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 six months ended June 30, 2019, the Company had a net loss of $654,500 and used cash
in operating activities of $119,682. Additionally, the Company had an accumulated deficit of $2,753,686, a stockholders’
deficit of $1,284,494, and a working capital deficit of $1,023,721 at June 30, 2019, and minimal revenues for the six months ended
June 30, 2019. 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.
NOTE
3 –
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The
management of the Company is responsible for the selection and use of appropriate accounting policies and their application. Critical
accounting policies and practices are those that are both most important to the portrayal of the Company’s financial condition
and results and require management’s most difficult, subjective, or complex judgments, often as a result of the need to
make estimates about the effects of matters that are inherently uncertain. The Company’s significant and critical accounting
policies and practices are disclosed below as required by generally accepted accounting principles.
Basis
of presentation
The
Company prepares its condensed consolidated financial statements in conformity with accounting principles generally accepted in
the United States (“U.S. GAAP”) and include the accounts of the Company and its wholly-owned subsidiary. All intercompany
balances and transactions have been eliminated upon consolidation.
Use
of estimates
The
preparation of condensed consolidated financial statements in conformity with accounting principles generally accepted in the
United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported
amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates
for the six months ended June 30, 2019 include estimates of allowances for uncollectible finance leases receivable, the useful
life of property and equipment, and the fair value of non-cash equity transactions.
Credit
risk and concentrations
The
Company maintains its cash in bank and financial institution deposits that at times may exceed federally insured limits. At June
30, 2019 and December 31, 2018, cash in bank did not exceed federally insured limits. The Company has not experienced any losses
in such accounts through June 30, 2019.
Financing
leases receivable represent amounts due from lessees in various industries, related to equipment on direct financing leases. Currently,
the Company relies on one source to acquire financing leases and to service such leases. The Company believes that other lenders
are available to acquire lease portfolios if the Company cannot acquire additional financing lease receivable portfolios from
its single source. Additionally, as of June 30, 2019, the Company’s portfolio of financing leases consists of seven leases.
A default on or loss of any of these leases would have a material adverse effect on the Company’s results of operations
and financial condition.
Cash
and cash equivalent
For
purposes of the statements of cash flows, the Company considers all highly liquid instruments with a maturity of three months
or less at the purchase date and money market accounts to be cash equivalents. At June 30, 2019 and December 31, 2018, the Company
did not have any cash equivalents.
Financing
leases receivable
Financing
leases receivable are recorded at the aggregate future minimum lease payments, estimated unguaranteed residual value of the leased
equipment less unearned income. Residual values, which are reviewed periodically, represent the estimated amount the Company expects
to receive at lease termination from the disposition of the leased equipment. Actual residual values realized could differ from
these estimates. The unearned income is recognized in revenues in the statements of operations over the lease term, in a manner
that produces a constant rate of return on the lease. Financing leases receivable due after twelve months from the balance sheet
date are reflected as a long-term asset. Financing leases receivables are periodically evaluated based on individual creditworthiness
of customers. Based on this evaluation, the Company records allowance for estimated losses on these receivables.
Impairment
of long-lived assets
In
accordance with ASC Topic 360, the Company reviews long-lived assets for impairment whenever events or changes in circumstances
indicate that the carrying amount of the assets may not be fully recoverable, or at least annually. The Company recognizes an
impairment loss when the sum of expected undiscounted future cash flows is less than the carrying amount of the asset. The amount
of impairment is measured as the difference between the asset’s estimated fair value and its book value.
Fair
value of financial instruments and fair value measurements
The
Company follows ASC 820-10 of the FASB Accounting Standards Codification to measure the fair value of its financial instruments
and disclosures about fair value of its financial instruments. ASC 820-10 establishes a framework for measuring fair value in
accounting principles generally accepted in the United States of America (U.S. GAAP), and expands disclosures about fair value
measurements. To increase consistency and comparability in fair value measurements and related disclosures, ASC 820-10 establishes
a fair value hierarchy which prioritizes the inputs to valuation techniques used to measure fair value into three (3) broad levels.
The three (3) levels of fair value hierarchy defined by ASC 820-10 are described below:
Level 1
|
|
Quoted market prices available in active markets
for identical assets or liabilities as of the reporting date.
|
|
|
|
Level 2
|
|
Pricing inputs other than quoted prices in active
markets included in Level 1, which are either directly or indirectly observable as of the reporting date.
|
|
|
|
Level 3
|
|
Pricing inputs that are generally unobservable
inputs and not corroborated by market data.
|
Financial
assets are considered Level 3 when their fair values are determined using pricing models, discounted cash flow methodologies or
similar techniques and at least one significant model assumption or input is unobservable.
The
fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities
and the lowest priority to unobservable inputs. If the inputs used to measure the financial assets and liabilities fall within
more than one level described above, the categorization is based on the lowest level input that is significant to the fair value
measurement of the instrument.
The
carrying amounts reported in the consolidated balance sheets for cash, financing lease receivables, due from lease service provider,
accrued interest receivables, prepaid expenses, notes payable, accounts payable, accrued expenses, accrued interest payable and
amounts due to related party approximate their fair market value based on the short-term maturity of these instruments. The Company
does not account for any instruments at fair value using level 3 valuation.
ASC
825-10 “
Financial Instruments
”
,
allows entities to voluntarily choose to measure certain financial
assets and liabilities at fair value (fair value option). The fair value option may be elected on an instrument-by-instrument
basis and is irrevocable, unless a new election date occurs. If the fair value option is elected for an instrument, unrealized
gains and losses for that instrument should be reported in earnings at each subsequent reporting date. The Company did not elect
to apply the fair value option to any outstanding instruments.
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.
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
condensed 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 condensed 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:
|
|
June 30,
2019
|
|
|
June 30,
2018
|
|
Stock warrants
|
|
|
1,395,909
|
|
|
|
1,293,749
|
|
Stock options
|
|
|
300,000
|
|
|
|
300,000
|
|
Convertible debt
|
|
|
703,585
|
|
|
|
200,000
|
|
|
|
|
2,399,494
|
|
|
|
1,793,749
|
|
Related
parties
Parties
are considered to be related to the Company if the parties, directly or indirectly, through one or more intermediaries, control,
are controlled by, or are under common control with the Company. Related parties also include principal owners of the Company,
its management, members of the immediate families of principal owners of the Company and its management and other parties with
which the Company may deal with if one party controls or can significantly influence the management or operating policies of the
other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests.
Recent
accounting pronouncements
In
May 2014, FASB issued an update (“ASU 2014-09”) establishing Accounting Standards Codification (“ASC”)
Topic 606,
Revenue from Contracts with Customers
(“ASC 606”). ASU 2014-09, as amended by subsequent
ASUs on the topic, establishes a single comprehensive model for entities to use in accounting for revenue arising from contracts
with customers and supersedes most of the existing revenue recognition guidance. This standard, which is effective for interim
and annual reporting periods in fiscal years that begin after December 15, 2017, requires an entity to recognize revenue to depict
the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects
to be entitled in exchange for those goods or services and also requires certain additional disclosures. The Company adopted this
standard in 2018 using the modified retrospective approach, which requires applying the new standard to all existing contracts
not yet completed as of the effective date and recording a cumulative-effect adjustment to retained earnings as of the beginning
of the fiscal year of adoption. The Company has concluded that ASU 2014-09 did not have a material impact on the process for,
timing of, and presentation and disclosure of revenue recognition from contracts with lessees.
In February 2016, the FASB issued
ASU 2016-02,
“Leases”
, which aims to make leasing activities more transparent and comparable and
requires substantially all leases be recognized by lessees on their balance sheet as a right-of-use asset and corresponding
lease liability, including leases currently accounted for as operating leases. This ASU is effective for all interim and
annual reporting periods beginning after December 15, 2018. The adoption of ASU 2016-02 did not have a material impact on the Company’s financial
statement presentation or disclosures.
In
October 2016, the FASB issued ASU 2016-16,
“Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other than Inventory”,
which eliminates the exception that prohibits the recognition of current and deferred income tax effects for intra-entity
transfers of assets other than inventory until the asset has been sold to an outside party. The updated guidance is effective
for annual periods beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption of the
update is permitted. The Company is currently evaluating the impact of the new standard.
In
June 2018, the FASB issued Accounting Standards Update 2018-07,
“Compensation – Stock Compensation
(Topic 718): Improvements to Nonemployee Share-Based Payment Accounting (“ASU 2018-07”)”.
ASU 2018-07 expands
the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees.
ASU 2018-07 also clarifies that Topic 718 does not apply to share-based payments used to effectively provide (1)
financing to the issuer or (2) awards granted in conjunction with selling goods or services to customers as part of a
contract accounted for under
Revenue from Contracts with
Customers (Topic 606). ASU 2018-07 is
effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The
Company adopted the provisions of ASU 2018-07 in the quarter beginning January 1, 2019. The adoption
of ASU 2018-07 did not have a material impact on the Company’s financial statement presentation or
disclosures.
In
August 2018, the FASB issued Accounting Standards Update (ASU) 2018-13,
“Fair Value Measurement (Topic 820): Disclosure
Framework - Changes to the Disclosure Requirements for Fair Value Measurement”,
which changes the fair value measurement
disclosure requirements of ASC 820. This update is effective for fiscal years beginning after December 15, 2019, and for
interim periods within those fiscal years. The Company does not expect the adoption of ASU 2018-13 to have a material
impact on its condensed 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.
NOTE
3 –
FINANCING LEASES RECEIVABLE
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 April 2020.
Each lease is secured by ownership of the related transportation equipment.
At
June 30, 2019 and December 31, 2018, financing leases receivable consisted of the following:
|
|
June 30,
2019
|
|
|
December 31,
2018
|
|
Total minimum financing leases receivable
|
|
$
|
46,975
|
|
|
$
|
96,505
|
|
Unearned income
|
|
|
(2,298
|
)
|
|
|
(8,124
|
)
|
Total financing leases receivable
|
|
|
44,677
|
|
|
|
88,381
|
|
Less: allowance for uncollectible financing leases receivable
|
|
|
(6,455
|
)
|
|
|
(10,295
|
)
|
Financing leases receivable, net
|
|
|
38,222
|
|
|
|
78,086
|
|
Less: current portion of financing leases receivable, net
|
|
|
(37,160
|
)
|
|
|
(61,655
|
)
|
Financing leases receivable, net – long-term
|
|
$
|
1,062
|
|
|
$
|
16,431
|
|
For
the six months ended June 30, 2019 and 2018, activities in the Company’s allowance for uncollectible financing leases receivable
were are follows:
|
|
For the Six Months Ended
June 30,
|
|
|
|
2019
|
|
|
2018
|
|
Allowance for uncollectible financing leases receivable at beginning of period
|
|
$
|
10,295
|
|
|
$
|
25,405
|
|
Provisions for credit losses
|
|
|
|
|
|
|
-
|
|
Bad debt recovery
|
|
|
(3,840
|
)
|
|
|
(8,213
|
)
|
Allowance for uncollectible financing leases receivable at end of period
|
|
$
|
6,455
|
|
|
$
|
17,192
|
|
At
June 30, 2019, the aggregate amounts of future minimum gross lease payments receivable are as follows:
|
|
Amount
|
|
Year 1
|
|
$
|
45,913
|
|
Year 2
|
|
|
1,062
|
|
Future minimum gross financing leases receivable
|
|
$
|
46,975
|
|
NOTE
4 –
CONVERTIBLE DEBT
On
January 28, 2019, the Company issued a convertible note to a third-party lender totaling $35,000 (the “January 2019 Note”).
The company received cash of $31,500, original issue discounts of $2,100 and debt issuances costs of $1,400. The January 2019
Note accrues interest at 12% per annum and matures with interest and principal both due on October 28, 2019. The January
2019 Note is convertible into the Company’s common stock at a rate of 60% discount to the Company’s common stock with
a lookback of 20 trading days.
The
conversion feature of the January 2019 Note provides for an effective conversion price that is below market value on the date
of issuance. Such feature is normally characterized as a beneficial conversion feature (“BCF”). When the Company records
a BCF the relative fair value of the BCF is recorded as a debt discount against the face amount of the respective debt instrument.
The Company recorded a BCF of $25,985. The total discounts on the note is $28,085. The total issuances costs are $1,400. The debt
discount and debt issuances costs are being accreted over the life of the note to interest expense.
On
February 11, 2019, the Company issued a convertible note to a third-party lender totaling $35,000 (the “February 2019 Note”).
The company received cash of $31,500, original issue discounts of $2,100 and debt issuances costs of $1,400. The February 2019
Note accrues interest at 12% per annum and matures with interest and principal both due on November 6, 2019. The February
2019 Note is convertible into the Company’s common stock at a rate of 60% discount to the Company’s common stock with
a lookback of 20 trading days.
In
addition, the Company issued a warrant to purchase 20,250 shares of Company common stock. The warrant entitles the holder to purchase
the Company’s common stock at a purchase price of $2.00 per share for a period of three years from the issue date. The Company
recorded a $13,534 debt discount relating to the warrants issued to the investor based on the relative fair value of each equity
instrument on the dates of issuance.
The
conversion feature of the February 2019 Note provides for an effective conversion price that is below market value on the date
of issuance. Such feature is normally characterized as a beneficial conversion feature (“BCF”). When the Company records
a BCF the relative fair value of the BCF is recorded as a debt discount against the face amount of the respective debt instrument.
The Company recorded a BCF of $31,288. The total discounts on the note is $46,922. The total issuances costs are $1,400. Due to
the fact the total discounts exceeded the face value of the note $16,822 were expensed to interest expense upon issuance. The
debt discount and debt issuances costs are being accreted over the life of the note to interest expense.
On
April 1, 2019, the Company issued a convertible note to a third-party lender totaling $58,300 (the “April 2019 Note”).
The company received cash of $50,000, original issue discounts of $5,300 and debt issuances costs of $3,000. The April 2019 Note
accrues interest at 10% per annum and matures with interest and principal both due on March 28, 2020. The April 2019 Note
is convertible into the Company’s common stock at a rate of 60% discount to the Company’s common stock with a lookback
of 25 trading days.
In
addition, the Company issued a warrant to purchase 11,660 shares of Company common stock. The warrant entitles the holder to purchase
the Company’s common stock at a purchase price of $2.00 per share for a period of three years from the issue date. The Company
recorded a $2,893 debt discount relating to the warrants issued to the investor based on the relative fair value of each equity
instrument on the dates of issuance.
The
conversion feature of the April 2019 Note provides for an effective conversion price that is below market value on the date of
issuance. Such feature is normally characterized as a beneficial conversion feature (“BCF”). When the Company records
a BCF the relative fair value of the BCF is recorded as a debt discount against the face amount of the respective debt instrument.
The Company recorded a BCF of $38,867. The total discounts on the note is $ 47,059. The total issuances costs are $3,000. The
debt discount and debt issuances costs are being accreted over the life of the note to interest expense.
During
the six months ended June 30, 2019 the lenders converted $11,700 in principal into 151,327 shares of the Company’s common
stock.
For
the six months ended June 30, 2019 and 2018, amortization of debt discount related to these convertible notes amounted to $157,085
and $23,225, respectively, which has been included in interest expense on the accompanying condensed consolidated statements of
operations.
As
of June 30, 2019 and December 31, 2018, accrued interest payable amounted to $57,922 and $34,933, respectively. The weighted average
interest rate for the six months ended June 30, 2019 and December 31, 2018 was approximately 10% and 10%, respectively.
At
June 30, 2019 and December 31, 2018, the convertible debt consisted of the following:
|
|
June 30,
2019
|
|
|
December 31,
2018
|
|
Principal amount
|
|
$
|
744,600
|
|
|
$
|
628,000
|
|
Less: unamortized debt issuance costs
|
|
|
(3,519
|
)
|
|
|
-
|
|
Less: unamortized debt discount
|
|
|
(13,807
|
)
|
|
|
(148,826
|
)
|
|
|
|
627,274
|
|
|
|
479,174
|
|
Less: Current Debt
|
|
|
(409,688
|
)
|
|
|
-
|
|
Convertible note payable, net – long-term
|
|
$
|
217,587
|
|
|
$
|
479,174
|
|
At
June 30, 2019, future debt maturities are $494,600 through June 30, 2020 and $250,000 thereafter.
NOTE
5 –
RELATED PARTY TRANSACTIONS
Notes
payable – related parties
At
June 30, 2019 and December 31, 2018, notes payable – related parties consisted of the following:
|
|
June 30,
2019
|
|
|
December 31,
2018
|
|
Principal amount
|
|
$
|
10,000
|
|
|
$
|
12,500
|
|
Less: unamortized debt discount
|
|
|
-
|
|
|
|
-
|
|
Notes payable – related parties, net
|
|
$
|
10,000
|
|
|
$
|
12,500
|
|
During
the six months ended the Company repaid $2,500 in principal and $733 in accrued and unpaid interest.
As
of June 30, 2019 and December 31, 2018, accrued interest payable amounted to $501 and $544, respectively.
Line
of credit – related party
As
of June 30, 2019 and December 31, 2018, the line of credit related party amounted to $70,000.
As
of June 30, 2019 and December 31, 2018, accrued interest payable related party amounted to $5,508 and $2,842, respectively.
Office
rent - related party
The
Company rents its office space from a Director of the Company on a month-to-month basis for $445 per month. For the six months
ended June 30, 2019 and 2018, rent expense – related party amounted to $6,750 and $ 4,500, respectively, and is included
in general and administrative expenses on the accompanying statements of operations.
NOTE
6 –
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 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 (“Series
A Preferred”). 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 is 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.
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.
As
of June 30, 2019 and December 31, 2018 the Company had 51 shares of Series A Preferred issued and outstanding with a stated valued
of $51,000.
NOTE
7 –
STOCKHOLDERS’ DEFICIT
Common
stock issued for services
On
February 1, 2019 the Company entered into a three-month consulting agreement for investor relations services. In connection with
the consulting agreement, the Company agreed to issued 20,000 shares of its common stock on the first of each month for the next
three months. The shares were valued at their fair value of $56,500 which was the fair value on the date of grant based on the
closing quoted share price on the date of grant.
Common
stock issued for note conversion
During
the six months ended June 30, 2019 a lender converted $11,700 in principal into 151,327 shares of the Company’s common stock.
Stock
options
Stock
option activities for the six months ended June 30, 2019 is summarized as follows:
|
|
Number
of Options
|
|
|
Weighted
Average Exercise Price
|
|
|
Weighted
Average Remaining Contractual Term (Years)
|
|
|
Aggregate
Intrinsic Value
|
|
Balance Outstanding December
31, 2018
|
|
|
300,000
|
|
|
|
1.00
|
|
|
|
4.76
|
|
|
|
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
Balance Outstanding June 30, 2019
|
|
|
300,000
|
|
|
$
|
1.00
|
|
|
|
3.51
|
|
|
$
|
-
|
|
Exercisable, June 30, 2019
|
|
|
100,000
|
|
|
$
|
1.00
|
|
|
|
3.51
|
|
|
$
|
-
|
|
Warrants
The
Company applied fair value accounting for all share-based payments awards. The fair value of each warrant granted is estimated
on the date of grant using the Black-Scholes option-pricing model.
The
assumptions used for warrants granted during the six months ended June 30, 2019 are as follows:
|
|
June 30,
2019
|
|
Exercise price
|
|
$
|
2.00
|
|
Expected dividends
|
|
|
-
|
%
|
Expected volatility
|
|
|
100
|
%
|
Risk free interest rate
|
|
|
2.31 – 2.47
|
%
|
Expected life of warrant
|
|
|
3 years
|
|
Warrant
activities for the six months ended June 30, 2019 are summarized as follows:
|
|
Number of
Warrants
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Weighted
Average
Remaining
Contractual Term
(Years)
|
|
|
Average
Intrinsic
Value
|
|
Balance Outstanding December 31, 2018
|
|
|
1,363,999
|
|
|
|
2.36
|
|
|
|
4.10
|
|
|
|
|
|
Granted in connection with debt
|
|
|
31,910
|
|
|
|
2.00
|
|
|
|
3.00
|
|
|
|
|
|
Balance Outstanding June 30, 2019
|
|
|
1,395,909
|
|
|
|
2.35
|
|
|
|
3.59
|
|
|
$
|
34,500
|
|
Exercisable, June 30, 2019
|
|
|
1,395,909
|
|
|
|
2.35
|
|
|
|
3.59
|
|
|
$
|
34,500
|
|
NOTE
8 –
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.
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 June 30, 2019 are as follows:
Years ending December 31,
|
|
Amount
|
|
2019 (remainder of year)
|
|
$
|
110,250
|
|
2020
|
|
|
231,525
|
|
2021
|
|
|
243,101
|
|
2023
|
|
|
255,256
|
|
Total minimum commitment employment agreement payments
|
|
$
|
840,133
|
|
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.
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 to purchase the Company’s common stock is subject to the filing and effectiveness
of an S-1 registration statement by the Company.
NOTE
9 –
SUBSEQUENT EVENTS
Subsequent
to June 30, 2019, the Company entered into two convertible note agreements with investors. The Company received proceeds of $65,000.
As additional consideration for entering in the convertible note agreements, the investors were granted warrants to purchase 75,000
shares of the Company’s common stock.
In addition, on August 15, 2019, the Company issued a warrant to purchase
128,048 shares of the Company’s common stock to an investor in connection with a pre-existing securities purchase agreement.
Subsequent to June 30, 2019, the Company’s lenders converted
a portion of the Company’s outstanding convertible notes into 862,000 shares of the Company’s common stock.
Subsequent
to June 30, 2019, the Company was served with a summons and complaint relating to a lawsuit filed by CFO Oncall, Inc. in the Circuit
Court of the Seventeenth Judicial Circuit, Broward County, Florida on June 18, 2019 against the Company alleging that the Company
owes the plaintiff approximately $15,000 in connection with certain consulting services provided by the plaintiff in 2018. The
Company has engaged legal counsel and intends to defend itself vigorously.
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 2018 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 2018 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 2018 Annual Report.
Results
of Operations - Comparison of Results of Operations for the Three and Six Months Ended June 30, 2019 and 2018
Revenues
Revenues
consist of interest earned on lease financings and other fee income. For the three months ended June 30, 2019, total revenues
amounted to $2,454 as compared to $2,781 for the three months ended June 30, 2018, a decrease of $327, or 12%. For the six months
ended June 30, 2019, total revenues amounted to $5,826 as compared to $6,454 for the six months ended June 30, 2018, a decrease
of $628, or 10%. The decrease in revenues for the periods discussed were attributable to a decrease in the revenue generated
by our leasing portfolio during the 2019 period as compared to the 2018 period.
Operating
Expenses
For
the three months ended June 30, 2019, operating expenses amounted to $237,571 as compared to $222,366 for the three months ended
June 30, 2018, an increase of $15,205, or 7%. For the six months ended June 30, 2019, operating expenses amounted to $437,112
as compared to $416,655 for the six months ended June 30, 2018, an increase of $20,457, or 5%.
For
the three and six months ended June 30, 2019 and 2018, operating expenses consisted of the following:
|
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
|
|
|
2019
|
|
|
2018
|
|
2019
|
|
2018
|
|
Compensation and benefits
|
|
$
|
94,920
|
|
|
$
|
101,661
|
|
|
238,764
|
|
|
202,283
|
|
Professional fees
|
|
|
100,644
|
|
|
|
105,768
|
|
|
143,367
|
|
|
192,648
|
|
Provision for lease losses
|
|
|
(2,650
|
)
|
|
|
(4,037
|
)
|
|
(3,840
|
)
|
|
(8,213
|
)
|
General and administrative expenses
|
|
|
44,657
|
|
|
|
18,974
|
|
|
58,821
|
|
|
29,937
|
|
Total
|
|
$
|
237,571
|
|
|
$
|
222,366
|
|
|
437,112
|
|
|
416,655
|
|
|
●
|
For
the three months ended June 30, 2019, compensation and benefit expense decreased by $6,741, or 7% as compared to the three
months ended June 30, 2018. For the six months ended June 30, 2019, compensation and benefit expense increased by $36,481,
or 18%, as compared to the six months ended June 30, 2018. This increase was attributable to an increase in compensation paid
to Arista’s chief executive officer which includes stock-based compensation of $136,262 for the six months ended June
30, 2019 for stock options granted on January 1, 2018.
|
|
●
|
For the three months ended June 30, 2019, professional fees decreased by $5,124, or 5%, as compared
to the three months ended June 30, 2018. This decrease was primarily attributable to a decrease in legal fees of $35,818.
For the six months ended June 30, 2019, professional fees decreased by $49,281, or 26%, as compared to the six months
ended June 30, 2018. This decrease was attributable to an increase in accounting fees of $28,046 and an increase in
transfer agent fees of $4,097, offset by a decrease in legal fees of $43,658 and consulting fees of $34,789.
|
|
|
|
|
●
|
For
the three months ended June 30, 2019, provision for lease losses increased by $1,387 as compared to the three months ended
June 30, 2018. For the six months ended June 30, 2019, we recorded a provision for lease losses of $3,840 as compared to $8,213
for the six months ended June 30, 2018. Management periodically evaluates financing leases receivables based on the individual
creditworthiness of customers. Based on this evaluation, Arista records an allowance for estimated losses on these receivables.
|
|
|
|
|
●
|
For the three months ended June 30, 2019, general and administrative expenses increased by $25,683 as compared
to the three months ended June 30, 2018. The increase during the three-month period was primarily due to increases in insurance,
postage expenses and bank charges offset by decreases in charitable contributions and investor relations expenses. For the six
months ended June 30, 2019, general and administrative expenses increased by $28,884 as compared to the six months ended June 30,
2018. The increase was primarily due to increases in insurance, postage expenses and filing fees of $15,216, $11,131 and 4,573,
respectively, offset by decreases in charitable contributions and investor relations expenses of $5,000 and $4,000, respectively.
|
Loss
from Operations
As
a result of the factors described above, for the three months ended June 30, 2019, loss from operations amounted to $235,117,
as compared to $219,585 for the three months ended June 30, 2018, an increase of $15,532, or 7%. For the six months ended June
30, 2019, loss from operations amounted to $431,286, as compared to $410,201 for the six months ended June 30, 2018, an increase
of $21,085, or 5%.
Other
Expenses
Other
expenses consist of interest expense incurred on debt owed to third parties and related parties. For the three months ended June
30, 2019, interest expense amounted to $96,272, as compared to $31,313 for the three months ended June 30, 2018, an increase of
$64,959, or 207%. These increases were attributable to an increase in borrowing pursuant to convertible note instruments and the
amortization of debt discount. For the six months ended June 30, 2019, interest expense amounted to $218,087, as compared to $62,816
for the six months ended June 30, 2018, an increase of $155,271, or 247%. 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 June 30, 2019 and 2018, net loss amounted to $333,926, or $0.10 per common
share (basic and diluted), and $257,831, or $0.08 per common share (basic and diluted), respectively. For the six months ended
June 30, 2019 and 2018, net loss amounted to $654,500, or $0.19 per common share (basic and diluted), and $489,585, or $0.16 per
common share (basic and diluted), respectively.
Due
to lack of operating cash flows, from December 31, 2018 to June 30, 2019, accounts payable increased by $93,382 and accrued expenses
increased by $57,568.
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 $1,175 and $10,357 on hand as of June 30, 2019 and December 31, 2018, 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:
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.
Cash
Flows
Net
cash flow used in operating activities was $119,682 for the six months ended June 30, 2019, as compared to net cash used in operating
activities of $147,107 for the six months ended June 30, 2018, an decrease of $27,425. 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 six months ended June 30, 2019, we did not have any cash flows from investing activities. For the six months ended June 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.
Net
cash provided by financing activities was $110,500 for the six months ended June 30, 2019 as compared to $135,000 for the six
months ended June 30, 2018. During the six months ended June 30, 2019, we received proceeds from convertible notes of $113,000.
During the six months ended June 30, 2018, we received proceeds from a note payable subscription receivable of $50,000, proceeds
from a related party line of credit of $35,000 and proceeds from convertible notes of $50,000.
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.