Attached files

file filename
EX-32.1 - EXHIBIT 32.1 - Arax Holdings Corpex32_1.htm
EX-31.1 - EXHIBIT 31.1 - Arax Holdings Corpex31_1.htm

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-K

(Mark One)
 
☒    ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the fiscal year ended October 31, 2016
 
☐   TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from _______________ to _______________
 
Commission file number. 333-185928


ARAX HOLDING CORP.
(Exact name of registrant as specified in its charter)
 
 
Nevada
 
99-0376721
(State or other jurisdiction of incorporation or
organization)
 
(I.R.S. Employer Identification No.)

2329 N. Career Avenue
Suite 317
Sioux Falls, SD 57107
 (Address of principal executive offices, including zip code)
 
(605) 553 2238
Registrant’s telephone number, including area code

Securities registered under Section 12(b) of the Act:
 
None
 
N/A
Title of each class
 
Name of each exchange on which registered

Securities registered under Section 12(g) of the Act:
 
None
(Title of class)
 
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No 
 
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes x No 
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☐ No ☒*

*The registrant has filed all Exchange Act reports for the preceding 12 months.
 

 
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. Yes ☐ No ☒
 
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☐

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

Large accelerated filer ☐
 
Accelerated filer ☐
Non-accelerated filer ☐ 
 
Smaller reporting company ☒
(Do not check if smaller reporting company)
 
Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes ☒ No ☐
 
As of September 25, 2017, the registrant had 10,335,294 shares of common stock issued and outstanding. The aggregate market value of the common stock held by non-affiliates of the registrant at April 29, 2016 (the last business day of the registrant’s second fiscal quarter) was approximately $817,353. The aggregate market value was computed based upon 2,335,294 shares of common stock at a closing price of $0.35 as reported on the OTC QB Market.
  

 

 
ARAX HOLDINGS CORP.
FORM 10K
OCTOBER 31, 2016
TABLE OF CONTENTS

 
PART 1
 
ITEM 1
3
ITEM 1A
4
ITEM 2
4
ITEM 3
5
ITEM 4
5
 
PART II
 
ITEM  5
5
ITEM  6
6
ITEM  7
6
ITEM 7A
9
ITEM 8
10
ITEM 9
11
ITEM 9A
11
 
PART III
 
ITEM 10
13
ITEM 11
13
ITEM 12
14
ITEM 13
15
ITEM 14
15
PART IV
   
ITEM 15
16
 
2

 
PART I

FORWARD-LOOKING STATEMENTS

This annual report contains forward-looking statements. These statements relate to future events or our future financial performance. These statements often can be identified by the use of terms such as “may,” “will,” “expect,” “believe,” “anticipate,” “estimate,” “approximate” or “continue,” or the negative thereof. We intend that such forward-looking statements be subject to the safe harbors for such statements. We wish to caution readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made. Any forward-looking statements represent management’s best judgment as to what may occur in the future. However, forward-looking statements are subject to risks, uncertainties and important factors beyond our control that could cause actual results and events to differ materially from historical results of operations and events and those presently anticipated or projected. We disclaim any obligation subsequently to revise any forward-looking statements to reflect events or circumstances after the date of such statement or to reflect the occurrence of anticipated or unanticipated events.

Item 1.
Description 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 it was re-evaluating its business plan.

It was further indicated as possible that a new business model could be related to a new business sector other than the food sector, and that any 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. At October 31, 2016, and as of the date of this filing, 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 possibly 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.

The Company was 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 5: Related party transactions. As of March 1, 2017, upon merger with Kasten, Inc., a Nevada corporation (“Kasten”), whereby Kasten was the surviving corporation, the Company was effectively spun out whereby Chief Executive Officer, Steven J. Keough will be the majority shareholder.

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 in 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. As of September 25, 2017, these shares have not been issued by the Company. The Company will issue these shares once it becomes fully reporting.

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.
 
3

 
Effective July 1, 2015, Thru Pharma 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 Thru Pharma has only drawn $75,000. A Commitment Fee of Company stock in the amount of 35,294 shares was authorized for issue to Catalyst as part of the transaction.

On March 1, 2017, the Company’s majority shareholder, Thru Pharma LLC entered into a merger agreement with Kasten, Inc., a Nevada corporation (“Kasten”), whereby Kasten was the surviving corporation. As part of the merger agreement, the shares in the Company held by Thru Pharma were withheld from the agreement and the Company was no longer identified as a subsidiary of Thru Pharma thereby effectively spinning out the Company and excluding it from the surviving entity.  Kasten has been identified as party to and co-guarantor of the Catalyst note.  The Company is in the process of settling the note with Catalyst whereby funds used to satisfy the note are being provided by its Chief Executive Officer, Steven J. Keough whereas Mr. Keough will be effectively purchasing the 8,000,000 common shares in the Company and the Arax Holdings Corp receivable (listed on the books of the Company as a related party payable in the amount of $152,562 for the year ended October 31, 2016) in exchange for extinguishing the note.  The 8,000,000 shares are currently collateralizing the Catalyst loan. Upon satisfaction of the note, the Company’s related party payable will be due to Mr. Keough, and he will become the majority shareholder in the Company.

The Company’s status as a “shell company” as of the date of this report remains unchanged.

Reports to Security Holders
 
We intend to furnish our shareholders annual reports containing financial statements audited by our independent registered public accounting firm and to make available quarterly reports containing unaudited financial statements for each of the first three quarters of each year. We file Quarterly Reports on Form 10-Q, Annual Reports on Form 10-K and Current Reports on Form 8-K with the Securities and Exchange Commission in order to meet our timely and continuous disclosure requirements. We may also file additional documents with the Commission if they become necessary in the course of our company’s operations.
 
The public may read and copy any materials that we file with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington, D.C. 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. The address of that site is www.sec.gov.
 
Environmental Regulations
 
We do not believe that we are or will become subject to any environmental laws or regulations of the United States. While our products and business activities do not currently violate any laws, any regulatory changes that impose additional restrictions or requirements on us or on our products or potential customers could adversely affect us by increasing our operating costs or decreasing demand for our products or services, which could have a material adverse effect on our results of operations.
 
Employees
 
As of October 31, 2016, we had one full-time employee, Steven Keough, Chief Executive and Chief Financial Officer.  Mr. Keough receives no compensation for his services.

Available Information
 
All reports of the Company filed with the SEC are available free of charge through the SEC’s web site at www.sec.gov. In addition, the public may read and copy materials filed by the Company at the SEC’s Public Reference Room located at 100 F Street, N.E., Washington, D.C. 20549. The public may also obtain additional information on the operation of the Public Reference Room by calling the Commission at 1-800-SEC-0330.

Item 1A.
Risk Factors

As a “smaller reporting company” as defined by Item 10 of Regulation S-K, we are not required to provide information required by this Item.

Item 2.
Description of Property

We do not own any real estate or other properties.
 
4

 
Item 3.
Legal Proceedings

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. The Company did not recognize a liability in connection with it.  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.

Item 4.
Mine Safety Disclosures

Not applicable to our Company.

PART II

Item 5. Market for Common Equity and Related Stockholder Matters

Market Information

Our shares of common stock are traded on the OTCBB under the symbol “ARAT.” Trading in stocks quoted on the OTC Bulletin Board is often thin and is characterized by wide fluctuations in trading prices due to many factors that may be unrelated to a company’s operations or business prospects. We cannot assure you that there will be a market in the future for our common stock.

OTC Bulletin Board securities are not listed or traded on the floor of an organized national or regional stock exchange. Instead, OTC Bulletin Board securities transactions are conducted through a telephone and computer network connecting dealers in stocks. OTC Bulletin Board issuers are traditionally smaller companies that do not meet the financial and other listing requirements of a regional or national stock exchange.

The following table sets forth the high and low trade information for our common stock for each quarter of the fiscal year ended October 31, 2016 and 2015. The first trade of our common stock this fiscal year was on November 3, 2014.

 
 
For the Years Ended October 31,
 
 
 
2016
   
2015
 
 
 
High
   
Low
   
High
   
Low
 
 
                       
First Quarter
 
$
0.40
     
0.40
     
0.62
     
0.52
 
Second Quarter
   
0.35
     
0.40
     
0.52
     
0.40
 
Third Quarter
   
0.30
     
0.35
     
0.40
     
0.40
 
Fourth Quarter
   
0.30
     
0.30
     
0.40
     
0.40
 

The Company's stock has not traded in the nine months ended July 31, 2017.  The last trade of the Company stock was July 5, 2016, closing that day at a price $0.30.

Number of Holders

As of October 31, 2016, there were 10,335,294 issued and outstanding shares of common stock were held by 38 total shareholders of record.

Dividends

No cash dividends were paid on our shares of common stock during the fiscal years ended October 31, 2016 and 2015. We have not paid any cash dividends since our inception and do not foresee declaring any cash dividends on our common stock in the foreseeable future.

Recent Sales of Unregistered Securities

No sales of unregistered securities were completed in the twelve months ended October 31, 2016.

Purchase of our Equity Securities by Officers and Directors

No purchase of equity securities took place in the twelve months ended October 31, 2016.
 
5


Other Stockholder Matters
 
None    
    
Item 6.
Selected Financial Data

As a “smaller reporting company” as defined by Item 10 of Regulation S-K, we are not required to provide information required by this Item.

Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations

This Annual Report on Form 10-K (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 Registration Statement on Form S-1 filed with the SEC on April 25, 2013 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 audited consolidated financial statements and related notes included in this Report. Our audited financial statements are stated in United States Dollars and are prepared in accordance with United States Generally Accepted Accounting Principles.

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. As of the filing of the 10K for last fiscal year, the Company stated that it was re-evaluating its business plan.

It was further indicated as possible that a new business model could be related to a new business sector other than the food sector, and that any 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. At October 31, 2016, and as of the date of this filing, 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 possibly 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.

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 in 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. As of September 25, 2017, these shares have not been issued by the Company.  The Company will issue these shares once it becomes fully reporting.
 
6

 
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, Thru Pharma 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 Thru Pharma has only drawn $75,000. A Commitment Fee of Company stock in the amount of 35,294 shares was authorized for issue to Catalyst as part of the transaction. In the event that Thru Pharma 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.

RESULTS OF OPERATIONS

We have incurred recurring losses to date. 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. We will require additional capital to meet our operating requirements. We expect to raise additional capital through, among other things, the sale of equity or debt securities. In light of management’s efforts, there are no assurances that we will be successful in this or any of our endeavors or become financially viable and continue as a going concern.

FISCAL YEAR ENDED OCTOBER 31, 2016 COMPARED TO FISCAL YEAR ENDED OCTOBER 31, 2015.

Revenue

We recognized no revenue during the years ended October 31, 2016 and 2015 as we have not commenced revenue generating operations yet.

Operating Expenses

During the fiscal year ended October 31, 2016, our operating expenses were $163,299 compared to $328,640 during the prior fiscal year. During the twelve months ended October 31, 2016, our operating expenses comprised professional fees of $132,176 compared to $314,145 for the same period in the prior year and general and administrative cost of $31,123 compared to $14,495 for the same period in the prior year. Expenses incurred during the fiscal year ended October 31, 2016 compared to fiscal year ended October 31, 2015 decreased primarily due to the cost of warrants issued in the prior year for professional services.

Net Loss

Our net loss for the fiscal year ended October 31, 2016 was $234,528 compared to a net loss of $352,256 during the fiscal year ended October 31, 2015 due to the factors discussed above.

LIQUIDITY AND CAPITAL RESOURCES

As of October 31, 2016, we had no assets and $300,545 of current liabilities comprised of liability for payments on our behalf by a related party, accrued interest and liability to issue stock. As of October 31, 2015, our total assets were $0 and our total liabilities were $152,817 comprised of liabilities of a similar nature. The increase was mainly due to an increase in the payable to a related party of $154,979.
 
7


FISCAL YEAR ENDED OCTOBER 31, 2016 COMPARED TO FISCAL YEAR ENDED OCTOBER 31, 2015.

Cash Flows from Operating Activities

We have not generated positive cash flows from operating activities. During the fiscal year ended October 31, 2016, we used $105,962 in operating activities compared to $29,774 during the fiscal year ended October 31, 2015. The decrease between the two periods related primarily to the decrease in the loss due to professional fees as compared to the prior fiscal year.

Cash Flows from Investing Activities

We have neither used nor generated cash flow from investing activities during the fiscal years ended October 31, 2016 or 2015.

Cash Flows from Financing Activities

During the fiscal year ended October 31, 2016, the Company received $152,562 by way of payments on our behalf by a related party to fund our working capital requirements. During the fiscal year ended October 31, 2015, we received $29,774 by way of payments on our behalf by our then principal shareholder.

PLAN OF OPERATION AND FUNDING

Historically, we have funded working capital requirements primarily through the proceeds of the private placement of equity instruments and by way of loans from related parties. Our working capital requirements are expected to increase as our business grows. In connection with our business plan, management anticipates additional increases in operating expenses and capital expenditures relating to: (i) personnel; (ii) developmental expenses associated with a start-up business; and (iii) marketing expenses. We expect that working capital requirements will be funded through advances or payables on our behalf 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.

MATERIAL COMMITMENTS

As of the date of this Annual Report, we do not have any material commitments.

PURCHASE OF SIGNIFICANT EQUIPMENT

We do not intend to purchase any significant equipment during the next twelve months.

OFF-BALANCE SHEET ARRANGEMENTS

As of the date of this Annual 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.

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 October 31, 2016. The Company has an accumulated deficit of $668,090 as of October 31, 2016 and further losses are anticipated in the development of its business. The Company currently has no cash balance, a working capital and stockholders’ deficit of $300,545 and has not completed its efforts to establish a stabilized source of revenues sufficient to cover operating costs over an extended period of time.

The Company is dependent 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.

The independent auditors’ report accompanying our October 31, 2016 and October 31, 2015 financial statements contains an explanatory paragraph expressing substantial doubt about our ability to continue as a going concern. The financial statements have been prepared “assuming that we will continue as a going concern,” which contemplates that we will realize our assets and satisfy our liabilities and commitments in the ordinary course of business.
 
8


Recent Accounting Pronouncements

In August 2016, the FASB issued ASU No. 2016-15, “Statement of Cash Flows (Topic 230), Classification of Certain Cash Receipts and Cash Payments”. The amendments in this update provided guidance on eight specific cash flow issues. This update is to provide specific guidance on each of the eight issues, thereby reducing the diversity in practice in how certain transactions are classified in the statement of cash flows. ASU 2016-15 is effective for fiscal years and interim periods beginning after December 31, 2017. Early adoption is permitted. The Company is assessing the impact, if any, of implementing this guidance on its financial position, results of operations and liquidity.
 
In August 2014, FASB issued ASU No. 2014-15, “Presentation of Financial Statements-Going Concern” (“ASU No. 2014-15”). The provisions of ASU No. 2014-15 require management to assess an entity’s ability to continue as a going concern by incorporating and expanding upon certain principles that are currently in U.S. auditing standards. Specifically, the amendments (1) provide a definition of the term substantial doubt, (2) require an evaluation every reporting period including interim periods, (3) provide principles for considering the mitigating effect of management’s plans, (4) require certain disclosures when substantial doubt is alleviated as a result of consideration of management’s plans, (5) require an express statement and other disclosures when substantial doubt is not alleviated, and (6) require an assessment for a period of one year after the date that the financial statements are issued (or available to be issued). The amendments in this ASU are effective for the annual period ending after December 15, 2016, and for annual periods and interim periods thereafter. The Company is currently assessing the impact of this ASU on the Company’s consolidated financial statements.

In May 2014, August 2015 and May 2016, the FASB issued ASU 2014-09,“Revenue from Contracts with Customers”, ASU 2015-14,“Revenue from Contracts with Customers, Deferral of the Effective Date”, and ASU 2016-12,“Revenue from Contracts with Customers, Narrow-Scope Improvements and Practical Expedients”, respectively, which implement ASC Topic 606. ASC Topic 606 outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance under US GAAP, including industry-specific guidance. It also requires entities to disclose both quantitative and qualitative information that enable financial statements users to understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The amendments in these ASUs are effective for annual periods beginning after December 15, 2017, and interim periods therein. Early adoption is permitted for annual periods beginning after December 15, 2016. These ASUs may be applied retrospectively with a cumulative adjustment to retained earnings in the year of adoption. The Company s assessing the impact, if any, of implementing this guidance on its financial position, results of operations and liquidity.

There are several other new accounting pronouncements issued or proposed by the FASB. Each of these pronouncements, as applicable, has been or will be adopted by the Company. Management does not believe any of these accounting pronouncements has had or will have a material impact on the Company’s consolidated financial position or operating results.


Item 7A.
Quantitative and Qualitative Disclosures about Market Risk

As a “smaller reporting company” as defined by Item 10 of Regulation S-K, we are not required to provide information required by this item.
 
9

 
Item 8.
Financial Statements and Supplementary Data

INDEX TO FINANCIAL STATEMENTS TABLE OF CONTENTS
FOR THE YEARS ENDED OCTOBER 31, 2016 AND 2015

 F-1
F-2
F-3
F-5
F-4
 
10

 
Pritchett, Siler & Hardy, P.C.
Certified Public Accountants
1438 N Highway 89, Suite 130
Farmington, UT 84025
Office: (801)447-9572 Fax: (801)447-9578
 
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
Board of Directors
Arax Holdings Corp.
2329 N. Career Avenue, Suite 317
Sioux Falls, South Dakota, 57107 
 
We have audited the accompanying balance sheets of Arax Holdings Corp. as of October 31, 2016 and 2015 and the related statements of operations, changes in stockholders’ deficit and cash flows for the years then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
 
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
 
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Arax Holdings Corp. as of October 31, 2016 and 2015 and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.
 
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company has suffered continuing losses and has yet to establish a reliable, consistent and proven source of revenue to meet its operating costs on an ongoing basis and currently does not have sufficient available funding to fully implement its business plan. These factors raise substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.  
 
/s/ Pritchett, Siler & Hardy, P.C.
Pritchett, Siler & Hardy, P.C.
Farmington Utah
August 30, 2017
 
F - 1

 
Arax Holdings Corp
Balance Sheets


   
For the Years Ended
 
   
October 31,
 
ASSETS
 
2016
   
2015
 
           
  Current assets
 
$
-
   
$
-
 
  Total current assets
   
-
     
-
 
                 
TOTAL ASSETS
 
$
-
   
$
-
 
                 
LIABILITIES AND STOCKHOLDERS' DEFICIT
               
                 
  Current liabilities:
               
Loan from related party
 
$
228,644
   
$
76,082
 
Related party payable for services
   
2,417
     
-
 
Convertible note payable, net of $0 and $43,188 debt discount,
   
35,404
     
69,312
 
respectively
               
Accrued expenses
   
9,000
     
-
 
Accrued interest payable
   
25,080
     
1,923
 
Derivative liability
   
-
     
5,500
 
  Total current liabilities
   
300,545
     
152,817
 
                 
  Total liabilities
   
300,545
     
152,817
 
                 
  Stockholders' deficit:
               
                 
Common stock, $0.001 par value; 75,000,000 shares authorized;
   
10,335
     
10,300
 
10,335,294 and 10,300,000 shares issued and outstanding for the
               
years ended October 31, 2016 and 2015, respectively
               
Liability to issue stock
   
-
     
11,881
 
Additional paid-in capital
   
357,210
     
258,564
 
Accumulated deficit
   
(668,090
)
   
(433,562
)
  Total stockholders' deficit
   
(300,545
)
   
(152,817
)
                 
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT
 
$
-
   
$
-
 

See accompanying notes to financial statements
 
F - 2

 
Arax Holdings Corp.
Statements of Operations

   
For the Years Ended
 
 
 
October 31,
 
   
2016
   
2015
 
             
REVENUE
 
$
-
   
$
-
 
                 
OPERATING EXPENESES
               
General and administrative expense
   
31,123
     
14,495
 
Professional fees
   
132,176
     
314,145
 
TOTAL OPERATING EXPENSES
   
163,299
     
328,640
 
                 
NET LOSS FROM OPERATIONS
   
(163,299
)
   
(328,640
)
                 
OTHER INCOME (EXPENSES)
               
Interest expense
   
(76,729
)
   
(18,116
)
Derivative expense
   
-
     
(25,434
)
Change in fair value of derivative
   
5,500
     
19,934
 
TOTAL OTHER INCOME
   
(71,229
)
   
(23,616
)
                 
NET LOSS BEFORE INCOME TAXES
   
(234,528
)
   
(352,256
)
                 
Provision for Income Taxes
   
-
     
-
 
                 
NET LOSS
 
$
(234,528
)
 
$
(352,256
)
                 
                 
NET LOSS PER SHARE: BASIC AND DILUTED
 
$
(0.02
)
 
$
(0.03
)
                 
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING: BASIC AND DILUTED
   
10,326,037
     
10,300,000
 
 
See accompanying notes to financial statements
 
F - 3

 
Arax Holdings Corp.
Condensed Statements of Cash Flows

   
For the Years Ended October 31,
 
             
   
2016
   
2015
 
CASH FLOWS FROM OPERATING ACTIVITIES:
           
Net loss for the period
 
$
(234,528
)
 
$
(352,256
)
                 
Adjustments to reconcile net loss to net cash
               
provided by (used in) operating activities:
               
Stock issued as note incentive
   
-
     
38,400
 
Warrants issued as compensation
   
58,000
     
-
 
Stock liability assumed by related party
   
28,800
     
-
 
Derivative expense
   
-
     
25,434
 
Related party payable for services
   
2,417
     
27,450
 
Change in fair value of derivative
   
(5,500
)
   
(19,934
)
Options granted for compensation
   
-
     
16,217
 
Warrants issued for professional fees/ compensation
   
-
     
216,799
 
Amortization of debt discount
   
43,188
     
16,193
 
Changes in Assets and Liabilities:
               
Accrued interest payable
   
31,061
     
1,923
 
Accrued expenses
   
9,000
     
-
 
NET CASH USED IN OPERATING ACTIVITIES
   
(67,562
)
   
(29,774
)
                 
 CASH FLOWS FROM INVESTING ACTIVITIES:
   
-
     
-
 
 NET CASH FLOWS FROM INVESTING ACTIVITIES:
   
-
     
-
 
                 
 CASH FLOWS FROM FINANCING ACTIVITIES:
               
Proceeds from related party loans
   
152,562
     
29,774
 
Repayments on convertible note
   
(85,000
)
   
-
 
Proceeds from convertible note
   
-
     
65,000
 
Repayments to related party
   
-
     
(65,000
)
 NET CASH FLOWS FROM FINANCING ACTIVITIES:
   
67,562
     
29,774
 
                 
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS:
   
-
     
-
 
                 
CASH, BEGINNING OF PERIOD
   
-
     
-
 
                 
CASH, END OF PERIOD
 
$
-
   
$
-
 
                 
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION:
               
Interest paid
 
$
-
   
$
-
 
Income taxes paid
 
$
-
   
$
-
 
                 
SUPPLEMENTAL SCHEDULE OF NON-CASH
               
 INVESTING AND FINANCING ACTIVITIES:
               
Stock issued as compensation
 
$
58,000
   
$
-
 
TOTAL NON-CASH INVESTING AND FINANCING ACTIVITIES
 
$
58,000
   
$
-
 
 
See accompanying notes to condensed unaudited financial statements
 
F - 4

 
Statements of Changes in Stockholders' Deficit
Years ended October 31, 2016 and 2015

   
Common Stock    
                         
   
Shares
   
Amount
   
Additional
Paid In
Capital
   
Stock
Subscription
Payable
   
Accumulated
Deficit
   
Total
Stockholders'
Deficit
 
Balances, October 31, 2014
   
10,300,000
   
$
10,300
   
$
25,548
   
$
-
     
(81,306
)
 
$
(45,458
)
                                                 
Options Granted for
Compensation
   
-
     
-
     
16,217
     
-
     
-
     
16,217
 
Warrants Issued for
Compensation
   
-
     
-
     
216,799
     
-
     
-
     
216,799
 
Stock as Incentive for
Convertible Note
   
-
     
-
     
-
     
11,881
     
-
     
11,881
 
Stock for Compensation
   
-
     
-
     
-
     
-
     
-
     
-
 
Net loss for the period
   
-
     
-
     
-
     
-
     
(352,256
)
   
(352,256
)
                                                 
Balances, October 31, 2015
(Restated)
   
10,300,000
   
$
10,300
   
$
258,564
   
$
11,881
     
(433,562
)
 
$
(152,817
)
                                                 
Stock as Incentive for
Convertible Note
   
35,294
     
35
     
11,846
     
(11,881
)
   
-
     
-
 
Warrants Issued for
Compensation
   
-
     
-
     
58,000
     
-
     
-
     
58,000
 
Stock liability assumed by
related party
   
-
     
-
     
28,800
     
-
     
-
     
28,800
 
Net loss for the period
   
-
     
-
     
-
     
-
     
(234,528
)
   
(234,528
)
                                                 
Balances, October 31, 2016
   
10,335,294
   
$
10,335
   
$
357,210
   
$
-
     
(668,090
)
 
$
(300,545
)
 
See accompanying notes to financial statements
 
F - 5

 
ARAX HOLDINGS CORP.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEARS ENDED OCTOBER 31, 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 October 8, 2013, 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 in 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 the Company 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.  As of July 31, 2017, these shares have not been issued by the Company.  The Company will issue these shares once it becomes fully reporting

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 reporting and accounting costs. 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.

On March 1, 2017, the Company’s majority shareholder, Thru Pharma LLC entered into a merger agreement with Kasten, Inc., a Nevada corporation (“Kasten”), whereby Kasten was the surviving corporation. As part of the merger agreement, the shares in the Company held by Thru Pharma were withheld from the agreement and the Company was no longer identified as a subsidiary of Thru Pharma thereby effectively spinning out the Company and excluding it from the surviving entity.  Kasten has been identified as party to and co-guarantor of the Catalyst note.  The Company is in the process of settling the note with Catalyst whereby funds used to satisfy the note are being provided by its Chief Executive Officer, Steven J. Keough whereas Mr. Keough will be effectively purchasing the 8,000,000 common shares in the Company and the Arax Holdings Corp receivable (listed on the books of the Company as a related party payable in the amount of $231,061 for the year ended October 31, 2016) in exchange for extinguishing the note.  The 8,000,000 shares are currently collateralizing the Catalyst loan. Upon satisfaction of the note, the Company’s related party payable will be due to Mr. Keough, and he will become the majority shareholder in the Company.
         
The Company’s status as a “shell company” as of the date of this report remains unchanged.
   
F-6

 
ARAX HOLDINGS CORP.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEARS ENDED OCTOBER 31, 2016 AND 2015
  
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 to date. The Company has incurred losses since Inception (February 23, 2012) resulting in an accumulated deficit of $668,090 as of October 31, 2016 and further losses are anticipated in the development of its business. The Company currently has no cash balance, a working capital and stockholders’ deficit of $300,545 and has not completed its efforts to establish a stabilized source of revenues sufficient to cover operating costs over an extended period of time.

The Company is dependent 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.
 
F-7

 
ARAX HOLDINGS CORP.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEARS ENDED OCTOBER 31, 2016 AND 2015

NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The financial statements of the Company have been prepared in accordance with generally accepted accounting principles in the United States of America and are presented in US dollars. The Company has adopted an October 31 fiscal year end.

Development Stage Company

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.

Reclassifications

Certain prior year amounts have been reclassified to conform to the current period presentation. The reclassifications had no effect on the net loss or cash flows of the Company

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 of 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 the original maturities of three months or less to be cash equivalents.
The Company’s financial instruments consist of amounts due to its related parties.

Derivative Financial Instruments
 
Derivatives are recorded on the balance sheet at fair value. The conversion features of the convertible debentures are embedded derivatives and are separately valued and accounted for on the balance sheet with changes in fair value recognized during the period of change as a separate component of other income/expense. Fair values for exchange-traded securities and derivatives are based on quoted market prices. The pricing model we use for determining the fair value of our derivatives are binomial pricing models. Valuations derived from this model are subject to ongoing internal and external verification and review. The model uses market-sourced inputs such as interest rates and stock price volatilities. Selection of these inputs involves management’s judgment and may impact net income (loss). During the years ended October 31, 2016 and 2015, the Company utilized an expected life ranging from 223 days to 588 days based upon the look-back period of its convertible debentures and notes and volatility of 19%.  For the years ended October 31, 2016 and 2015 the Company recorded a derivative liability of $0 and $5,500.
 
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.
 
F-8

 
ARAX HOLDINGS CORP.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEARS ENDED OCTOBER 31, 2016 AND 2015

NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

The Company classifies penalties and interest related to income taxes as income tax expense in the Statements of Operations.

Net Loss Per Common Share

The Company computes per share amounts in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 260 Earnings per Share (“EPS”) which requires presentation of basic and diluted EPS. Basic EPS is computed by dividing the income (loss) available to Common Stockholders by the weighted-average number of common shares outstanding for the period. Diluted EPS is based on the weighted-average number of shares of Common Stock and Common Stock equivalents outstanding during the periods; however, potential common shares are excluded for period in which the Company incurs losses, as their effect is anti-dilutive. For the years ended October 31, 2016 and 2015 the basic and fully diluted earnings per share were the same as the Company had a loss in each of these years.
 
F-9

 
ARAX HOLDINGS CORP.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEARS ENDED OCTOBER 31, 2016 AND 2015

NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Recent Accounting Pronouncements

In August 2016, the FASB issued ASU No. 2016-15, “Statement of Cash Flows (Topic 230), Classification of Certain Cash Receipts and Cash Payments”. The amendments in this update provided guidance on eight specific cash flow issues. This update is to provide specific guidance on each of the eight issues, thereby reducing the diversity in practice in how certain transactions are classified in the statement of cash flows. ASU 2016-15 is effective for fiscal years and interim periods beginning after December 31, 2017. Early adoption is permitted. The Company is assessing the impact, if any, of implementing this guidance on its financial position, results of operations and liquidity.

In August 2014, FASB issued ASU No. 2014-15, “Presentation of Financial Statements-Going Concern” (“ASU No. 2014-15”). The provisions of ASU No. 2014-15 require management to assess an entity’s ability to continue as a going concern by incorporating and expanding upon certain principles that are currently in U.S. auditing standards. Specifically, the amendments (1) provide a definition of the term substantial doubt, (2) require an evaluation every reporting period including interim periods, (3) provide principles for considering the mitigating effect of management’s plans, (4) require certain disclosures when substantial doubt is alleviated as a result of consideration of management’s plans, (5) require an express statement and other disclosures when substantial doubt is not alleviated, and (6) require an assessment for a period of one year after the date that the financial statements are issued (or available to be issued). The amendments in this ASU are effective for the annual period ending after December 15, 2016, and for annual periods and interim periods thereafter. The Company is currently assessing the impact of this ASU on the Company’s consolidated financial statements.

In May 2014, August 2015 and May 2016, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers”, ASU 2015-14, “Revenue from Contracts with Customers, Deferral of the Effective Date”, and ASU 2016-12, “Revenue from Contracts with Customers, Narrow-Scope Improvements and Practical Expedients”, respectively, which implement ASC Topic 606. ASC Topic 606 outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance under US GAAP, including industry-specific guidance. It also requires entities to disclose both quantitative and qualitative information that enable financial statements users to understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The amendments in these ASUs are effective for annual periods beginning after December 15, 2017, and interim periods therein. Early adoption is permitted for annual periods beginning after December 15, 2016. These ASUs may be applied retrospectively with a cumulative adjustment to retained earnings in the year of adoption. The Company s assessing the impact, if any, of implementing this guidance on its financial position, results of operations and liquidity.

There are several other new accounting pronouncements issued or proposed by the FASB. Each of these pronouncements, as applicable, has been or will be adopted by the Company. Management does not believe any of these accounting pronouncements has had or will have a material impact on the Company’s consolidated financial position or operating results.

Subsequent Events

In accordance with ASC 855-10 “Subsequent Events” the Company evaluated subsequent events after the balance sheet date through the date of issuance and has disclosed relevant events and transactions (See Note 8).

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. 
 
F-10

 
ARAX HOLDINGS CORP.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEARS ENDED OCTOBER 31, 2016 AND 2015

NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
 
Fair Value of Financial Instruments (Continued)
    
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 and 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. 
 
F-11

 
ARAX HOLDINGS CORP.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEARS ENDED OCTOBER 31, 2016 AND 2015

NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

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 Recognition
 
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 years ended October 31, 2016 and 2015.

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 years ended October 31, 2016 and 2015.
 
F-12

 
ARAX HOLDINGS CORP.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEARS ENDED OCTOBER 31, 2016 AND 2015
 
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.

The Company had 10,335,294 shares of common stock issued and outstanding as of October 31, 2016.

During the year ended October 31, 2015, the Company did not issue any stock.
 
F-13

 
ARAX HOLDINGS CORP.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEARS ENDED OCTOBER 31, 2016 AND 2015

NOTE 4 – STOCKHOLDERS’ DEFICIT (CONTINUED)

Additional Paid in Capital

During the year ended October 31, 2016, the Company issued warrants for compensation to a consultant in exchange for professional services provided. The warrants were issued to purchase a total of 200,000 shares at $0.01 per share.  The shares were valued at $58,000 ($0.29 per share). SEE NOTE 10.

During the year ended October 31, 2015, the Company issued 37,500 stock purchase options for a value of $16,217, issued 600,000 stock purchase warrants for a value of $216,799.

During the year ended October 31, 2015 the Company had recorded a liability to issue shares to a consultant through an agreement with Thru Pharma.  Under this contract the consultant was to be issued shares in a public company.  At the time of the accrual Thru Pharma was not a public company so it was agreed to award shares in the Company.  Subsequent to this accrual Thru Pharma completed a merger and currently no shares are issuable by the Company.  For the year ended October 31, 2016 the Company reversed Thru Pharma portion of liability in the amount of $28,800 to be allocated to Thru Pharma representing the value of the Company shares which no longer needed to be issued.
 
Stock Subscription Payable
 
During the year ended October 31, 2015, the Company owed 35,294 of the Company’s common stock as incentive to enter into a convertible note with a value of $11,881. During the year ended October 31, 2016, the Company issued the 35,294 of the Company’s common stock as incentive to enter into a convertible note with a value of $11,881.


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 owed its majority shareholder, Thru Pharma, a total of $231,061 as of October 31, 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 October 31, 2016 and 2015, the Company had a net operating loss carry-forward of approximately $668,090 and $433,562 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.

Deferred tax assets of $234,000 and $152,000 as of October 31, 2016 and 2015, resulting from net operating have been offset by a valuation allowance, due to the uncertainty of their realization. The change in the valuation allowance for the years ended October 31, 2016 and 2015 was $82,000 and $58,000, respectively.  As a result, there were no current or deferred tax provisions for the years ended October 31, 2016 and 2015.  There was no uncertain tax position taken since inception and the Company’s tax returns for 2016, 2015 and 2014 remain open for examination.
 
NOTE 7 – COMMITMENTS AND CONTINGENCIES

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 in 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.  As of September 25, 2017, these shares have not been issued by the Company.  The Company will issue these shares once it becomes fully reporting.
 
F-14

 
ARAX HOLDINGS CORP.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEARS ENDED OCTOBER 31, 2016 AND 2015
 
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 the lower 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 had a maturity date of nine months after funding and also included a fifty percent premium which was added on 90 days after funding. The note was to be paid off in installments of $19,453 for the six months after the ninety day period.
 
F-15

 
ARAX HOLDINGS CORP.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEARS ENDED OCTOBER 31, 2016 AND 2015

NOTE 8 – CONVERTIBLE DEBT AND DERIVATIVE LIABILITIES (CONTINUED)

The Company did not make the first installment payment under this agreement and was presented with a notice of default by noteholder on October 21, 2015.  Upon default, the note began to accrue interest in the amount of 24% per annum as well as an 18% late payment penalty began to accrue on unpaid interest. As of October 31, 2016 total accrued interest and penalties under this note was $25,080.

On November 30, 2015 and April 27, 2016, a related party made payments of $85,000 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 October 31, 2016 and 2015.
     
The fair values of the derivative instruments are measured each quarter, which resulted in a gain of $5,500 and derivative expense of $0 during the year ended October 31, 2016. As of October 31, 2016, the fair market value of the derivatives were valueless using the following assumptions: estimated 7 month, estimated volatility of 19%, and a discount rate of 0.18%.

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 October 31, 2016 and 2015 consisted of the following: 

 
FAIR VALUE MEASUREMENT
 
Description
Total Fair
 
Quoted
 
Significant
   
Value at
 
Prices in
 
Other
 
Significant
 
October 31, 2016
 
Active
 
Observable
 
Unobservable
 
   
Markets
 
Inputs
 
Inputs
 
   
(Level 1)
 
(Level 2)
 
(Level 3)
 
Derivative liability
 
$
-
   
$
-
   
$
-
   
$
-
 

 
 
 
FAIR VALUE MEASUREMENT
 
 
Total Fair
 
Quoted
 
Significant
       
 
Value at
 
Prices in
 
Other
 
Significant
 
 
October 31, 2015
 
Active
 
Observable
 
Unobservable
 
       
Markets
 
Inputs
 
Inputs
 
Description
     
(Level 1)
 
(Level 2)
 
(Level 3)
 
Derivative liability
 
$
5,500
    $
-
    $
 5,500
    $
-
 
 
F-16

 
ARAX HOLDINGS CORP.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEARS ENDED OCTOBER 31, 2016 AND 2015

NOTE 10 - STOCK PURCHASE OPTIONS AND WARRANTS

During the year ended October 31, 2016, the Company did not issue any options.

During the year ended October 31, 2015, the Company issued options to purchase common shares for 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 year ended October 31, 2016, the Company did not issue any options.

During the year ended October 31, 2015, the Company issued 37,500 stock purchase options for a value of $16,217 ($0.432 per share).  

The following table presents the assumptions used to estimate the fair values of the stock warrants and options granted:
 
F-17

 
ARAX HOLDINGS CORP.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEARS ENDED OCTOBER 31, 2016 AND 2015

NOTE 10 - STOCK PURCHASE OPTIONS AND WARRANTS (CONTINUED)

Stock Purchase Options (Continued)

 
 
For the Years ended October 31,
 
   
2016
   
2015
 
Expected volatility
   
162
%
   
202-213
%
Expected dividends
   
0
%
   
0
%
Expected term
 
3 Years
   
3 Years
 
Risk-free interest rate
   
0.76
%
   
0.80-1.09
%

The following table summarizes the changes in options outstanding of the Company during the year ended October 31, 2016 and 2015.
 

 
 
Number
   
Weighted
   
Weighted
   
Expiration
   
Value if
 
 
 
of
   
Average
   
Average
   
Date (yrs)
   
Exercised
 
 
 
Options
   
Exercise
   
Grant Date
             
Date Issued
       
Price
   
Fair Value
             
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
   
$
0.41
     
2.47
     
30,000
 
Granted
   
-
     
-
     
-
     
-
     
-
 
Exercised
   
-
     
-
     
-
     
-
     
-
 
Cancelled/Expired
   
-
     
-
     
-
     
-
     
-
 
Outstanding as of October 31,
2016
   
37,500
   
$
0.80
   
$
0.41
     
1.47
     
30,000
 


Stock Purchase Warrants

During the year ended October 31, 2016, the Company issued warrants to purchase a total of 200,000 shares at $0.01 per share for professional services rendered.  The shares were valued at $58,000 ($0.29 per share).

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 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:
 
For the Years ended October 31,
 
 
 
2016
   
2015
 
Expected volatility
   
162
%
   
202-213
%
Expected dividends
   
0
%
   
0
%
Expected term
 
3 Years
   
3 Years
 
Risk-free interest rate
   
0.76
%
   
0.80-1.09
%
 
F-18

 
ARAX HOLDINGS CORP.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEARS ENDED OCTOBER 31, 2016 AND 2015

NOTE 10 - STOCK PURCHASE OPTIONS AND WARRANTS (CONTINUED)
 
Stock Purchase Warrants (Continued)
 
The following table summarizes the changes in warrants outstanding issued to employees and non-employees of the Company for the years ended October 31, 2016 and 2015.

 
 
Number
   
Weighted
   
Weighted
   
Expiration
   
Value if
 
 
 
of
   
Average
   
Average
   
Date (yrs)
   
Exercised
 
 
 
Warrants
   
Exercise
   
Grant
Date
             
 
       
Price
   
Fair
Value
             
Outstanding as of October 31, 2014
   
-
   
$
-
   
$
-
     
-
   
$
-
 
Granted
   
600,000
     
0.8
     
0.36
     
2.73
     
480,000
 
Exercised
   
-
     
-
     
-
     
-
     
-
 
Cancelled/Expired
   
-
     
-
     
-
     
-
     
-
 
Outstanding as of October 31, 2015
   
600,000
     
0.8
     
0.36
     
2.48
     
480,000
 
Granted
   
200,000
     
0.01
     
0.29
     
4.79
     
2,000
 
Exercised
   
-
     
-
     
-
     
-
     
-
 
Cancelled/Expired
   
-
     
-
     
-
     
-
     
-
 
Outstanding as of October 31, 2016
   
800,000
     
0.6
     
0.34
     
2.23
     
482,000
 
 
F-19

 
ARAX HOLDINGS CORP.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEARS ENDED OCTOBER 31, 2016 AND 2015

NOTE 11 – SUBSEQUENT EVENTS

On March 1, 2017, the Company’s majority shareholder, Thru Pharma LLC entered into a merger agreement with Kasten, Inc., a Nevada corporation (“Kasten”), whereby Kasten was the surviving corporation. As part of the merger agreement, the shares in the Company held by Thru Pharma were withheld from the agreement and the Company was not identified as a subsidiary of Thru Pharma thereby effectively spinning out the Company and excluding it from the surviving entity.  Kasten has been identified as party to and co-guarantor of the Catalyst note.  The Company considers this note fully paid and is in the process of reclaiming shares pledged as collateral from Catalyst.  Funds used to satisfy the note are being provided by its Chief Executive Officer, Steven J. Keough whereas Mr. Keough will be effectively purchasing the 8,000,000 common shares in the Company and the Arax Holdings Corp receivable (listed on the books of the Company as a related party payable in the amount of $231,061 for the year ended October 31, 2016) in exchange for extinguishing the note.  The 8,000,000 shares are currently collateralizing the Catalyst loan. Upon satisfaction of the note, the Company’s related party payable will be due to Mr. Keough and he will become the majority shareholder in the Company.
 
F-20

 
Item 9.
Changes In and Disagreements with Accountants on Accounting and Financial Disclosure

None.
 
Item 9A.
Controls and Procedures

Evaluation of Disclosure Controls and Procedures

The Company maintains disclosure controls and procedures (as defined in Rule 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”)) that are designed to ensure that information required to be disclosed by the Company in the reports that it files or submits 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 the Company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

The Company’s management carried out an evaluation, under the supervision and with the participation of its Chief Executive Officer and its Chief Financial Officer, of the effectiveness of the Company’s disclosure controls and procedures as of October 31, 2016. Based upon this evaluation, our management concluded that the Company’s disclosure controls and procedures were not effective as of October 31, 2016.

Management’s Annual Report on Internal Control over Financial Reporting.

Our internal control over financial reporting is a process designed by, or under the supervision of, our Chief Executive Officer and Chief Financial Officer and effected by our board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of our financial statements for external purposes in accordance with generally accepted accounting principles. Internal control over financial reporting includes policies and procedures that pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets; provide reasonable assurance that transactions are recorded as necessary to permit preparation of our financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with the authorization of our board of directors and management; and provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on our financial statements.

Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”).

A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis. In its assessment of the effectiveness of internal control over financial reporting as of October 31, 2016, the Company determined that there were control deficiencies that constituted material weaknesses, as described below.

1.          We do not have an Audit Committee – While not being legally obligated to have an audit committee, it is the management’s view that such a committee, including a financial expert member, is an utmost important entity level control over the Company’s financial statement. Currently the Board of Directors acts in the capacity of the Audit Committee, and does not include a member that is considered to be independent of management to provide the necessary oversight over management’s activities.

2.          We did not maintain appropriate cash controls – As of October 31, 2016, the Company has not maintained sufficient internal controls over financial reporting for the cash process, including failure to segregate cash handling and accounting functions, and did not require dual signature on the Company’s bank accounts. Alternatively, the effects of poor cash controls were mitigated by the fact that the Company had limited transactions in their bank accounts.

3.          We did not implement appropriate information technology controls – As at October 31, 2016, the Company retains copies of all financial data and material agreements; however there is no formal procedure or evidence of normal backup of the Company’s data or off-site storage of data in the event of theft, misplacement, or loss due to unmitigated factors.

Accordingly, the Company concluded that these control deficiencies resulted in a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis by the Company’s internal controls.

As a result of the material weaknesses described above, management has concluded that the Company did not maintain effective internal control over financial reporting as of October 31, 2016 based on criteria established in Internal Control — Integrated Framework issued by COSO.
 
11

 
This Annual Report on Form 10-K does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to rules of the Securities and Exchange Commission that permit us to provide only management’s report in this Annual Report on Form 10-K.

Changes in Internal Control Over Financial Reporting.

During the most recently completed fiscal quarter, there has been no change in our internal control over financial reporting that has materially affected or is reasonably likely to materially affect, our internal control over financial reporting. Management plans to routinely assess its internal control over financial reporting against appropriate standards, and to make changes as determined necessary and according to the scope of business operations.
 
12

 
PART III

Item 10.
Directors, Executive Officers, Promoters and Control Persons of the Company

DIRECTORS AND EXECUTIVE OFFICERS

The name, address and position of our present officers and directors are set forth below:

Name
 
Age
 
Position
Steven J. Keough
2329 N. Career Avenue, Suite 317 Sioux Falls, South Dakota, 57107
 
60
 
Chairman, President, Secretary, Treasurer and Director

Mr. Keough is the Chairman and Chief Executive Officer of THRU PHARMA, LLC, a related party to the Company. He received his Bachelor of Science degree from the U.S. Naval Academy (Annapolis, MD), his Master of Arts degree from the Catholic University of America (Washington, D.C.) and his Juris Doctorate degree from Boston College Law School (Newton, MA.). He is the recipient of a financial management certificate from the University of Chicago Graduate School of Business. Mr. Keough was Senior Vice President of a NASDAQ-listed company, SurModics, during a vibrant growth period of that company. He may only be devoting limited time to our operations, and our operations may be sporadic and occur at times which are convenient to him. As a result, operations may be periodically interrupted or suspended which could result in a lack of revenues and a cessation of operations.

AUDIT COMMITTEE

We do not have an audit committee financial expert. We do not have an audit committee financial expert because we believe the cost related to retaining a financial expert at this time is prohibitive. Further, because we have no operations, at the present time, we believe the services of a financial expert are not warranted.

SIGNIFICANT EMPLOYEES

We have no employees other than our sole director, Steven Keough who currently devotes minimal time per week to company matters. We intend to hire employees on an as-needed basis .
 
Item 11.
Executive Compensation
 
The following tables set forth certain information about compensation paid, earned or accrued for services by our President, and Secretary and all other executive officers (collectively, the “Named Executive Officers”) for the years ended October 31, 2016 and 2015.
 
Name
and  Principal
Position
 
Fiscal
Year
 
Salary
 
Deferred
Compensation
 
Bonus
 
Stock
Awards
 
Option/Warrant
Awards
 
All Other
Compensation
 
Total
 
 
 
 
                             
Steven J. Keough
 
2016
   
$
-
   
$
-
   
$
-
   
$
-
   
$
-
   
$
-
   
$
-
 
Chief  Executive Officer/
Chief Financial Officer,
Treasurer, Secretary
 
2015
   
$
-
   
$
-
   
$
-
   
$
-
   
$
-
   
$
-
   
$
-
 

As of October 31, 2016, we had no pension plans or compensatory plans or other arrangements that provide compensation in the event of a termination of employment or a change in our control.
 
13

 
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The following table provides certain information regarding the ownership of our common stock, as of October 31, 2016 and as of the date of the filing of this annual report by:

·
each of our executive officers;
·
each director;
·
each person known to us to own more than 5% of our outstanding common stock; and
·
all of our executive officers and directors and as a group.
 
Stock
Type
 
Name and Address of
Beneficial Owner
 
Number of Shares of
Common Stock
Beneficially
Owned and Nature of 
Beneficial Ownership
 
Percentage
 
 
 
 
 
 
 
Common
Stock
 
Thru Pharma, LLC
 
8,000,000
 
77.4%   
 
 
2329 N. Career Avenue,
 
 
 
 
 
 
Suite 317
 
 
 
 
 
 
Sioux Falls, SD 57107
 
 
 
 
 
14

 
The percent of class is based on 10,335,294 shares of common stock issued and outstanding as of the date of this annual report.
 
Item 13.
Certain Relationships and Related 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.

During the year ended October 31, 2016, we borrowed $190,962 from our shareholder, Thru Pharma, in the form of a related party payable. It is due on demand and is non-interest bearing.
 
Item 14.
Principal Accountant Fees and Services
 
The following table sets forth the fees billed by our principal independent accountants, Pritchett Siler & Hardy PC for the fiscal years ended October 31, 2016 and 2015, for the categories of services indicated.
 
 
 
Years Ended October 31,
 
Category
 
2016
   
2015
 
Pritchett Siler & Hardy PC
               
Audit Related Fees
 
$
13,850
   
$
8,950
 
Tax Fees
   
-
     
-
 
All Other Fees
   
-
     
-
 
Total
 
$
13,850
   
$
8,950
 

Audit fees. Consists of fees billed for the audit of our annual financial statements and review of our interim financial information and services that are normally provided by the accountant in connection with year-end and quarter-end statutory and regulatory filings or engagements.
 
Audit-related fees. Consists of fees billed for services relating to review of other regulatory filings including registration statements, periodic reports and audit related consulting.
 
Tax fees. Consists of professional services rendered by our principal accountant for tax compliance, tax advice and tax planning.
 
Other fees. Other services provided by our accountants.
 
15


 
Item 15.
Exhibits

The following exhibits are filed as part of this Annual Report.

Exhibits:

31.1
   
32.1

101.INS XBRL Instance Document (furnished herewith)*
101.SCH XBRL Taxonomy Extension Schema Document (furnished herewith)*
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document (furnished herewith)*
101.DEF XBRL Taxonomy Extension Definition Linkbase Document (furnished herewith)*
101.LAB XBRL Taxonomy Extension Label Linkbase Document (furnished herewith)*
101.PRE XBRL Taxonomy Extension Presentation Linkbase Document (furnished herewith)*
 
16

 
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.

     
Dated: September 27, 2017
By: 
/s/ Steven J. Keough
   
   
Steven J. Keough, Chairman, President,
Chief  Executive Officer and Chief Financial
Officer and Secretary
 

 
17