,000 based on the value of services rendered for investor relations services.

 

Common stock issued for note conversion

 

On May 31, 2018 the Company issued 65,000 shares at a price of $0.80 per share for a conversion of note payable and accrued interest for an aggregate value of $51,665 (see Note 6).

 

On May 31, 2018 the Company issued 48,750 shares at a price of $0.80 per share for conversions of notes payable – related parties and accrued interest – related parties for an aggregate value of $38,881 (see Note 7).

 

On May 31, 2018, the Company issued 5,000 shares of its common stock to a noteholder as an incentive for purchasing another noteholders loan with the Company (see Note 5). The fair value was determined at a price of $0.80 per share, or $4,000, using the value of services rendered to third parties.

 

Stock options

 

Effective January 1, 2018, in connection with an employment agreement (see Note 8), the Company granted to its CEO options to purchase 300,000 shares of the Company’s common stock at an exercise price of $1.00 per share. The grant date of the options was January 1, 2018 and the options expire on January 1, 2023. The options vest as to (i) 100,000 of such shares on January 1, 2019, and (ii) as to 100,000 of such shares on January 1, 2020 and 100,000 of such shares on January 1, 2021. The fair value of this option grant was estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions: dividend yield of 0%; expected volatility of 100%; risk-free interest rate of 2.20%; and, an estimated holding period of 5 years. In connection with these options, the Company valued these options at a fair value of $225,193 and will record stock-based compensation expense over the vesting period. For the three months ended June 30, 2018 and 2017, the Company recorded stock-based compensation expense of $34,405 and $0, respectively. For the nine months ended September 30, 2018 and 2017, the Company recorded stock-based compensation expense of $68,809 and $0, respectively.

 

At September 30, 2018, there were 300,000 options outstanding and no options vested and exercisable. As of September 30, 2018, there was $121,980 of unvested stock-based compensation expense to be recognized through September 2018. The aggregate intrinsic value at September 30, 2018 was approximately $0 and was calculated based on the difference between the quoted share price on September 30, 2018 and the exercise price of the underlying options.

 

12

 

 

NOTE 10 – COMMITMENTS AND CONTINCENGIES

 

Employment agreement

 

On December 14, 2017 and effective on January 1, 2018 (the “Effective Date”), the Company entered into a new employment agreement with its CEO. For all services rendered by CEO pursuant to this Agreement, during the term of this Agreement the Company shall pay the CEO a salary at the following annual rates based upon the financial statements of the Company:

 

  (i) Upon the Effective Date, the CEO’s base compensation shall be at the annual rate of $150,000;
     
  (ii) Thereafter; upon the first $500,000 of gross proceeds in a financing raised by the Company during the term of the Agreement the CEO’s base salary compensation shall be raised to $200,000;
     
  (iii) Thereafter; upon the next $500,000 of gross proceeds in financings raised by the Company during the term of the Agreement the CEO’s base salary compensation shall be raised to $250,000;
     
  (iv) Thereafter; for each additional $1,000,000 of gross proceeds in financings raised by the Company during the term of the Agreement the CEO’s base salary compensation shall be increased by $12,000.

 

The CEO’s base salary shall be increased on each January 1st during the term of this Agreement by not less than five percent (5%) of the then annual compensation amount.

 

The Company will provide the CEO with an allowance equal to $2,000 per month for health insurance with such allowance increased on each anniversary date of this Agreement at the same rate as the CEO’s base compensation in addition to any amounts provided to employees generally.

 

The CEO will earn an annual bonus as follows: nine percent (9%) of the Company’s annual EBITDA (Earnings before interest expense, taxes, depreciation, and amortization and all other non-cash charges) up to the first $5,000,000 of EBITDA, then 5% on amounts thereafter, based on the audited consolidated results of the Company. This bonus shall be payable in cash within thirty days after the audit has been completed. In addition, the CEO was entitled to a transaction bonus in the amount of $20,000 payable in cash at the closing of the Share Exchange in addition to any amounts outstanding to him from Arista at that time.

 

In addition, effective January 1, 2018, the CEO was granted options to purchase 300,000 shares of the Corporation’s common stock at an exercise price of $1.00 per share which shall vest annually on a pro rata basis over the 3 year period commencing January 1, 2019.

 

Unless earlier terminated in accordance with the terms hereof, the term of the Agreement shall be for the period commencing as of the Effective Date and ending December 31, 2022; provided, however, that on each anniversary date of the Agreement, this Agreement shall automatically be extended for successive one-year periods unless the Company or the CEO shall have given the other written notice of its or his intention to terminate this Agreement at least six months prior to the anniversary date in any such year.

 

In the event of termination of employment by the Company pursuant to the Agreement, without cause, the Company shall continue for a period equal to the greater of (A) the balance of the term of the Agreement, or (B) two (2) years, the following: (i) the CEO’s base salary at its then annual rate, and (ii) provide to the Executive the benefits.

 

13

 

 

In the event of termination of the CEO’s employment by the Company in the first year of the Agreement for any reason whatsoever excluding a termination with cause, the Company shall pay as severance to CEO, no later than thirty days following the date of termination, the greater of (i) 300% of the maximum allowable bonus payable to the Executive pursuant to Section 4(b); or (ii) the sum of $300,000.

 

Future minimum commitment payments under an employment agreement at September 30, 2018 are as follows:

 

Years ending December 31,   Amount  
2018 (remainder of year)   $ 52,500.00  
2019     220,500  
2020     231,525  
2021     243,101  
2022     255,256  
Total minimum commitment employment agreement payments   $ 1,002,883  

 

Consulting agreements

 

On March 1, 2018, the Company entered into a one-year consulting agreement with a third party entity for assistance with corporate strategy, investor relations, and financial advisory and business development services. In connection with this consulting agreement, the Company paid the consultant $5,000. Upon fulfillment of the term of the agreement, the agreement shall convert to either an “at will” agreement or shall extend for an additional period of time as mutually determined by the Company and consultant.

 

On August 6, 2018 the Company entered into a consulting agreement with a third party to perform services relating to investor relations and due diligence. The term of this agreement is for a period of two years unless terminated earlier with a thirty-day prior written notice. This consultant will introduce investors to the company and will be paid 8% of the capital raised by the investor introduced. During the nine months ended September 30, 2018 the parties agreed to terminate this agreement.

 

Investment agreement

 

On July 19, 2018, the Company entered into an investment agreement with a third-party entity to invest up to $5,000,000 over a commitment period of three years by purchasing the Company’s common stock under Section 4(a)(2) of the Securities Act of 1933. The third - party entity’s obligation t purchase the company’s common stock is subject to the filing and effectiveness of an S-1 registration statement by the company.

 

NOTE 11 - SUBSEQUENT EVENTS

 

Subsequent to September 30, 2018, the Company issued 52,000 shares of its common stock in connection with a consulting agreement and agreed to issue 4,000 shares in each subsequent month during the term of the contract.

 

Subsequent to September 30, 2018, the Company issued 10,000 shares of its common stock as part of a consulting contract.

 

14

 

 

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

 

This Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) should be read in conjunction with the accompanying condensed consolidated financial statements and the audited consolidated financial statements and notes thereto included in our 2017 Form 10-K.

 

Forward-looking statements in this MD&A are not guarantees of future performance and may involve risks and uncertainties that could cause actual results to differ materially from those projected. Refer to the below “Forward-Looking Statements” section of this MD&A and our 2017 Form 10-K for a discussion of these risks and uncertainties.

 

Forward-Looking Statements

 

  In this report and in reports we subsequently file and have previously filed with the SEC on Forms 10-K and 10-Q and file or furnish on Form 8-K, and in related comments by our management, we use words like “anticipate,” “appears,” “approximately,” “believe,” “continue,” “could,” “designed,” “effect,” “estimate,” “evaluate,” “expect,” “forecast,” “goal,” “initiative,” “intend,” “may,” “objective,” “outlook,” “plan,” “potential,” “priorities,” “project,” “pursue,” “seek,” “should,” “target,” “when,” “will,” “would,” or the negative of any of those words or similar expressions to identify forward-looking statements that represent our current judgment about possible future events. In making these statements we rely on assumptions and analysis based on our experience and perception of historical trends, current conditions and expected future developments as well as other factors we consider appropriate under the circumstances. We believe these judgments are reasonable, but these statements are not guarantees of any events or financial results, and our actual results may differ materially due to a variety of important factors, both positive and negative.

 

We caution readers not to place undue reliance on forward-looking statements. We undertake no obligation to update publicly or otherwise revise any forward-looking statements, whether as a result of new information, future events or other factors that affect the subject of these statements, except where we are expressly required to do so by law.

 

Overview

 

We are a finance company that provides financing to other small finance companies that do not have significant access to the capital markets. Typically, we do this by acquiring lease portfolios from such lenders at a purchase price that yields us an annual return and these lenders continue to service the portfolios purchased by us. We are currently focused on leases for trucks and construction equipment.

 

Critical Accounting Policies

 

There have been no material changes to our critical accounting policies and estimates from the information provided in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” included in our 2017 Annual Report.

 

Recent Accounting Pronouncements

 

In August 2018, the FASB issued ASU 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement”. This update is to improve the effectiveness of disclosures in the notes to the financial statements by facilitating clear communication of the information required by U.S. GAAP that is most important to users of each entity’s financial statements. The amendments in this update apply to all entities that are required, under existing U.S. GAAP, to make disclosures about recurring or nonrecurring fair value measurements. The amendments in this update are effective for all entities for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. The Company is currently evaluating this guidance and the impact of this update on its consolidated financial statements.

 

Management does not believe that any other recently issued, but not yet effective accounting pronouncements, if adopted, would have a material effect on the accompanying condensed consolidated financial statements.

 

Results of Operations

 

Comparison of Results of Operations for the Three and Nine Months Ended September 30, 2018 and 2017

 

Revenues

 

Revenues consist of interest earned on lease financings and other fee income. For the three months ended September 30, 2018, total revenues amounted to $1,685 as compared to $3,016 for the three months ended September 30, 2017, a decrease of $1,331, or 56%. For the nine months ended September 30, 2018, total revenues amounted to $8,139 as compared to $22,613 for the nine months ended September 30, 2017, a decrease of $14,474, or 36%. The decrease in revenues for the periods discussed were attributable to a decrease in the revenue generated by our leasing portfolio during the 2018 periods as compared to the 2017 periods.

 

15

 

 

Operating Expenses

 

For the three months ended September 30, 2018, operating expenses amounted to $143,607 as compared to $114,076 for the three months ended September 30, 2017, an increase of $29,531, or 26%. For the nine months ended September 30, 2018, operating expenses amounted to $560,262 as compared to $244,996 for the nine months ended September 30, 2017, an increase of $315,266, or 128%.

 

For the three and nine months ended September 30, 2018 and 2017, operating expenses consisted of the following:

 

    Three Months Ended
September 30,
    Nine Months Ended
September 30,
 
    2018     2017     2018     2017  
Compensation and benefits   $ 86,904     $ 61,748     $ 289,187     $ 139,090  
Professional fees     54,734       20,908       247,382       64,750  
Bad debt recovery     (5,722 )     24,500       (13,935 )     24,500  
General and administrative expenses     7,691       6,920       37,628       16,656  
Total   $ 143,607     $ 114,076     $ 560,262     $ 244,996  

 

  For the three months ended September 30, 2018, compensation and benefit expense increased by $25,156, or 41%, as compared to the three months ended September 30, 2017. For the nine months ended September 30, 2018, compensation and benefit expense increased by $150,097, or 108%, as compared to the nine months ended September 30, 2017. This increase was attributable to an increase in compensation paid to Arista’s chief executive officer which includes stock-based compensation of $102,214 for the nine months ended September 30, 2018 for stock options granted on January 1, 2018.

   

  For the three months ended September 30, 2018, professional fees increased by $33,826, or 41%, as compared to the three months ended September 30, 2017. This increase was primarily attributable to an increase in legal fees of $7,158, a increase in accounting fees of $9,750, an increase in consulting fees of 4,500. For the nine months ended September 30, 2018, professional fees increased by $182,632, or 282%, as compared to the nine months ended September 30, 2017. This increase was primarily attributable to an increase in legal fees of $47,022, an increase in accounting fees of $44,704, an increase in consulting fees of $86,925, and an increase in transfer agent fees of $3,980.
     
  For the three months ended September 30, 2018, we recorded a bad debt recovery of $5,722 as compared to $24,500 for the three months ended September 30, 2017. For the nine months ended September 30, 2018, we recorded a bad debt recovery of $13,935 as compared to $24,500 for the nine months ended September 30, 2017. Management periodically evaluates financing leases receivables based on the individual creditworthiness of customers. Based on this evaluation, Arista records an allowance for estimated losses or a bad debt recovery on these receivables.
     
  For the three months ended September 30, 2018, general and administrative expenses increased by $771 as compared to the three months ended September 30, 2017. The increase was due an increase in investor relations expenses and office rent. For the nine months ended September 30, 2018, general and administrative expenses increased by $20,972 as compared to the nine months ended September 30, 2017. The increase was due an increase in investor relations expenses and office rent.

 

16

 

 

Loss from Operations

 

As a result of the factors described above, for the three months ended September 30, 2018, loss from operations amounted to $141,922, as compared to $111,060 for the three months ended September 30, 2017, an increase of $30,862, or 28%. For the nine months ended September 30, 2018, loss from operations amounted to $552,123, as compared to $222,383 for the nine months ended September 30, 2017, an increase of $329,740, or 129%.

 

Other Expenses

 

Other expenses consist of interest expense incurred on debt owed to third parties and related parties as well as gain on sales of equipment. For the three months ended September 30, 2018, interest expense amounted to $37,718, as compared to $31,696 for the three months ended September 30, 2017, an increase of $6,022, or 19%. These increases were attributable to an increase in borrowing pursuant to convertible note instruments and the amortization of debt discount. For the nine months ended September 30, 2018, interest expense amounted to $100,534, as compared to $84,182 for the nine months ended September 30, 2017, an increase of $19,164, or 24%. These increases were attributable to an increase in borrowing pursuant to convertible note instruments and the amortization of debt discount.

 

Net Loss

 

As a result of the foregoing, for the three months ended September 30, 2018 and 2017, net loss amounted to $183,170, or $0.06 per common share (basic and diluted), and $145,568, or $0.14 per common share (basic and diluted), respectively. For the nine months ended September 30, 2018 and 2017, net loss amounted to $672,755, or $0.14 per common share (basic and diluted), and $306,565, or $0.29 per common share (basic and diluted), respectively.

 

Due to lack of operating cash flows, from December 31, 2017 to September 30, 2018, accounts payable and accrued expenses increased by $124,808 and $303,194, respectively.

 

Liquidity and Capital Resources

 

Liquidity is the ability of an enterprise to generate adequate amounts of cash to meet its needs for cash requirements. Arista had cash of $28,796 and $728 on hand as of September 30, 2018 and December 31, 2017, respectively.

 

Arista’s primary uses of cash have been for salaries, fees paid to third parties for professional services, general and administrative expenses, and the acquisition lease portfolios. All funds received have been expended in the furtherance of growing the business. Arista has received funds from the collection of lease payments, and from various financing activities such as from debt financings. The following trends are reasonably likely to result in changes in Arista’s liquidity over the near to long term:

 

  An increase in working capital requirements to finance our current business,
     
  Acquisition of lease portfolios;
     
  Addition of administrative and sales personnel as the business grows, and
     
  The cost of being a public company.

 

We may need to raise additional funds, particularly if we are unable to generate positive cash flow as a result of our operations. We estimate that based on current plans and assumptions, our available cash will not be sufficient to satisfy our cash requirements under our present operating expectations for the next 12 months from the date of this annual report. Other than revenue received from our lease portfolio, and funds received from debt financings, we presently have no other significant alternative source of working capital. We have used these funds to fund our operating expenses, pay our obligations, acquire lease portfolios, and grow our company. We need to raise significant additional capital or debt financing to acquire new properties, to acquire additional lease portfolios, and to assure we have sufficient working capital for our ongoing operations and debt obligations.

 

17

 

 

Going Concern

 

The unaudited condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. As reflected in our accompanying condensed consolidated financial statements, for the nine months ended September 30, 2018, the Company had a net loss of $672,755 and used cash in operating activities of $251,932, respectively. Additionally, the Company had an accumulated deficit of $1,607,248, had a stockholders’ deficit of $602,572, and had a working capital deficit of $135,740 at September 30, 2018, respectively, and had minimal revenues for the nine months ended September 30, 2018. Management believes that these matters raise substantial doubt about the Company’s ability to continue as a going concern for twelve months from the issuance date of this report. Management cannot provide assurance that the Company will ultimately achieve profitable operations or become cash flow positive, or raise additional debt and/or equity capital. Management believes that its capital resources are not currently adequate to continue operating and maintaining its business strategy for a period of twelve months from the issuance date of this report. Although the Company has historically raised capital from the issuance of promissory notes, there is no assurance that it will be able to continue to do so. Management believes that’s its ability to attract debt and equity financing in the capital markets will be greatly enhanced by becoming a public reporting company. If the Company is unable to raise additional capital or secure additional lending in the near future, management expects that the Company will need to curtail or cease operations. The accompanying condensed consolidated financial statements do not include any adjustments related to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

 

Cash Flows

 

Net cash flow used in operating activities was $251,932 for the nine months ended September 30, 2018, as compared to net cash used in operating activities of $186,349 for the nine months ended September 30, 2017, an increase of $65,583. Net cash used in operating activities consisted of cash used for working capital purposes for salaries, professional fees and general and administrative expenses.

 

For the nine months ended September 30, 2018, net cash flow provided by investing activities amounted to $15,000 and consisted of proceeds from the sale of assets held for sale of $15,000. For the nine months ended September 30, 2017, net cash flow provided by investing activities amounted to $2,700 and consisted of proceeds from the sale of assets held for sale.

 

Net cash provided by financing activities was $265,000 for the nine months ended September 30, 2018 as compared to $200,000 for the nine months ended September 30, 2017. During the nine months ended September 30, 2018, we received proceeds from a note payable subscription receivable of $50,000, proceeds from a related party line of credit of $45,000 and proceeds from convertible notes of $170,000. During the nine months ended September 30, 2017, we received proceeds from convertible notes of $200,000.

 

Off-Balance Sheet Arrangements

 

We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on its financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.

 

Contractual Obligations

 

We are a smaller reporting company (as defined by Rule 12b-2 under the Securities Exchange Act of 1934) and are not required to provide the information under this item.

 

Item 3. Quantitative and Qualitative Disclosures about Market Risk

 

Not applicable to smaller reporting companies.

 

18

 

 

Item 4. Controls and Procedures

 

Disclosure Controls and Procedures

 

We maintain “disclosure controls and procedures,” as that term is defined in Rule 13a-15(e), promulgated by the SEC pursuant to the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Disclosure controls and procedures include controls and procedures designed to ensure that information required to be disclosed in our company’s reports filed under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and 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 disclosure. Our management, with the participation of our principal executive officer and principal financial officer, evaluated our company’s disclosure controls and procedures as of the end of the period covered by this quarterly report on Form 10-Q. Based on this evaluation, our principal executive officer and principal financial officer concluded that as of September 30, 2018, our disclosure controls and procedures were not effective.

 

The ineffectiveness of our disclosure controls and procedures was due to the following material weaknesses which we identified in our internal control over financial reporting:

 

  We did not maintain effective controls to identify and maintain segregation of duties between the ability to create and post manual journal entries to the general ledger system for a key accounting individual impacting the accuracy and completeness of all key accounts and disclosures. Specifically, the individual is assigned to both prepare and post journal entries, while holding responsibility for review of certain monthly reconciliations, without his entries being subject to an independent review.

 

  We did not maintain effective controls to identify accounting policies and procedures specifying the correct treatment for estimating the allowance for lease losses and the related provision for lease losses. Specifically, supporting analysis is not prepared for estimating the allowance for lease losses and the related provision for lease losses, documenting compliance with relevant GAAP and the Company’s accounting policies.

 

  We did not maintain effective controls to identify and prepare a supporting analysis for each financial statement disclosure, documenting its relevance with GAAP and the Company’s accounting and disclosure policies. Specifically, an independent review of financial statements and all related disclosures is not performed by management and/or other suitably qualified personnel for completeness, consistency, and compliance with GAAP and the Company’s accounting and disclosure policies.

 

  Sufficient information is not provided to our Board of Directors on a timely basis to allow monitoring of management’s objectives and strategies, the entity’s financial position and operating results, and terms of significant agreements.  Specifically, the Board of Directors does not receive key information such as financial statements, analysis of significant accounts or transactions, and other financial information on a timely basis to monitor our financial position and operating results.

 

Changes in Internal Control

 

There were no changes in our internal control over financial reporting during the nine months ended September 30, 2018 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.    

 

19

 

 

PART II. OTHER INFORMATION

 

Item 1. Legal Proceedings

 

None.

 

Item 1A. Risk Factors

 

Not required of smaller reporting companies.

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

 

On September 15, 2018, the Company entered into a consulting agreement for business development services and the Board of Directors agreed to issue 75,000 shares of the Company’s common stock to the consultant.

 

On October 15, 2018 the Board of Directors agreed to issue 10,000 shares of the Company’s common stock to consultants for services rendered.

 

The above securities were issued in reliance upon the exemption provided by Section 4(a) (2) under the Securities Act of 1933, as amended.

 

Item 3. Defaults Upon Senior Securities

 

None.

 

Item 4. Mine Safety Disclosures

 

Not applicable.

 

Item 5. Other Information

 

None.

  

Item 6. Exhibits

 

Exhibit No.   Description
     
31.1*   Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer
     
31.2*   Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer
     
32.1*   Section 1350 Certification of Chief Executive Officer and Chief Financial Officer
     
101.INS*   XBRL Instance Document
101.SCH*   XBRL Taxonomy Extension Schema
101.CAL*   XBRL Taxonomy Extension Calculation
101.DEF*   XBRL Taxonomy Extension Definition
101.LAB*   XBRL Taxonomy Extension Labels
101.PRE*   XBRL Taxonomy Extension Presentation Linkbase

 

* Filed herewith.

 

20

 

 

SIGNATURES

 

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

 

 

Arista Financial Corp.

(Registrant)

   
Date: November 19, 2018 /s/ Paul Patrizio
  Paul Patrizio
  Chief Executive Officer and President
  (principal executive officer)

 

Date: November 19, 2018 /s/ Jonathan R. Tegge
 

Jonathan R. Tegge

Interim Chief Financial Officer

(principal financial officer and
principal accounting officer)

 

21