Arista Financial Earnings 2019-09-30

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

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

For the quarterly period ended September 30, 2019

☐ 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)

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 every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes ☐ No

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

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

Securities registered pursuant to Section 12(b) of the Act: None

As of November 15, 2019, the registrant had 37,813,700 shares of common stock, par value $0.0001 per share, issued and outstanding.

ARISTA FINANCIAL CORP.

Form 10-Q

September 30, 2019

INDEX

ARISTA FINANCIAL CORP. AND SUBSIDIARY

CONDENSED CONSOLIDATED BALANCE SHEETS

See accompanying notes to unaudited condensed consolidated financial statements.

ARISTA FINANCIAL CORP. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

See accompanying notes to unaudited condensed consolidated financial statements.

ARISTA FINANCIAL CORP. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2019

(Unaudited)

See accompanying notes to unaudited condensed consolidated financial statements.

ARISTA FINANCIAL CORP. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2019

(Unaudited)

See accompanying notes to unaudited condensed consolidated financial statements.

ARISTA FINANCIAL CORP. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2018

(Unaudited)

See accompanying notes to consolidated financial statements.

ARISTA FINANCIAL CORP. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2018

(Unaudited)

See accompanying notes to consolidated financial statements. 

ARISTA FINANCIAL CORP. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

See accompanying notes to unaudited condensed consolidated financial statements.

ARISTA FINANCIAL CORP. AND SUBSIDIARY

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2019

Organization

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

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

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

These condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. As reflected in our accompanying condensed consolidated financial statements, for the nine months ended September 30, 2019, the Company had a net loss of $1,041,631 and used cash in operating activities of $166,462. Additionally, the Company had an accumulated deficit of $3,140,816, a stockholders’ deficit of $1,453,687, and a working capital deficit of $1,361,959 at September 30, 2019, and minimal revenues for the nine months ended September 30, 2019. Management believes that these matters raise substantial doubt about the Company’s ability to continue as a going concern for twelve months from the issuance date of this report. Management cannot provide assurance that the Company will ultimately achieve profitable operations or become cash flow positive or raise additional debt and/or equity capital. Management believes that its capital resources are not currently adequate to continue operating and maintaining its business strategy for a period of twelve months from the issuance date of this report. Although the Company has historically raised capital from the issuance of promissory notes, there is no assurance that it will be able to continue to do so. Management believes that its ability to attract debt and equity financing in the capital markets is enhanced as a public reporting company. If the Company is unable to raise additional capital or secure additional lending in the near future, management expects that the Company will need to curtail or cease operations. These condensed consolidated financial statements do not include any adjustments related to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern. 

The management of the Company is responsible for the selection and use of appropriate accounting policies and their application. Critical accounting policies and practices are those that are both most important to the portrayal of the Company’s financial condition and results and require management’s most difficult, subjective, or complex judgments, often as a result of the need to make estimates about the effects of matters that are inherently uncertain. The Company’s significant and critical accounting policies and practices are disclosed below as required by generally accepted accounting principles.

Basis of presentation

The Company prepares its condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States (“U.S. GAAP”) and include the accounts of the Company and its wholly-owned subsidiary. All intercompany balances and transactions have been eliminated upon consolidation.

Use of estimates

The preparation of condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates for the nine months ended September 30, 2019 include estimates of allowances for uncollectible finance leases receivable, the useful life of property and equipment, and the fair value of non-cash equity transactions.

Credit risk and concentrations

The Company maintains its cash in bank and financial institution deposits that at times may exceed federally insured limits. At September 30, 2019 and December 31, 2018, cash in bank did not exceed federally insured limits. The Company has not experienced any losses in such accounts through September 30, 2019.

Financing leases receivable represent amounts due from lessees in various industries, related to equipment on direct financing leases. Currently, the Company relies on one source to acquire financing leases and to service such leases. The Company believes that other lenders are available to acquire lease portfolios if the Company cannot acquire additional financing lease receivable portfolios from its single source. Additionally, as of September 30, 2019, the Company’s portfolio of financing leases consists of seven leases. A default on or loss of any of these leases would have a material adverse effect on the Company’s results of operations and financial condition.

Cash and cash equivalent

For purposes of the statements of cash flows, the Company considers all highly liquid instruments with a maturity of three months or less at the purchase date and money market accounts to be cash equivalents. At September 30, 2019 and December 31, 2018, the Company did not have any cash equivalents.

Financing leases receivable

Financing leases receivable are recorded at the aggregate future minimum lease payments, estimated unguaranteed residual value of the leased equipment less unearned income. Residual values, which are reviewed periodically, represent the estimated amount the Company expects to receive at lease termination from the disposition of the leased equipment. Actual residual values realized could differ from these estimates. The unearned income is recognized in revenues in the statements of operations over the lease term, in a manner that produces a constant rate of return on the lease. Financing leases receivable due after twelve months from the balance sheet date are reflected as a long-term asset. Financing leases receivables are periodically evaluated based on individual creditworthiness of customers. Based on this evaluation, the Company records allowance for estimated losses on these receivables.

Impairment of long-lived assets

In accordance with ASC Topic 360, the Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be fully recoverable, or at least annually. The Company recognizes an impairment loss when the sum of expected undiscounted future cash flows is less than the carrying amount of the asset. The amount of impairment is measured as the difference between the asset’s estimated fair value and its book value. 

Fair value of financial instruments and fair value measurements

The Company follows ASC 820-10 of the FASB Accounting Standards Codification to measure the fair value of its financial instruments and disclosures about fair value of its financial instruments. ASC 820-10 establishes a framework for measuring fair value in accounting principles generally accepted in the United States of America (U.S. GAAP), and expands disclosures about fair value measurements. To increase consistency and comparability in fair value measurements and related disclosures, ASC 820-10 establishes a fair value hierarchy which prioritizes the inputs to valuation techniques used to measure fair value into three (3) broad levels. The three (3) levels of fair value hierarchy defined by ASC 820-10 are described below:

Financial assets are considered Level 3 when their fair values are determined using pricing models, discounted cash flow methodologies or similar techniques and at least one significant model assumption or input is unobservable.

The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. If the inputs used to measure the financial assets and liabilities fall within more than one level described above, the categorization is based on the lowest level input that is significant to the fair value measurement of the instrument.

The carrying amounts reported in the consolidated balance sheets for cash, financing lease receivables, due from lease service provider, accrued interest receivables, prepaid expenses, notes payable, accounts payable, accrued expenses, accrued interest payable and amounts due to related party approximate their fair market value based on the short-term maturity of these instruments. The Company does not account for any instruments at fair value using level 3 valuation.

ASC 825-10 “Financial Instruments”, allows entities to voluntarily choose to measure certain financial assets and liabilities at fair value (fair value option). The fair value option may be elected on an instrument-by-instrument basis and is irrevocable, unless a new election date occurs. If the fair value option is elected for an instrument, unrealized gains and losses for that instrument should be reported in earnings at each subsequent reporting date. The Company did not elect to apply the fair value option to any outstanding instruments.

Revenue recognition

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

Stock-based compensation

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

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

Basic and diluted loss per share

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

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

Related parties

Parties are considered to be related to the Company if the parties, directly or indirectly, through one or more intermediaries, control, are controlled by, or are under common control with the Company. Related parties also include principal owners of the Company, its management, members of the immediate families of principal owners of the Company and its management and other parties with which the Company may deal with if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests.

Recent accounting pronouncements

In May 2014, FASB issued an update (“ASU 2014-09”) establishing Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers (“ASC 606”). ASU 2014-09, as amended by subsequent ASUs on the topic, establishes a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most of the existing revenue recognition guidance. This standard, which is effective for interim and annual reporting periods in fiscal years that begin after December 15, 2017, requires an entity to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services and also requires certain additional disclosures. The Company adopted this standard in 2018 using the modified retrospective approach, which requires applying the new standard to all existing contracts not yet completed as of the effective date and recording a cumulative-effect adjustment to retained earnings as of the beginning of the fiscal year of adoption. The Company has concluded that ASU 2014-09 did not have a material impact on the process for, timing of, and presentation and disclosure of revenue recognition from contracts with lessees.

In February 2016, the FASB issued ASU 2016-02, “Leases”, which aims to make leasing activities more transparent and comparable and requires substantially all leases be recognized by lessees on their balance sheet as a right-of-use asset and corresponding lease liability, including leases currently accounted for as operating leases. This ASU is effective for all interim and annual reporting periods beginning after December 15, 2018. The adoption of ASU 2016-02 did not have a material impact on the Company’s financial statement presentation or disclosures.

In October 2016, the FASB issued ASU 2016-16, “Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other than Inventory”, which eliminates the exception that prohibits the recognition of current and deferred income tax effects for intra-entity transfers of assets other than inventory until the asset has been sold to an outside party. The updated guidance is effective for annual periods beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption of the update is permitted. The Company is currently evaluating the impact of the new standard.

In June 2018, the FASB issued Accounting Standards Update 2018-07, “Compensation – Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting (“ASU 2018-07”)”. ASU 2018-07 expands the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees. ASU 2018-07 also clarifies that Topic 718 does not apply to share-based payments used to effectively provide (1) financing to the issuer or (2) awards granted in conjunction with selling goods or services to customers as part of a contract accounted for under Revenue from Contracts with Customers (Topic 606). ASU 2018-07 is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The Company adopted the provisions of ASU 2018-07 in the quarter beginning January 1, 2019. The adoption of ASU 2018-07 did not have a material impact on the Company’s financial statement presentation or disclosures.

In August 2018, the FASB issued Accounting Standards Update (ASU) 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement”, which changes the fair value measurement disclosure requirements of ASC 820. This update is effective for fiscal years beginning after December 15, 2019, and for interim periods within those fiscal years. The Company does not expect the adoption of ASU 2018-13 to have a material impact on its condensed consolidated financial statements.

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

The seller is responsible for administrating the leases, collecting all payments, and distributing funds to the Company. On a monthly basis, the Company shall pay the seller an administrative fee equal to 2% of the scheduled payment amount of each lease, 50% of all penalties or late fee charges collected, and 50% of all default interest collected. The seller shall remit the remaining amount received from the lessees to the Company. The finance leases require 36 monthly/weekly or bi-weekly payments through April 2020. Each lease is secured by ownership of the related transportation equipment.

At September 30, 2019 and December 31, 2018, financing leases receivable consisted of the following:

For the nine months ended September 30, 2019 and 2018, activities in the Company’s allowance for uncollectible financing leases receivable were are follows:

At September 30, 2019, the aggregate amounts of future minimum gross lease payments receivable are as follows:

On January 28, 2019, the Company issued a convertible note to a third-party lender totaling $35,000 (the “January 2019 Note”). The company received cash of $31,500, original issue discounts of $2,100 and debt issuances costs of $1,400. The January 2019 Note accrues interest at 12% per annum and matures with interest and principal both due on October 28, 2019. The January 2019 Note is convertible into the Company’s common stock at a rate of 60% discount to the Company’s common stock with a lookback of 20 trading days.

The conversion feature of the January 2019 Note provides for an effective conversion price that is below market value on the date of issuance. Such feature is normally characterized as a beneficial conversion feature (“BCF”). When the Company records a BCF the relative fair value of the BCF is recorded as a debt discount against the face amount of the respective debt instrument. The Company recorded a BCF of $25,985. The total discounts on the note is $28,085. The total issuances costs are $1,400. The debt discount and debt issuances costs are being accreted over the life of the note to interest expense.

On February 11, 2019, the Company issued a convertible note to a third-party lender totaling $35,000 (the “February 2019 Note”). The company received cash of $31,500, original issue discounts of $2,100 and debt issuances costs of $1,400. The February 2019 Note accrues interest at 12% per annum and matures with interest and principal both due on November 6, 2019. The February 2019 Note is convertible into the Company’s common stock at a rate of 60% discount to the Company’s common stock with a lookback of 20 trading days.

In addition, the Company issued a warrant to purchase 20,250 shares of Company common stock. The warrant entitles the holder to purchase the Company’s common stock at a purchase price of $2.00 per share for a period of three years from the issue date. The Company recorded a $13,534 debt discount relating to the warrants issued to the investor based on the relative fair value of each equity instrument on the dates of issuance.

The conversion feature of the February 2019 Note provides for an effective conversion price that is below market value on the date of issuance. Such feature is normally characterized as a beneficial conversion feature (“BCF”). When the Company records a BCF the relative fair value of the BCF is recorded as a debt discount against the face amount of the respective debt instrument. The Company recorded a BCF of $31,288. The total discounts on the note is $46,922. The total issuances costs are $1,400. Due to the fact the total discounts exceeded the face value of the note $16,822 were expensed to interest expense upon issuance. The debt discount and debt issuances costs are being accreted over the life of the note to interest expense.

On April 1, 2019, the Company issued a convertible note to a third-party lender totaling $58,300 (the “April 2019 Note”). The company received cash of $50,000, original issue discounts of $5,300 and debt issuances costs of $3,000. The April 2019 Note accrues interest at 10% per annum and matures with interest and principal both due on March 28, 2020. The April 2019 Note is convertible into the Company’s common stock at a rate of 60% discount to the Company’s common stock with a lookback of 25 trading days.

In addition, the Company issued a warrant to purchase 11,660 shares of Company common stock. The warrant entitles the holder to purchase the Company’s common stock at a purchase price of $2.00 per share for a period of three years from the issue date. The Company recorded a $2,893 debt discount relating to the warrants issued to the investor based on the relative fair value of each equity instrument on the dates of issuance.

The conversion feature of the April 2019 Note provides for an effective conversion price that is below market value on the date of issuance. Such feature is normally characterized as a beneficial conversion feature (“BCF”). When the Company records a BCF the relative fair value of the BCF is recorded as a debt discount against the face amount of the respective debt instrument. The Company recorded a BCF of $38,867. The total discounts on the note is $ 47,059. The total issuances costs are $3,000. The debt discount and debt issuances costs are being accreted over the life of the note to interest expense.

On July 31, 2019, the Company issued a convertible note to a third-party lender totaling $50,000 (the “First July 2019 Note”). The company received cash of $47,500 with an original issue discounts of $2,500. The First July 2019 Note accrues interest at 10% per annum and matures with interest and principal both due on July 31, 2020. The First July 2019 Note is convertible into the Company’s common stock at a rate of 60% discount to the Company’s common stock with a lookback of 20 trading days.

The conversion feature of the First July 2019 Note provides for an effective conversion price that is below market value on the date of issuance. Such feature is normally characterized as a beneficial conversion feature (“BCF”). When the Company records a BCF the relative fair value of the BCF is recorded as a debt discount against the face amount of the respective debt instrument. The Company recorded a BCF of $116,667. The total discounts on the note is $ 119,167. The debt discount and debt issuances costs are being accreted over the life of the note to interest expense.

On July 31, 2019, the Company issued a convertible note to a third-party lender totaling $20,500 (the “Second July 2019 Note”). The lender paid $20,500 in vendor liabilities on behalf of the company. The Second July 2019 Note accrues interest at 10% per annum and matures with interest and principal both due on July 31, 2020. The Second July 2019 Note is convertible into the Company’s common stock at a rate of 60% discount to the Company’s common stock with a lookback of 25 trading days.

In addition, the Company issued a warrant to purchase 75,000 shares of Company common stock. The warrant entitles the holder to purchase the Company’s common stock at a purchase price of $0.50 per share for a period of three years from the issue date. The Company expensed $1,581 relating to the warrants issued to the investor based on the relative fair value of each equity instrument on the dates of issuance.

The conversion feature of the Second July 2019 Note provides for an effective conversion price that is below market value on the date of issuance. Such feature is normally characterized as a beneficial conversion feature (“BCF”). When the Company records a BCF the relative fair value of the BCF is recorded as a debt discount against the face amount of the respective debt instrument. The Company expensed the BCF of $47,833.

During the nine months ended September 30, 2019 the lenders converted $33,462 in principal into 2,348,263 shares of the Company’s common stock.

For the nine months ended September 30, 2019 and 2018, amortization of debt discount related to these convertible notes amounted to $331,715 and $46,250, respectively, which has been included in interest expense on the accompanying condensed consolidated statements of operations. 

As of September 30, 2019 and December 31, 2018, accrued interest payable amounted to $79,422 and $13,167, respectively. The weighted average interest rate for the nine months ended September 30, 2019 and December 31, 2018 was approximately 10% and 10%, respectively.

At September 30, 2019 and December 31, 2018, the convertible debt consisted of the following:

At September 30, 2019, future debt maturities are $752,610 through September 30, 2020 and $40,728 thereafter.

Notes payable – related parties

At September 30, 2019 and December 31, 2018, notes payable – related parties consisted of the following:

During the nine months ended the Company repaid $2,500 in principal and $733 in accrued and unpaid interest.

As of September 30, 2019 and December 31, 2018, accrued interest payable amounted to $702 and $544, respectively.

Line of credit – related party

As of September 30, 2019 and December 31, 2018, the line of credit related party amounted to $70,000.

As of September 30, 2019 and December 31, 2018, accrued interest payable related party amounted to $7,125 and $2,842, respectively.

Office rent - related party

The Company rents its office space from a Director of the Company on a month-to-month basis for $445 per month. For the nine months ended September 30, 2019 and 2018, rent expense – related party amounted to $4,005 and $6,750, respectively, and is included in general and administrative expenses on the accompanying statements of operations. 

Preferred Stock

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

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

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

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

As of September 30, 2019 and December 31, 2018 the Company had 51 shares of Series A Preferred issued and outstanding with a stated valued of $51,000.

Common stock issued for services

On September 16, 2019, the Company amended the articles of incorporation to increase the number of authorized shares of common stock from 200,000,000 to 1,980,000,000. As of September 30, 2019 and December 31, 2018, there was 5,877,346 and 3,433,083 shares of common stock outstanding, respectively.

On February 1, 2019 the Company entered into a three-month consulting agreement for investor relations services. In connection with the consulting agreement, the Company agreed to issued 20,000 shares of its common stock on the first of each month for the next three months. The shares were valued at their fair value of $56,500 which was the fair value on the date of grant based on the closing quoted share price on the date of grant.

Common stock issued for note conversion

During the nine months ended September 30, 2019 three lenders converted $33,462 of principal into 2,348,263 shares of the Company’s common stock.

Stock options

Stock option activities for the nine months ended September 30, 2019 is summarized as follows:

Warrants

The Company applied fair value accounting for all share-based payments awards. The fair value of each warrant granted is estimated on the date of grant using the Black-Scholes option-pricing model.

The assumptions used for warrants granted during the nine months ended September 30, 2019 are as follows:

Warrant activities for the nine months ended September 30, 2019 are summarized as follows:

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:

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

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

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

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

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

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

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

Future minimum commitment payments under an employment agreement at September 30, 2019 are as follows:

Consulting agreements

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

Investment agreement

On July 19, 2018, the Company entered into an investment agreement with a third-party entity to invest up to $5,000,000 over a commitment period of three years by purchasing the Company’s common stock under Section 4(a)(2) of the Securities Act of 1933. The third-party entity’s obligation to purchase the Company’s common stock is subject to the filing and effectiveness of an S-1 registration statement by the Company.

Litigation

On June 30, 2019, the Company was served with a summons and complaint relating to a lawsuit filed by CFO Oncall, Inc. in the Circuit Court of the Seventeenth Judicial Circuit, Broward County, Florida on June 18, 2019 against the Company alleging that the Company owes the plaintiff approximately $15,000 in connection with certain consulting services provided by the plaintiff in 2018. The Company has engaged legal counsel and intends to defend itself vigorously.

On October 22, 2019, the Company announced plans to enter the mobility industry by providing vehicles on a rental basis for ridesharing and delivery companies. 

Subsequent to September 30, 2019, investors converted $66,130 in principal from convertible notes into 32,465,290 shares of the Company’s common stock.

This Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) should be read in conjunction with the accompanying condensed consolidated financial statements and the audited consolidated financial statements and notes thereto included in our 2018 Form 10-K.

Forward-looking statements in this MD&A are not guarantees of future performance and may involve risks and uncertainties that could cause actual results to differ materially from those projected. Refer to the below “Forward-Looking Statements” section of this MD&A and our 2018 Form 10-K for a discussion of these risks and uncertainties.

Forward-Looking Statements

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

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

Overview

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

Critical Accounting Policies

There have been no material changes to our critical accounting policies and estimates from the information provided in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” included in our 2018 Annual Report. 

Results of Operations - Comparison of Results of Operations for the Three and Nine Months Ended September 30, 2019 and 2018

Revenues

Revenues consist of interest earned on lease financings and other fee income. For the three months ended September 30, 2019, total revenues amounted to $1,491 as compared to $1,685 for the three months ended September 30, 2018, a decrease of $194, or 12%. For the nine months ended September 30, 2019, total revenues amounted to $7,317 as compared to $8,139 for the nine months ended September 30, 2018, a decrease of $822, or 10%. The decrease in revenues for the periods discussed were attributable to a decrease in the revenue generated by our leasing portfolio during the 2019 period as compared to the 2018 period.

Operating Expenses

For the three months ended September 30, 2019, operating expenses amounted to $188,440 as compared to $143,607 for the three months ended September 30, 2018, an increase of $44,833, or 31%. For the nine months ended September 30, 2019, operating expenses amounted to $625,552 as compared to $560,262 for the nine months ended September 30, 2018, an increase of $65,260, or 12%.

For the three and nine months ended September 30, 2019 and 2018, operating expenses consisted of the following:

Loss from Operations

As a result of the factors described above, for the three months ended September 30, 2019, loss from operations amounted to $186,949, as compared to $141,922 for the three months ended September 30, 2018, an increase of $45,027, or 32%. For the nine months ended September 30, 2019, loss from operations amounted to $618,235, as compared to $552,123 for the nine months ended September 30, 2018, an increase of $66,112, or 12%.

Other Expenses

Other expenses consist of interest expense incurred on debt owed to third parties and related parties. For the three months ended September 30, 2019, interest expense amounted to $197,863, as compared to $37,718 for the three months ended September 30, 2018, an increase of $160,934, or 425%. These increases were attributable to an increase in borrowing pursuant to convertible note instruments and the amortization of debt discount. For the nine months ended September 30, 2019, interest expense amounted to $415,950, as compared to $100,534 for the nine months ended September 30, 2018, an increase of $ $315,416, or 314%. These increases were attributable to an increase in borrowing pursuant to convertible note instruments and the amortization of debt discount.

Net Loss

As a result of the foregoing, for the three months ended September 30, 2019 and 2018, net loss amounted to $387,131, or $0.11 per common share (basic and diluted), and $183,170, or $0.06 per common share (basic and diluted), respectively. For the nine months ended September 30, 2019 and 2018, net loss amounted to $1,041,631, or $0.29 per common share (basic and diluted), and $672,755, or $0.14 per common share (basic and diluted), respectively.

Due to lack of operating cash flows, from December 31, 2018 to September 30, 2019, accounts payable increased by $150,491 and accrued expenses increased by $94,878. 

Liquidity and Capital Resources

Liquidity is the ability of an enterprise to generate adequate amounts of cash to meet its needs for cash requirements. Arista had cash of $1,895 and $10,357 on hand as of September 30, 2019 and December 31, 2018, respectively.

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

We may need to raise additional funds, particularly if we are unable to generate positive cash flow as a result of our operations. We estimate that based on current plans and assumptions, our available cash will not be sufficient to satisfy our cash requirements under our present operating expectations for the next 12 months from the date of this 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 $166,462 for the nine months ended September 30, 2019, as compared to net cash used in operating activities of $251,932 for the nine months ended September 30, 2018, an decrease of $85,470. Net cash used in operating activities consisted of cash used for working capital purposes for salaries, professional fees and general and administrative expenses.

For the nine months ended September 30, 2019, we did not have any cash flows from investing activities. For the nine months ended September 30, 2018, net cash flow provided by investing activities amounted to $15,000 and consisted of proceeds from the sale of assets held for sale of $15,000.

Net cash provided by financing activities was $158,000 for the nine months ended September 30, 2019 as compared to $265,000 for the nine months ended September 30, 2018. During the nine months ended September 30, 2019, we received proceeds from convertible notes of $160,500. During the nine months ended September 30, 2018, we received proceeds from a note payable subscription receivable of $50,000, proceeds from a related party line of credit of $45,000 and proceeds from convertible notes of $170,000.

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.

Not applicable to smaller reporting companies.

Disclosure Controls and Procedures

We maintain “disclosure controls and procedures,” as that term is defined in Rule 13a-15(e), promulgated by the SEC pursuant to the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Disclosure controls and procedures include controls and procedures designed to ensure that information required to be disclosed in our company’s reports filed under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, to allow timely decisions regarding required disclosure. Our management, with the participation of our principal executive officer and principal financial officer, evaluated our company’s disclosure controls and procedures as of the end of the period covered by this quarterly report on Form 10-Q. Based on this evaluation, our principal executive officer and principal financial officer concluded that as of September 30, 2019, 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:

Changes in Internal Control

There were no changes in our internal control over financial reporting during the nine months ended September 30, 2019 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Subsequent to June 30, 2019, the Company was served with a summons and complaint relating to a lawsuit filed by CFO Oncall, Inc. in the Circuit Court of the Seventeenth Judicial Circuit, Broward County, Florida on June 18, 2019 against the Company alleging that the Company owes the plaintiff approximately $15,000 in connection with certain consulting services provided by the plaintiff in 2018. The Company has engaged legal counsel and intends to defend itself vigorously.

Not required of smaller reporting companies.

None

None.

Not applicable.

None.

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.

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