NOTES TO THE CONDENSED UNAUDITED FINANCIAL STATEMENTS FOR THE SIX MONTH PERIODS ENDED APRIL 30, 2016 AND 2015
NOTE 1
–
ORGANIZATION AND NATURE OF BUSINESS
Arax Holdings Corp. (the “Company”, “we”, “our” or “us”) was incorporated under the laws of the State of Nevada on February 23, 2012 with a business plan to sell hot dogs from mobile hot dog stands throughout the major cities in Mexico. As of the filing of the 10K for last year, the Company stated that Management believes that the best business model for our investors is to pursue business activity in the Life Sciences sector of the United States and internationally. We will continue to assess these opportunities and structures as well as the various pre-requisite actions needed to finalize and implement any new business model.
This new business model could entail a capital restructuring of the Company in order to provide new capital and a broader base of shareholders. Such a capital restructuring of the Company could involve a merger or acquisition of assets through various techniques, including a possible reverse-merger. Additional asset acquisitions and transfers may occur.
The Company is a majority-owned subsidiary of Thru Pharma, LLC, and these financials are presented on a stand-alone basis. All transactions with Thru Pharma have been identified in Note 4: Stockholders' Deficit and Note 5: Related party transactions.
Pursuant to a revision to a certain Consulting Agreement dated as of October 8, 2013, by and between Thru Pharma and Strategic Universal Advisors, LLC (“Strategic”), as amended effective January 17, 2014, on or about February 9, 2015, and most recently on October 20, 2015, with full effect as of April 1, 2015 (the “Consulting Agreement”), Thru Pharma and Strategic agreed that the intent of the Consulting Agreement ab initio was to provide Strategic with a 3% equity ownership of Thru Pharma n the event that a PUBCO M&A transaction did not occur prior to the end of the Consulting Agreement. Thru Pharma and Strategic agreed and stipulated that 753,504 shares of Arax Holdings would equal 3% of Thru Pharma as the equity payment under the Consulting Agreement, with transfer subject to the further provisions stated below. As Thru Pharma was the sole beneficiary of the services provided by Strategic under the Consulting Agreement, no part of the value of the consideration for services provided under the Consulting Agreement has been recognized as an expense by the Company.
In connection with earlier amendments to the Consulting Agreement, Strategic granted to Mr. Keough, a control person of the Company and Thru Pharma, an irrevocable proxy (the “Irrevocable Proxy”), to vote all of the common stock in the Company under certain conditions. That proxy no longer exists under the terms of the most recent amendment.
As part of the currently amended Consulting Agreement, Thru Pharma agreed to transfer 753,504 Company shares to Strategic upon the closing of a merger or acquisition (an “M&A Transaction”) of a public entity, resulting in Thru Pharma being the controlling owner of the entity that was the subject of the M&A Transaction, and Thru Pharma would cause such entity to also issue to Strategic a stock warrant to purchase 600,000 (six hundred thousand) shares of common stock of the entity that was the subject of the M&A Transaction. Such warrant will be of five-year duration, exercisable at $0.10 per share, and shall vest in four equal amounts of 150,000 shares with the first annual vesting to occur 60 (sixty) days following the completion of the PUBCO M&A Transaction, as well as other routine terms.
Notwithstanding anything to the contrary provided in the Consulting Agreement or elsewhere, in no event would Thru Pharma be directly and/or indirectly obligated to enter into or complete any particular M&A Transaction, including, but not limited to, any M&A Transaction with the Company.
Effective July 1, 2015, Arax and Catalyst Funding, LLC, entered into an Original Issue Discount Revolving Secured Convertible Promissory Note (the “Catalyst Note”) and a Securities Purchase Agreement (the “Catalyst SPA”). The transaction is secured by a grant of security interest to 100% of the Company stock held by or for Thru Pharma. The Catalyst Note and Catalyst SPA are intended to facilitate funding essential work relating to multi-year auditing of Thru Pharma financials. The total available funds are $200,000, and the Company has only drawn $75,000, and for which the Company is obligor. A Commitment Fee of Company stock in the amount of 35,294 shares was authorized for issue to Catalyst as part of the transaction recorded as an initial debt discount of $14,118. In the event that the Company is unable to timely make payments under this Agreement, Catalyst has the option of gaining control of the Thru Pharma shares in the Company.
The Company’s status as a “shell company” as of the date of this report remains unchanged.
NOTE 2
–
GOING CONCERN
The accompanying financial statements have been prepared in conformity with generally accepted accounting principles, which contemplate continuation of the Company as a going concern. However, the Company has not generated any revenues as of April 30, 2016. The Company has incurred losses since Inception (February 23, 2012) resulting in an accumulated deficit of $518,475 as of April 30, 2016 and stockholders’ deficit of $175,830. The Company currently has a working capital deficit, and has not completed its efforts to establish a stabilized source of revenues sufficient to cover operating costs over an extended period of time.
Management anticipates that the Company will be dependent, for the near future, on additional investment capital to fund operating expenses. The Company intends to position itself so that it can be able to raise additional funds through the capital markets. In light of management’s efforts, there are no assurances that the Company will be successful in this or any of its endeavors or become financially viable and continue as a going concern.
NOTE 3
–
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The Company has adopted an October 31 fiscal year end.
The accompanying unaudited financial statements have been prepared in accordance with the instructions from Regulation S-X and do not include all of the information and disclosures required by generally accepted accounting principles for complete financial statements. All adjustments that are, in the opinion of management, necessary for a fair presentation of the results of operations for the interim period, and to make the financial statements not misleading, have been made and are of a recurring nature unless otherwise disclosed herein. The results of operations for such interim period are not necessarily indicative of operations for a full year.
Develo
p
ment Sta
g
e Com
p
an
y
The Company is in the development stage as defined under the then current Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 915-205 “Development-Stage Entities” and among the additional disclosures required as a development stage company that its financial statements were identified as those of a development stage company, and that the statements of operations, stockholders’ deficit and cash flows disclosed activity since the date of its Inception (February 23, 2012) as a development stage company. Effective June 10, 2014 FASB changed its regulations with respect to Development Stage Entities and these additional disclosures are no longer required for annual reporting periods beginning after December 15, 2014 with the option for entities to early adopt these new provisions. The Company has elected to early adopt these provisions and consequently these additional disclosures are not included in these financial statements.
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date the financial statements and the reported amount of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents
The Company considers all highly liquid investments with original maturities of three months or less to be cash equivalents.
Fair Value of Financial Instruments
The Company measures assets and liabilities at fair value based on an expected exit price as defined by the authoritative guidance on fair value measurements, which represents the amount that would be received on the sale of an asset or paid to transfer a liability, as the case may be, in an orderly transaction between market participants. As such, fair value may be based on assumptions that market participants would use in pricing an asset or liability. The authoritative guidance on fair value measurements establishes a consistent framework for measuring fair value on either a recurring or nonrecurring basis whereby inputs, used in valuation techniques, are assigned a hierarchical level.
The following are the hierarchical levels of inputs to measure fair value:
|
|
·
|
Level 1 - Observable inputs that reflect quoted market prices in active markets for identical assets or liabilities.
|
|
|
·
|
Level 2 - Inputs reflect quoted prices for identical assets or liabilities in markets that are not active; quoted prices for similar assets or liabilities in active markets; inputs other than quoted prices that are observable for the assets or liabilities; or inputs that are derived principally from or corroborated by observable market data by correlation or other means.
|
|
|
·
|
Level 3 - Unobservable inputs reflecting the Company’s assumptions incorporated in valuation techniques used to determine fair value. These assumptions are required to be consistent with market participant assumptions that are reasonably available.
|
The carrying amounts of the Company’s financial assets and liabilities, such as cash, prepaid expenses, other current assets, accounts payable & accrued expenses, certain notes payable and notes payable - related party, approximate their fair values because of the short maturity of these instruments.
The Company accounts for its derivative liabilities, at fair value, on a recurring basis under level 2.
Embedded Conversion Features
The Company evaluates embedded conversion features within convertible debt under ASC 815 “Derivatives and Hedging” to determine whether the embedded conversion feature(s) should be bifurcated from the host instrument and accounted for as a derivative at fair value with changes in fair value recorded in earnings. If the conversion feature does not require derivative treatment under ASC 815, the instrument is evaluated under ASC 470-20 “Debt with Conversion and Other Options” for consideration of any beneficial conversion feature.
Debt Issue Costs and Debt Discount
The Company may record debt issue costs and/or debt discounts in connection with raising funds through the issuance of debt. These costs may be paid in the form of cash, or equity (such as warrants). These costs are amortized to interest expense over the life of the debt. If a conversion of the underlying debt occurs, a proportionate share of the unamortized amounts is immediately expensed.
Original Issue Discount
For certain convertible debt issued, the Company may provide the debt holder with an original issue discount. The original issue discount would be recorded to debt discount, reducing the face amount of the note and is amortized to interest expense over the life of the debt.
Income Taxes
Deferred tax assets and liabilities are determined based on the differences between the financial reporting and tax bases of assets and liabilities using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. A valuation allowance is established when necessary to reduce deferred tax assets to the amounts expected to be realized.
The Company accounts for income taxes under the provisions of Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 740, “
Accounting for Income Taxes.
” It prescribes a recognition threshold and measurement attributes for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. As a result, the Company has applied a more-likely-than-not recognition threshold for all tax uncertainties. The guidance only allows the recognition of those tax benefits that have a greater than 50% likelihood of being sustained upon examination by the various taxing authorities. The Company is subject to taxation in the United States. All of the Company’s tax years are subject to examination by Federal and State jurisdictions.
The Company classifies penalties and interest related to income taxes as income tax expense in the Statements of Operations.
Revenue Reco
g
nition
The Company will recognize revenue in accordance with Accounting Standards Codification No. 605, “Revenue Recognition” (“ASC- 605”), ASC-605 requires that four basic criteria must be met before revenue can be recognized: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred; (3) the selling price is fixed and determinable; and (4) collectability is reasonably assured. Determination of criteria (3) and (4) are based on management’s judgments regarding the fixed nature of the selling prices of the products delivered and the collectability of those amounts. Provisions for discounts and rebates to customers, estimated returns and allowances, and other adjustments are provided for in the same period the related sales are recorded. The Company will defer any revenue for which the product has not been delivered or is subject to refund until such time that the Company and the customer jointly determine that the product has been delivered or no refund will be required.
Advertising
The Company follows the policy of charging the costs of advertising to expenses incurred. The Company incurred $0 in advertising costs during the six months ended April 30, 2016.
Basic Income (Loss) Per Share
Basic income (loss) per share is calculated by dividing the Company’s net loss applicable to common shareholders by the weighted average number of common shares outstanding during the period. Diluted earnings per share is calculated by dividing the Company’s net loss available to common shareholders by the diluted weighted average number of shares outstanding during the year. The diluted weighted average number of shares outstanding is the basic weighted number of shares adjusted for any potentially dilutive debt or equity instruments. There were no such potentially dilutive debt or equity instruments issued or outstanding during the three and nine month periods ending April 30, 2016.
Recent Accountin
g
Pronouncements
The Company has reviewed all the recent accounting pronouncements issued to date of the issuance of these financial statements, and does not believe any of these pronouncements will have a material impact on the company.
NOTE 4
–
STOCKHOLDERS’ DEFICIT
Common Stock
The Company is authorized to issue 75,000,000 shares of common stock with a par value of $0.001 per share. 35,294 shares of common stock were issued during the six month period ended April 30, 2016. The shares were issued as part of an incentive to enter into convertible notes that were owed as of October 31, 2015 with a relative fair value of $11,881.
The Company had 10,335,294 shares of common stock issued and outstanding as of April 30, 2016.
Additional Paid in Capital
During the six months ended April 30, 2016, the Company owed 40,000
stock subscription payable for compensation to a consultant for work performed with Thru Pharma, a related party, for a value of $23,500 and recorded as a related party expense.
NOTE 5
–
RELATED PARTY TRANSACTIONS
In support of the Company’s efforts and cash requirements, it may rely on advances from related parties until such time that the Company can support its operations or attains adequate financing through sales of its equity or traditional debt financing. There is no formal written commitment for continued support by shareholders or directors. Amounts represent advances or amounts paid in satisfaction of liabilities. The advances are considered temporary in nature and have not been formalized by a promissory note.
The Company is owed by its principal shareholder, Thru Pharma, a total of $139,872 as of April 30, 2016, in the form of a related party payable. It is due on demand and is non-interest bearing.
NOTE 6
–
INCOME TAXES
Income taxes are accounted for under the assets and liability method. Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled.
As of April 30, 2016, the Company had a net operating loss carry-forward of approximately $518,475 that may be used to offset future taxable income and begins to expire in 2031. Because of the change in ownership that occurred on January 16, 2014, net operating loss carry forwards could be limited as to use in future years.
NOTE 7 – COMMITMENTS AND CONTINGENCIES
On June 4, 2014, we were named as a defendant in a lawsuit filed by AMERIFINANCIAL, INC. (“AMERIFINANCIAL”), of Houston, Texas. The action related primarily to a contract dispute between AMERIFINANCIAL and our majority shareholder, Thru Pharma, LLC. The dispute did not allege any actions or inactions by our officers or representatives acting on our behalf. Counsel for Thru Pharma, LLC, requested that we be dismissed from this lawsuit, as we were not party to the disputed contract, and there was no legal basis for the Company being a part of the lawsuit. Accordingly, the Company did not recognize a liability in connection with the claim.
On August 31, 2015, the Judge in this Harris County, Texas, case ruled that the only remaining Defendant was Thru Pharma, LLC. On January 8, 2016, Thru Pharma and AMERIFINANCIAL, INC. reached settlement of the dispute. Subsequently this case was dismissed.
NOTE 8 – CONVERTIBLE DEBT AND DERIVATIVE LIABILITIES
The Company has financial instruments that are considered derivatives or contain embedded features subject to derivative accounting related to a revolving convertible note in which the Company can borrow up to $200,000, which includes a 10% OID. The Company issued the first tranche of the convertible note totaling $75,000, of which $65,000 was paid in cash, $2,500 was paid for legal fees, and the OID of $7,500, which included a ratchet provision in the conversion price of $.95 or a price equal to 60% of the last equity transaction completed by the Company as part of a subscription agreement
, whichever is lower
. The note has a maturity date of nine months after funding and also includes a fifty percent premium which is added on 90 days after funding. The note is to be paid off in installments of $19,453 for the six months after the ninety day period. On November 30, 2015 and April 27, 2016, a related party made payments on the convertible note. Embedded derivatives are valued separately from the host instrument and are recognized as derivative liabilities in the Company’s balance sheet. The Company measures these instruments at their estimated fair value and recognizes changes in their estimated fair value in results of operations during the period of change. The Company has estimated the fair value of these embedded derivatives for convertible debentures using a multinomial lattice model as of April 30, 2016 and October 31, 2015.
The fair values of the derivative instruments are measured each quarter, which resulted in a gain of $1,013 and derivative expense of $0 during the six months ended April 30, 2016. As of April 30, 2016, the fair market value of the derivatives aggregated $4,487 using the following assumptions: estimated 0.18 to 1-year term, estimated volatility of 162.21% to 164.20%, and a discount rate of 0.22% to 0.56%.
The fair values of the derivative instruments are measured each quarter, which resulted in a gain of $19,934 and derivative expense of $25,434 during the year ended October 31, 2015. As of October 31, 2015, the fair market value of the derivatives aggregated $5,500 using the following assumptions: estimated 0.42 to 0.75-year term, estimated volatility of 133.49% to 243.69%, and a discount rate of 0.21% to 0.23%.
NOTE 9 – FAIR VALUE MEASUREMENT
The Company uses the
multinomial lattice
model to calculate the fair value of the derivative liability.
Our financial assets and (liabilities) carried at fair value measured on a recurring basis as of April 30, 2016 and October 31, 2015 consisted of the following:
|
|
|
Fair Value Measurements Using
|
|
|
Description
|
|
Total Fair
Value at
April 30, 2016
|
|
|
Quoted
Prices in
Active
Markets
(Level 1)
|
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
|
Derivative liability
|
|
$
|
4,487
|
|
|
$
|
—
|
|
|
$
|
4,487
|
|
|
$
|
—
|
|
|
|
|
Fair Value Measurements Using
|
|
|
Description
|
|
Total Fair
Value at
October 31, 2015
|
|
|
Quoted
Prices in
Active
Markets
(Level 1)
|
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
|
Derivative liability
|
|
$
|
5,500
|
|
|
$
|
—
|
|
|
$
|
5,500
|
|
|
$
|
—
|
|
NOTE 10 - STOCK PURCHASE OPTIONS AND WARRANTS
During the six months ended April 30, 2016, the Company did not issue options.
During the year ended October 31, 2015, the Company issued options to purchase a total of 37,500 shares of the Company’s Common Stock. The Company issued 37,500 options in conjunction with a consulting agreement entered into in February 2015. According to the consulting agreement, the Company is to issue 5,000 common shares or 7,500 options per month during the duration of their agreement. The options were valued using the multinomial lattice pricing model under the assumptions noted below.
Stock Purchase Options
During the six months ended April 30, 2016, the Company did not issue
stock purchase options.
During the year ended October 31, 2015, the Company issued 37,500 stock purchase options for a value of $16,217.
The following table presents the assumptions used to estimate the fair values of the stock warrants and options granted:
|
|
|
Six Months
Ended
April 30,
2016
|
|
|
Year ended October
31,
2015
|
|
|
Expected volatility
|
|
|
N/A
|
|
|
|
202-213
|
%
|
|
Expected dividends
|
|
|
N/A
|
|
|
|
0
|
%
|
|
Expected term
|
|
|
N/A
|
|
|
3 Years
|
|
|
Risk-free interest rate
|
|
|
N/A
|
|
|
|
0.80-1.09
|
%
|
The following table summarizes the changes in options outstanding of the Company during the six months ended April 30, 2016.
|
Date Issued
|
|
Number
of
Options
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Weighted
Average
Grant Date
Fair Value
|
|
|
Expiration
Date (yrs)
|
|
|
Value if
Exercised
|
|
|
Balance as of October 31, 2015
|
|
|
37,500
|
|
|
$
|
0.80
|
|
|
$
|
0.43
|
|
|
|
2.47
|
|
|
$
|
30,000
|
|
|
Granted
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Exercised
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Cancelled/Expired
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Outstanding as of April 30, 2016
|
|
|
37,500
|
|
|
$
|
0.80
|
|
|
$
|
0.33
|
|
|
|
2.34
|
|
|
$
|
30,000
|
|
The following table summarizes the changes in options outstanding of the Company during the year ended October 31, 2015.
|
Date Issued
|
|
Number
of
Options
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Weighted
Average
Grant Date
Fair Value
|
|
|
Expiration
Date (yrs)
|
|
|
Value if
Exercised
|
|
|
Balance as of October 31, 2014
|
|
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
—
|
|
|
$
|
—
|
|
|
Granted
|
|
|
37,500
|
|
|
|
0.80
|
|
|
|
0.41
|
|
|
|
2.64
|
|
|
|
30,000
|
|
|
Exercised
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Cancelled/Expired
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Outstanding as of October 31, 2015
|
|
|
37,500
|
|
|
$
|
0.80
|
|
|
$
|
0.43
|
|
|
|
2.47
|
|
|
$
|
30,000
|
|
Stock Purchase Warrants
During the year ended October 31, 2015, the Company issued warrants to purchase a total of 600,000 shares. The Company issued 600,000 warrants in conjunction with a consulting agreement entered into in July 2015. The warrants were valued using the multinomial lattice pricing model under the assumptions noted below.
During the six months ended April 30, 2016
, the Company did not issue any stock purchase warrants.
During the year ended October 31, 2015, the Company issued 600,000 stock purchase warrants for a value of $216,799.
The following table presents the assumptions used to estimate the fair values of the stock warrants and options granted:
|
|
|
Six Months Ended
April 30, 2016
|
|
|
Year ended October
31, 2015
|
|
|
Expected volatility
|
|
|
N/A
|
|
|
|
212
|
%
|
|
Expected dividends
|
|
|
N/A
|
|
|
|
0
|
%
|
|
Expected term
|
|
|
N/A
|
|
|
3 Years
|
|
|
Risk-free interest rate
|
|
|
N/A
|
|
|
|
1.08
|
%
|
The following table summarizes the changes in warrants outstanding issued to employees and non-employees of the Company during the six months ended April 30, 2016.
|
|
|
Number
of
Warrants
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Weighted
Average
Grant Date
Fair Value
|
|
|
Expiration
Date (yrs)
|
|
|
Value if
Exercised
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding as of October 31, 2015
|
|
|
600,000
|
|
|
$
|
0.80
|
|
|
$
|
0.36
|
|
|
|
2.73
|
|
|
$
|
480,000
|
|
|
Granted
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Exercised
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Cancelled/Expired
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Outstanding as of April 30, 2016
|
|
|
600,000
|
|
|
$
|
0.80
|
|
|
$
|
0.36
|
|
|
|
2.23
|
|
|
$
|
480,000
|
|
The following table summarizes the changes in warrants outstanding issued to employees and non-employees of the Company during the year ended October 31, 2015.
|
|
|
Number
of
Warrants
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Weighted
Average
Grant Date
Fair Value
|
|
|
Expiration
Date (yrs)
|
|
|
Value if
Exercised
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding as of October 31, 2014
|
|
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
—
|
|
|
$
|
—
|
|
|
Granted
|
|
|
600,000
|
|
|
|
0.80
|
|
|
|
0.36
|
|
|
|
2.73
|
|
|
|
480,000
|
|
|
Exercised
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Cancelled/Expired
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Outstanding as of October 31, 2015
|
|
|
600,000
|
|
|
$
|
0.80
|
|
|
$
|
0.36
|
|
|
|
2.73
|
|
|
$
|
480,000
|
|
NOTE 11 – SUBSEQUENT EVENTS
In accordance with ASC 855-10, “
Subsequent Events
”, the Company has analyzed its operations subsequent to April 30, 2016 to the date these financial statements were issued and has determined that it does not have any material subsequent events to disclose in these financial statements.
NOTE 12 – RESTATEMENT OF CONDENSED FINANCIAL STATEMENTS
This filing includes corrections to our previously issued financial statements for the year ended October 31, 2015 and related quarterly interim periods, record related party payable due to two consultants related to consulting agreements with Thru Pharma to be paid with 7,500 options for the first consultant on a monthly basis convertible at $.80 per share entered into in February 2015 and the other to be paid in 10,000 common shares as stock payable. The Company issued 600,000 warrants on September 22, 2015 as payment for legal expenses that had not been recorded. The Company also entered into a convertible note agreement that previously had not been recorded that is considered a derivative or contain embedded features subject to derivative accounting related to a revolving convertible note where the Company can borrow up to $200,000, which includes a 10% OID. The Company issued the first tranche of the convertible note totaling $75,000, of which $65,000 was paid in cash, $2,500 was paid for legal fees, and an OID of $7,500, which included a ratchet provision in the conversion price of $.95 or a price equal to 60% of the last equity transaction completed by the Company as part of a subscription agreement. The note has a maturity date of nine months after funding and also includes a fifty percent premium totaling $37,500 which is added on 90 days after funding. On November 30, 2015 and April 27, 2016, a related party made payments on the convertible note. The fair values of the derivative instruments are measured each quarter, which resulted in a gain of $19,934 and derivative expense of $25,434 during the year ended October 31, 2015. As of October 31, 2015, the fair market value of the derivatives aggregated $5,500 using the following assumptions: estimated 0.42 to 0.75-year term, estimated volatility of 133.49% to 243.69%, and a discount rate of 0.21% to 0.23%.
During the six months ended April 30, 2016, is to record the two payments made on the convertible note by related parties for $65,000 on November 30, 2015 and $20,000 on April 27, 2016. The payments reduced the convertible notes, accrued interest, derivative liability, interest expense, and change in fair value of derivative.
The effects of these corrections on the financial statements are as follows:
Arax Holdings Corp.
Balance Sheets
|
|
|
As Reported
|
|
|
Correction
|
|
|
As Restated
|
|
|
Current Liabilities
|
|
|
|
|
|
|
|
|
|
|
Loans from related party
|
|
$
|
54,872
|
|
|
$
|
85,000
|
|
|
$
|
139,872
|
|
|
Convertible Notes payable, net of $0 and $41,388 debt discount
|
|
|
112,500
|
|
|
|
(85,000
|
)
|
|
|
27,500
|
|
|
Accrued Interest Payable
|
|
|
6,087
|
|
|
|
(2,116
|
)
|
|
|
3,971
|
|
|
Derivative Liability
|
|
|
15,844
|
|
|
|
(11,357
|
)
|
|
|
4,487
|
|
|
Total current liabilities
|
|
|
189,303
|
|
|
|
(13,473
|
)
|
|
|
175,830
|
|
|
Total liabilities
|
|
|
189,303
|
|
|
|
(13,473
|
)
|
|
|
175,830
|
|
|
Stockholders’ deficit:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated deficit
|
|
|
(531,948
|
)
|
|
|
13,473
|
|
|
|
(518,475
|
)
|
|
Total stockholders' deficit
|
|
|
(189,303
|
)
|
|
|
13,473
|
|
|
|
(175,830
|
)
|
|
For the Three Month Period Ended
|
|
|
|
|
|
|
|
|
|
|
April 30, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
As Reported
|
|
|
Correction
|
|
|
As Restated
|
|
|
Interest Expense
|
|
$
|
(19,912
|
)
|
|
$
|
6,408
|
|
|
$
|
(13,504
|
)
|
|
Change in Fair Value of Derivative
|
|
|
(14,010
|
)
|
|
|
10,320
|
|
|
|
(3,690
|
)
|
|
TOTAL OTHER INCOME
|
|
|
(33,922
|
)
|
|
|
16,728
|
|
|
|
(17,194
|
)
|
|
NET LOSS BEFORE INCOME TAXES
|
|
|
(55,812
|
)
|
|
|
16,728
|
|
|
|
(39,084
|
)
|
|
NET LOSS
|
|
|
(55,812
|
)
|
|
|
16,728
|
|
|
|
(39,084
|
)
|
Arax Holdings Corp.
Statements of Operations
|
For the Six Month Period Ended
|
|
|
|
|
|
|
|
|
|
|
April 30, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
As Reported
|
|
|
Correction
|
|
|
As Restated
|
|
|
Interest Expense
|
|
$
|
(47,352
|
)
|
|
$
|
2,116
|
|
|
$
|
(45,236
|
)
|
|
Change in Fair Value of Derivative
|
|
|
(10,344
|
)
|
|
|
11,357
|
|
|
|
1,013
|
|
|
TOTAL OTHER INCOME
|
|
|
(57,696
|
)
|
|
|
13,473
|
|
|
|
(44,223
|
)
|
|
NET LOSS BEFORE INCOME TAXES
|
|
|
(98,386
|
)
|
|
|
13,473
|
|
|
|
(84,913
|
)
|
|
NET LOSS
|
|
|
(98,386
|
)
|
|
|
13,473
|
|
|
|
(84,913
|
)
|
Arax Holdings Corp
Statements of Changes in Stockholders' Deficit
|
|
|
Common Stock
|
|
|
Additional Paid In
|
|
|
Stock Subscription
|
|
|
Accumulated
|
|
|
Total Stockholders'
|
|
|
As Reported
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Payable
|
|
|
Deficit
|
|
|
Deficit
|
|
|
Balances, October
31, 2015
|
|
|
10,300,000
|
|
|
|
10,300
|
|
|
|
25,548
|
|
|
|
-
|
|
|
|
(111,080
|
)
|
|
|
(75,232
|
)
|
|
Stock as Incentive
for Convertible Note
|
|
|
35,294
|
|
|
|
35
|
|
|
|
11,846
|
|
|
|
(11,881
|
)
|
|
|
-
|
|
|
|
-
|
|
|
Stock for
Compensation
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
23,500
|
|
|
|
-
|
|
|
|
23,500
|
|
|
Net loss for the
period
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(98,386
|
)
|
|
|
(98,386
|
)
|
|
Balances, April 30,
2016
|
|
$
|
10,300,000
|
|
|
$
|
10,300
|
|
|
$
|
25,548
|
|
|
|
-
|
|
|
$
|
(114,380
|
)
|
|
$
|
(78,532
|
)
|
|
Correction
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances, October
31, 2015
|
|
|
-
|
|
|
|
-
|
|
|
|
233,016
|
|
|
|
50,281
|
|
|
|
(322,482
|
)
|
|
|
(39,185
|
)
|
|
Stock as Incentive
for Convertible Note
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Stock for
Compensation
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Net loss for the
period
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
13,473
|
|
|
|
13,473
|
|
|
Balances, April 30,
2016
|
|
|
|
|
|
|
|
|
|
$
|
233,016
|
|
|
$
|
62,281
|
|
|
$
|
(365,011
|
)
|
|
$
|
(69,714
|
)
|
|
As Corrected
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances, October
31, 2015
|
|
|
10,300,000
|
|
|
|
10,300
|
|
|
|
258,564
|
|
|
|
50,281
|
|
|
|
(433,562
|
)
|
|
|
(114,417
|
)
|
|
Stock as Incentive
for Convertible Note
|
|
|
35,294
|
|
|
|
35
|
|
|
|
11,846
|
|
|
|
(11,881
|
)
|
|
|
-
|
|
|
|
-
|
|
|
Stock for
Compensation
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
23,500
|
|
|
|
-
|
|
|
|
23,500
|
|
|
Net loss for the
period
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(84,913
|
)
|
|
|
(84,913
|
)
|
|
Balances, April 30,
2016
|
|
$
|
10,300,000
|
|
|
$
|
10,300
|
|
|
$
|
258,564
|
|
|
$
|
62,281
|
|
|
$
|
(479,391
|
)
|
|
$
|
(148,246
|
)
|
Arax Holdings Corp.
Statements of Cash Flows
April 30, 2016
|
|
|
As Reported
|
|
|
Correction
|
|
|
As Restated
|
|
|
Net loss for the period
|
|
$
|
(98,386
|
)
|
|
$
|
13,473
|
|
|
$
|
(84,913
|
)
|
|
Change in Fair Value of Derivative
|
|
|
10,344
|
|
|
|
(11,357
|
)
|
|
|
(1,013
|
)
|
|
Accrued Interest Payable
|
|
$
|
4,164
|
|
|
$
|
(2,116
|
)
|
|
|
2,048
|
|
|
TOTAL NON-CASH INVESTING AND FINANCING ACTIVITIES
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
ITEM 2.
|
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|
This Quarterly Report on Form 10-Q (this “Report”) contains forward-looking statements which reflect management’s expectation or belief concerning future events that involve risks and uncertainties. Our actions, results and performance could differ materially from what is contemplated by the forward-looking statements contained in this Report. Factors that might cause differences from the forward-looking statements include those referred to or identified in our Annual report on Form 10K filed with the SEC on February 13, 2015 and other factors that may be identified elsewhere in this Report. Reference should be made to such factors and all forward- looking statements are qualified in their entirety by the above cautionary statements.
The following is management’s discussion and analysis of the financial condition and results of operations of the Company, as well as our liquidity and capital resources. The discussion, including known trends and uncertainties identified by management, should be read in conjunction with the Company’s unaudited consolidated financial statements and related notes included in this Report, as well as our audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended October 31, 2015.
Overview
Arax Holdings Corp. (the “Company”, “we”, “our” or “us”) was incorporated under the laws of the State of Nevada on February 23, 2012 with a business plan to sell hot dogs from mobile hot dog stands throughout the major cities in Mexico. That has now changed and is discussed further below.
Effective January 16, 2014, Vladimir Leonov, the Chief Executive Officer, majority shareholder and sole director of the Company sold 8,000,000 shares of our common stock (approximately 77% of the issued and outstanding shares of common stock of the Company) owned by him to Thru Pharma, LLC (d/b/a PharmaCline), a Delaware limited liability company (“Thru Pharma”), for total cash consideration of $275,000 in a private transaction (the “Acquisition”). The Acquisition resulted in a change in control of the Company. Simultaneous with the closing of the Acquisition, Mr. Leonov resigned as a director and from all offices he held with us, and Steven J. Keough, was elected as our director and appointed as the Company’s Chief Executive Officer, President, Secretary and Treasurer.
Following the changes in control and management of the Company related to the Acquisition, we have been reevaluating our business plan. As of the filing of the 10K for last year, the Company stated that Management believes that the best business model for our investors is to pursue business activity in the Life Sciences sector of the United States and internationally. We will continue to assess these opportunities and structures as well as the various pre-requisite actions needed to finalize and implement any new business model.
This new business model could entail restructuring of the Company in order to provide new capital and a broader base of shareholders. Such a capital restructuring of the Company could involve a merger or acquisition of assets through various techniques, including a possible reverse-merger. Additional asset acquisitions and transfers may occur. The Company may establish a presence on other markets as part of the restructuring.
Results of Operations
Three and Six month Period Ended April 30, 2016 Compared to the Three and Six month Period Ended April 30, 2015
Revenue
No revenue was recognized in the six month period ended April 30, 2016. Operations have not yet commenced.
Operating Expenses
During the three and six month periods ended April 30, 2016, our operating expenses were $21,890 and $40,690. There was a decrease of $6,980 and $18,087 compared to the operating expenses of $28,870 and $58,777 incurred during the three and six months ended April 30, 2015 due to decreases in professional fees as compared to prior periods.
Other Income (Expenses)
During the three and six month periods ended April 30, 2016, our other income (expenses) were $17,194 and $44,223 compared to $0 during the three and six month period ended April 30, 2015. During the three and six month period ended April 30, 2016, our other income (expenses) comprised of interest expense of $13,504 and $45,236 from accrued interest on convertible notes and from the amortization of debt discount and OID, and $3,690 and ($1,013) in change in fair value of derivative. By comparison, during the three and six month periods ended April 30, 2015 other income (expenses) were $0.
Net Loss
Our net loss for the three and six month period ended April 30, 2016 was $39,084 and $84,913 compared to $28,870 and $58,777 for the three and six months ended April 30, 2015, is due to the factors discussed above.
Liquidity and Capital Resources
At April 30, 2016 we had $0 in total assets and $175,830 of current liabilities compared to $0 in total assets and $114,417 of current liabilities at October 31, 2015. The increase in our working capital deficit for the six months ended April 30, 2016 is principally due to the operating losses we incurred in the period.
Cash Flow for the Six month Period Ended April 30, 2016 Compared to Six month Period Ended April 30, 2015
Operating Activities
During the six months ended April 30, 2016 we used $16,940 for operating activities compared to $14,677 used in operating activities during the six months ended April 30, 2015. The increase in funds used in operating activities between the two periods was due primarily to an increase in legal fees.
Investing Activities
We neither used nor generated cash flows from investing activities during the six month periods ended April 30, 2016 or 2015.
Financing Activities
During the six months ended April 30, 2016 we received $16,940 in loans from Thru Pharma to fund our working capital requirements for a total balance of $139,872 from related parties. In the six months ended April 30, 2015, Thru Pharma advanced the Company $14,677.
Historically, we have funded working capital requirements primarily through the proceeds of the private placement of equity instruments and loans from related parties. We expect that working capital requirements will be funded through advances from Thru Pharma, and through further issuances of our securities. We have no lines of credit or other bank financing arrangements. Additional issuances of equity or issuances of convertible debt securities will result in dilution to our current shareholders. Further, such securities might have rights, preferences or privileges senior to our common stock. Additional financing may not be available upon acceptable terms, or at all. If adequate funds are not available or are not available on acceptable terms, we may not be able to implement our business plan.
Going Concern Qualification
The independent auditors’ review report accompanying the Company’s October 31, 2015 financial statements contained an explanatory paragraph expressing substantial doubt about our ability to continue as a going concern. The ability to continue as a going concern is dependent upon generating profitable operations in the future or obtaining the necessary financing to meet obligations and repay liabilities arising from normal business operations when they come due. Our financial statements have been prepared assuming that we will continue as a going concern and, accordingly, do not include adjustments relating to the recoverability and realization of assets and classification of liabilities that might be necessary should we be unable to continue in operation.
Off-Balance Sheet Arrangements
As of the date of this report, we do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.