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 June 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 August 15, 2018, the registrant had 3,272,083 shares of common stock, par value $0.0001 per share, issued and outstanding.

  

 

  

ARISTA FINANCIAL CORP.

Form 10-Q

June 30, 2018

 

INDEX

 

	Page
Part I. Financial Information
Item 1. Financial Statements	1
Condensed Consolidated Balance Sheets – June 30, 2018 and December 31, 2017 (unaudited)	1
Condensed Consolidated Statements of Operations – Three and Six Months Ended June 30, 2018 and 2017 (unaudited)	2
Condensed Consolidated Statements of Cash Flows – Six Months Ended June 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	18
Item 3. Quantitative and Qualitative Disclosures about Market Risk	26
Item 4. Controls and Procedures	26
Part II. Other Information
Item 1. Legal Proceedings	27
Item 1A. Risk Factors	27
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	27
Item 3. Defaults Upon Senior Securities	27
Item 4. Mine Safety Disclosures	27
Item 5. Other Information	27
Item 6. Exhibits	28
Signatures	29

  

 

PART I. FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

ARISTA FINANCIAL CORP. AND SUBSIDIARY

CONDENSED CONSOLIDATED BALANCE SHEETS

 

		June 30,				December 31,
		2018				2017
		(Unaudited)
ASSETS
CURRENT ASSETS:
Cash		$	3,621			$	728
Financing leases receivable, net			16,595				33,125
Due from lease service provider			5,439				6,755
Accrued interest receivable			1,026				1,026
Prepaid expenses			32,817				780
Subscription receivable			-				50,000
Equipment held for sale			-				15,000
Total Current Assets			59,498				107,414
LONG-TERM ASSETS:
Financing leases receivable, net			11,787				19,760
Total Long-term Assets			11,787				19,760
Total Assets		$	71,285			$	127,174
LIABILITIES AND STOCKHOLDERS’ DEFICIT
CURRENT LIABILITIES:
Notes payable - related parties, net		$	12,500			$	35,284
Note payable - net			-				34,109
Accounts payable			159,885				81,266
Line of credit - related party			50,000				-
Accrued interest payable			11,196				11,102
Accrued interest payable - related parties			152				186
Due to related party			-				15,000
Accrued expenses			110,871				43,542
Total Current Liabilities			344,604				220,489
LONG-TERM LIABILITIES:
Convertible notes payable, net			362,803				306,516
Total Long-term Liabilities			362,803				306,516
Total Liabilities			707,407				527,005
Commitments and Contingencies (See Note 8)
STOCKHOLDERS’ DEFICIT:
Preferred stock, $.0001 par value, 5,000,000 shares authorized; No shares issued and outstanding at June 30, 2018 and December 31, 2017			-				-
Common stock: $.0001 par value, 100,000,000 shares authorized; 3,272,083 and 3,088,333 shares issued and outstanding at June 30, 2018 and December 31, 2017			327				309
Additional paid-in capital			787,629				534,353
Accumulated deficit			(1,424,078	)			(934,493	)
Total Stockholders’ Deficit			(636,122	)			(399,831	)
Total Liabilities and Stockholders’ Deficit		$	71,285			$	127,174

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

 

ARISTA FINANCIAL CORP. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

 

		For the Three Months Ended								For the Six Months Ended
		June 30,								June 30,
		2018				2017				2018				2017
REVENUES:
Interest on lease financings		$	2,781			$	9,295			$	6,454			$	19,597
Other fee income			-				-				-				-
Total revenues			2,781				9,295				6,454				19,597
OPERATING EXPENSES:
Compensation and benefits			101,661				48,441				202,283				77,342
Professional fees			105,768				42,417				192,648				43,842
Provision for lease losses			(4,037	)			-				(8,213	)			-
General and administrative expenses			18,974				4,847				29,937				9,736
Total operating expenses			222,366				95,705				416,655				130,920
LOSS FROM OPERATIONS			(219,585	)			(86,410	)			(410,201	)			(111,323	)
OTHER (INCOME) EXPENSES:
Interest expense			31,313				24,900				62,816				49,674
Interest expense - related parties			8,538				-				18,173				-
Gain on sale of equipment			(1,605	)			-				(1,605	)			-
Total other expenses			38,246				24,900				79,384				49,674
LOSS BEFORE INCOME TAXES			(257,831	)			(111,310	)			(489,585	)			(160,997	)
PROVISION FOR INCOME TAXES			-				-				-				-
NET LOSS		$	(257,831	)		$	(111,310	)		$	(489,585	)		$	(160,997	)
NET LOSS PER COMMON SHARE:
Basic and Diluted		$	(0.08	)		$	(0.05	)		$	(0.16	)		$	(0.08	)
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
Basic and Diluted			3,186,451				2,084,000				3,147,608				2,084,000

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

 

ARISTA FINANCIAL CORP. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

		For the Six Months Ended
		June 30,
		2018				2017
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss		$	(489,585	)		$	(160,997	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation expense			-				100
Stock-based compensation			117,059				-
Amortization of debt discount to interest expense			53,833				26,863
Bad debt recovery			(4,176	)			-
Change in operating assets and liabilities:
Financing leases receivable			28,679				26,620
Due from lease service provider			1,316				-
Accrued interest receivable			-				(429	)
Prepaid expenses			(3,287	)			257
Accounts payable			78,619				22,640
Accrued interest payable			94				1,890
Accrued interest payable - related parties			3,012				(756	)
Accrued expenses			67,329				(13,397	)
NET CASH USED IN OPERATING ACTIVITIES			(147,107	)			(97,209	)
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			35,000				-
Proceeds from note payable subscription receivable			50,000				-
Proceeds from convertible notes			50,000				100,000
NET CASH PROVIDED BY FINANCING ACTIVITIES			135,000				100,000
NET INCREASE (DECREASE) IN CASH			2,893				5,491
CASH, beginning of period			728				91,687
CASH, end of period		$	3,621			$	97,178
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest paid		$	27,096			$	21,677
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			$	-

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

  

ARISTA FINANCIAL CORP. AND SUBSIDIARY

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 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”) and the Arista Capital Shareholders (the “Share Exchange Agreement”) pursuant to which the Company agreed, subject to the terms and conditions in the Share Exchange Agreement, to exchange newly issued shares of the Company for shares of Arista Capital held by the Arista Capital Shareholders, with Arista Capital becoming a wholly-owned subsidiary of the Company (the “Transaction”). The closing of the Transaction (the “Closing”) was to take place sixty days after the execution of this Agreement. On July 18, 2017, the parties entered into the First Addendum to the Share Exchange Agreement, pursuant to which the closing date for the Transaction was scheduled for September 15, 2017. In connection with this First Addendum, Arista Capital paid the Company a $15,000 non-refundable deposit, and had the right to extend the closing date in intervals of thirty days upon payment of an additional non-refundable deposit of $10,000 for each requested extension interval. In November 2017, Arista Capital paid the Company an additional $10,000 non-refundable deposit. The Closing occurred on December 14, 2017. At Closing, Arista Capital paid the Company $72,500 which was used to pay all remaining outstanding liabilities of Praco.

 

Prior to Closing, the Company restructured its equity ownership via a reverse stock split at a ratio of 13.2 to 1 which reduced the number of shares of common stock outstanding to 522,558 shares followed by the issuance of an additional 95,109 shares to certain Praco Shareholders so that there were 617,667 shares outstanding immediately prior to the Closing. On the date of the Exchange Agreement, the fair value of the 617,667 shares retained by Praco shareholders was approximately $401,000, or $0.65 per common share, based on the quoted closing price of the Company common stock. Therefore, the Praco shareholders received aggregate consideration for the acquisition of $498,500. At Closing, the Company exchanged two shares of its common stock for each outstanding share of Arista common stock. This resulted in the issuance at Closing of an additional 2,470,666 shares of common stock which consisted of 2,084,000 shares of common stock issued to Arista Shareholders and 386,666 shares of common stock issued to certain Arista Capital noteholders upon the conversion of convertible notes payable. Accordingly, Arista Capital Shareholders owned in the aggregate approximately 80% of the outstanding common stock of the Company, with the Praco Shareholders owning the remaining approximately 20% of the Company and Arista Capital became a wholly-owned subsidiary of the Company. At the time of the Closing, under the Exchange Agreement, the Company, then known as Praco Corporation, was not engaged in any business activity and was considered a shell.

 

Also, at Closing, the Praco Shareholders were issued warrants for 283,749 shares of common stock on a pro-rata basis exercisable at $2.00 per share and subject to the same terms and conditions as the warrants currently held by the Arista warrant holders except without a cashless exercise option. On the date of the Exchange Agreement, the Company calculated the fair value of the 283,749 warrants using the Black-Sholes option pricing method. The fair value of the warrants was approximately $108,000. In addition, immediately following the Closing, the Company exchanged each outstanding Arista warrant for new warrants issued by the Company entitling the holder to purchase an equal number of shares of the Company’s common stock as the number of Arista shares they were entitled to purchase upon exercise, subject to the same terms and conditions as the Arista Capital warrants except without a cashless exercise option. Also, at Closing, the Company exchanged each outstanding Arista Capital convertible note into a convertible note issued by the Company convertible into an equal amount of shares of the Company’s common stock as the number of Arista Capital shares into which such notes were convertible, subject to the same terms and conditions as the convertible notes currently held by Arista Capital convertible noteholders. As a result of such exchange offers, at Closing, the Company issued warrants to purchase 935,000 shares of common stock and convertible notes convertible into 199,999 shares of common stock.

  

 

ARISTA FINANCIAL CORP. AND SUBSIDIARY

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2018

 

As of December 31, 2017, the Company has recapitalized the Company to give effect to the Share Exchange Agreement discussed above. 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, then known as Praco Corporation, 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 takeover 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 accompanying consolidated financial statements reflect the recapitalization of the stockholders’ deficit as if the transactions occurred as of the beginning of the first period presented. Thus, the 2,000,000 shares of common stock issued to the former Arista Capital stockholders are deemed to be outstanding from December 31, 2015.

 

Arista Capital was formed on June 10, 2014 as a Nevada corporation. The Company is a finance company that provides financing to other very 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 – 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.  

 

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 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 three and six months ended June 30, 2018 and 2017 include estimates of allowances for uncollectible finance leases receivable, the useful life of property and equipment, estimates of current and deferred income taxes and deferred tax valuation allowances, the fair value of equipment held for sale, and the fair value of non-cash equity transactions. 

  

 

ARISTA FINANCIAL CORP. AND SUBSIDIARY

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2018

 

Going concern

 

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, 2018, the Company had a net loss of $489,585 and used cash in operating activities of $147,107, respectively. Additionally, the Company had an accumulated deficit of $1,424,078, had a stockholders’ deficit of $636,122, and had a working capital deficit of $285,106 at June 30, 2018, respectively, and had minimal revenues for the six months ended June 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 now 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. These 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.

 

Fair value of financial instruments and fair value measurements

 

The Company analyzes all financial instruments with features of both liabilities and equity under the Financial Accounting Standard Board’s (the “FASB”) accounting standard for such instruments. Under this standard, financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The Company did not identify any assets or liabilities that are required to be presented on the balance sheet at fair value in accordance with Accounting Standards Codification (“ASC”) Topic 820.

 

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.

 

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, 2018 and December 31, 2017, cash in bank did not exceed federally insured limits. The Company has not experienced any losses in such accounts through June 30, 2018.

 

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, 2018, the Company’s portfolio of financing leases consists of five 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.

  

 

ARISTA FINANCIAL CORP. AND SUBSIDIARY

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2018

 

Cash and cash equivalents

 

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, 2018 and December 31, 2017, 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 credit worthiness of customers. Based on this evaluation, the Company records allowance for estimated losses on these receivables.

 

Property and equipment

 

Property and equipment are stated at cost and are depreciated using the straight-line method over their estimated useful lives, which range from three to five years. Leasehold improvements are depreciated over the shorter of the useful life or lease term including scheduled renewal terms. Maintenance and repairs are charged to expense as incurred. When assets are retired or disposed of, the cost and accumulated depreciation are removed from the accounts, and any resulting gains or losses are included in income in the year of disposition. The Company examines the possibility of decreases in the value of these assets when events or changes in circumstances reflect the fact that their recorded value may not be recoverable. 

 

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.

 

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.

  

 

ARISTA FINANCIAL CORP. AND SUBSIDIARY

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2018

 

Income taxes

 

The Company accounts for income tax using the liability method prescribed by ASC 740, “Income Taxes”. Under this method, deferred tax assets and liabilities are determined based on the difference between the financial reporting and tax bases of assets and liabilities using enacted tax rates that will be in effect in the year in which the differences are expected to reverse. The Company records a valuation allowance to offset deferred tax assets if based on the weight of available evidence, it is more-likely-than-not that some portion, or all, of the deferred tax assets will not be realized. The effect on deferred taxes of a change in tax rates is recognized as income or loss in the period that includes the enactment date.

 

The Company follows the accounting guidance for uncertainty in income taxes using the provisions of ASC 740 “Income Taxes”. Using that guidance, tax positions initially need to be recognized in the financial statements when it is more likely than not the position will be sustained upon examination by the tax authorities. As of June 30, 2018 and December 31, 2017, the Company had no uncertain tax positions that qualify for either recognition or disclosure in the financial statements. Tax years that remain subject to examination are the years ending on and after December 31, 2014. The Company recognizes interest and penalties related to uncertain income tax positions in other expense. However, no such interest and penalties were recorded as of June 30, 2018.

 

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 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. 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 shares of common stock consist of common stock issuable for stock warrants (using the treasury stock method) and shares of common stock issuable upon the conversion of convertible notes payable (using the as-if converted method). These common stock equivalents may be dilutive in the future.

   

 

ARISTA FINANCIAL CORP. AND SUBSIDIARY

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2018

 

All potentially dilutive shares of common stock 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, 2018				June 30, 2017
Stock warrants			1,293,749				635,000
Stock options			300,000				-
Convertible debt			200,000				359,998

 

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

 

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

  

 

ARISTA FINANCIAL CORP. AND SUBSIDIARY

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2018

 

NOTE 3 – 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 three and six months ended June 30, 2018.

 

The seller, as lease service provider, 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 June 30, 2018 and December 31, 2017, financing leases receivable consists of leases for transportation equipment. At June 30, 2018 and December 31, 2017, financing leases receivable consisted of the following:

 

		June 30, 2018				December 31, 2017
Total minimum financing leases receivable		$	50,200			$	89,370
Unearned income			(4,626	)			(11,080	)
Total financing leases receivable			45,574				78,290
Less: allowance for uncollectible financing leases receivable			(17,192	)			(25,405	)
Financing leases receivable, net			28,382				52,885
Less: current portion of financing leases receivable, net			(16,595	)			(33,125	)
Financing leases receivable, net – long-term		$	11,787			$	19,760

 

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

 

		For the Six Months Ended June 30,
		2018				2017
Allowance for uncollectible financing leases receivable at beginning of period		$	25,405			$	79,000
Provisions for credit losses			-				-
Bad debt recovery			(8,213	)			-
Allowance for uncollectible financing leases receivable at end of period		$	17,192			$	79,000

 

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

 

		Amount
2018		$	36,775
2019			13,425
Future minimum gross financing leases receivable		$	50,200

 

 

ARISTA FINANCIAL CORP. AND SUBSIDIARY

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2018

 

NOTE 4 – CONVERTIBLE DEBT

 

During the year ended December 31, 2016, the Company issued 10% convertible promissory notes (the “2016 10% Convertible Notes”) to seven third party individuals in the aggregate amount of $400,000. The unpaid principal and interest is payable three years from the date of the respective 2016 10% Convertible Note through December 2019. The Company may prepay any amount outstanding under the 2016 10% 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 2016 10% 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 $1.50 per share. The noteholders have the option to extend the due date of the notes for three additional one-year periods. In connection with the 2016 10% Convertible Notes, the Company issued to noteholders five-year warrants to acquire up to 575,000 shares of common stock at $2.00 per share. On December 14, 2017, in connection with the Share Exchange Agreement, the Company issued 266,666 shares to certain noteholders upon conversion of principal amount of $200,000.

 

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 six months ended June 30, 2018. The shares were valued at a price of $0.80 per share, or $4,000 (see Note 7).

 

In May 2018, the Company issued an 8% promissory note to an individual in the amount of $50,000. The unpaid principal and interest is 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.

  

 

ARISTA FINANCIAL CORP. AND SUBSIDIARY

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2018

 

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 Company evaluated whether or not the convertible notes and warrants above contained embedded conversion options, which meet the definition of a 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.

 

As discussed above, in connection with convertible notes payable, the Company granted an aggregate of 25,000 warrants to note holders (See Note 7). During the six months ended June 30, 2018 and 2017, on the issuance date of the respective warrants, the fair value of the warrants of $16,939 and $0 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				-
Term (in years)			5 years				-
Volatility			100.0	%			-
Risk-free interest rate			1.71	%			-

 

For the six months ended June 30, 2018 and 2017, amortization of debt discount related to these convertible notes amounted to $23,225 and $26,251, respectively, which has been included in interest expense on the accompanying condensed consolidated statements of operations.

 

As of June 30, 2018 and December 31, 2017, accrued interest payable amounted to $11,196 and $11,102, respectively. The weighted average interest rate for the six months ended June 30, 2018 and 2017 was approximately 11.0% and 11.0%, respectively.

 

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

 

		June 30, 2018				December 31, 2017
Principal amount		$	450,000			$	400,000
Less: unamortized debt discount			(87,197	)			(93,484	)
Convertible note payable, net – long-term		$	362,803			$	306,517

 

At June 30, 2018, debt maturities are $200,000 in 2019, $200,000 in 2020 and $50,000 in 2021.

 

 

ARISTA FINANCIAL CORP. AND SUBSIDIARY

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2018

 

NOTE 5 – NOTE PAYABLE

 

On December 31, 2017, the Company issued an 8% promissory notes 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.

 

As discussed above, in connection with this note payable, the Company granted a warrant to acquire an aggregate of 25,000 shares of common stock to noteholder. In December 2017, on the issuance date of the warrant, 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 June 30, 2018 and December 31, 2017, note payable consisted of the following:

 

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

 

Upon conversion 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 six months ended June 30, 2018 and 2017, amortization of debt discount related to this note amounted to $15,891 and $0, respectively.

 

NOTE 6 – 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 was 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.

 

 

ARISTA FINANCIAL CORP. AND SUBSIDIARY

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2018

 

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

 

		June 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 six months ended June 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 six months ended June 30, 2018 and 2017, amortization of debt discount related to these related party convertible notes and notes payable amounted to $14,716 and $612, respectively, which has been included in interest expense – related parties on the accompanying condensed consolidated statements of operations.

 

As of June 30, 2018 and December 31, 2017, accrued interest payable - related parties amounted to $152 and $186, respectively. For the three months ended June 30, 2018 and 2017, interest expense - related parties amounted to $8,538 and $0, respectively. For the six months ended June 30, 2018 and 2017, interest expense - related parties amounted to $18,173 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.

 

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. Additionally, during the six months ended June 30, 2018, the Company borrowed an additional $35,000 pursuant to the line of credit agreement. At June 30, 2018, amounts due under the line of credit amounted to $50,000.

 

Office rent - related party

 

During 2016 and through June 2017, the Company continued to rent its office space from a Director of the Company on a month-to-month basis for $500 per month. In July 2017, the Company continues to rent its office space this Director on a month-to-month basis for $750 per month. For the three months ended June 30, 2018 and 2017, rent expense – related party amounted to $2,250 and $1,500, respectively, and is included in general and administrative expenses on the accompanying condensed consolidated statements of operations. For the six months ended June 30, 2018 and 2017, rent expense – related party amounted to $4,500 and $3,000, respectively, and is included in general and administrative expenses on the accompanying condensed consolidated statements of operations.

 

 

ARISTA FINANCIAL CORP. AND SUBSIDIARY

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2018

 

NOTE 7 – STOCKHOLDERS’ DEFICIT

 

Preferred Stock

 

The Company has 5,000,000 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. 

 

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 $5,750 and prepaid expenses of $63,250 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 5).

 

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 6).

 

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 4). 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 six months ended June 30, 2018 and 2017, the Company recorded stock-based compensation expense of $68,809 and $0, respectively.

 

At June 30, 2018, there were 300,000 options outstanding and no options vested and exercisable. As of June 30, 2018, there was $156,384 of unvested stock-based compensation expense to be recognized through December 2020. The aggregate intrinsic value at June 30, 2018 was approximately $0 and was calculated based on the difference between the quoted share price on June 30, 2018 and the exercise price of the underlying options.

  

 

ARISTA FINANCIAL CORP. AND SUBSIDIARY

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2018

 

Stock option activities for the six months ended June 30, 2018 is summarized as follows:

 

		Number of Options				Weighted Average Exercise Price				Weighted Average Remaining Contractual Term (Years)				Aggregate Intrinsic Value
Balance Outstanding December 31, 2017		-				-
Granted			300,000				1.00
Balance Outstanding June 30, 2018			300,000			$	1.00				4.51			$	-
Exercisable, June 30, 2018			-			$	-				-			$	-

 

Warrants

 

Warrant activities for the six months ended June 30, 2018 is summarized as follows:

 

		Number of Warrants				Weighted Average Exercise Price				Weighted Average Remaining Contractual Term (Years)				Aggregate Intrinsic Value
Balance Outstanding December 31, 2017			1,268,749				2.39
Granted			25,000				3.00
Balance Outstanding June 30, 2018			1,293,749			$	2.45				4.67			$	-
Exercisable, June 30, 2018			1,293,749			$	2.45				4.67			$	-

 

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.

 

 

ARISTA FINANCIAL CORP. AND SUBSIDIARY

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2018

 

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, 2018 are as follows:

 

Years ending December 31,		Amount
2018 (remainder of year)		$	105,000
2019			220,500
2020			231,525
2021			243,101
2022			255,256
Total minimum commitment employment agreement payments		$	1,055,382

 

NOTE 9 - SUBSEQUENT EVENTS

 

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. This financing requires the company to file an S-1 registration statement with the SEC within 35 days of the agreement.

  

Line of credit – related party

 

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. On August 6, 2018, the Company borrowed an additional $9,000 pursuant to the line of credit agreement.

 

Consulting agreement

 

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.

  

 

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.

 

Share Exchange

 

On April 19, 2017, the Company entered into the Share Exchange Agreement with Arista Capital Ltd. (“Arista Capital”) and the Arista Capital Shareholders (the “Share Exchange Agreement”) pursuant to which the Company agreed, subject to the terms and conditions in the Share Exchange Agreement, to exchange newly issued shares of the Company for shares of Arista Capital held by the Arista Capital Shareholders, with Arista Capital becoming a wholly-owned subsidiary of the Company (the “Transaction”). The closing of the Transaction (the “Closing”) was to take place sixty days after the execution of this Agreement. On July 18, 2017, the parties entered into the First Addendum to the Share Exchange Agreement, pursuant to which the closing date for the Transaction was scheduled for September 15, 2017. In connection with this First Addendum, Arista Capital paid the Company a $15,000 non-refundable deposit, and had the right to extend the closing date in intervals of thirty days upon payment of an additional non-refundable deposit of $10,000 for each requested extension interval. In November 2017, Arista Capital paid the Company an additional $10,000 non-refundable deposit. The Closing occurred on December 14, 2017. At Closing, Arista Capital paid the Company $72,500 which was used to pay all remaining outstanding liabilities of Praco.

 

 

Prior to Closing, the Company restructured its equity ownership via a reverse stock split at a ratio of 13.2 to 1 which reduced the number of shares of common stock outstanding to 522,558 shares followed by the issuance of an additional 95,109 shares to certain Praco shareholders so that there were 617,667 shares outstanding immediately prior to the Closing. On the date of the Share Exchange Agreement, the fair value of the 617,667 shares retained by Praco shareholders was approximately $401,000, or $0.65 per share, based on the quoted closing price of the Company common stock. Therefore, the Praco shareholders received aggregate consideration for the acquisition of $498,500. At Closing, the Company exchanged two shares of its common stock for each outstanding share of Arista common stock. This resulted in the issuance at Closing of an additional 2,470,666 shares of common stock which consisted of 2,084,000 shares of common stock issued to Arista Shareholders and 386,666 shares of common stock issued to certain Arista Capital noteholders upon the conversion of convertible notes payable. Accordingly, Arista Capital Shareholders owned in the aggregate approximately 80% of the outstanding common stock of the Company, with the Praco Shareholders owning the remaining approximately 20% of the Company and Arista Capital became a wholly-owned subsidiary of the Company. At the time of the Closing, under the Share Exchange Agreement, the Company, then known as Praco Corporation, was not engaged in any business activity and was considered a shell.

 

Also, at Closing, the Praco shareholders were issued warrants for 283,749 shares of common stock on a pro-rata basis exercisable at $2.00 per share and subject to the same terms and conditions as the warrants currently held by the Arista warrant holders except without a cashless exercise option. On the date of the Share Exchange Agreement, the Company calculated the fair value of the 283,749 warrants using the Black-Sholes option pricing method. The fair value of the warrants was approximately $108,000. In addition, immediately following the Closing, the Company exchanged each outstanding Arista warrant for new warrants issued by the Company entitling the holder to purchase an equal number of shares of the Company’s common stock as the number of Arista shares they were entitled to purchase upon exercise, subject to the same terms and conditions as the Arista Capital warrants except without a cashless exercise option. Also, at Closing, the Company exchanged each outstanding Arista Capital convertible note into a convertible note issued by the Company convertible into an equal amount of shares of the Company’s common stock as the number of Arista Capital shares into which such notes were convertible, subject to the same terms and conditions as the convertible notes currently held by Arista Capital convertible noteholders. As a result of such exchange offers, at Closing, the Company issued warrants to purchase 935,000 shares of common stock and convertible notes convertible into 199,999 shares of common stock.

 

As of December 31, 2017, the Company has recapitalized the Company to give effect to the Share Exchange Agreement discussed above. Under generally accepted accounting principles, the acquisition by the Company of Arista 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 of the Company, then known as Praco Corporation, with the issuance of stock by Arista 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 takeover 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 business of the Arista Capital.

 

The accompanying condensed consolidated financial statements reflect the recapitalization of the stockholders’ deficit as if the transactions occurred as of the beginning of the first periods presented.

 

 

Critical Accounting Policies

 

The following discussion and analysis of our financial condition and results of operations are based upon our unaudited financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”). The preparation of these financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. Management continually evaluates such estimates, including those related to allowances for uncollectible finance receivables, income taxes, and the valuation of equity transactions. Management bases its estimates on historical experience and on various other assumptions that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Any future changes to these estimates and assumptions could cause a material change to our reported amounts of revenues, expenses, assets and liabilities. Actual results may differ from these estimates under different assumptions or conditions. Management believes the following critical accounting policies affect our more significant judgments and estimates used in the preparation of the financial statements.

 

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 six months ended June 30, 2018, we had a net loss of $489,585 and used cash in operating activities of $147,107, respectively. Additionally, we had an accumulated deficit of $1,424,078 and had a stockholders’ deficit of $636,122 at June 30, 2018, respectively, and had minimal revenues for the six months ended June 30, 2018. Management believes that these matters raise substantial doubt about our ability to continue as a going concern for twelve months from the issuance date of this report. Management cannot provide assurance that we 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 we have historically raised capital from the issuance of promissory notes, there is no assurance that we will be able to continue to do so. Management believes that its ability to attract debt and equity financing in the capital markets is now enhanced by becoming a public reporting company. If we are unable to raise additional capital or secure additional lending in the near future, management expects that we will need to curtail or cease operations. These unaudited 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 we be unable to continue as a going concern.

 

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 we expect 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, we record an allowance for estimated losses on these receivables.

 

 

Revenue recognition

 

Income from direct financing lease transactions is reported using the financing method of accounting, in which our 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 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.

 

Income taxes

 

We account for income tax using the liability method prescribed by ASC 740, “Income Taxes”. Under this method, deferred tax assets and liabilities are determined based on the difference between the financial reporting and tax bases of assets and liabilities using enacted tax rates that will be in effect in the year in which the differences are expected to reverse. We record a valuation allowance to offset deferred tax assets if based on the weight of available evidence, it is more-likely-than-not that some portion, or all, of the deferred tax assets will not be realized. The effect on deferred taxes of a change in tax rates is recognized as income or loss in the period that includes the enactment date.

 

We follow the accounting guidance for uncertainty in income taxes using the provisions of ASC 740 “Income Taxes”. Using that guidance, tax positions initially need to be recognized in the financial statements when it is more likely than not the position will be sustained upon examination by the tax authorities. We recognize interest and penalties related to uncertain income tax positions in other expense.

 

 

Recent Accounting Pronouncements

 

We do not believe that any recently issued, but not yet effective accounting standards, will have a material effect on Arista’s financial position, results of operations or cash flows.

 

Results of Operations

 

Comparison of Results of Operations for the Three and Six Months Ended June 30, 2018 and 2017

 

Revenues

 

Revenues consist of interest earned of lease financings and other fee income. For the three months ended June 30, 2018, total revenues amounted to $2,781 as compared to $9,295 for the three months ended June 30, 2017, a decrease of $6,514, or 70.1%. For the six months ended June 30, 2018, total revenues amounted to $6,454 as compared to $19,597 for the six months ended June 30, 2017, a decrease of $13,143, or 67.1%. 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.

 

Operating Expenses

 

For the three months ended June 30, 2018, operating expenses amounted to $222,366 as compared to $95,705 for the three months ended June 30, 2017, an increase of $126,661, or 132.3%. For the six months ended June 30, 2018, operating expenses amounted to $416,655 as compared to $130,920 for the six months ended June 30, 2017, an increase of $285,735, or 218.3%.

 

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

 

		Three Months Ended June 30,								Six Months Ended June 30,
		2018				2017				2018				2017
Compensation and benefits		$	101,661			$	48,411			$	202,283			$	77,342
Professional fees			105,768				42,417				192,648				43,842
Bad debt recovery			(4,037	)			-				(8,213	)			-
General and administrative expenses			18,974				4,847				29,937				9,736
Total		$	222,366			$	95,705			$	416,655			$	130,920

 

●

For the three months ended June 30, 2018, compensation and benefit expense increased by $53,220, or 109.9%, as compared to the three months ended June 30, 2017. For the six months ended June 30, 2018, compensation and benefit expense increased by $124,941, or 161.5%, as compared to the six months ended June 30, 2017. These increase was attributable to an increase in compensation paid to Arista’s chief executive officer which includes stock based compensation of $68,809 for the six months ended June 30, 2018 for stock options granted on January 1, 2018.

   

	●	For the three months ended June 30, 2018, professional fees increased by $63,351, or 149.4%, as compared to the three months ended June 30, 2017. This increase was primarily attributable to an increase in legal fees of $9,900, a decrease in accounting fees of $500, an increase in consulting fees of $31,300, and an increase in transfer agent fees of $500. During the three months ended June 30, 2018, we recognized stock-based consulting fees of $34,500. For the six months ended June 30, 2018, professional fees increased by $148,806, or 339.4%, as compared to the six months ended June 30, 2017. This increase was primarily attributable to an increase in legal fees of $54,200, an increase in accounting fees of $44,000, an increase in consulting fees of $46,700, and an increase in transfer agent fees of $4,000. During the six months ended June 30, 2018, the Company recognized stock-based consulting fees of $40,250.
	●	For the three months ended June 30, 2018, we recorded a bad debt recovery of $4,037 as compared to $0 for the three months ended June 30, 2017. For the six months ended June 30, 2018, we recorded a bad debt recovery of $8,213 as compared to $0 for the six months ended June 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 June 30, 2018, general and administrative expenses increased by $14,127 as compared to the three months ended June 30, 2017. The increase was due an increase in investor relations expenses and office rent. For the six months ended June 30, 2018, general and administrative expenses increased by $20,201 as compared to the six months ended June 30, 2017. The increase was due an increase in investor relations expenses and office rent.

 

 

Loss from Operations

 

As a result of the factors described above, for the three months ended June 30, 2018, loss from operations amounted to $219,585, as compared to $86,410 for the three months ended June 30, 2017, an increase of $133,175, or 154.1%. For the six months ended June 30, 2018, loss from operations amounted to $410,201, as compared to $111,323 for the six months ended June 30, 2017, an increase of $298,878, or 268.5%.

 

Other Expenses

 

Other expenses consists 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 June 30, 2018, interest expense amounted to $31,313, as compared to $24,900 for the three months ended June 30, 2017, an increase of $6,413, or 25.8%. 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, 2018, interest expense amounted to $62,816, as compared to $49,674 for the six months ended June 30, 2017, an increase of $13,142, or 26.5%. 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, 2018 and 2017, net loss amounted to $257,831, or $0.08 per common share (basic and diluted), and $111,310, or $0.05 per common share (basic and diluted), respectively. For the six months ended June 30, 2018 and 2017, net loss amounted to $489,585, or $0.16 per common share (basic and diluted), and $160,997, or $0.08 per common share (basic and diluted), respectively.

 

Due to lack of operating cash flows, from December 31, 2017 to June 30, 2018, accounts payable and accrued expenses increased by $78,619 and $67,329, 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 $3,621 and $728 on hand as of June 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.

 

During the year ended December 31, 2016, Arista issued 10% convertible promissory notes (the “2016 10% Convertible Notes”) to seven third party individuals in the aggregate amount of $400,000. The unpaid principal and interest was payable three years from the date of the respective 2016 10% Convertible Note. The 2016 10% Convertible Notes mature between June 1, 2019 and December 31, 2019. Arista has the right to prepay any amount outstanding under the 2016 10% Convertible Note, subject to a prepayment penalty of 5.0% of the amount prepaid. The noteholders are entitled, at their option, at any time after the issuance of the 2016 10% Convertible Notes, to convert all or any lesser portion of the outstanding principal amount and accrued but unpaid interest into Arista common stock at a conversion price of $1.50 per share. Noteholders also have the option of extending the maturity date of their notes for up to three additional one-year periods. In connection with the 2016 10% Convertible Notes, Arista also issued to noteholders five-year warrants to acquire an aggregate of 575,000 shares of Arista common stock at $2.00 per share. On December 14, 2017, in connection with the Share Exchange Agreement, the Company issued 266,666 shares to certain noteholders upon conversion of principal amount of $200,000.

 

During the period from July 1, 2017 to September 30, 2017, Arista issued 12% convertible promissory notes (the “12% Convertible Notes”) to three third party 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. The 12% Convertible Notes mature between July 1, 2020 and August 1, 2020. Arista has the right to prepay any amount outstanding under the 12% Convertible Note, subject to a prepayment penalty of 5.0% of the amount prepaid. 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 Arista common stock at a conversion price of $3.00 per share. Noteholders also have the option of extending the maturity date of their notes for up to three additional one-year periods. In connection with the 12% Convertible Notes, Arista also issued to noteholders five-year warrants to acquire an aggregate of 300,000 shares of Arista common stock at $4.00 per share.

 

On December 31, 2017, we 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, we recorded a subscription receivable of $50,000. The funds were received in January 2018. The unpaid principal and interest is payable on June 8, 2018. In connection with this promissory note, on December 31, 2017, we issued to this noteholder five-year warrants to acquire up to 25,000 shares of the Company’s common stock at $0.01 per share.

 

In December 2017, we also issued 8% promissory notes to certain officers and directors of the Company in the aggregate amount of $50,000. The unpaid principal and interest is payable on June 8, 2018. In connection with these promissory notes, in December 2017, we issued to these related party noteholders five-year warrants to acquire up to 25,000 shares of the Company’s common stock at $0.01 per share.

 

 

On January 1, 2018, we 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, we reclassified $15,000 of advances received by this related party entity into this promissory note. Additionally, during the six months ended June 30, 2018, we borrowed an additional $35,000 pursuant to the line of credit agreement. At June 30, 2018, amounts due under the line of credit amounted to $50,000.

 

On May 31, 2018 one of the three third party individuals 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 Arista common stock at a price of $4.00 per share and will be transferred to the noteholder. As an incentive for purchasing the note, we issued to the noteholder 5,000 shares of Arista common stock at a price of $0.80 per share.

 

In May 2018, we issued an 8% promissory note to an individual in the amount of $50,000. The unpaid principal and interest were payable in November 2018. In connection with this 8% note, in May 2018, we 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 Arista common stock. On June 15, 2018 we 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. We 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 Arista common stock at a conversion price of $2.00 per share. In connection with the 11% Convertible Note, we issued to the noteholder five-year warrants to acquire up to 25,000 shares of common stock at $3.00 per share. The warrants are exercisable for shares of Arista 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 Arista common stock.

 

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 $147,107 for the six months ended June 30, 2018, as compared to net cash used in operating activities of $97,209 for the six months ended June 30, 2017, an increase of $49,898. 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, 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 six months ended June 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 of $2,700.

 

Net cash provided by financing activities was $135,000 for the six months ended June 30, 2018 as compared to $100,000 for the six months ended June 30, 2017. 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. During the six months ended June 30, 2017, we received proceeds from convertible notes of $100,000.

 

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.

 

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 June 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 six months ended June 30, 2018 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.   

 

 

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 March 1, 2018 and effective on March 15, 2018, we entered into a six-month consulting agreement for business development services. In connection with the consulting agreement, we issued 60,000 shares of our common stock.

 

In May 2018, we issued an 8% promissory note to an individual in the amount of $50,000. The unpaid principal and interest were payable in November 2018. In connection with this 8% note, in May 2018, we 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 Arista common stock. On June 15, 2018 we 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. We 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 Arista common stock at a conversion price of $2.00 per share. In connection with the 11% Convertible Note, we issued to the noteholder five-year warrants to acquire up to 25,000 shares of common stock at $3.00 per share. The warrants are exercisable for shares of Arista 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 Arista common stock.

 

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.

   

 

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: August 20, 2018	/s/ Paul Patrizio
	Paul Patrizio
	Chief Executive Officer and President
	(principal executive officer)

 

Date: August 20, 2018	/s/ Walter A. Wojcik, Jr.
	Walter A. Wojcik, Jr. Chief Financial Officer (principal financial officer and principal accounting officer)