U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
For the quarterly period ended:
OR
For the transition period from _______to _______
Commission File Number
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of Incorporation or organization) |
(IRS Employer Identification No.) |
(
(Issuer’s telephone number including area code)
(Former name, former address, and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
| None | N/A | N/A |
Check whether the issuer (1) filed all
reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 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.
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).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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.
| Large accelerated filer ☐ | Accelerated filer ☐ |
| Smaller reporting company | |
| Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act ☐
Indicate by check mark whether the registrant
is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐
State the number of shares outstanding of each of the issuer’s classes of common equity as of the latest practicable date. As of September 10, 2024, there were common shares outstanding.
Arax Holdings Corp.
TABLE OF CONTENTS
2
ARAX HOLDINGS CORP.
CONDENSED CONSOLIDATED BALANCE SHEETS
PART 1 – FINANCIAL INFORMATION
Item 1. – Financial Statements
| (unaudited) | (restated) | |||||||
| April 30, 2024 | October 31, 2023 | |||||||
| ASSETS | ||||||||
| Cash | $ | $ | ||||||
| Accounts receivable | ||||||||
| Total current assets | ||||||||
| Property and equipment, net of accumulated depreciation of $ | ||||||||
| Capitalized software development costs | ||||||||
| Other Assets | ||||||||
| Intangible assets, net | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES & STOCKHOLDERS’ DEFICIT | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued expenses | ||||||||
| Due to related party | ||||||||
| Total current liabilities | ||||||||
| Total liabilities | $ | $ | ||||||
| Commitments and contingencies | ||||||||
| Stockholders’ deficit | ||||||||
| Preferred Stock Series A, par value $, shares authorized, and - shares issued and outstanding as of April 30, 2024 and October 31, 2023, respectively | ||||||||
| Common stock, Par Value $, shares authorized, and issued and outstanding as of April 30, 2024 and October 31, 2023 | ||||||||
| Common stock to be issued | ||||||||
| Additional paid in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total stockholders equity (deficit) | ||||||||
| Total liabilities and stockholders’ equity (deficit) | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited condensed financial statements.
3
ARAX HOLDINGS CORP.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
| Three months Ended April 30, 2024 | Three months Ended April 30, 2023 | Six months Ended April 30, 2024 | Six months Ended April 30, 2023 | |||||||||||||
| Revenue | $ | $ | $ | $ | ||||||||||||
| Cost of revenue | ||||||||||||||||
| Gross Profit (Loss) | ||||||||||||||||
| Operating expenses: | ||||||||||||||||
| General and administrative expenses | ||||||||||||||||
| Stock based compensation | ||||||||||||||||
| Total Operating Expenses | ||||||||||||||||
| LOSS FROM OPERATIONS | ( | ) | ( | ) | ( | ) | ||||||||||
| OTHER INCOME (EXPENSE): | ||||||||||||||||
| Impairment expense | ||||||||||||||||
| Interest Expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other Income (Expense) | ( | ) | ||||||||||||||
| Total Other Income (Expense) | ( | ) | ( | ) | ( | ) | ||||||||||
| Net loss before taxes | ( | ) | ( | ) | ( | ) | ||||||||||
| Income tax provision (benefit) | ||||||||||||||||
| Net loss | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||
| Net loss per share, basic and diluted | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||
| Weighted average shares outstanding, basic and diluted | ||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
4
ARAX HOLDINGS CORP.
(restated)
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
FOR THE THREE AND SIX MONTHS ENDED APRIL 30, 2024 AND 2023
(unaudited)
| Preferred Stock | Common Stock | Common Stock to be Issued | Additional Paid | Accumulated | Total | |||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Amount | In Capital | Deficit | Equity | |||||||||||||||||||||||||
| Balance as of October 31, 2022 | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Net Loss | — | — | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Balance as of January 31, 2023 | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Issuance of common stock for acquisition | — | |||||||||||||||||||||||||||||||
| Issuance of common stock upon conversion of convertible promissory notes | — | |||||||||||||||||||||||||||||||
| Common stock issued for services | — | |||||||||||||||||||||||||||||||
| Issuance of common stock in the conversion of convertible notes related to the acquisition | — | |||||||||||||||||||||||||||||||
| Net Loss | — | — | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Balance as of April 30, 2023 (restated) | ( | ) | ||||||||||||||||||||||||||||||
| Preferred Stock | Common Stock | Common Stock to be Issued | Additional Paid | Accumulated | Total | |||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Amount | In Capital | Deficit | Equity | |||||||||||||||||||||||||
| Balance as of October 31, 2023 (restated) | ( | ) | ||||||||||||||||||||||||||||||
| Issuance of common stock for services | — | |||||||||||||||||||||||||||||||
| Reduction of common stock to be issued for acquisition | — | ( | ) | |||||||||||||||||||||||||||||
| Net Loss | — | — | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Balance as of January 31, 2024 (restated) | ( | ) | ||||||||||||||||||||||||||||||
| Issuance of common stock upon conversion of convertible notes | — | |||||||||||||||||||||||||||||||
| Reduction of common stock to be issued for acquisition | — | ( | ) | |||||||||||||||||||||||||||||
| Net Loss | — | — | ||||||||||||||||||||||||||||||
| Balance as of April 30, 2024 | ( | ) | ||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
5
ARAX HOLDINGS CORP.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
| For the six months ended April 30, 2024 | For the six months ended April 30, 2023 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | (restated) | |||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation and amortization expense | ||||||||
| Amortization of debt issuance costs | ||||||||
| Issuance of common stock for services | ||||||||
| Loss on change in fair value of derivative liability | ( | ) | ||||||
| Amortization of debt discount related to derivatives | ||||||||
| Changes in operating assets and liabilities | ||||||||
| Increase in accounts receivable | ( | ) | ( | ) | ||||
| Increase in accounts payable and accrued liabilities | ||||||||
| Net cash used in operating activities | $ | ( | ) | $ | ( | ) | ||
| CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
| Capitalized software and development costs | ( | ) | ||||||
| Net cash used in investing activities | $ | ( | ) | $ | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
| Proceeds from Notes Payable | ||||||||
| Net cash provided by financing activities | $ | $ | ||||||
| Net decrease in cash and cash equivalents | ( | ) | ||||||
| Cash and cash equivalents, beginning of the year | ||||||||
| Cash and cash equivalents, end of the year | $ | $ | ||||||
| Supplemental disclosures for cash flow information: | ||||||||
| Cash paid during the year for interest | $ | $ | ||||||
| Supplemental disclosure of Noncash financing activities: | ||||||||
| Reduction of common stock to be issued for acquisition | $ | $ | ||||||
| Issuance of common stock for conversion of notes | $ | $ | ||||||
| Conversion of convertible notes payable to shareholders’ equity | $ | $ | ||||||
| Issuance of common stock issued upon purchase of intangible assets | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements
6
ARAX HOLDINGS CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 2024 AND 2023
(unaudited)
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
General
Arax Holdings
Corp. (“the Company”) is a
The Company currently has operations from a growing business in the software development and integration marketplace.
Management intends to explore and identify business opportunities within North America, Europe, Asia and Africa including a potential acquisition of an operating entity through a reverse merger, asset purchase or similar transaction. Our executives have experience in business consulting, although no assurances can be given that they can identify and implement a viable business strategy or that any such strategy will result in profits. Our ability to effectively identify, develop and implement a viable plan for our business may be hindered by risks and uncertainties which are beyond our control, including without limitation, the continued negative effects of the coronavirus pandemic on the U.S. and global economies.
Principles of Consolidation and Basis of Presentation
The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and the applicable rules and regulations of the Securities and Exchange Commission (the “SEC”) regarding interim financial reporting. Certain information and note disclosures normally included in the financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules and regulations. We believe that the disclosures contained in these condensed financial statements are adequate to make the information presented herein not misleading. These condensed financial statements should be read in conjunction with the financial statements contained in the Company’s Annual Report on Form 10-K for the year ended October 31, 2023, filed with the SEC. In the opinion of management, the accompanying condensed financial statements contain all adjustments, including normal recurring adjustments, necessary to present fairly the Company’s financial position as of April 30, 2024, and the results of its operations and its cash flows for the three and six months ended April 30, 2024 and 2023. The balance sheet as of October 31, 2023, restated as of this filing (Note 3), is derived from the Company’s audited financial statements. The results of operations for the three and six months ended April 30, 2024, are not necessarily indicative of the results of operations to be expected for the full fiscal year ending October 31, 2024.
The condensed consolidated financial statements include the accounts of Arax Holdings Corp. and its wholly owned subsidiaries, Core Business Holdings and Cilandro SA. All intercompany transactions and balances have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States (“GAAP”) 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 financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results and outcomes may differ from management’s estimates and assumptions. Included in these estimates are assumptions used to estimate collection of accounts receivable, fair value of intangible assets, fair value of capitalized software, deferred income tax asset valuation allowances.
Cash
The Company considers
all short-term highly liquid investments with a remaining maturity at the date of purchase of three months or less to be cash equivalents.
Cash and cash equivalents are maintained at financial institutions and, at times, balances may exceed federally insured limits.
The Company has not experienced any losses related to these balances as of April 30, 2024. The Company had
7
ARAX HOLDINGS CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 2024 AND 2023
(unaudited)
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Revenue Recognition
The Company recognizes revenue in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 606, “Revenue from Contracts with Customers” (“ASC 606”). Revenues are recognized when control is transferred to customers in amounts that reflect the consideration the Company expects to be entitled to receive in exchange for those goods. Revenue recognition is evaluated through the following five steps: (i) identification of the contract, or contracts, with a customer; (ii) identification of the performance obligations in the contract; (iii) determination of the transaction price; (iv) allocation of the transaction price to the performance obligations in the contract; and (v) recognition of revenue when or as a performance obligation is satisfied. We generate revenue from the following activities:
The Company provides a range of services through various formats, including subscription-based access to browser-based software platforms. These platforms facilitate interactions between customers, enterprise clients, and other entities, utilizing blockchain technology for secure and transparent transactions.
| ● | Service Offerings: Include software subscriptions that require secure access, enabling user interactions via blockchain networks |
| ● | Use Cases: The Company develops tailored solutions, known as Use Cases, which can incorporate both physical inventory and software components. These are customized for each client |
| ● | Cost Sharing: In some instances, the Company co-invests in the initial setup infrastructure costs with government or enterprise partners |
| ● | Revenue Model: Primarily, revenue is derived from subscription fees and transaction fees associated with blockchain interactions, rather than from the initial infrastructure investments |
Contract Assets
The Company does not have any contract assets. All trade receivables on the Company’s condensed consolidated balance sheet are from contracts with customers.
Cost of Revenues
Cost of revenues consists of employee costs, third party staffing costs and other fees, outsourced recruiter fees, and commissions. There have been no costs of revenue for the period presented.
Accounts Receivable
On November 1, 2023, the Company adopted ASC 326, “Financial Instruments - Credit Losses”. In accordance with ASC 326, an allowance is maintained for estimated forward-looking losses resulting from the possible inability of customers to make the required payments (current expected losses). The amount of the allowance is determined principally on the basis of past collection experience and known financial factors regarding specific customers.
Credit is extended to customers based on an evaluation of their financial condition and other factors. Management periodically assesses the Company’s accounts receivable and, if necessary, establishes an allowance for estimated uncollectible amounts. Any required allowance is based on specific analysis of past due accounts and also considers historical trends of write-offs. Past due status is based on how recently payments have been received from customers. Accounts determined to be uncollectible are charged to operations when that determination is made. The Company usually does not require collateral. We have recorded no allowance for doubtful as of April 30, 2024, and October 31, 2023.
8
ARAX HOLDINGS CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 2024 AND 2023
(unaudited)
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Property and Equipment
Property and equipment is stated at
cost, less accumulated depreciation. Depreciation is recognized over an asset’s estimated useful life using the straight-line
method beginning on the date an asset is placed in service. The Company regularly evaluates the estimated remaining useful lives
of the Company’s property and equipment to determine whether events or changes in circumstances warrant a revision to the
remaining periods of depreciation. Maintenance and repairs are charged to expense as incurred. Depreciation expense for the three
months ended April 30, 2024 and 2023 was $
Concentration of Credit Risk and Significant Customers and Vendors
As of April 30, 2024, and October 31, 2023 one customer accounted for all of the accounts receivable balance.
Research and Development
The Company expenses internal and external research and development costs, including costs of funded research and development arrangements, in the period incurred. The Company has no material research and development costs during the three and six months ended April 30, 2024 and 2023, respectively.
Advertising and Marketing Costs
The Company expenses all advertising and marketing costs as incurred. Advertising and marketing costs were not material for the three and six months ended April 30, 2024 and 2023, respectively.
Fair Value of Financial Instruments and Fair Value Measurements
The Company measures and discloses the fair value of assets and liabilities required to be carried at fair value in accordance with ASC 820, Fair Value Measurements and Disclosures. ASC 820 defines fair value, establishes a hierarchical framework for measuring fair value, and enhances fair value measurement disclosure.
ASC 825 defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required or permitted to be recorded at fair value, the Company considers the principal or most advantageous market in which it would transact and considers assumptions that market participants would use when pricing the asset or liability, such as inherent risk, transfer restrictions, and risk of nonperformance. ASC 825 establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 825 establishes three levels of inputs that may be used to measure fair value:
Level 1 - Quoted prices for identical assets or liabilities in active markets to which we have access at the measurement date.
Level 2 - Inputs other than quoted prices within Level 1 that are observable for the asset or liability, either directly or indirectly.
Level 3 - Unobservable inputs for the asset or liability.
9
ARAX HOLDINGS CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 2024 AND 2023
(unaudited)
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The determination of where assets and liabilities fall within this hierarchy is based upon the lowest level of input that is significant to the fair value measurement.
The Company’s investment in available for sale securities and warrant derivative liabilities are measured at fair value. The securities are measured based on current trading prices using Level 1 fair value inputs. The Company’s derivative instruments are valued using Level 3 fair value inputs. In fair valuing these instruments, the income valuation approach is applied, and the valuation inputs include the contingent payment arrangement terms, projected revenues and cash flows, rate of return, and probability assessments. The carrying values of cash and cash equivalents, accounts receivable, accounts payable and accrued expenses, and loans payable represent fair value based upon their short-term nature.
A financial asset or liability’s classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement. The tables below summarize the fair values of our financial assets and liabilities as of April 30, 2024, October 31, 2023
For the Company’s derivative liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3), the following table provides a reconciliation of the beginning and ending balance for each category therein, and gains or losses recognized during the year ended April 30, 2023:
| Ending balance, October 31, 2022 | $ | |||
| Initial recognition of derivative liability: | ||||
| Re-measurement adjustments: | ||||
| Change in fair value of derivative liability | ( |
) | ||
| Ending balance, April 30, 2023 | $ |
The fair value of the derivative liability was estimated using binomial option-pricing model with the following assumptions:
| June 30, 2024 | ||||
| Stock Price on Valuation Date | $ | |||
| Risk-Free Rate | % | |||
| Volatility | ||||
| Term | yrs | |||
| Conversion price | $ | |||
Business Combinations
The Company evaluates acquisitions of assets and other similar transactions to assess whether or not the transaction should be accounted for as a business combination or asset acquisition by first applying a screen test to determine whether substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or group of similar identifiable assets. If so, the transaction is accounted for as an asset acquisition. If not, further determination is required as to whether or not the Company has acquired inputs and processes that have the ability to create outputs which would meet the definition of a business. Significant judgment is required in the application of the screen test to determine whether an acquisition is a business combination or an acquisition of assets.
Acquisitions meeting the definition of business combinations are accounted for using the acquisition method of accounting, which requires that the purchase price be allocated to the net assets acquired at their respective fair values. In a business combination, any excess of the purchase price over the estimated fair values of the net assets acquired is recorded as goodwill.
10
ARAX HOLDINGS CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 2024 AND 2023
(unaudited)
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Intangible Assets
The Company has intangible assets with indefinite useful lives obtained as a result of assets acquisitions from Cilandro SA (see Note 5) in the second quarter of 2023, which includes financial license in aggregate amount of $268,000.
The Company does not amortize its intangible assets with indefinite useful lives, rather such assets are tested for impairment are tested for impairment annually, or more frequently if events or changes in circumstances indicate the asset may be impaired in accordance with ASC 350 Intangibles-Goodwill and Other. In testing for impairment, the Company has the option to first perform a qualitative assessment to determine whether it is more likely than not that an impairment exists. If it is determined that it is not more likely than not that an impairment exists, a quantitative impairment test is not necessary. If the Company concludes otherwise, it is required to perform a quantitative impairment test. To the extent an impairment loss is recognized, the loss establishes the new cost basis of the asset. Subsequent reversal of impairment losses is not permitted.
Long-lived Assets
Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the book value of the asset may not be recoverable. The Company periodically evaluates whether events and circumstances have occurred that indicate possible impairment. When impairment indicators exist, the Company estimates the future undiscounted net cash flows of the related asset or asset group over the remaining life of the asset in measuring whether the long-lived asset should be written down to fair value. Measurement of the amount of impairment would be based on generally accepted valuation methodologies, as deemed appropriate. If the carrying amount is greater than the undiscounted cash flows, the carrying amount of the asset is reduced to the asset’s fair value. An impairment loss is recognized immediately as an operating expense in the condensed consolidated statements of operations. Reversal of previously recorded impairment losses are prohibited.
Software Development Costs
The costs incurred for the development of computer software to be sold, leased, or otherwise marketed are capitalized in accordance with ASC 985-20, Costs of Software to be Sold, Leased or Marketed, when technological feasibility has been established. Technological feasibility generally occurs when all planning, design, coding, and testing activities are completed that are necessary to establish that the product can be produced to meet its design specifications, including functions, features, and technical performance requirements. The establishment of technological feasibility is an ongoing assessment of judgment by management with respect to certain external factors, including, but not limited to, anticipated future revenues, estimated economic life, and changes in technology. Capitalized software includes direct and contracted labor and related expenses for software development for new products and enhancements to existing products and acquired software.
The Company does not amortize its software development costs with indefinite useful lives, rather such assets are subject to an ongoing assessment of recoverability based on anticipated future revenues and changes in software technologies at each balance sheet date. In the event of impairment, unamortized capitalized software costs are compared to the net realizable value of the related product and the carrying value of the related assets are written down to the net realizable value to the extent the unamortized capitalized costs exceed such value. The net realizable value is the estimated future gross revenues from the related product reduced by the estimated future costs of completing and disposing of such product, including the costs of providing related maintenance and customer support.
11
ARAX HOLDINGS CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 2024 AND 2023
(unaudited)
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Related Party Transactions
Parties are considered to be related to the Company if the parties that, 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 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. The Company discloses all related party transactions. All transactions shall be recorded at fair value of the goods or services exchanged. Property purchased from a related party is recorded at the cost to the related party and any payment to or on behalf of the related party in excess of the cost is reflected as a distribution to the related party.
The Company considers all officers, directors, senior management personnel, and senior level consultants to be related parties to the Company.
Income Taxes
We utilize ASC 740 “Income Taxes” which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred income taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts at each year-end based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income.
The Company recognizes the impact of a tax position in the financial statements only if that position is more likely than not to be sustained upon examination by taxing authorities, based on the technical merits of the position. Our practice is to recognize interest and/or penalties, if any, related to income tax matters in income tax expense.
Stock-Based Compensation
We account for our stock-based compensation under ASC 718 “Compensation - Stock Compensation” using the fair value-based method. Under this method, compensation cost is measured at the grant date based on the value of the award and is recognized over the shorter of the service period or the vesting period of the stock-based compensation. This guidance establishes standards for the accounting for transactions in which an entity exchanges it equity instruments for goods or services. It also addresses transactions in which an entity incurs liabilities in exchange for goods or services that are based on the fair value of the entity’s equity instruments or that may be settled by the issuance of those equity instruments.
12
ARAX HOLDINGS CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 2024 AND 2023
(unaudited)
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Derivative Liabilities
The Company assessed the classification of its derivative financial instruments as of October 31, 2023, which consist of convertible instruments and rights to shares of the Company’s common stock and determined that such derivatives meet the criteria for liability classification under ASC 815.
ASC 815 generally provides three criteria that, if met, require companies to bifurcate conversion options from their host instruments and account for them as free-standing derivative financial instruments. These three criteria include circumstances in which (a) the economic characteristics and risks of the embedded derivative instrument are not clearly and closely related to the economic characteristics and risks of the host contract, (b) the hybrid instrument that embodies both the embedded derivative instrument and the host contract is not re-measured at fair value under otherwise applicable generally accepted accounting principles with changes in fair value reported in earnings as they occur and (c) a separate instrument with the same terms as the embedded derivative instrument would be considered a derivative instrument subject to the requirements of ASC 815. ASC 815 also provides an exception to this rule when the host instrument is deemed to be conventional, as described. There was no derivative liability as of April 30, 2024 and October 31, 2023.
Convertible Instruments
The Company evaluates and accounts for conversion options embedded in its convertible instruments in accordance with various accounting standards.
ASC 480 “Distinguishing Liabilities From Equity” provides that instruments convertible predominantly at a fixed rate resulting in a fixed monetary amount due upon conversion with a variable quantity of shares (“stock settled debt”) be recorded as a liability at the fixed monetary amount.
ASC 815 “Derivatives and Hedging” generally provides three criteria that, if met, require companies to bifurcate conversion options from their host instruments and account for them as free standing derivative financial instruments. These three criteria include circumstances in which (a) the economic characteristics and risks of the embedded derivative instrument are not clearly and closely related to the economic characteristics and risks of the host contract, (b) the hybrid instrument that embodies both the embedded derivative instrument and the host contract is not re-measured at fair value under otherwise applicable generally accepted accounting principles with changes in fair value reported in earnings as they occur, and (c) a separate instrument with the same terms as the embedded derivative instrument would be considered a derivative instrument. Professional standards also provide an exception to this rule when the host instrument is deemed to be conventional as defined under professional standards as “The Meaning of Conventional Convertible Debt Instrument.”
ASC 815-40 provides that generally if an event is not within the entity’s control and could require net cash settlement, then the contract shall be classified as an asset or a liability.
13
ARAX HOLDINGS CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 2024 AND 2023
(unaudited)
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The Company follows ASC 260 “Earnings Per Share” for calculating the basic and diluted earnings (or loss) per share. Basic earnings (or loss) per share are computed by dividing earnings (or loss) available to common shareholders by the weighted-average number of common shares outstanding. Diluted earnings (or loss) per share is computed similar to basic loss per share except that the denominator is increased to include the number of additional shares of common stock that would have been outstanding if the potential shares of common stock had been issued and if the additional shares were dilutive. Common stock equivalents are excluded from the diluted earnings (or loss) per share computation if their effect is anti-dilutive. Common stock equivalents in amounts of and were excluded from the computation of diluted earnings per share for the six months ended April 30, 2024, and 2023, respectively, because their effects would have been anti-dilutive.
| April 30, 2024 |
April 30, 2023 | |||||||
| Convertible notes | ||||||||
| Convertible preferred stock | ||||||||
| Total | ||||||||
Business Segments
The Company uses the “management approach” to identify its reportable segments. The management approach designates the internal organization used by management for making operating decisions and assessing performance as the basis for identifying the Company’s reportable segments. Using the management approach, the Company determined that it has one operating segment.
14
ARAX HOLDINGS CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 2024 AND 2023
(unaudited)
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Recently Issued Accounting Pronouncements
In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses: Measurement of Credit Losses on Financial Instruments. The guidance in Accounting Standards Update (“ASU”) 2016-13 replaces the incurred loss impairment methodology under current GAAP. The new impairment model requires immediate recognition of estimated credit losses expected to occur for most financial assets and certain other instruments. It will apply to trade receivables, loans, and held-to-maturity debt securities. Entities will be required to estimate lifetime expected credit losses. This may result in earlier recognition of credit losses. In November 2019 the FASB issued ASU No. 2019-10, which delays this standard’s effective date for SEC smaller reporting companies to the fiscal years beginning on or after December 15, 2022. The Company determined that this update did not have a material impact on the financial statements upon adoption on November 1, 2023.
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. Entities will be required to disclose additional information in specified categories in the reconciliation of the effective tax rate to the statutory rate for federal, state, and foreign income taxes. The standard also requires greater detail about individual reconciling items in the rate reconciliation to the extent the impact of those items exceeds a specified threshold and eliminates certain existing disclosures. In addition to new disclosures associated with the rate reconciliation, the standard requires information pertaining to taxes paid (net of refunds received) to be disaggregated for federal, state, and foreign taxes and further disaggregated for specific jurisdictions to the extent the related amounts exceed a quantitative threshold. The standard will be effective for annual periods in fiscal years beginning after December 15, 2024, and for interim periods for fiscal years beginning after December 15, 2025 with early adoption permitted. The Company is continuing to assess the potential impacts of the standard, and it does not expect this pronouncement to have a material effect on its financial statements, other than the required changes to the income tax disclosures
NOTE 2 – GOING CONCERN
These unaudited condensed consolidated
financial statements have been prepared on a going concern basis which contemplates the realization of assets and the settlement
of liabilities and commitments in the normal course of business. The Company’s management has evaluated whether there is
substantial doubt about the Company’s ability to continue as a going concern and has determined that substantial doubt existed
as of the date of the end of the period covered by this report. This determination was based on the following factors: (i) the
Company used cash of approximately $
Management’s plans to continue as a going concern include raising additional capital through sales of equity securities and borrowing. However, management cannot provide any assurances that the Company will be successful in accomplishing any of its plans. If the Company is not able to obtain the necessary additional financing on a timely basis, the Company will be required to delay, reduce the scope of, or eliminate one or more of the Company’s research and development activities or commercialization efforts or perhaps even cease the operation of its business. These factors raise substantial doubt about the Company’s ability to continue as a going concern for one year from the date the financials were issued.
15
ARAX HOLDINGS CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 2024 AND 2023
(unaudited)
NOTE 3 – RESTATEMENT OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS
Subsequent to the Company’s filing of its Annual Report on Form 10-K for the fiscal year ended October 31, 2023 and its Quarterly Report on Form 10-Q for the three and six months ended April 30, 2023, with the Securities and Exchange Commission on June 20, 2023, the Company performed an evaluation of its accounting policies in relation to the fair value of its common stock. Management determined that the Original Forms 10-K and 10-Q do not give effect to certain expenses identified. Accordingly, the Company restates its consolidated financial statements in this Form 10-Q as outlined further below. Upon review of the Company’s previously filed Forms 10-K and 10-Q, the following errors were discovered and recorded:
| 1. | The amended change in par value per share was adjusted from $0.001 to $0.0001 in December 22, 2022. |
| 2. | Reclassified ‘Common stock to be issued’ to an individual equity line item within the Balance Sheet |
| 3. | Reclassified $100,000 of consulting and development services expense to ‘Due to related party’ |
| 4. | Reclassified $437,373 of long-term investments to intangible assets, net and other assets |
| 5. | Reclassified $100,000 of other current liabilities to accounts payable |
| 6. | Included additional expense already maintained in the Companies system within general and administrative expenses |
| 7. | Reclassified stock-based compensation expense to an individual line within the operating expenses |
| 8. | Updated the initial recognition and subsequent adjustments of the derivative liability to ‘Adjustments to reconcile net loss to net cash used in operating activities’ within the condensed consolidated statement of cash flows |
| 9. | Classified the issuance of common stock issued upon purchase of intangible assets appropriately as a non-cash investing activity |
| 10. | Classified the $1.5 million in proceeds from notes payables as the sole financing activity in the six months ended April 30, 2023. |
16
ARAX HOLDINGS CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 2024 AND 2023
(unaudited)
NOTE 3 – RESTATEMENT OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS (CONTINUED)
The following table sets forth the effects of the adjustments on affected items within the Company’s previously reported condensed balance sheet as of October 31, 2023:
| October 31, 2023 |
Adjustments | October 31, 2023 |
||||||||||||
| (As Filed) | (As Restated) | |||||||||||||
| ASSETS: | ||||||||||||||
| Current Assets: | ||||||||||||||
| Cash | $ | $ | $ | |||||||||||
| Accounts Receivable | ||||||||||||||
| Total current assets | ||||||||||||||
| Property, plant and equipment, net | ||||||||||||||
| Software development | ||||||||||||||
| Long-term investments | ( |
) | 4 | |||||||||||
| Intangible assets, net | 4 | |||||||||||||
| Other assets | 4 | |||||||||||||
| TOTAL ASSETS | $ | $ | $ | |||||||||||
| LIABILITIES AND STOCKHOLDERS’ DEFICIT | ||||||||||||||
| Current Liabilities: | ||||||||||||||
| Accounts payable | $ | $ | 5 | $ | ||||||||||
| Accrued expenses | ||||||||||||||
| Due to related party | 3 | |||||||||||||
| Derivative liabilities | ||||||||||||||
| Other current liabilities | ( |
) | 5 | |||||||||||
| Notes payable | ||||||||||||||
| Total current liabilities | ||||||||||||||
| TOTAL LIABILITIES | ||||||||||||||
| STOCKHOLDERS’ DEFICIT: | ||||||||||||||
| Preferred Stock Series A, par value $0.001, 10,000,000 shares authorized, 10,000,000 and 10,000,000 shares issued and outstanding as of April 30, 2024 and October 31, 2023, respectively | ||||||||||||||
| Common stock, par value $0.001, 950,000,000 shares authorized, 127,753,215 and 126,160,534 issued and outstanding as of April 30, 2024 and October 31, 2023 | ( |
) | 1 | |||||||||||
| Common stock to be issued | 2 | |||||||||||||
| Additional paid-in-capital | 1,2 | |||||||||||||
| Accumulated deficit | ( |
) | ( |
) | 3,6 | ( |
) | |||||||
| TOTAL STOCKHOLDERS DEFICIT | ( |
) | ||||||||||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT | $ | $ | $ | |||||||||||
17
ARAX HOLDINGS CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 2024 AND 2023
(unaudited)
NOTE 3 – RESTATEMENT OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS (CONTINUED)
The following table sets forth the effects of the adjustments on affected items within the Company’s previously reported condensed consolidated statement of operations for the three and six months ended April 30, 2023:
| For the Three Months Ended | For the Six Months Ended | |||||||||||||||||||||||||
| April 30, 2023 |
Adjustments | April 30, 2023 |
April 30, 2023 |
Adjustments | April 30, 2023 |
|||||||||||||||||||||
| (As Filed) | (As Restated) | (As Filed) | (As Restated) | |||||||||||||||||||||||
| Revenues | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||
| Cost of sales | ||||||||||||||||||||||||||
| Gross profit (loss) | ||||||||||||||||||||||||||
| Operating expenses: | ||||||||||||||||||||||||||
| General and administrative expenses | ( |
) | 4,5 | ( |
) | 6,7 | ||||||||||||||||||||
| Stock based compensation | 5 | 7 | ||||||||||||||||||||||||
| Total operating expenses | ||||||||||||||||||||||||||
| Loss from operations | ( |
) | ( |
) | ( |
) | ( |
) | ( |
) | ( |
) | ||||||||||||||
| Other income (expense): | ||||||||||||||||||||||||||
| Interest Expense | ( |
) | ( |
) | ( |
) | ( |
) | ||||||||||||||||||
| Other income (expense) | ( |
) | ( |
) | ||||||||||||||||||||||
| Total other income (expense) | ( |
) | ( |
) | ( |
) | ( |
) | ||||||||||||||||||
| Net loss before taxes | ( |
) | ( |
) | ( |
) | ( |
) | ( |
) | ( |
) | ||||||||||||||
| Income tax provision (benefit) | ||||||||||||||||||||||||||
| Net loss | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||||||
| Net loss per share, basic and diluted | $ | ( |
) | $ | $ | ( |
) | $ | ( |
) | $ | $ | ( |
) | ||||||||||||
| Weighted average shares outstanding, basic and diluted | ||||||||||||||||||||||||||
18
ARAX HOLDINGS CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 2024 AND 2023
(unaudited)
NOTE 3 – RESTATEMENT OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS (CONTINUED)
The following table sets forth the effects of the adjustments on affected items within the Company’s previously reported consolidated statements of cash flows for the six months ended April 30, 2023:
| For
the six months ended April 30, 2023 |
Adjustments | For
the six months ended April 30, 2023 |
|||||||||||
| (As Filed) | (As Restated) | ||||||||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | |||||||||||||
| Net loss | $ | ( |
) | ( |
) | $ | ( |
) | |||||
| Adjustments to reconcile net loss to net cash used in operating activities: | |||||||||||||
| Equity based compensation expense - stock | 8 | ||||||||||||
| Loss on change in fair value of derivative liability | ( |
) | 8 | ( |
) | ||||||||
| Amortization of debt discount related to derivatives | 8 | ||||||||||||
| Changes in operating assets and liabilities | |||||||||||||
| Decrease (Increase) in accounts receivable | ( |
) | ( |
) | |||||||||
| Increase (Decrease) in accounts payable and accrued liabilities | ( |
) | 3,5 | ||||||||||
| Increase (Decrease) in derivative liabilities | ( |
) | 7 | ||||||||||
| Change in derivative interest | ( |
) | 8 | ||||||||||
| Net cash used in operating activities | $ | ( |
) | $ | ( |
) | |||||||
| CASH FLOWS FROM INVESTING ACTIVITIES | |||||||||||||
| Long term investments | ( |
) | 9 | ||||||||||
| Net cash used in investing activities | $ | ( |
) | $ | |||||||||
| CASH FLOWS FROM FINANCING ACTIVITIES | |||||||||||||
| Proceeds from notes payable | 10 | ||||||||||||
| Additional paid-in capital | ( |
) | 10 | ||||||||||
| Net cash provided by financing activities | $ | ( |
) | $ | |||||||||
| Net decrease in cash and cash equivalents | ( |
) | |||||||||||
| Cash and cash equivalents, beginning of the year | ( |
) | |||||||||||
| Cash and cash equivalents, end of the year | $ | ( |
) | $ | |||||||||
| Supplemental disclosures for cash flow information: | |||||||||||||
| Cash paid during the year for interest | $ | $ | |||||||||||
| Supplemental disclosure of noncash financing activities: | |||||||||||||
| Conversion of convertible notes payable to shareholders’ equity | $ | $ | |||||||||||
| Issuance of common stock issued upon purchase of intangible assets | $ | $ | |||||||||||
19
ARAX HOLDINGS CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 2024 AND 2023
(unaudited)
NOTE 4 - REVENUES
Revenues
For the three months ended April 30, 2024,
Arax Holdings Corp. reported revenue of $
| ● | Service Offerings: Include software subscriptions that require secure access, enabling user interactions via blockchain networks |
| ● | Use Cases: The Company develops tailored solutions, known as Use Cases, which can incorporate both physical inventory and software components. These are customized for each client |
| ● | Cost Sharing: In some instances, the Company co-invests in the initial setup infrastructure costs with government or enterprise partners |
| ● | Revenue Model: Primarily, revenue is derived from subscription fees and transaction fees associated with blockchain interactions, rather than from the initial infrastructure investments. |
Disaggregation of Revenue
The following tables provide a disaggregation of revenue by major product line and timing of revenue recognition for the periods presented:
| For the three months ended | For the six months ended | |||||||||||||||
| Product Line | April 30, 2024 | April 30, 2023 | April 30, 2024 | April 30, 2023 | ||||||||||||
| BaaP Software Modules | $ | $ | $ | $ | ||||||||||||
| Consulting and Integration Services | ||||||||||||||||
| Subscription Services | ||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
NOTE 5 – ASSETS ACQUSITION
Core Business Holdings Acquisition
In December 2022, Arax Holdings Corp. completed
the acquisition of Core Business Holdings for a total consideration of $
The intellectual properties, valued at
$
This transaction was between related parties and, as required by ASC 850, all relevant details of the transaction have been fully disclosed. The acquisition was conducted at fair value, which coincides with the direct costs associated with the development of the acquired software IP. Such transactions were scrutinized to ensure they reflect terms that are consistent with market practices and did not result from motivations that would detract from the interests of the shareholders
Impairment Review and Measurement: Consistent with IAS 36 on Impairment of Assets, and in compliance with GAAP accounting standards on impairment of assets, ARAX Holdings Corp. conducts periodic reviews of asset values to ensure they are not recorded at more than their recoverable amount. Consistent with these principles, an impairment loss was recognized for the recently acquired assets from the related party transaction involving Core Business Holdings.
The impairment was necessitated by the
related party nature of the transaction, which requires a cautious approach to valuation until a formal, independent valuation
is available. As of the reporting date, the impairment recognized amounted to $
The recoverable amount of the assets was determined based on the higher of the fair value less costs of disposal or the value in use at the time of impairment testing. This approach ensures that the assets are measured fairly and conservatively, reflecting their current economic worth to the company.
ARAX Holdings Corp. asserts that these financial statements accurately reflect the comprehensive details of the acquisition and subsequent impairment. This disclosure is intended to provide stakeholders with clear and reliable information regarding the financial implications and the nature of the transaction, maintaining transparency and adherence to regulatory requirements.
This format adheres to SEC and GAAP guidelines, ensuring that all necessary details concerning the impairment and the related party transaction are comprehensively and transparently reported.
20
ARAX HOLDINGS CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 2024 AND 2023
(unaudited)
NOTE 5 – ASSETS ACQUSITION (CONTINUED)
Cilandro SA Acquisition
On May 3, 2023, the Company acquired
| Consideration | ||||
| Issuance of common stock | $ | |||
| Issuance of convertible note | ||||
| Liability assumed | ||||
| Total consideration | $ | |||
| Asset Acquired | ||||
| Financial license | $ |
NOTE 6 - CAPITALIZED SOFTWARE DEVELOPMENT COSTS
Software
development costs capitalized as of April 30, 2024 and October 31, 2023, were $
In accordance with the Generally Accepted Accounting Principles (GAAP), ARAX Holdings Corp. has adopted a systematic and rational methodology for the capitalization of certain software development costs, as outlined in the GAAP guidelines under Paragraph 985-20-25-2(a). This process involves three essential criteria related to detailed program design that must be met before the commencement of capitalization. The acquisition of Core Business Holdings (CBH) came after CBH had completed the Program Design, Research & Development, Product Design, and Testing phases for four pivotal software platforms. Illustrated from Industry Standards and reputable development repository for storage of code and activities, the dates of completion of the software platforms were:
● Core Token and Smart Contract Platform: 06/06/2021
● Ping Exchange: 01/22/2021
● Wall Money: 03/13/2021
● Core Pay: 05/14/2019
The valuation of this acquisition was primarily based on the actual expenditures incurred during these phases, bringing these software platforms to a stage where they were feasible and ready for production. Subsequent to this acquisition, these software platforms were used in Arax’s Blockchain as a Platform (BaaP) production to the point of being ready for consumer release.
According to Paragraph 985-20-25-2, CBH had to perform minimum activities as evidence that technological feasibility had been established:
Meeting the 4 criteria for establishing technological feasibility the designs had to be completed to have the platform operative to complete initial customer testing which was conducted immediately after deployments.
21
ARAX HOLDINGS CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 2024 AND 2023
(unaudited)
The completion of User Specifications and Requirements was part of the criteria needed to satisfy the software’s feasibility point prior to acquisition.
22
ARAX HOLDINGS CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 2024 AND 2023
(unaudited)
NOTE 6 - CAPITALIZED SOFTWARE DEVELOPMENT COSTS (CONTINUED)
ASC 985-20 focuses on the accounting for external-use software, emphasizing that all software development costs incurred before establishing the technological feasibility of the software product should be expensed. Once technological feasibility is established, without any remaining ‘high-risk’ development issues, development costs incurred thereafter (production costs) are to be capitalized to the extent they are recoverable by the software product’s net realizable value until the product is ready for general release. This directive applies not only to the development of new software products but also to enhancements of existing software products, where a ‘product enhancement’ refers to an improvement that significantly enhances the software product’s marketability or extends its useful life.
NOTE 7 – INTANGIBLE ASSETS
As of April 30, 2024 and October 31, 2023,
respectively, the Company had $
NOTE 8 - DEBT
On April 5, 2024, the Company entered into
a convertible promissory note agreement with a lender for $
On April 22, 2024, the April 5th
noteholder exercised the conversion option for the full balance of the note.
On April 11, 2024,
On April 22, 2024, both April 11th
noteholders exercised the conversion option for the full balance of the notes.
23
ARAX HOLDINGS CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 2024 AND 2023
(unaudited)
NOTE 9 – EQUITY
Preferred Stock
The Company has authorized shares of $ par value, preferred stock. As of April 30, 2024 and October 31, 2023 there were shares of preferred stock issued and outstanding.
On March 31, 2021, the Company issued
shares of Series A Preferred Stock with a par value of $. The Series A shares are convertible into common stock on a
Common Stock
The Company has authorized shares of $ par value, common stock. As of April 30, 2024 and October 31, 2023 there were and shares of common stock issued and outstanding.
2024 Activity
Issuance of common stock in exchange for services performed
During the six months ended April 30, 2024
the Company issued shares of common stock to a consultant for a total of $
Reduction of common stock to be issued in connection with acquisition
During the six months ended April 30, 2024 the Company issued shares of common stock to three individuals in connection with the acquisition of Core Business Holdings.
Issuance of common stock in connection with debt
During the six months ended April 30, 2024
the Company issued shares of common stock to three noteholders who elected to convert $
2023 Activity
Issuance of common stock in connection with acquisition
During the six months ended April 30, 2023
the Company issued shares of common stock valued at $
During the six months ended April 30, 2023
the Company issued shares of common stock in connection with the conversion of $
Issuance of common stock upon conversion of convertible promissory notes
During the six months ended April 30, 2023
the Company issued
24
ARAX HOLDINGS CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 2024 AND 2023
(unaudited)
NOTE 9 – EQUITY (CONTINUED)
Issuance of common stock in exchange for services performed
During the six months ended April 30, 2023
the Company issued shares of common stock to a consultant for a total of $
NOTE 10 – COMMITMENTS AND CONTINGENCIES
In the ordinary course of business, the Company enters into
various agreements containing standard indemnification provisions. The Company’s indemnification obligations under such provisions
are typically in effect from the date of execution of the applicable agreement through the end of the applicable statute of limitations.
The aggregate maximum potential future liability of the Company under such indemnification provisions is uncertain. As of April
30, 2024 and October 31, 2023,
NOTE 11 – ADVANCES FROM RELATED PARTY
An entity controlled by the Company’s Chairman has advanced an aggregate of $57,756 to the Company as of April 30, 2024 and October 31, 2023. These funds were used to pay corporate expenses of the Company, and the payments were made directly to the vendors by this entity.
25
ARAX HOLDINGS CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 2024 AND 2023
(unaudited)
NOTE 11 – ADVANCES FROM RELATED PARTY (CONTINUED)
In determining the transaction price allocated to performance obligations, the Company considers the terms of the contracts and its customary business practices. Significant judgment is required in determining whether performance obligations are satisfied over time or at a point in time, and the measurement of progress toward complete satisfaction of performance obligations.
NOTE 12 – SUBSEQUENT EVENTS
In accordance with FASB ASC 855-10, Subsequent Events, the Company has analysed its operations subsequent to April 30, 2024, to the date these financial statements were issued.
In May of 2024, the Company issued $
In
June of 2024, the Company issued
26
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Overview
Arax Holdings Corp. (the “Company”, “we”, “our” or “us”) was incorporated under the laws of the State of Nevada on February 23, 2012. Our financial statements accompanying this Report have been prepared assuming that we will continue as a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. We have a minimal operating history and minimal revenues or earnings from operations.
Plan of Operation
The Company has operations from a continuing business providing software and logistics services to a company in South Africa. The Company intends to develop this relationship while expanding in other areas of the world. The Company has acquired financial licenses in Switzerland under the entity Cilandro and is currently working to provide Central Business Digital Currencies for various entities worldwide. The Company will continue to develop software solutions that work exclusively on the Core Blockchain to maximize its potential for revenue generation in this new technology released in May of 2022. The Company has entered into consulting and design agreements from continuing business and is in the process of evaluating additional acquisitions of software technologies.
Management intends to explore and identify business opportunities within the U.S., including a potential acquisition of an operating entity through a reverse merger, asset purchase or similar transaction. Our Chief Executive Officer has experience in business consulting, although no assurances can be given that he can identify and implement a viable business strategy or that any such strategy will result in profits. Our ability to effectively identify, develop and implement a viable plan for our business may be hindered by risks and uncertainties which are beyond our control, including without limitation, the continued negative effects of the coronavirus pandemic on the U.S. and global economies.
Given our limited capital resources, we may consider a business combination with an entity that has recently commenced operations, is a developing company or is otherwise in need of additional funds for the development of new products or services or expansion into new markets, or is an established business experiencing financial or operating difficulties and requires additional capital. Alternatively, a business combination may involve the acquisition of, or merger with, an entity that desires access to the U.S. capital markets.
As of the date of this Report, our management has continued to complete the acquisition of certain technologies and software businesses including the Core Business Holdings Group and Cilandro. These businesses, technology, and any other target business that are selected may be financially unstable or in the early stages of development. In such an event, we expect to be subject to numerous risks inherent in the business and operations of a financially unstable or early-stage entity. In addition, we may effect a business combination with an entity in an industry characterized by a high level of risk or in which our management has limited experience, and, although our management will endeavour to evaluate the risks inherent in a particular target business, there can be no assurance that we will properly ascertain or assess all significant risks.
Our management anticipates that we will likely only be able to effect one business combination due to our limited capital. This lack of diversification will likely pose a substantial risk in investing in the Company for the indefinite future because it will not permit us to offset potential losses from one venture or operating territory against gains from another. The risks we face will likely be heightened to the extent we acquire a business operating in a single industry or geographical region.
We anticipate that the selection of a business combination will be a complex and risk-prone process. Because of general economic conditions, including unfavorable conditions caused by the coronavirus pandemic, rapid technological advances being made in some industries and shortages of available capital, management believes that there are a number of firms seeking business opportunities at this time at discounted rates with which we will compete. We expect that any potentially available business combinations may appear in a variety of different industries or regions and at various stages of development, all of which will likely render the task of comparative investigation and analysis of such business opportunities extremely difficult and complicated. Once we have developed and begun to implement our business plan, management intends to fund our working capital requirements through a combination of our existing funds and future issuances of debt or equity securities. Our working capital requirements are expected to increase in line with the implementation of a business plan and commencement of operations.
27
We anticipate that we will incur operating losses in the next 12 months, principally costs related to our being obligated to file reports with the SEC. Our prospects must be considered in light of the risks, expenses, and difficulties frequently encountered by companies in their early stage of development. Such risks for us include but are not limited to, an evolving and unpredictable business model, recognition of revenue sources, and the management of growth. To address these risks, we must, among other things, develop, implement, and successfully execute our business and marketing strategy, respond to competitive developments, and attract, retain, and motivate qualified personnel. There can be no assurance that we will be successful in addressing such risks, and the failure to do so could have a material adverse effect on our business prospects, financial condition, and results of operations.
Limited Operating History; Need for Additional Capital
We cannot guarantee we will be successful in our business operations. We have not generated any revenue since inception. Our business is subject to risks inherent in the establishment of a new business enterprise, including limited capital resources.
If we are unable to meet our needs for cash from either our operations or possible alternative sources, then we may be unable to develop our operations.
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 our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources that is material to investors.
Going Concern
Our April 30, 2024, financial statements indicate that our capital resources as of the report date were not sufficient to sustain operations or complete our planned activities for the upcoming year. This assessment is made in accordance with the going concern disclosure requirements set forth by Generally Accepted Accounting Principles (GAAP) and Accounting Standards Codification (ASC) rules.
Critical Accounting Principles
The preparation of financial statements in accordance with US GAAP requires the Company’s 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 financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results can, and in many cases will, differ from those estimates. We have not identified any critical accounting policies.
Result of Operations
Three Months Ended April 30, 2024 Compared to the Three Months Ended April 30, 2023
Revenue
We had $301,750 and $226,886 in revenue during the three months ending April 30, 2024 and April 30, 2023 respectively. The increase of $74,864 or 33% resulted primarily from increases in our BaaP Software Modules, Consulting and Integration Services, and Subscription Services of $38,425, $15,000, and $21,439, respectively.
28
Operating Expenses
Our general and administrative expenses consist of professional fees and other costs incurred in connection with maintaining the Company’s filings with the Securities and Exchange Commission and the payment of vendors associated with the issuance and trading of the Company’s securities, such as transfer agent fees.
We had total operating expenses of $88 thousand for the three-month period ended April 30, 2024, compared to $2.7 million for the corresponding three-month period in 2023, a decrease of $2.6 million or 97%. This decrease was due to decreases in general and administrative and stock compensation expenses of $0.7 million and $1.9 million, respectively.
Other Income (Expense)
Other income (expense) for the three-month period ended April 30, 2024, was expense of $887 compared to income of $684 thousand in the corresponding 2023 period.
Net Loss
For the three-months ended April 30, 2024, we had a net income from continuing operations of $213 thousand compared to a net loss of $1.8 million during the corresponding three-month period in 2023.
Six Months Ended April 30, 2024 Compared to the Six Months Ended April 30, 2023
Revenue
We had $528,636 and $453,772 in revenue during the six months ending April 30, 2024 and April 30, 2023 respectively. The increase of $74,864 or 16% resulted primarily from a increases in our BaaP Software Modules, Consulting and Integration Services, and Subscription Services of $58,320, $10,000, and $6,544, respectively.
Operating Expenses
Our general and administrative expenses consist of professional fees and other costs incurred in connection with maintaining the Company’s filings with the Securities and Exchange Commission and the payment of vendors associated with the issuance and trading of the Company’s securities, such as transfer agent fees.
We had total operating expenses of $1.0 million for the six-month period ended April 30, 2024, compared to $3.0 million for the corresponding six-month period in 2023, a decrease of $2.0 million or 66%. This decrease was due to decreases in general and administrative of $0.7 million and stock-based compensation expense of $1.2 million, respectively.
Other Income (Expense)
Other income (expense) for the six-month period ended April 30, 2024, was expense of $887 compared to expense of $364 thousand in the corresponding 2023 period.
Net Loss
For the six-months ended April 30, 2024, we had a net income from continuing operations of $473 thousand compared to a net loss of $2.9 million during the corresponding six-month period in 2023.
Liquidity and Capital Resources
For the six months ended April 30, 2024, net cash used in operating activities was $183 thousand, compared to net cash used in operating activities of $1.0 million for the corresponding six-month period in 2023. For the six months ended April 30, 2024, net loss was $473 thousand. Net loss includes non-cash items of depreciation and amortization expense of $302, equity-based compensation expense of $722 thousand, and changes in operating assets and liabilities of $433 thousand.
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For the six months ended April 30, 2024, and 2023, net cash used by investing activities was $1,265,120 and $0, respectively. The Company capitalized $1.2 million of software and development costs (see Note 6).
For the six months ended April 30, 2024 and 2023, net cash provided by financing activities was $95 thousand and $1.5 million, respectively. The Company received $95,000 from the issuance of notes payable in 2024 and $1,539,000 from the issuance of notes payable in 2023.
Based on our current operations, we do not have sufficient working capital to fund our operations over the next 12 months. Because of the uncertainties, we cannot be certain as to how much capital we need to raise or the type of securities we will be required to issue. In connection with any acquisition, or reverse merger, we may be required to issue a controlling block of our securities to the target’s shareholders which will be very dilutive.
Additional issuances of equity or 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 take advantage of prospective new business endeavors or opportunities, which could significantly and materially restrict our business operations.
We currently are dependent on the issuance of convertible debt financing and an entity controlled by the Company’s Chairman for funds used to pay corporate expenses of the Company, and the payments made by the controlling entity were made directly to the vendors by this entity.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Market risk is the sensitivity of income or loss to changes in interest rates, foreign exchanges, commodity prices, equity prices, and other market-driven rates or prices. We are not presently engaged in any substantive commercial business. Accordingly, the risks associated with foreign exchange rates, commodity prices, and equity prices are not significant. Our debt obligations contain interest rates that are fixed, and we do not enter into derivatives or other financial instruments for trading or speculative purposes.
Item 4. Controls and Procedures
(a) Disclosure Controls and Procedures
As of April 30, 2024 being the end of the period covered by this Report, we carried out an evaluation required by Rule 13a-15 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, of the effectiveness of the design and operation of the Company’s “disclosure controls and procedures” and “internal control over financial reporting” as of the end of the period covered by this Quarterly Report.
We maintain disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act that are designed to ensure that information required to be disclosed in our reports filed or submitted to the SEC under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by the SEC’s rules and forms, and that information is accumulated and communicated to management, including the principal executive and financial officer as appropriate, to allow timely decisions regarding required disclosures. Our principal executive officer and principal financial officer evaluated the effectiveness of disclosure controls and procedures as of the end of the period covered by this quarterly report (the “Evaluation Date”), pursuant to Rule 13a- 15(b) under the Exchange Act. Based on that evaluation, our principal executive officer and principal financial officer concluded that, as of the Evaluation Date, our disclosure controls and procedures were not effective to ensure that information required to be disclosed in our reports 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 management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure, due to material weaknesses in our control environment and financial reporting process.
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Our management, including our principal executive officer and principal financial officer, does not expect that our Disclosure Controls and internal controls will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management or board override of the control.
The design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate.
Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.
(b) Management’s Quarterly Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). In evaluating the effectiveness of our internal control over financial reporting, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework (2013). Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that (a) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (b) provide reasonable assurance that transactions are recorded as necessary to permit the preparation of financial statements in accordance with generally accepted accounting principles and that receipts and expenditures of the Company are being made only in accordance with authorizations of the our management and directors; and (c) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.
Based on our evaluation under the framework described above, as of April 30, 2024, our management concluded that we had “material weaknesses” (as such term is defined below) in our control environment and financial reporting process consisting of the following as of the Evaluation Date:
1) The Company does not have sufficient segregation of duties within accounting functions due to its limited staff and limited resources;
2) The Company does not have an independent board of directors or an audit committee;
3) The Company does not have written documentation of our internal control policies and procedures; and
4) All of the Company’s financial reporting is conducted by a financial consultant.
A “material weakness” is defined under SEC rules as a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of a company’s annual or interim financial statements will not be prevented or detected on a timely basis by the company’s internal controls.
We plan to rectify these weaknesses by implementing an independent board of directors, establishing written policies and procedures for our internal control of financial reporting, and hiring additional accounting personnel at such time as we complete a reverse merger or similar business acquisition.
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(c) Change in Internal Control over Financial Reporting
There were no significant changes to our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during our second fiscal quarter that could materially affect, or are reasonably likely to materially affect, our internal control over financial reporting.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Change in Par Value of Common Stock
On December 20, 2022, the Board of Directors of the Company approved an amendment to the Company’s Certificate of Incorporation to decrease the par value of the Company’s common stock from $0.001 per share to $0.0001 per share. This change was effectuated on March 13, 2023 and applies to all issued and outstanding shares of the Company’s common stock.
The primary purpose of reducing the par value was to align the Company’s capital structure with its current financial strategy. The reduction in par value does not affect the total number of shares of common stock authorized for issuance, which remains at 128,025,290 shares. Additionally, this change does not alter the rights or preferences of the Company’s common stock.
The following table sets forth the impact of the change in par value on the Company’s common stock as of April 30, 2024:
| As of April 30, 2024 | Before Amendment |
After Amendment | ||||||
| Par Value per Share | $ | 0.001 | $ | 0.0001 | ||||
| Total Shares Issued and Outstanding | 127,753,215 | 127,753,215 | ||||||
| Total Par Value | $ | 127,753 | $ | 12,775 | ||||
This amendment was made to improve the Company’s financial flexibility and reduce administrative burdens associated with higher par value shares. The Company believes this adjustment better positions it for future growth and investment opportunities.
For further details, refer to the section “Notes to Financial Statements” included in this report.
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 1a. Risk Factors
We are a smaller reporting company and are not required to provide the information under this item pursuant to Regulation S-K.
Item 2. Unregistered Sales of Equity Securities And Use Of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not Applicable.
Item 5. Other Information
None.
Item 6. Exhibits
| 31.1 | Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
| 31.2 | Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
| 32.1 | Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
| 32.2 | Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
| 101.INS | XBRL Instance Document |
| 101.SCH | XBRL Taxonomy Extension Schema Document |
| 101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document |
| 101.DEF | XBRL Taxonomy Extension Definition Linkbase Document |
| 101.LAB | XBRL Taxonomy Extension Label Linkbase Document |
| 101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document |
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SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| Arax Holdings Corp | ||
| (Registrant) | ||
| Date: September 11, 2024 | By: | /s/ Michael Loubser |
|
Michael Loubser, Chief Executive Officer (Principal Executive Officer)
| ||
| By: | /s/ Christopher Strachan | |
| Christopher Strachan, Chief Financial Officer (Principal Financial Officer) | ||
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