10-Q: Arax Holdings Corp. Reports Q3 2024 Results with Revenue Decline and Increased Net Loss

Arax Holdings Corp. reported a decrease in revenue and an increased net loss for the third quarter of 2024, alongside ongoing concerns about its ability to continue as a going concern.

Summary

• Arax Holdings Corp. reported a net loss of $433,266 for the three months ended July 31, 2024, compared to a net loss of $2,273,299 for the same period in 2023.
• The company's revenue for the three months ended July 31, 2024, was $0, a decrease from $228,518 in the same period of 2023.
• For the nine months ended July 31, 2024, the net loss was $905,932, compared to a net loss of $5,131,480 for the same period in 2023.
• Revenue for the nine months ended July 31, 2024, was $528,636, a decrease from $682,290 in the same period of 2023.
• The company's operating expenses decreased significantly, from $2,836,560 in Q3 2023 to $329,765 in Q3 2024, and from $5,813,020 for the nine months ended July 31, 2023 to $1,330,765 for the nine months ended July 31, 2024.
• The company has a working capital of approximately $261,000 as of July 31, 2024.
• As of September 20, 2024, there were 128,376,886 common shares outstanding.
• The company has restated its previously issued financial statements for the three and nine months ended July 31, 2023, due to errors in accounting policies related to the fair value of common stock.

Sentiment

Score: 3

Explanation: The document indicates significant financial challenges, including low revenue, a net loss, and concerns about the company's ability to continue as a going concern. While operating expenses have decreased, the overall outlook is negative due to the company's financial instability and reliance on debt financing.

Positives

• The company's net loss decreased significantly for both the three and nine month periods ended July 31, 2024, compared to the same periods in 2023.
• Operating expenses were substantially reduced in both the three and nine month periods ended July 31, 2024, compared to the same periods in 2023.
• The company successfully converted some convertible notes into equity, reducing debt.

Negatives

• The company's revenue decreased to $0 for the three months ended July 31, 2024, compared to $228,518 for the same period in 2023.
• The company's revenue decreased for the nine months ended July 31, 2024, to $528,636, compared to $682,290 for the same period in 2023.
• The company's cash balance is very low at $12,169 as of July 31, 2024.
• The company recorded a loss of $103,400 on the settlement of short-term borrowings.
• The company has a working capital of approximately $261,000 as of July 31, 2024.

Risks

• The company's ability to continue as a going concern is in doubt due to insufficient cash and working capital.
• The company needs additional financing to fund its operations for the next 12 months.
• The company may be forced to delay, scale back, or eliminate development activities if it fails to obtain additional capital.
• The company has material weaknesses in its internal control over financial reporting.
• The company's limited operating history and minimal revenues pose significant risks.
• The company is dependent on the issuance of convertible debt financing and related party advances for funds.

Future Outlook

The company anticipates incurring operating losses in the next 12 months and plans to fund working capital through existing funds and future issuances of debt or equity securities. The company is also exploring business opportunities and potential acquisitions.

Management Comments

• Management intends to explore and identify business opportunities within the U.S., including a potential acquisition of an operating entity through a reverse merger, asset purchase or similar transaction.
• Management believes that there are a number of firms seeking business opportunities at this time at discounted rates with which we will compete.
• Management anticipates that we will incur operating losses in the next 12 months, principally costs related to our being obligated to file reports with the SEC.

Industry Context

The company operates in the software development and integration marketplace, with a focus on blockchain technology. The company is exploring opportunities in North America, Europe, Asia, and Africa, and is also looking at potential acquisitions. The company's focus on blockchain technology aligns with current industry trends, but its financial instability and limited operating history present significant challenges.

Comparison to Industry Standards

• The company's revenue of $0 for the three months ended July 31, 2024, is significantly below industry standards for software development companies, especially those with a focus on blockchain technology.
• The company's net loss, while reduced compared to the previous year, is still substantial and indicates a lack of profitability, which is a concern compared to industry benchmarks.
• The company's low cash balance of $12,169 is a major concern and is far below the industry average for companies of similar size and stage.
• The company's reliance on convertible debt and related party advances for funding is not typical for established software companies and indicates a higher level of financial risk.
• The company's material weaknesses in internal control over financial reporting are a significant concern and are not in line with industry best practices for public companies.

Corporate Governance

Related Party Transactions

• An entity controlled by the company's Chairman has advanced an aggregate of $57,756 to the company as of July 31, 2024.
• The acquisition of Core Business Holdings was a related party transaction.

Stakeholder Impact

• Shareholders face significant risk due to the company's financial instability and potential dilution from future equity issuances.
• Employees may be affected by potential delays or reductions in development activities due to lack of funding.
• Customers may be impacted by the company's financial instability and potential disruptions to services.
• Creditors face increased risk due to the company's low cash balance and reliance on debt financing.

Next Steps

• The company plans to raise additional capital through sales of equity securities and borrowing.
• The company intends to explore and identify business opportunities within the U.S., including a potential acquisition of an operating entity through a reverse merger, asset purchase or similar transaction.
• The company will continue to develop software solutions that work exclusively on the Core Blockchain.

Key Dates

Keywords

financial results, revenue, net loss, operating expenses, software development, convertible notes, going concern, internal control, capital raise, blockchain