Arax Holdings Corp - Quarter Report: 2016 July (Form 10-Q)

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒        QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended July 31, 2016

OR

☐        TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from            to            

Commission File Number: 333-185928

(Exact Name of Registrant as Specified in Its Charter)

2329 N. Career Avenue Suite 317

Sioux Falls, SD 57107

(Address of Principal Executive Offices)

(605) 553-2238

(Registrant’s Telephone Number, Including Area Code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒     No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒     No ☐

 

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

   

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☒     No ☐

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:

10,335,294 shares of common stock were issued and outstanding as of June 12, 2017.

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Arax Holdings Corp.

Form 10-Q Index

     

 

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

Arax Holdings Corp

Condensed Balance Sheets

(Unaudited)

 

 

 

See accompanying notes to condensed unaudited financial statement

     

 

Arax Holdings Corp.

Condensed Statements of Operations

(Unaudited)

 

*Denotes a loss of less than $(0.01) per share

See accompanying notes to condensed unaudited financial statements

     

 

Arax Holdings Corp.

Condensed Statements of Cash Flows

(Unaudited)

See accompanying notes to condensed unaudited financial statements

     

 

ARAX HOLDINGS CORP.

NOTES TO THE CONDENSED UNAUDITED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED JULY 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.

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 $211,149 for the nine months ended July 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.

     

ARAX HOLDINGS CORP.

NOTES TO THE CONDENSED UNAUDITED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED JULY 31, 2016 AND 2015

    

NOTE 1 – ORGANIZATION AND NATURE OF BUSINESS (CONTINUED)

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

NOTE 2 – GOING CONCERN

The accompanying financial statements have been prepared in conformity with generally accepted accounting principles, which contemplate continuation of the Company as a going concern. However, the Company has not generated any revenues as of July 31, 2016. The Company has incurred losses since Inception (February 23, 2012) resulting in an accumulated deficit of $656,464 as of July 31, 2016 and stockholders’ deficit of $317,719. The Company currently has a working capital deficit, and has not completed its efforts to establish a stabilized source of revenues sufficient to cover operating costs over an extended period of time.

Management anticipates that the Company will be dependent, for the near future, on additional investment capital to fund operating expenses. The Company intends to position itself so that it can be able to raise additional funds through the capital markets. In light of management’s efforts, there are no assurances that the Company will be successful in this or any of its endeavors or become financially viable and continue as a going concern.

NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The Company has adopted an October 31 fiscal year end.

The accompanying unaudited financial statements have been prepared in accordance with the instructions from Regulation S-X and do not include all of the information and disclosures required by generally accepted accounting principles for complete financial statements. All adjustments that are, in the opinion of management, necessary for a fair presentation of the results of operations for the interim period, and to make the financial statements not misleading, have been made and are of a recurring nature unless otherwise disclosed herein. The results of operations for such interim period are not necessarily indicative of operations for a full year.

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.

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date the financial statements and the reported amount of revenues and expenses during the reporting period. Actual results could differ from those estimates.

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.

     

 

ARAX HOLDINGS CORP.

NOTES TO THE CONDENSED UNAUDITED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED JULY 31, 2016 AND 2015

The Company considers all highly liquid investments with original maturities of three months or less to be cash equivalents. As of July 31, 2016 the Company had no cash equivalents.

The Company measures assets and liabilities at fair value based on an expected exit price as defined by the authoritative guidance on fair value measurements, which represents the amount that would be received on the sale of an asset or paid to transfer a liability, as the case may be, in an orderly transaction between market participants. As such, fair value may be based on assumptions that market participants would use in pricing an asset or liability. The authoritative guidance on fair value measurements establishes a consistent framework for measuring fair value on either a recurring or nonrecurring basis whereby inputs, used in valuation techniques, are assigned a hierarchical level. 

The following are the hierarchical levels of inputs to measure fair value: 

 

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.  

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. 

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. 

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. 

     

 

ARAX HOLDINGS CORP.

NOTES TO THE CONDENSED UNAUDITED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED JULY 31, 2016 AND 2015

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.

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.

The Company follows the policy of charging the costs of advertising to expenses incurred. The Company incurred $0 in advertising costs during the nine months ended July 31, 2016.

Basic income (loss) per share is calculated by dividing the Company’s net loss applicable to common shareholders by the weighted average number of common shares outstanding during the period. Diluted earnings per share is calculated by dividing the Company’s net loss available to common shareholders by the diluted weighted average number of shares outstanding during the year. The diluted weighted average number of shares outstanding is the basic weighted number of shares adjusted for any potentially dilutive debt or equity instruments. There were no such potentially dilutive debt or equity instruments issued or outstanding during the three and nine month ended July 31, 2016.

The Company has reviewed all the recent accounting pronouncements issued to date of the issuance of these financial statements, and does not believe any of these pronouncements will have a material impact on the company.

     

 

ARAX HOLDINGS CORP.

NOTES TO THE CONDENSED UNAUDITED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED JULY 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 July 31, 2016.

For the nine months ended July 31, 2016, the Company issued 35,294 shares of common stock, valued at $11,881 ($0.337 per share) as part of an incentive to enter into convertible notes that were owed as of October 31, 2015.

For the year ended October 31, 2015, the Company did not issue any common shares of Company stock.

As of July 31, 2016, the Company owed $65,400 (50,000 common shares) for stock subscription payable for payments to a consultant for work performed with Thru Pharma, a related party, for a value of $27,000 and was recorded as a related party expense.  The remaining $38,400 was recorded during the year ended October 31, 2015 for the same consultant and was recorded as a related party expense.

NOTE 5 – RELATED PARTY TRANSACTIONS

In support of the Company’s 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 owes its principal shareholder, Thru Pharma, a total of $211,149 as of July 31, 2016, in the form of a related party payable. It is unsecured, due on demand and 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 July 31, 2016, the Company had a net operating loss carry-forward of approximately $656,464 that may be used to offset future taxable income and begins to expire in 2031. Because of the change in ownership that occurred on January 16, 2014, net operating loss carry forwards could be limited as to use in future years.

NOTE 7 – 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.

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 July 31, 2016 total accrued interest and penalties under this note was $11,281.

     

 

ARAX HOLDINGS CORP.

NOTES TO THE CONDENSED UNAUDITED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED JULY 31, 2016 AND 2015

NOTE 7 – CONVERTIBLE DEBT AND DERIVATIVE LIABILITIES (CONTINUED)

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 July 31, 2016 and October 31, 2015.

The fair values of the derivative instruments are measured each quarter, which resulted in a gain of $3,111 and derivative expense of $0 during the nine months ended July 31, 2016. As of July 31, 2016, the fair market value of the derivatives aggregated $2,389 using the following assumptions: estimated 0.6 month, estimated volatility of 92%, and a discount rate of 0.38%.

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 8 – 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 July 31, 2016 and October 31, 2015 consisted of the following: 

NOTE 9 - STOCK PURCHASE OPTIONS AND WARRANTS (CONTINUED)

During the nine months ended July 31, 2016, the Company did not issue any options.

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

 

     

 

ARAX HOLDINGS CORP.

NOTES TO THE CONDENSED UNAUDITED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED JULY 31, 2016 AND 2015

     

NOTE 9 - STOCK PURCHASE OPTIONS AND WARRANTS (CONTINUED)

The following table summarizes the changes in warrants outstanding issued to employees and non-employees of the Company during the year ended October 31, 2015.

     

 

ARAX HOLDINGS CORP.

NOTES TO THE CONDENSED UNAUDITED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED JULY 31, 2016 AND 2015

NOTE 10 – 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 $211,149 for the nine months ended July 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.

     

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This Quarterly Report on Form 10-Q (this “Report”) contains forward-looking statements which reflect management’s expectation or belief concerning future events that involve risks and uncertainties. Our actions, results and performance could differ materially from what is contemplated by the forward-looking statements contained in this Report. Factors that might cause differences from the forward-looking statements include those referred to or identified in our Annual report on Form 10K filed with the SEC on February 13, 2015 and other factors that may be identified elsewhere in this Report. Reference should be made to such factors and all forward- looking statements are qualified in their entirety by the above cautionary statements.

The following is management’s discussion and analysis of the financial condition and results of operations of the Company, as well as our liquidity and capital resources. The discussion, including known trends and uncertainties identified by management, should be read in conjunction with the Company’s unaudited consolidated financial statements and related notes included in this Report, as well as our audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended October 31, 2015.

Overview

Arax Holdings Corp. (the “Company”, “we”, “our” or “us”) was incorporated under the laws of the State of Nevada on February 23, 2012 with a business plan to sell hot dogs from mobile hot dog stands throughout the major cities in Mexico. That has now changed and is discussed further below.

Effective January 16, 2014, Vladimir Leonov, the former Chief Executive Officer, majority shareholder and sole director of the Company sold 8,000,000 shares of our common stock (approximately 77% of the issued and outstanding shares of common stock of the Company) to Thru Pharma, LLC (d/b/a PharmaCline), a Delaware limited liability company (“Thru Pharma”), for total cash consideration of $275,000 in a private transaction (the “Acquisition”). The Acquisition resulted in a change in control of the Company. Simultaneous with the closing of the Acquisition, Mr. Leonov resigned as a director and from all offices he held with us, and Steven J. Keough, was elected as our director and appointed as the Company’s Chief Executive Officer, President, Secretary and Treasurer.

Following the changes in control and management of the Company related to the Acquisition, we have been reevaluating our business plan. As of the filing of the 10K for last year, the Company stated that Management believes that the best business model for our investors is to pursue business activity in the Life Sciences sector of the United States and internationally. We will continue to assess these opportunities and structures as well as the various pre-requisite actions needed to finalize and implement any new business model.

This new business model could entail restructuring of the Company to provide new capital and a broader base of shareholders. Such a capital restructuring of the Company could involve a merger or acquisition of assets through various techniques, including a possible reverse-merger. Additional asset acquisitions and transfers may occur. The Company may establish a presence on other markets as part of the restructuring.

Results of Operations

Three and nine months ended July 31, 2016 compared to the three and nine months ended July 31, 2015

Revenue

No revenue was recognized in the three and nine months ended July 31, 2016. Operations have not yet commenced.

Operating Expenses

During the three months ended July 31, 2016, our operating expenses were $124,960 compared to $8,033 during the same period in the prior year. The increase of $116,927 was due to the incursion of professional and other fees associated with amending and filing quarterly and annual 10Q and 10K reports.

During the nine months ended July 31, 2016, our operating expenses were $171,917 compared to $66,810 during the same period in the prior year. The increase of $105,107 was due to the incursion of professional and other fees associated with amending and filing quarterly and annual 10Q and 10K reports.

     

 

Other Income (Expenses)

During the three and nine months ended July 31, 2016, our other net expenses were $1,578 and $50,985 compared to $0 for the same periods in the prior year. During the three and nine months ended July 31, 2016, our other net expenses were comprised of interest expense of $3,676 and $54,096 from accrued interest on convertible notes and from the amortization of debt discount and OID offset by other income of $2,098 and $3,111 resulting from the change in fair value of the derivative imbedded in the conversion feature of the convertible note.

Net Loss

Our net loss for the three and nine months ended July 31, 2016 was $126,538 and $222,902 compared to $8,033 and $66,810, respectively for the same period in the prior year, is due to the factors discussed above.

Liquidity and Capital Resources

At July 31, 2016 we had $0 in total assets and $317,719 of current liabilities compared to $0 in total assets and $114,417 of current liabilities at October 31, 2015. The increase in our working capital deficit for the nine months ended July 31, 2016 is principally due to the operating losses we incurred in the period.

Cash flows for the nine months ended July 31, 2016 and July 31, 2015

Operating Activities

During the nine months ended July 31, 2016 we used $98,217 for operating activities compared to $22,710 used in operating activities during the nine months ended July 31, 2015. The increase in funds used in operating activities between the two periods was due primarily to an increase in professional and other fees associated with amending and filing quarterly and annual 10Q and 10K reports as well as interest amortization of debt discount of $43,188 and stock based compensation in the amount of $27,000.

Investing Activities

We neither used nor generated cash flows from investing activities during the nine month periods ended July 31, 2016 or 2015.

Financing Activities

During the nine months ended July 31, 2016 we received $88,217 in loans from Thru Pharma to fund our working capital requirements for a total balance of $211,149 from related parties. In the nine months ended July 31, 2015, Thru Pharma advanced the Company $22,710.

Historically, we have funded working capital requirements primarily through the proceeds of the private placement of equity instruments and loans from related parties. We expect that working capital requirements will be funded through advances from Thru Pharma, and through further issuances of our securities. We have no lines of credit or other bank financing arrangements. Additional issuances of equity or issuances of convertible debt securities will result in dilution to our current shareholders. Further, such securities might have rights, preferences or privileges senior to our common stock. Additional financing may not be available upon acceptable terms, or at all. If adequate funds are not available or are not available on acceptable terms, we may not be able to implement our business plan.

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