10-Q

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

For Quarterly Period Ended December 31, 2014

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 0-28585

 

AuraSource, Inc.

(Exact name of registrant as specified in its charter)

Nevada (State or Other Jurisdiction of Incorporation or Organization) 68-0427395 (IRS Employer Identification No.)

1490 South Price Rd. #219

Chandler, AZ 85286

(Address of principal executive offices, zip code)

Registrant's telephone number (including area code): (480) 292-7179

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 [x] NO [ ]

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

Large Accelerated Filer [ ] Accelerated Filer [ ] Non-accelerated Filer [ ] Smaller reporting company [x]

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

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

Class	Outstanding at February 13, 2015
Common Stock, $.001 par value	60,206,655

AURASOURCE, INC.

INDEX

PART I	FINANCIAL INFORMATION	Page
ITEM 1.	CONSOLIDATED FINANCIAL STATEMENTS:
	Condensed Consolidated Balance Sheets — December 31, 2014 (Unaudited) and March 31, 2014	3
	Condensed Consolidated Statements of Operations (Unaudited) – Three and nine months ended December 31, 2014 and 2013	4
	Condensed Consolidated Statements of Cash Flows (Unaudited) - Nine months ended December 31, 2014 and 2013	5
	Notes to Unaudited Condensed Consolidated Financial Statements	6
ITEM 2.	MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	13
ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	17
ITEM 4.	CONTROLS AND PROCEDURES	17
PART II	OTHER INFORMATION	19
ITEM 4.	SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS	19
ITEM 6.	EXHIBITS	19
	Signatures	20

-2-

PART I - FINANCIAL INFORMATION

ITEM 1 — CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 

AuraSource, Inc.

Condensed Consolidated Balance Sheets

	December 31, 2014			March 31, 2014
	(Unaudited)			(Audited)
ASSETS
CURRENT ASSETS
Cash	$	48,444		$	11,112
Accounts receivable, net		140,000			250,000
Deposits and other current assets		582,652			584,689
TOTAL CURRENT ASSETS		771,096			845,801
Fixed assets, net		167,777			284,869
Intangible assets, net		745,243			780,582
TOTAL ASSETS	$	1,684,116		$	1,911,252
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable	$	480,705		$	375,562
Due to related parties		1,364,322			1,147,446
Note payable		60,000			94,000
Deferred revenue		37,500			—
Customer deposits		5,832			—
Convertible note payable and accrued interest		—			35,861
TOTAL CURRENT LIABILITIES		1,948,359			1,652,869
Commitments and contingencies
STOCKHOLDERS' EQUITY
Preferred stock, 10,000 shares authorized, no shares issued and outstanding, no rights or privileges designated		—			—
Common stock, $0.001 par value, 150,000,000 shares authorized, 58,424,734 and 58,404,734 shares issued and outstanding at December 31, 2014 and March 31, 2014, respectively		58,424			58,404
Additional paid in capital		11,685,552			11,141,229
Accumulated deficit		(12,008,219	)		(10,941,250	)
Total stockholders' equity (deficit)		(264,243	)		258,383
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	1,684,116		$	1,911,252

The accompanying notes are an integral part of these condensed consolidated financial statements.

-3-

AuraSource, Inc.

Condensed Consolidated Statements of Operations

(Unaudited)

	Three Months Ended December 31,						Nine Months Ended December 31,
	2014			2013			2014			2013
Revenue	$	486,668		$	—		$	531,668		$	104,820
Cost of revenue		385,069			—			401,569			72,859
Gross profit		101,599			—			130,099			31,961
Operating expenses:
General & administrative expenses		323,872			233,437			1,110,185			926,041
Total operating expenses		323,872			233,437			1,110,185			926,041
Loss from operations		(222,273	)		(233,437	)		(980,086	)		(894,080	)
Interest income (expense) and other, net		(3,262	)		(52,093	)		(86,883	)		(371,041	)
Net loss applicable to common stockholders	$	(225,535	)	$	(285,530	)	$	(1,066,969	)	$	(1,265,121	)
Basic & diluted loss per share	$	(0.00	)	$	(0.01	)	$	(0.02	)	$	(0.02	)
Weighted average shares outstanding		58,424,734			52,089,903			58,420,006			51,672,516

  The accompanying notes are an integral part of these condensed consolidated financial statements.

-4-

AuraSource, Inc.

Condensed Consolidated Statements of Cash Flows

(Unaudited) 

	Nine Months Ended December 31,
	2014			2013
Cash flows from operating activities
Net loss	$	(1,066,969	)	$	(1,265,121	)
Adjustments to reconcile net loss to net cash used in operating activities
Depreciation and amortization		152,431			226,124
Stock issued for services and interest		—			259,583
Options issued for services		205,816			10,385
Bad debt expenses		60,000			—
Changes in operating assets and liabilities
Due from affiliate		—			(1,390	)
Accounts receivable		50,000			—
Inventory		—			(32,580	)
Deposits and other current assets, net		2,036			79,145
Accounts payable and accrued expenses		105,143			56,569
Accounts payable – related parties		253,395			287,981
Interest payable		107,639			—
Deferred revenue		37,500			(63,754	)
Customer advances		5,832			—
Net cash used in operating activities		(87,177	)		(443,058	)
Cash flows from investing activities
Cash paid for acquisition of intangible		—			(8,088	)
Net cash used in investing activities		—			(8,088	)
Cash flows from financing activities
Proceeds from issuance of common stock, net		338,527			—
Net proceeds from issuance of notes payable		—			190,501
Repayment of note payable		(177,500	)		(87,345	)
Net proceeds from loans payable		—			195,485
Advances from related parties, net		(36,518	)		95,716
Net cash provided by financing activities		124,509			394,357
Net change in cash and equivalents		37,332			(56,789	)
Cash - beginning balance		11,112			75,508
Cash - ending balance	$	48,444		$	18,719

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for
Interest	$	—	$	2,361
Income taxes	$	—	$	—

NON-CASH INVESTING AND FINANCING ACTIVITY 

The Company issued 1,250,000 shares of common stock for settlement of a 500,000 deposit from customer. $ —   $ 500,000

The accompanying notes are an integral part of these condensed consolidated financial statements.

-5-

AURASOURCE, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Current Operations and Background — AuraSource, Inc. (“AuraSource” or “Company”) focuses on the development and production of environmentally friendly and cost effective industrial energy and fuel used for industrial applications. AuraMetal, AuraSource’s core technology, includes ultrafine grinding and impurities removal processes. Initial industrial applications of AuraSource technology are ultra-fine coal water mixture for heavy oil substitution, and low grade iron ore fine and slimes beneficiation. AuraSource formed AuraSource Qinzhou Co. Ltd. (“Qinzhou”), a wholly owned subsidiary in China, to acquire these types of Hydrocarbon Clean Fuel (“HCF”) technologies, performing research and development (“R&D”) related to the reduction of harmful emissions and energy costs for HCF technology and products based on this technology, licensing HCF technology to third parties and selling services and products derived from this technology. Currently, we have seven patents patent issued related to our technologies: 1) ultrafine grinding and 2) ultrafine separation.

There can be no assurance we will be able to carry out our development plans for our HCF technology. Our ability to pursue this strategy is subject to the availability of additional capital and further development of our HCF technology.  We also need to finance the cost of effectively protecting our intellectual property rights in the United States (“US”) and abroad where we intend to market our technology and products.

Going Concern — The accompanying unaudited consolidated financial statements were prepared assuming the Company will continue as a going concern.  The Company has suffered recurring losses from operations since its inception and has an accumulated deficit of $12,008,219 at December 31, 2014.  The consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or amounts and classifications of liabilities that might be necessary should the Company be unable to continue its existence.  The recovery of the Company’s assets is dependent upon continued operations of the Company. In addition, the Company's recovery is dependent upon future events, the outcome of which is undetermined.  The Company intends to continue to attempt to raise additional capital, but there can be no certainty such efforts will be successful.

Basis of Presentation and Principles of Consolidation — The accompanying condensed consolidated financial statements were prepared in conformity with accounting principles generally accepted in the United States of America (“US GAAP”) and include the accounts of AuraSource and its subsidiary, Qinzhou. All significant intercompany transactions and balances were eliminated in consolidation.

The unaudited consolidated financial statements were prepared by us pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). The information furnished herein reflects all adjustments (consisting of normal recurring accruals and adjustments) which are, in the opinion of management, necessary to fairly present the operating results for the respective periods. Certain information and footnote disclosures normally present in annual consolidated financial statements prepared in accordance with US GAAP was omitted pursuant to such rules and regulations. These consolidated financial statements should be read in conjunction with the audited consolidated financial statements and footnotes for the year ended March 31, 2014 included in our Annual Report on Form 10-K. The results of the three and nine months ended December 31, 2014 are not necessarily indicative of the results to be expected for the full year ending March 31, 2015.

Use of Estimates — The preparation of consolidated financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Cash and Equivalents — We consider investments with original maturities of 90 days or less to be cash equivalents.

-6-

Accounts Receivable - The Company extends credit to its customers. Collateral is generally not required. Credit losses are provided for in the financial statements based on management’s evaluation of historical and current industry trends. Although the Company expects to fully collect amounts due, actual collections may differ from estimated amounts. The Company estimates an allowance for doubtful accounts based upon a percentage of revenue earned. When the Company expects that there is less than a 20% chance of collection, the Company writes the receivable off to its allowance for doubtful accounts. The Company does not typically accrue interest or fees on past due amounts. During the three months ending December 31, 2014, the Company recorded an allowance for doubtful accounts of $60,000.

Inventory - Inventory is valued at the lower of cost or market. Cost is determined using standard costs, which approximates the first-in, first-out method.

Property and Equipment - Property and Equipment are stated at historical cost less accumulated depreciation and amortization. Cost represents the purchase price of the asset and other costs incurred to bring the asset into its existing use. Depreciation is provided on a straight-line basis over the assets' estimated useful lives. The useful lives of the assets are as follows: machinery and equipment 3 years, office equipment 3 years, vehicles 5 years. Additions and improvements are capitalized while routine repairs and maintenance are charged to expense as incurred. Upon sale or disposition, the historically recorded asset cost and accumulated depreciation are removed from the accounts and the net amount less proceeds from disposal is charged or credited to other income / expense.

Revenue Recognition - The Company recognizes revenue in accordance with ASC 605, Revenue Recognition. 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 or services rendered; (3) the fee is fixed and determinable; and (4) collectability is reasonably assured. When we are paid in advance for products or services we classify these amounts as deferred revenue and recognize over the term of the agreement. 

Cost of goods sold- Cost of goods sold includes cost of inventory sold during the period, net of discounts and allowances, freight and shipping costs, warranty and rework costs, and sales tax.

Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of- In accordance with ASC 350-30, we evaluate long-lived assets for impairment whenever events or changes in circumstances indicate that their net book value may not be recoverable.  When such factors and circumstances exist, we compare the projected undiscounted future cash flows associated with the related asset or group of assets over their estimated useful lives against their respective carrying amount.  Impairment, if any, is based on the excess of the carrying amount over the fair value, based on market value when available, or discounted expected cash flows, of those assets and is recorded in the period in which the determination is made.  We currently believe there is no impairment of our long-lived assets.  There can be no assurance, however, that market conditions will not change or demand for our products under development will continue.  Either of these could result in future impairment of long-lived assets.

Beneficial Conversion Features- From time to time, the Company may issue convertible notes that may contain an embedded beneficial conversion feature. A beneficial conversion feature exists on the date a convertible note is issued when the fair value of the underlying common stock to which the note is convertible into is in excess of the remaining unallocated proceeds of the note after first considering the allocation of a portion of the note proceeds to the fair value of the warrants, if related warrants have been granted. The intrinsic value of the beneficial conversion feature is recorded as a debt discount with a corresponding amount to additional paid in capital. The debt discount is amortized to interest expense over the life of the note using the effective interest method.

Income Taxes — The Company accounts for income taxes in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 740, “Income Taxes.” Deferred tax assets and liabilities are recognized to reflect the estimated future tax effects, calculated at currently effective tax rates, of future deductible or taxable amounts attributable to events that have been recognized on a cumulative basis in the financial statements. A valuation allowance for a deferred tax asset is recorded when it is more likely than not that some portion of the deferred tax asset will not be realized.

-7-

Stock-Based Compensation — The Company recognizes the cost of employee services received for an award of equity instruments in the consolidated financial statements over the period the employee is required to perform the services.

Foreign Currency Transactions — The Company recognizes foreign currency gains and losses in other income (expense) on the accompanying statement of operations. Foreign currency gains and losses arise as the Company conducts business with other entity’s whose functional currency is not in US dollars. Generally, these gains and losses are recorded at an exchange rate difference between the foreign currency and the functional currency that arises between the transaction date and the payment date.

Net Loss Per Share — The Company computes basic and diluted net loss per share by dividing the net loss available to common stockholders for the period by the weighted average number of shares of common stock outstanding during the period. Common equivalent shares arising from stock options and warrants were excluded from the computation of basic and diluted earnings per share, for the three and nine months ended December 31, 2014 and 2013 because their effect is anti-dilutive.

Concentration of Credit Risk — Financial instruments that potentially subject the Company to a concentration of credit risk consist of cash.  The Company maintains its cash with high credit quality financial institutions; at times, such balances with any one financial institution may exceed Federal Deposit Insurance Corporation (“FDIC”) insured limits.  

Financial Instruments and Fair Value of Financial Instruments — Our financial instruments consist of cash, accounts payable and notes payable. The carrying values of cash, accounts payable and notes payable are representative of the fair values due to their short-term maturities. We measure the fair value (“FV”) of financial assets and liabilities on a recurring basis. FV is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. FV measurements are to be considered from the perspective of a market participant that holds the asset or owes the liability. We also establish a FV hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring FV.

The standard describes three levels of inputs that may be used to measure FV:

Level 1:	Quoted prices in active markets for identical or similar assets and liabilities.
Level 2:	Quoted prices for identical or similar assets and liabilities in markets that are not active or observable inputs other than quoted prices in active markets for identical or similar assets and liabilities.
Level 3:	Unobservable inputs that are supported by little or no market activity and that are significant to the FV of the assets or liabilities.

The Company evaluates embedded conversion features within convertible debt under ASC Topic 815, “Derivatives and Hedging,” to determine whether the embedded conversion feature should be bifurcated from the host instrument and accounted for as a derivative at FV with changes in FV recorded in earnings. If the conversion feature does not require derivative treatment under ASC 815, the instrument is evaluated under ASC subtopic 470-20, “Debt with Conversion and Other Options,” for consideration of any beneficial conversion feature.

Reclassifications — Certain reclassifications were made to the prior period amounts disclosed in the consolidated financial statements to conform to the presentation form the three and nine months ended December 31, 2014. These reclassifications had no effect on reported net loss or stockholders’ equity.

Recent Accounting Pronouncements – There were no significant changes in the Company’s critical accounting policies and estimates during the nine months ended December 31, 2014 compared to what was disclosed in the Company’s Annual Report on Form 10-K for the year ended March 31, 2014.

-8-

NOTE 2 - CONCENTRATION OF CREDIT RISK

We maintain our cash balances in financial institutions that from time to time exceed amounts insured by the FDIC (up to $250,000, per financial institution as of December 31, 2014). As of December 31, 2014 and March 31, 2014, our deposits did not exceeded insured amounts. We have not experienced any losses in such accounts and we believe we are not exposed to any credit risk on cash.

Currently, we maintain a bank account in China. This account is not insured and we believe is exposed to credit risk on cash.

NOTE 3 – DEPOSITS AND OTHER CURRENT ASSETS

Deposits and other current assets were $582,652 and $584,689 as of December 31, 2014 and March 31, 2014, respectively, and were comprised of the following:

	December 31, 2014		March 31, 2014
	(Unaudited)		(Audited)
Inventory	$	42,580	$	42,580
Shipping deposits		17,123		10,205
Mineral reserve deposits		516,045		525,000
Prepaid expenses		6,904		6,904
Ending Balance		582,652	$	584,689

NOTE 4 – FIXED ASSETS, NET

Fixed assets, net consisted of the following:

	December 31,			March 31,
	2014			2014
	(Unaudited)			(Audited)
Office equipment	$	5,013		$	5,013
Vehicles		147,390			147,390
Equipment		391,118			391,118
Total fixed assets		543,521			543,521
Less accumulated depreciation		(375,744	)		(258,652	)
Total fixed assets, net	$	167,777		$	284,869

The depreciation expense for the three and nine months ended December 31, 2014 was $38,441 and $117,092, respectively. The depreciation expense for the three and nine months ended December 31, 2013 was $40,208 and $120,626, respectively.

NOTE 5 – INTANGIBLE ASSETS, NET

We entered into an agreement with Beijing Pengchuang Technology Development Co. (“Pengchuang”), Ltd., an independent Chinese company, to purchase 50% of the intellectual property related to ultrafine particle processing. Pengchuang developed a highly efficient and low energy consumption grinding technology, which utilizes fluid shock waves to make ultrafine particles. This technology can be applied to the coal water slurry, solid lubricant and other material grinding processes. Through a joint development and ownership agreement, AuraSource will enrich its intellectual property portfolio, enabling the further development of AuraMetal, its HCF technology. AuraSource Qinzhou will utilize the particle grinding technology in its AuraMetal Qinzhou production line, as well as license it to others in non-related industries.

-9-

The net intangibles were $745,243 and $780,582 as of December 31, 2014 and March 31, 2014. We issued 600,000 shares of common stock for the acquisition of certain intangibles. The shares issued in connection with $753,530 of the acquired intangibles were valued at $606,000 or $1.01 per share which was the share price on August 8, 2010, the acquisition date. The Company paid cash for the remainder of the amount due. The Company recorded $11,780 and $11,765 in amortization expense in the three months ended December 31, 2014 and 2013, respectively. The Company recorded $35,339 and $35,296 in amortization expense in the nine months ended December 31, 2014 and 2013, respectively.

NOTE 6 – DUE TO RELATED PARTIES

As of December 31, 2014 and March 31, 2014, $1,364,322 and $1,147,446, respectively, is owed to the officers and directors of the Company. As of December 31, 2014, $368,841 is from the advancement of expenses and $995,480 is for past due compensation. As of March 31, 2014, $325,608 is from the advancement of expenses and $821,838 is for past due compensation.

NOTE 7 – NOTE PAYABLE

On December 31, 2012, the Company received $500,000 from Pelican Creek, LLC (Pelican Creek”), an unrelated party, and recorded the corresponding note as a current liability on the balance sheet. As an inducement to receive this loan, the Company issued 1,250,000 shares of its common stock to Pelican Creek for the year ended March 31, 2013. The FV of the shares issued was $812,500 valued at $0.65 per share, using the closing price on the effective date of the agreement. See Note 11, Stock Issuance, for further details. The coupon interest on this note accrues daily on the outstanding principal amount at 8% per annum. On March 26, 2014, the Company issued 2,000,000 shares of common stock in exchange for the cancelation of a $500,000 note payable. As such, as of December 31, 2014, the Company accrued interest of $60,000 and remains in the note payable account with no conversion right.

In the quarter ended March 31, 2014, the Company issued a note payable of $44,000 to Andis with no conversion right and interest of $1,000 per week which was paid in full on April 30, 2014 for $49,000.

NOTE 8 – CONVERTIBLE NOTES PAYABLE

On March 19, 2014, the Company entered into an SPA with Asher. Under the terms of the SPA, the Company issued to Asher a convertible promissory note of $83,500. The note had a nine month maturity date from issuance. The note bears interest at 8%. The note holder can convert the note after 180 days after the date of advance. Any principal or interest on this note which is not paid when due shall bear interest at 22% from the due date until paid. The conversion price shall equal the variable conversion price, 61% multiplied by the market price (representing a discount rate of 39%). Market price is the average of the lowest three trading prices for the common stock during the ten trading day period ending on the latest complete trading day prior to the conversion date. On July 15, 2014, the Company paid the note in full.

NOTE 9 – STOCK ISSUANCE

On June 4, 2014, we issued 20,000 shares of the Company common stock for $6,000 at a share price of $0.30. On February 3, 2015, the Company issued 1,781,920 shares of its common stock at $0.20 per share for a total of $356,384.

-10-

NOTE 10 - STOCK OPTIONS

In January 2009, we granted 60,000 options to purchase shares of our common stock at $3.50 per share to members of our BOD. In April 2010, we granted an additional 60,000 options to purchase shares of our common stock at $1.00 per share to members of our BOD. The options vest quarterly and have an expiration period of 10 years. In April 2011, we granted an additional 60,000 options to purchase shares of our common stock at $0.75 per share to certain members of our BOD. The options vest quarterly and have an expiration period of 10 years. In February 2012, we granted an additional 2,850,000 options to purchase shares of our common stock at $0.28 per share to certain members of our BOD. The options will vest upon the Company earning $5 million in revenues. The options expire in 5 years. In April 2012, we granted an additional 60,000 options to purchase shares of our common stock at $0.27 per share to certain members of our BOD. In April 2013, we granted an additional 60,000 options to purchase shares of our common stock at $0.45 per share to certain members of our BOD. In January 2014, we granted 200,000 options to purchase shares of our common stock at $0.25 per share to certain our CEO and CFO. In April 2014, we granted an additional 60,000 options to purchase shares of our common stock at $0.50 per share to certain members of our BOD. In April 2014, we granted 200,000 options to purchase shares of our common stock at $0.25 per share to certain our CEO and CFO per their employment agreements. In July 2014, we granted 200,000 options to purchase shares of our common stock at $0.25 per share to certain our CEO and CFO per their employment agreements. In October 2014, we granted 200,000 options to purchase shares of our common stock at $0.25 per share to certain our CEO and CFO per their employment agreements.

We will record stock based compensation expense over the requisite service period, which in our case approximates the vesting period of the options. During the three and nine months December 31, 2014, the Company recorded $8,881 and $199,836 in compensation expense arising from the vesting of options, respectively. The Company assumed all stock options issued during the quarter will vest. Though these expenses result in a deferred tax benefit, we have a full valuation allowance against the deferred tax benefit.

The Company adopted the detailed method provided in FASB ASC Topic 718, “Compensation – Stock Compensation,” for calculating the beginning balance of the additional paid-in capital pool (“APIC pool”) related to the tax effects of employee stock-based compensation, and to determine the subsequent impact on the APIC pool and Consolidated Statements of Cash Flows of the income tax effects of employee stock-based compensation awards that are outstanding.

The fair value of each stock option granted is estimated on the grant date using the Black-Scholes option pricing model (“BSOPM”). The BSOPM has assumptions for risk free interest rates, dividends, stock volatility and expected life of an option grant. The risk free interest rate is based upon market yields for United States Treasury debt securities at a 7-year constant maturity. Dividend rates are based on the Company’s dividend history. The stock volatility factor is based on the last 60 days of market prices prior to the grant date. The expected life of an option grant is based on management’s estimate. The fair value of each option grant, as calculated by the BSOPM, is recognized as compensation expense on a straight-line basis over the vesting period of each stock option award.

These assumptions were used to determine the FV of stock options granted:

Dividend yield		0.0%
Volatility		25% to 159%
Average expected option life	2.5 to 5 years
Risk-free interest rate		0.68% to 2.59%

-11-

The following table summarizes activity in the Company's stock option grants for the nine months ended December 31, 2014:

	Number of  Shares		Weighted Average Price Per Share
Balance at March 31, 2014		3,350,000	$	0.36
Granted		660,000	$	0.25
Balance at December 31, 2014		4,010,000	$	0.35

The following summarizes pricing and term information for options issued to employees and directors outstanding as of December 31, 2014:

	Options Outstanding						Options Exercisable
Range of Exercise Prices	Number Outstanding at December 31, 2014		Weighted Average Remaining Contractual Life		Weighted Average Exercise Price		Number Exercisable at December 31, 2014		Weighted Average Exercise Price
$3.50		60,000		4.25		$3.50		60,000		$3.50
$1.00		60,000		5.25		$1.00		60,000		$1.00
$0.75		60,000		6.25		$0.75		60,000		$0.75
$0.50		60,000		9.25		$0.50		60,000		$0.50
$0.45		60,000		8.25		$0.45		60,000		$0.45
$0.28		2,850,000		2.88		$0.28		-		-
$0.27		60,000		7.25		$0.27		60,000		$0.28
$0.25		800,000		9.00		$0.25		800,000		$0.25
Balance at December 31, 2014		4,010,000		3.75		$0.35		1,115,000		$0.57

-12-

ITEM 2 - MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The information contained in this Form 10-Q is intended to update the information contained in our Annual Report on Form 10-K for the year ended March 31, 2014 and presume readers have access to, and will have read, the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and other information contained in such Form 10-K. The following discussion and analysis also should be read together with our consolidated financial statements and the notes to the consolidated financial statements included elsewhere in this Form 10-Q.

The following discussion contains certain statements that may be deemed “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements appear in a number of places in this Report, including, without limitation, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” These statements are not guarantees of future performance and involve risks, uncertainties and requirements that are difficult to predict or are beyond our control. Forward-looking statements speak only as of the date of this quarterly report. You should not put undue reliance on any forward-looking statements. We strongly encourage investors to carefully read the factors described in our Annual Report on Form 10-K for the year ended March 31, 2014 in the section entitled “Risk Factors” for a description of certain risks that could, among other things, cause actual results to differ from these forward-looking statements. We assume no responsibility to update the forward-looking statements contained in this quarterly report on Form 10-Q. The following should also be read in conjunction with the unaudited consolidated financial statements and notes thereto that appear elsewhere in this report.

Overview

We focus on the development and production of environmentally friendly and cost effective industrial energy and feedstock used for industrial applications. AuraMetal, AuraSource’s core technology, includes ultrafine grinding and impurities removal processes. Initial industrial applications of AuraSource technology are ultra-fine coal water mixture for heavy oil substitution, and low grade iron ore fine and slimes beneficiation. AuraSource formed Qinzhou to acquire these types of HCF technologies; to perform research and development related to the reduction of harmful emission and energy costs; to license HCF technology to third parties; and to sell services and products derived from these technologies. Currently, we have seven patents patent issued related to our technologies: 1) ultrafine grinding and 2) ultrafine separation.

On February 15, 2012, we entered into an agreement with GCH to reserve export ready 1 million tons of 64% Fe higher content iron ore and 13 million tons of 45% grade lower content iron ore, and 2 million tons of manganese ore. We agreed to issue the Mineral Deposit Shares to GCH or its assigns. The Mineral Deposit Shares shall vest and be delivered as follows; 5 million immediately, 11 million upon the successful completion of the first customer order over $5 million. Success is defined as customer acceptance of order and final payment. To the extent a successful order does not occur the unvested Mineral Deposit Shares shall be returned to our treasury and cancelled. Additionally, we entered into an agreement with GCM to purchase Minerals which will be delivered loose in bulk modified FOB. We entered into an agreement with GCH appointing GCH as the exclusive North American licensee for use and exploitation of our technology as relates to applications involving precious metals in exchange for royalty payments of five percent of gross revenues.

-13-

Critical Accounting Policies and Estimates

The preparation of our consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (“US GAAP”) requires management to make estimates, judgments and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amount of expenses during the reporting period. On an ongoing basis, we evaluate our estimates which are based on historical experience and on other assumptions that we believe to be reasonable under the circumstances. The result of these evaluations forms the basis for making judgments about the carrying values of assets and liabilities and the reported amount of expenses that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions. The following accounting policies require significant management judgments and estimates:

We account for our business acquisitions under the purchase method of accounting in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 805, "Business Combinations." The total cost of acquisitions is allocated to the underlying net assets, based on their respective estimated fair values. The excess of the purchase price over the estimated fair value of the tangible net assets acquired is recorded as intangibles. Determining the fair value of assets acquired and liabilities assumed requires management's judgment and often involves the use of significant estimates and assumptions, including assumptions with respect to future cash inflows and outflows, discount rates, asset lives, and market multiples, among other items.

We base our estimates on historical experience and various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities not readily apparent from other sources. There can be no assurance that actual results will not differ from these estimates.

Results of Operations

For the Three Months Ended December 31, 2014 and 2013

Revenues

Revenues were $486,668 and $0 for the three months ended December 31, 2014 and 2013, respectively. The increase in revenue was attributable to the commencement of shipping minerals and the sale of mineral processing technology.

Gross Profit

Gross profit was $101,599 and $0 for the three months ended December 31, 2014 and 2013.

General and Administrative Expenses

General and administrative expenses were $323,872 and $233,437 for the three months ended December 31, 2014 and 2013, respectively. The increase of $90,435 was due primarily to increase in salaries, bad debt expense, offset by decrease in professional services for the three months ended December 31, 2014 compared to 2013.

Interest Income (Expense) and Other

Interest income (expense) and other was $(3,262) and $(52,093) for the three months ended December 31, 2014 and 2013, respectively. The interest expense for the three months ended December 31, 2014 was primarily due to the outstanding note payables. The interest expense for the three months ended December 31, 2013 was primarily due to finance charges incurred in connection with obtaining loans from unrelated parties. The decrease was the result of the payoff of notes payable.

-14-

For the Nine Months Ended December 31, 2014 and 2013

Revenues

Revenues were $531,668 and $104,820 for the nine months ended December 31, 2014 and 2013, respectively. The increase in revenue was attributable to the commencement of shipping minerals and the sale of mineral processing technology.

Gross Profit

Gross profit was $130,099 and $31,961 for the nine months ended December 31, 2014 and 2013.

General and Administrative Expenses

General and administrative expenses were $1,110,185 and $926,041 for the nine months ended December 31, 2014 and 2013, respectively. The increase of $184,144 was due primarily to an increase in rent, bad debt, and stock compensation expense for the nine months ended December 31, 2014 compared to 2013.

Interest Income (Expense) and Other

Interest income (expense) and other was $(86,883) and $(371,041) for the nine months ended December 31, 2014 and 2013, respectively. The interest expense for the nine months ended December 31, 2014 was primarily due to the outstanding note payables. The interest expense for the nine months ended December 31, 2013 was primarily due to finance charges incurred in connection with obtaining loans from related and unrelated parties and recording $197,083 in interest income (expense) and other, for issuance of 437,963 common shares in lieu of these charges and a loss on settlement of customer deposit of $62,500. In addition, the Company recorded amortization of the beneficial conversion feature on convertible notes payable of $66,834 for the nine months ended December 31, 2013.

Liquidity and Capital Resources

Net cash used in operating activities was $87,177 and $443,058 in the nine months ended December 31, 2014 and 2013, respectively. The decrease in cash used for operations was mainly due to the reduced net loss

Net cash used in investing activities was $0 and $8,088 in the nine months ended December 31, 2014 and 2013, respectively. The difference was the decrease in capital expenditures on intangibles purchases for the nine months ending December 31, 2014.

Net cash provided by financing activities was $127,509 and $394,357 in the nine months ended December 31, 2014 and 2013, respectively.

The Company suffered recurring losses from operations and has an accumulated deficit of $12,008,219 at December 31, 2014. The Company has incurred losses of $1,066,969 and $894,080 for the nine months ended December 31, 2014 and 2013, respectively. The Company has not continually generated significant revenues. Unless our operations continue to generate significant revenues and cash flows from operating activities, our continued operations will depend on whether we are able to raise additional funds through various sources, such as equity and debt financing, other collaborative agreements and strategic alliances. Our management is actively engaged in seeking additional capital to fund our operations in the short to medium term. Such additional funds may not become available on acceptable terms and there can be no assurance that any additional funding that we do obtain will be sufficient to meet our needs in the long term.

Inflation and Seasonality

Inflation has not been material to us during the past five years. Seasonality has not been material to us.

-15-

Recent Accounting Pronouncements

Refer to the notes to the consolidated financial statements in our March 31, 2014 Annual Report on Form 10-K for a complete description of recent accounting standards which we have not yet been required to implement and may be applicable to our operation, as well as those significant accounting standards that have been adopted during the current year.

Off-Balance Sheet Arrangements

As of December 31, 2014, we did not have any off-balance sheet arrangements as defined in Item 303(a)(4)(ii) of Regulation S-K.

-16-

ITEM 3 – QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

As a “smaller reporting company” as defined by Rule 229.10(f)(1), we are not required to provide the information required by this Item 3.

ITEM 4 - CONTROLS AND PROCEDURES

 Evaluation of Disclosure Controls and Procedures:  We conducted an evaluation under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures.  The term "disclosure controls and procedures", as defined in Rules 13a-15(e) and 15d-15(e) under the Securities and Exchange Act of 1934, as amended ("Exchange Act"), means controls and other procedures of a company that are designed to ensure that information required to be disclosed by the company in the reports 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.  Disclosure controls and procedures also include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company's management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure.  Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded as of December 31, 2014, that our disclosure controls and procedures are effective to a reasonable assurance level of achieving such objectives.  However, it should be noted that the design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote.

Management's Report on Internal Control Over Financial Reporting:  Our management is responsible for establishing and maintaining adequate internal control over financial reporting (“ICFR”) as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act.  Our ICFR is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with US GAAP.  The internal controls for the Company are provided by executive management's review and approval of all transactions.  Our ICFR also includes those policies and procedures that:

1. Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets;
2. Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with US GAAP, and that our receipts and expenditures are being made only in accordance with the authorization of our management; and
3. Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.

 Because of its inherent limitations, ICFR may not prevent or detect misstatements.  Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Management assessed the effectiveness of the Company's ICFR as of December 31, 2014.  In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control-Integrated Framework.  Management's assessment included an evaluation of the design of our ICFR and testing of the operational effectiveness of these controls.

Based on this assessment, management has concluded that as of December 31, 2014, our ICFR was effective to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with US GAAP.

-17-

This quarterly report does not include an attestation report of the Company's registered public accounting firm regarding ICFR.  Management's report was not subject to attestation by the Company's registered public accounting firm pursuant to temporary rules of the SEC that permit the Company to provide only management's report in this annual report.

Changes in Internal Control over Financial Reporting:  There were no changes in our ICFR during the quarter ending December 31, 2014 that have materially affected, or are reasonably likely to materially affect, our ICFR. 

-18-

PART II - OTHER INFORMATION

ITEM 1 – LEGAL PROCEEDINGS

We are not a party to any current or pending legal proceedings that, if decided adversely to us, would have a material adverse effect upon our business, results of operations, or financial condition, and we are not aware of any threatened or contemplated proceeding by any governmental authority against us. To our knowledge, we are not a party to any threatened civil or criminal action or investigation.

ITEM 1A – RISK FACTORS

In addition to the other risk factors and information set forth in this report, you should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended March 31, 2014, which could materially affect our business, financial condition or future results. The risks described in our Annual Report on Form 10-K is not the only risks facing the Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition, operating results and/or cash flows.

ITEM 2 - UNREGISTERED SALES OF EQUITY SECURITIES

During the nine months ended December 31, 2014, the Company issued 20,000 shares of common stock for $6,000. On February 3, 2015, the Company issued 1,781,920 shares of its common stock at $0.20 per share for a total of $356,384. The issuances of the shares of our common stock to investors is intended to be exempt from registration under the Securities Act of 1933, as amended (the “Securities Act”), pursuant to Section 4(2) thereof and Rule 506 of Regulation D (“Regulation D”) as promulgated by the SEC under the Securities Act, as the shares were sold to accredited investors and were not sold through any general solicitation or advertisement. The shares sold by the Company have not been registered under the Securities Act of 1933 and may not be offered or sold in the United States absent such registration or an available exemption from registration. 

ITEM 3 - DEFAULTS UPON SENIOR SECURITIES

None

ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None

ITEM 5 - OTHER INFORMATION

None

ITEM 6 – EXHIBITS

Exhibit	Description
31.1	Certification of Chief Executive Officer pursuant to Exchange Act Rule 13a-14 and 15d-14 as adopted pursuant to section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification of Chief Financial Officer pursuant to Exchange Act Rule 13a-14 and 15d-14 as adopted pursuant to section 302 of the Sarbanes-Oxley Act of 2002.
32	Certification of the Company’s Chief Executive Officer and Chief Financial Officer, pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

-19-

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	AURASOURCE, INC.
Date: February 13, 2015	/s/ PHILIP LIU
	Name: Hongliang Philip Liu
	Title: Chief Executive Officer
Date: February 13, 2015	/s/ ERIC STOPPENHAGEN
	Name: Eric Stoppenhagen
	Title: Chief Financial Officer

-20-

EXHIBIT INDEX

Exhibit	Description
31.1	Certification of Chief Executive Officer pursuant to Exchange Act Rule 13a-14 and 15d-14 as adopted pursuant to section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification of Chief Financial Officer pursuant to Exchange Act Rule 13a-14 and 15d-14 as adopted pursuant to section 302 of the Sarbanes-Oxley Act of 2002.
32	Certification of the Company’s Chief Executive Officer and Chief Financial Officer, pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

-21-

EX-31.1

EXHIBIT 31.1

AURASOURCE, INC.

Certification of Chief Executive Officer Pursuant to

Securities Exchange Act Rules 13a-14(a) and 15d-14(a)

as Adopted Pursuant to

Section 302 of the Sarbanes-Oxley Act of 2002

I, Philip Liu, certify that:

1.	I have reviewed this Form 10-Q of AuraSource, Inc.;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a.					Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b.				Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c.				Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d.				Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5.	The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's Board of Directors (or persons performing the equivalent functions):
a.			All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b.		Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

February 13, 2015
	/s/ PHILIP LIU
	Philip Liu Chief Executive Officer

EX-31.2

EXHIBIT 31.2

AURASOURCE, INC.

Certification of Chief Financial Officer Pursuant to

Securities Exchange Act Rules 13a-14 and 15d-14

as Adopted Pursuant to

Section 302 of the Sarbanes-Oxley Act of 2002

I, Eric Stoppenhagen, certify that:

1. I have reviewed this Form 10-Q of AuraSource, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c. Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's Board of Directors (or persons performing the equivalent functions):

a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

February 13, 2015
	/s/ ERIC STOPPENHAGEN
	Eric Stoppenhagen Chief Financial Officer

EX-32

EXHIBIT 32

AURASOURCE, INC.

CERTIFICATION

PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

(SUBSECTIONS (a) AND (b) OF SECTION 1350, CHAPTER 63 OF TITLE 18,

UNITED STATES CODE)

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned officer of AuraSource, Inc. (the “Company”), does hereby certify, to the best of his knowledge and belief that:

(1) The Quarterly Report on Form 10-Q for the period ended December 31, 2014 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

February 13, 2015

/s/ PHILIP LIU

Chief Executive Officer

February 13, 2015

/s/ ERIC STOPPENHAGEN

Chief Financial Officer

XML

DUE TO RELATED PARTIES (Details Narrative) (USD $)	Dec. 31, 2014	Mar. 31, 2014
Notes to Financial Statements
Accounts payable related parties	$ 1,364,322	$ 1,147,446

XML

FIXED ASSETS

9 Months Ended

Dec. 31, 2014

Property, Plant and Equipment [Abstract]

FIXED ASSETS

NOTE 4 – FIXED ASSETS, NET

Fixed assets, net consisted of the following:

	December 31,			March 31,
	2014			2014
	(Unaudited)			(Audited)
Office equipment	$	5,013		$	5,013
Vehicles		147,390			147,390
Equipment		391,118			391,118
Total fixed assets		543,521			543,521
Less accumulated depreciation		(375,744	)		(258,652	)
Total fixed assets, net	$	167,777		$	284,869

The depreciation expense for the three and nine months ended December 31, 2014 was $38,441 and $117,092, respectively. The depreciation expense for the three and nine months ended December 31, 2013 was $40,208 and $120,626, respectively.

XML

STOCK ISSUANCE (Details Narrative) (USD $)	9 Months Ended
	Dec. 31, 2014
Equity [Abstract]
shares issued for cash	20,000
proceeds from sale of stock	$ 336,362

XML

CONVERTIBLE NOTE PAYABLE (Details Narrative) (USD $)	Dec. 31, 2014
Notes to Financial Statements
convertible note	$ 0

XML

STOCK OPTIONS - STOCK OPTIONS (Details) (USD $)	9 Months Ended
	Dec. 31, 2014	Oct. 02, 2014	Jul. 02, 2014	Apr. 02, 2014	Mar. 31, 2014	Jan. 02, 2014	Apr. 02, 2013	Apr. 02, 2012	Feb. 15, 2012	Apr. 02, 2011	Apr. 02, 2010	Jan. 01, 2009
Notes to Financial Statements
Number of Options	4,010,000	200,000	200,000	260,000	3,350,000	200,000	60,000	60,000	2,850,000	60,000	60,000	60,000
Weighted Average Price Per Share	$ 0.35				$ 0.36
Options granted	$ 660,000
Option exercise price	$ 0.25

XML

STOCK OPTIONS (Details Narrative) (USD $)	Dec. 31, 2014	Oct. 02, 2014	Jul. 02, 2014	Apr. 02, 2014	Mar. 31, 2014	Jan. 02, 2014	Apr. 02, 2013	Apr. 02, 2012	Feb. 15, 2012	Apr. 02, 2011	Apr. 02, 2010	Jan. 01, 2009
Notes to Financial Statements
Options granted	4,010,000	200,000	200,000	260,000	3,350,000	200,000	60,000	60,000	2,850,000	60,000	60,000	60,000
Exercise price of options		$ 0.25	$ 0.25	$ 0.25		$ 0.25	$ 0.26	$ 0.27	$ 0.28	$ 0.75	$ 1.00	$ 3.50

XML

DEPOSITS AND OTHER CURRENT ASSETS

9 Months Ended

Dec. 31, 2014

Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Abstract]

DEPOSITS AND OTHER CURRENT ASSETS

NOTE 3 – DEPOSITS AND OTHER CURRENT ASSETS

Deposits and other current assets were $582,652 and $584,689 as of December 31, 2014 and March 31, 2014, respectively, and were comprised of the following:

	December 31, 2014		March 31, 2014
	(Unaudited)		(Audited)
Inventory	$	42,580	$	42,580
Shipping deposits		17,123		10,205
Mineral reserve deposits		516,045		525,000
Prepaid expenses		6,904		6,904
Ending Balance		582,652	$	584,689

XML

Balance Sheets (USD $)	Dec. 31, 2014	Mar. 31, 2014
Current assets
Cash and equivalents	$ 48,444	$ 11,112
Accounts receivable, net	140,000	250,000
Deposits and other current assets	582,652	584,689
Total current assets	771,096	845,801
Fixed assets, net of accumulated depreciation	167,777	284,869
Intangible assets, net	745,243	780,582
Total assets	1,684,116	1,911,252
Current liabilities
Accounts payable	480,705	375,562
Deferred revenue	37,500	0
Accounts payable related parties	1,364,322	1,147,446
Note payable	60,000	94,000
Convertible note payable and accrued interest	0	35,861
Customer advances	5,832	0
Total current liabilities	1,948,359	1,652,869
Preferred stock, 10,000 shares authorized, no shares issued and outstanding, no rights or privileges designated
Common stock, $.001 par value, 150,000,000 shares authorized 58,424,734 and 58,404,734 shares issued and outstanding at December 31, 2014 and March 31, 2014, respectively	58,424	58,404
Additional paid in capital	11,685,552	11,141,229
Accumulated deficit	(12,008,219)	(10,941,250)
Total shareholders equity	(264,243)	258,383
Total liabilities and shareholders equity	$ 1,684,116	$ 1,911,252

XML

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

9 Months Ended

Dec. 31, 2014

Accounting Policies [Abstract]

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Current Operations and Background — AuraSource, Inc. (“AuraSource” or “Company”) focuses on the development and production of environmentally friendly and cost effective industrial energy and fuel used for industrial applications. AuraMetal, AuraSource’s core technology, includes ultrafine grinding and impurities removal processes. Initial industrial applications of AuraSource technology are ultra-fine coal water mixture for heavy oil substitution, and low grade iron ore fine and slimes beneficiation. AuraSource formed AuraSource Qinzhou Co. Ltd. (“Qinzhou”), a wholly owned subsidiary in China, to acquire these types of Hydrocarbon Clean Fuel (“HCF”) technologies, performing research and development (“R&D”) related to the reduction of harmful emissions and energy costs for HCF technology and products based on this technology, licensing HCF technology to third parties and selling services and products derived from this technology. Currently, we have seven patents patent issued related to our technologies: 1) ultrafine grinding and 2) ultrafine separation.

There can be no assurance we will be able to carry out our development plans for our HCF technology. Our ability to pursue this strategy is subject to the availability of additional capital and further development of our HCF technology.  We also need to finance the cost of effectively protecting our intellectual property rights in the United States (“US”) and abroad where we intend to market our technology and products.

Going Concern — The accompanying unaudited consolidated financial statements were prepared assuming the Company will continue as a going concern.  The Company has suffered recurring losses from operations since its inception and has an accumulated deficit of $12,008,219 at December 31, 2014.  The consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or amounts and classifications of liabilities that might be necessary should the Company be unable to continue its existence.  The recovery of the Company’s assets is dependent upon continued operations of the Company. In addition, the Company's recovery is dependent upon future events, the outcome of which is undetermined.  The Company intends to continue to attempt to raise additional capital, but there can be no certainty such efforts will be successful.

Basis of Presentation and Principles of Consolidation — The accompanying condensed consolidated financial statements were prepared in conformity with accounting principles generally accepted in the United States of America (“US GAAP”) and include the accounts of AuraSource and its subsidiary, Qinzhou. All significant intercompany transactions and balances were eliminated in consolidation.

The unaudited consolidated financial statements were prepared by us pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). The information furnished herein reflects all adjustments (consisting of normal recurring accruals and adjustments) which are, in the opinion of management, necessary to fairly present the operating results for the respective periods. Certain information and footnote disclosures normally present in annual consolidated financial statements prepared in accordance with US GAAP was omitted pursuant to such rules and regulations. These consolidated financial statements should be read in conjunction with the audited consolidated financial statements and footnotes for the year ended March 31, 2014 included in our Annual Report on Form 10-K. The results of the three and nine months ended December 31, 2014 are not necessarily indicative of the results to be expected for the full year ending March 31, 2015.

Use of Estimates — The preparation of consolidated financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Cash and Equivalents — We consider investments with original maturities of 90 days or less to be cash equivalents.

Accounts Receivable - The Company extends credit to its customers. Collateral is generally not required. Credit losses are provided for in the financial statements based on management’s evaluation of historical and current industry trends. Although the Company expects to fully collect amounts due, actual collections may differ from estimated amounts. The Company estimates an allowance for doubtful accounts based upon a percentage of revenue earned. When the Company expects that there is less than a 20% chance of collection, the Company writes the receivable off to its allowance for doubtful accounts. The Company does not typically accrue interest or fees on past due amounts. During the three months ending December 31, 2014, the Company recorded an allowance for doubtful accounts of $60,000.

Inventory - Inventory is valued at the lower of cost or market. Cost is determined using standard costs, which approximates the first-in, first-out method.

Property and Equipment - Property and Equipment are stated at historical cost less accumulated depreciation and amortization. Cost represents the purchase price of the asset and other costs incurred to bring the asset into its existing use. Depreciation is provided on a straight-line basis over the assets' estimated useful lives. The useful lives of the assets are as follows: machinery and equipment 3 years, office equipment 3 years, vehicles 5 years. Additions and improvements are capitalized while routine repairs and maintenance are charged to expense as incurred. Upon sale or disposition, the historically recorded asset cost and accumulated depreciation are removed from the accounts and the net amount less proceeds from disposal is charged or credited to other income / expense.

Revenue Recognition - The Company recognizes revenue in accordance with ASC 605, Revenue Recognition. 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 or services rendered; (3) the fee is fixed and determinable; and (4) collectability is reasonably assured. When we are paid in advance for products or services we classify these amounts as deferred revenue and recognize over the term of the agreement. 

Cost of goods sold- Cost of goods sold includes cost of inventory sold during the period, net of discounts and allowances, freight and shipping costs, warranty and rework costs, and sales tax.

Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of- In accordance with ASC 350-30, we evaluate long-lived assets for impairment whenever events or changes in circumstances indicate that their net book value may not be recoverable.  When such factors and circumstances exist, we compare the projected undiscounted future cash flows associated with the related asset or group of assets over their estimated useful lives against their respective carrying amount.  Impairment, if any, is based on the excess of the carrying amount over the fair value, based on market value when available, or discounted expected cash flows, of those assets and is recorded in the period in which the determination is made.  We currently believe there is no impairment of our long-lived assets.  There can be no assurance, however, that market conditions will not change or demand for our products under development will continue.  Either of these could result in future impairment of long-lived assets.

Beneficial Conversion Features- From time to time, the Company may issue convertible notes that may contain an embedded beneficial conversion feature. A beneficial conversion feature exists on the date a convertible note is issued when the fair value of the underlying common stock to which the note is convertible into is in excess of the remaining unallocated proceeds of the note after first considering the allocation of a portion of the note proceeds to the fair value of the warrants, if related warrants have been granted. The intrinsic value of the beneficial conversion feature is recorded as a debt discount with a corresponding amount to additional paid in capital. The debt discount is amortized to interest expense over the life of the note using the effective interest method.

Income Taxes — The Company accounts for income taxes in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 740, “Income Taxes.” Deferred tax assets and liabilities are recognized to reflect the estimated future tax effects, calculated at currently effective tax rates, of future deductible or taxable amounts attributable to events that have been recognized on a cumulative basis in the financial statements. A valuation allowance for a deferred tax asset is recorded when it is more likely than not that some portion of the deferred tax asset will not be realized.

Stock-Based Compensation — The Company recognizes the cost of employee services received for an award of equity instruments in the consolidated financial statements over the period the employee is required to perform the services.

Foreign Currency Transactions — The Company recognizes foreign currency gains and losses in other income (expense) on the accompanying statement of operations. Foreign currency gains and losses arise as the Company conducts business with other entity’s whose functional currency is not in US dollars. Generally, these gains and losses are recorded at an exchange rate difference between the foreign currency and the functional currency that arises between the transaction date and the payment date.

Net Loss Per Share — The Company computes basic and diluted net loss per share by dividing the net loss available to common stockholders for the period by the weighted average number of shares of common stock outstanding during the period. Common equivalent shares arising from stock options and warrants were excluded from the computation of basic and diluted earnings per share, for the three and nine months ended December 31, 2014 and 2013 because their effect is anti-dilutive.

Concentration of Credit Risk — Financial instruments that potentially subject the Company to a concentration of credit risk consist of cash.  The Company maintains its cash with high credit quality financial institutions; at times, such balances with any one financial institution may exceed Federal Deposit Insurance Corporation (“FDIC”) insured limits.  

Financial Instruments and Fair Value of Financial Instruments — Our financial instruments consist of cash, accounts payable and notes payable. The carrying values of cash, accounts payable and notes payable are representative of the fair values due to their short-term maturities. We measure the fair value (“FV”) of financial assets and liabilities on a recurring basis. FV is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. FV measurements are to be considered from the perspective of a market participant that holds the asset or owes the liability. We also establish a FV hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring FV.

The standard describes three levels of inputs that may be used to measure FV:

Level 1:	Quoted prices in active markets for identical or similar assets and liabilities.
Level 2:	Quoted prices for identical or similar assets and liabilities in markets that are not active or observable inputs other than quoted prices in active markets for identical or similar assets and liabilities.
Level 3:	Unobservable inputs that are supported by little or no market activity and that are significant to the FV of the assets or liabilities.

The Company evaluates embedded conversion features within convertible debt under ASC Topic 815, “Derivatives and Hedging,” to determine whether the embedded conversion feature should be bifurcated from the host instrument and accounted for as a derivative at FV with changes in FV recorded in earnings. If the conversion feature does not require derivative treatment under ASC 815, the instrument is evaluated under ASC subtopic 470-20, “Debt with Conversion and Other Options,” for consideration of any beneficial conversion feature.

Reclassifications — Certain reclassifications were made to the prior period amounts disclosed in the consolidated financial statements to conform to the presentation form the three and nine months ended December 31, 2014. These reclassifications had no effect on reported net loss or stockholders’ equity.

Recent Accounting Pronouncements – There were no significant changes in the Company’s critical accounting policies and estimates during the nine months ended December 31, 2014 compared to what was disclosed in the Company’s Annual Report on Form 10-K for the year ended March 31, 2014.

XML

FIXED ASSETS - FIXED ASSETS (Details) (USD $)	Dec. 31, 2014	Mar. 31, 2014
Property, Plant and Equipment [Abstract]
Office equipment	$ 5,013	$ 5,013
Vehicles	147,390	147,390
Equipment	391,118	391,118
Total fixed assets	543,521	543,521
Less: accumulated depreciation	(375,744)	(258,652)
Total fixed assets, net	$ 167,777	$ 284,869

XML

INTANGIBLE (Details Narrative) (USD $)	3 Months Ended		9 Months Ended
	Dec. 31, 2014	Dec. 31, 2013	Dec. 31, 2014	Dec. 31, 2012	Mar. 31, 2014	Aug. 08, 2010
Notes to Financial Statements
Intangible assets, net	$ 745,243		$ 745,243		$ 780,582
Common stock value	58,424		58,424		58,404	606,000
Paid intangibles						147,530
Intangible amortization	$ 11,780	$ 11,765	$ 35,339	$ 35,296

XML

CONCENTRATION OF CREDIT RISK

9 Months Ended

Dec. 31, 2014

Risks and Uncertainties [Abstract]

CONCENTRATION OF CREDIT RISK

NOTE 2 - CONCENTRATION OF CREDIT RISK

We maintain our cash balances in financial institutions that from time to time exceed amounts insured by the FDIC (up to $250,000, per financial institution as of December 31, 2014). As of December 31, 2014 and March 31, 2014, our deposits did not exceeded insured amounts. We have not experienced any losses in such accounts and we believe we are not exposed to any credit risk on cash.

Currently, we maintain a bank account in China. This account is not insured and we believe is exposed to credit risk on cash.

XML

Balance Sheets (Parenthetical)	Dec. 31, 2014	Mar. 31, 2014
Statement of Financial Position [Abstract]
Preferred stock, Authorized	10,000	10,000
Preferred Stock, Issued	0	0
Common Stock, Authorized	150,000,000	150,000,000
Common Stock, Issued	58,424,734	58,404,734

XML

DEPOSITS AND OTHER CURRENT ASSETS (Tables)

9 Months Ended

Dec. 31, 2014

Deposit Assets Disclosure [Abstract]

Deposits and other current assets

	December 31, 2014		March 31, 2014
	(Unaudited)		(Audited)
Inventory	$	42,580	$	42,580
Shipping deposits		17,123		10,205
Mineral reserve deposits		516,045		525,000
Prepaid expenses		6,904		6,904
Ending Balance		582,652	$	584,689

XML

Document and Entity Information (USD $)	9 Months Ended
	Dec. 31, 2014	Feb. 13, 2015
Document And Entity Information
Entity Registrant Name	AuraSource, Inc.
Entity Central Index Key	0001083922
Document Type	10-Q
Document Period End Date	Dec. 31, 2014
Amendment Flag	false
Current Fiscal Year End Date	--03-31
Is Entity a Well-known Seasoned Issuer?	No
Is Entity a Voluntary Filer?	No
Is Entity's Reporting Status Current?	Yes
Entity Filer Category	Smaller Reporting Company
Entity Public Float		$ 22,575,906
Entity Common Stock, Shares Outstanding		60,206,655
Document Fiscal Period Focus	Q3
Document Fiscal Year Focus	2015

XML

FIXED ASSETS (Tables)

9 Months Ended

Dec. 31, 2014

Property, Plant and Equipment [Abstract]

FIXED ASSETS

	December 31,			March 31,
	2014			2014
	(Unaudited)			(Audited)
Office equipment	$	5,013		$	5,013
Vehicles		147,390			147,390
Equipment		391,118			391,118
Total fixed assets		543,521			543,521
Less accumulated depreciation		(375,744	)		(258,652	)
Total fixed assets, net	$	167,777		$	284,869

XML

Consolidated Statements of Operations (Unaudited) (USD $)	3 Months Ended		9 Months Ended
	Dec. 31, 2014	Dec. 31, 2013	Dec. 31, 2014	Dec. 31, 2013
Income Statement [Abstract]
Revenue	$ 486,668	$ 0	$ 531,668	$ 104,820
Cost of revenue	385,069	0	401,569	72,859
Gross profit	101,599	0	130,099	31,961
Operating expenses:
General & administrative expenses	323,872	233,437	1,110,185	926,041
Total operating expenses	323,872	233,437	1,110,185	926,041
Loss from operations	(222,273)	(233,437)	(980,086)	(894,080)
Interest income / (expense) and other, net	(3,262)	(52,093)	(86,883)	(371,041)
Net loss applicable to common stockholders	$ (225,535)	$ (285,530)	$ (1,066,969)	$ (1,265,121)
Basic & Diluted Loss per share	$ 0.00	$ (0.01)	$ (0.02)	$ (0.02)
Weighted average shares outstanding	58,424,734	52,089,903	58,420,006	51,672,516

XML

NOTE PAYABLE

9 Months Ended

Dec. 31, 2014

Debt Disclosure [Abstract]

LOANS PAYABLE

NOTE 7 – NOTE PAYABLE

On December 31, 2012, the Company received $500,000 from Pelican Creek, LLC (Pelican Creek”), an unrelated party, and recorded the corresponding note as a current liability on the balance sheet. As an inducement to receive this loan, the Company issued 1,250,000 shares of its common stock to Pelican Creek for the year ended March 31, 2013. The FV of the shares issued was $812,500 valued at $0.65 per share, using the closing price on the effective date of the agreement. See Note 11, Stock Issuance, for further details. The coupon interest on this note accrues daily on the outstanding principal amount at 8% per annum. On March 26, 2014, the Company issued 2,000,000 shares of common stock in exchange for the cancelation of a $500,000 note payable. As such, as of December 31, 2014, the Company accrued interest of $60,000 and remains in the note payable account with no conversion right.

In the quarter ended March 31, 2014, the Company issued a note payable of $44,000 to Andis with no conversion right and interest of $1,000 per week which was paid in full on April 30, 2014 for $49,000.

XML

ACCOUNTS PAYABLE RELATED PARTIES

9 Months Ended

Dec. 31, 2014

Payables and Accruals [Abstract]

ACCOUNTS PAYABLE RELATED PARTIES

NOTE 6 – DUE TO RELATED PARTIES

As of December 31, 2014 and March 31, 2014, $1,364,322 and $1,147,446, respectively, is owed to the officers and directors of the Company. As of December 31, 2014, $368,841 is from the advancement of expenses and $995,480 is for past due compensation. As of March 31, 2014, $325,608 is from the advancement of expenses and $821,838 is for past due compensation.

XML

FIXED ASSETS (Details Narrative) (USD $)	3 Months Ended		9 Months Ended
	Dec. 31, 2014	Dec. 31, 2013	Dec. 31, 2014	Dec. 31, 2013
Property, Plant and Equipment [Abstract]
depreciation expense	$ 38,441	$ 40,208	$ 117,092	$ 120,626

XML

STOCK OPTIONS (Tables)

9 Months Ended

Dec. 31, 2014

Equity [Abstract]

Stock option grant

	Number of  Shares		Weighted Average Price Per Share
Balance at March 31, 2014		3,350,000	$	0.36
Granted		660,000	$	0.25
Balance at December 31, 2014		4,010,000	$	0.35

Price and term share based compensation

	Options Outstanding						Options Exercisable
Range of Exercise Prices	Number Outstanding at December 31, 2014		Weighted Average Remaining Contractual Life		Weighted Average Exercise Price		Number Exercisable at December 31, 2014		Weighted Average Exercise Price
$3.50		60,000		4.25		$3.50		60,000		$3.50
$1.00		60,000		5.25		$1.00		60,000		$1.00
$0.75		60,000		6.25		$0.75		60,000		$0.75
$0.50		60,000		9.25		$0.50		60,000		$0.50
$0.45		60,000		8.25		$0.45		60,000		$0.45
$0.28		2,850,000		2.88		$0.28		-		-
$0.27		60,000		7.25		$0.27		60,000		$0.28
$0.25		800,000		9.00		$0.25		800,000		$0.25
Balance at December 31, 2014		4,010,000		3.75		$0.35		1,115,000		$0.57

XML

STOCK OPTIONS

9 Months Ended

Dec. 31, 2014

Equity [Abstract]

STOCK OPTIONS

NOTE 10 - STOCK OPTIONS

In January 2009, we granted 60,000 options to purchase shares of our common stock at $3.50 per share to members of our BOD. In April 2010, we granted an additional 60,000 options to purchase shares of our common stock at $1.00 per share to members of our BOD. The options vest quarterly and have an expiration period of 10 years. In April 2011, we granted an additional 60,000 options to purchase shares of our common stock at $0.75 per share to certain members of our BOD. The options vest quarterly and have an expiration period of 10 years. In February 2012, we granted an additional 2,850,000 options to purchase shares of our common stock at $0.28 per share to certain members of our BOD. The options will vest upon the Company earning $5 million in revenues. The options expire in 5 years. In April 2012, we granted an additional 60,000 options to purchase shares of our common stock at $0.27 per share to certain members of our BOD. In April 2013, we granted an additional 60,000 options to purchase shares of our common stock at $0.45 per share to certain members of our BOD. In January 2014, we granted 200,000 options to purchase shares of our common stock at $0.25 per share to certain our CEO and CFO. In April 2014, we granted an additional 60,000 options to purchase shares of our common stock at $0.50 per share to certain members of our BOD. In April 2014, we granted 200,000 options to purchase shares of our common stock at $0.25 per share to certain our CEO and CFO per their employment agreements. In July 2014, we granted 200,000 options to purchase shares of our common stock at $0.25 per share to certain our CEO and CFO per their employment agreements. In October 2014, we granted 200,000 options to purchase shares of our common stock at $0.25 per share to certain our CEO and CFO per their employment agreements.

We will record stock based compensation expense over the requisite service period, which in our case approximates the vesting period of the options. During the three and nine months December 31, 2014, the Company recorded $8,881 and $199,836 in compensation expense arising from the vesting of options, respectively. The Company assumed all stock options issued during the quarter will vest. Though these expenses result in a deferred tax benefit, we have a full valuation allowance against the deferred tax benefit.

The Company adopted the detailed method provided in FASB ASC Topic 718, “Compensation – Stock Compensation,” for calculating the beginning balance of the additional paid-in capital pool (“APIC pool”) related to the tax effects of employee stock-based compensation, and to determine the subsequent impact on the APIC pool and Consolidated Statements of Cash Flows of the income tax effects of employee stock-based compensation awards that are outstanding.

The fair value of each stock option granted is estimated on the grant date using the Black-Scholes option pricing model (“BSOPM”). The BSOPM has assumptions for risk free interest rates, dividends, stock volatility and expected life of an option grant. The risk free interest rate is based upon market yields for United States Treasury debt securities at a 7-year constant maturity. Dividend rates are based on the Company’s dividend history. The stock volatility factor is based on the last 60 days of market prices prior to the grant date. The expected life of an option grant is based on management’s estimate. The fair value of each option grant, as calculated by the BSOPM, is recognized as compensation expense on a straight-line basis over the vesting period of each stock option award.

These assumptions were used to determine the FV of stock options granted:

Dividend yield		0.0%
Volatility		25% to 159%
Average expected option life	2.5 to 5 years
Risk-free interest rate		0.68% to 2.59%

The following table summarizes activity in the Company's stock option grants for the nine months ended December 31, 2014:

	Number of  Shares		Weighted Average Price Per Share
Balance at March 31, 2014		3,350,000	$	0.36
Granted		660,000	$	0.25
Balance at December 31, 2014		4,010,000	$	0.35

The following summarizes pricing and term information for options issued to employees and directors outstanding as of December 31, 2014:

	Options Outstanding						Options Exercisable
Range of Exercise Prices	Number Outstanding at December 31, 2014		Weighted Average Remaining Contractual Life		Weighted Average Exercise Price		Number Exercisable at December 31, 2014		Weighted Average Exercise Price
$3.50		60,000		4.25		$3.50		60,000		$3.50
$1.00		60,000		5.25		$1.00		60,000		$1.00
$0.75		60,000		6.25		$0.75		60,000		$0.75
$0.50		60,000		9.25		$0.50		60,000		$0.50
$0.45		60,000		8.25		$0.45		60,000		$0.45
$0.28		2,850,000		2.88		$0.28		-		-
$0.27		60,000		7.25		$0.27		60,000		$0.28
$0.25		800,000		9.00		$0.25		800,000		$0.25
Balance at December 31, 2014		4,010,000		3.75		$0.35		1,115,000		$0.57

XML

CONVERTIBLE NOTE PAYABLE

9 Months Ended

Dec. 31, 2014

Notes to Financial Statements

CONVERTIBLE NOTE PAYABLE

NOTE 8 – CONVERTIBLE NOTES PAYABLE

On March 19, 2014, the Company entered into an SPA with Asher. Under the terms of the SPA, the Company issued to Asher a convertible promissory note of $83,500. The note had a nine month maturity date from issuance. The note bears interest at 8%. The note holder can convert the note after 180 days after the date of advance. Any principal or interest on this note which is not paid when due shall bear interest at 22% from the due date until paid. The conversion price shall equal the variable conversion price, 61% multiplied by the market price (representing a discount rate of 39%). Market price is the average of the lowest three trading prices for the common stock during the ten trading day period ending on the latest complete trading day prior to the conversion date. On July 15, 2014, the Company paid the note in full.

XML

STOCK ISSUANCE

9 Months Ended

Dec. 31, 2014

Equity [Abstract]

STOCK ISSUANCE

NOTE 9 – STOCK ISSUANCE

On June 4, 2014, we issued 20,000 shares of the Company common stock for $6,000 at a share price of $0.30. On February 3, 2015, the Company issued 1,781,920 shares of its common stock at $0.20 per share for a total of $356,384.

XML

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)

9 Months Ended

Dec. 31, 2014

Accounting Policies [Abstract]

Going Concern

Going Concern — The accompanying unaudited consolidated financial statements were prepared assuming the Company will continue as a going concern.  The Company has suffered recurring losses from operations since its inception and has an accumulated deficit of $12,008,219 at December 31, 2014.  The consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or amounts and classifications of liabilities that might be necessary should the Company be unable to continue its existence.  The recovery of the Company’s assets is dependent upon continued operations of the Company. In addition, the Company's recovery is dependent upon future events, the outcome of which is undetermined.  The Company intends to continue to attempt to raise additional capital, but there can be no certainty such efforts will be successful.

~

Basis of Presentation and Principles of Consolidation

Basis of Presentation and Principles of Consolidation — The accompanying condensed consolidated financial statements were prepared in conformity with accounting principles generally accepted in the United States of America (“US GAAP”) and include the accounts of AuraSource and its subsidiary, Qinzhou. All significant intercompany transactions and balances were eliminated in consolidation.

The unaudited consolidated financial statements were prepared by us pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). The information furnished herein reflects all adjustments (consisting of normal recurring accruals and adjustments) which are, in the opinion of management, necessary to fairly present the operating results for the respective periods. Certain information and footnote disclosures normally present in annual consolidated financial statements prepared in accordance with US GAAP was omitted pursuant to such rules and regulations. These consolidated financial statements should be read in conjunction with the audited consolidated financial statements and footnotes for the year ended March 31, 2014 included in our Annual Report on Form 10-K. The results of the three and nine months ended December 31, 2014 are not necessarily indicative of the results to be expected for the full year ending March 31, 2015.

Use of estimates

Use of Estimates — The preparation of consolidated financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Accounts receivable

Accounts Receivable - The Company extends credit to its customers. Collateral is generally not required. Credit losses are provided for in the financial statements based on management’s evaluation of historical and current industry trends. Although the Company expects to fully collect amounts due, actual collections may differ from estimated amounts. The Company estimates an allowance for doubtful accounts based upon a percentage of revenue earned. When the Company expects that there is less than a 20% chance of collection, the Company writes the receivable off to its allowance for doubtful accounts. The Company does not typically accrue interest or fees on past due amounts. During the three months ending December 31, 2014, the Company recorded an allowance for doubtful accounts of $60,000.

~

Cash and cash equivalents

 Cash and Equivalents — We consider investments with original maturities of 90 days or less to be cash equivalents.

~

Inventory

Inventory - Inventory is valued at the lower of cost or market. Cost is determined using standard costs, which approximates the first-in, first-out method.

~

Property and Equipment

Property and Equipment - Property and Equipment are stated at historical cost less accumulated depreciation and amortization. Cost represents the purchase price of the asset and other costs incurred to bring the asset into its existing use. Depreciation is provided on a straight-line basis over the assets' estimated useful lives. The useful lives of the assets are as follows: machinery and equipment 5 years, office equipment 5 to 7 years, vehicles 5 years, and leasehold improvements use the shorter of the estimated useful life or the remaining term of the agreements, generally ranging from 3 to 15 years. Additions and improvements are capitalized while routine repairs and maintenance are charged to expense as incurred. Upon sale or disposition, the historically recorded asset cost and accumulated depreciation are removed from the accounts and the net amount less proceeds from disposal is charged or credited to other income / expense.

~

Revenue Recognition

Revenue Recognition - The Company recognizes revenue in accordance with ASC 605, Revenue Recognition. 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 or services rendered; (3) the fee is fixed and determinable; and (4) collectability is reasonably assured. When we are paid in advance for products or services we classify these amounts as deferred revenue and amortized over the term of the agreement. 

~

Cost of goods sold

Cost of goods sold- Cost of goods sold includes cost of inventory sold during the period, net of discounts and allowances, freight and shipping costs, warranty and rework costs, and sales tax.

Impairment of Long-Lived Assets

Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of- In accordance with ASC 350-30, we evaluate long-lived assets for impairment whenever events or changes in circumstances indicate that their net book value may not be recoverable.  When such factors and circumstances exist, we compare the projected undiscounted future cash flows associated with the related asset or group of assets over their estimated useful lives against their respective carrying amount.  Impairment, if any, is based on the excess of the carrying amount over the fair value, based on market value when available, or discounted expected cash flows, of those assets and is recorded in the period in which the determination is made.  We currently believe there is no impairment of our long-lived assets.  There can be no assurance, however, that market conditions will not change or demand for our products under development will continue.  Either of these could result in future impairment of long-lived assets.

~

Beneficial Conversion Features

Beneficial Conversion Features- From time to time, the Company may issue convertible notes that may contain an embedded beneficial conversion feature. A beneficial conversion feature exists on the date a convertible note is issued when the fair value of the underlying common stock to which the note is convertible into is in excess of the remaining unallocated proceeds of the note after first considering the allocation of a portion of the note proceeds to the fair value of the warrants, if related warrants have been granted. The intrinsic value of the beneficial conversion feature is recorded as a debt discount with a corresponding amount to additional paid in capital. The debt discount is amortized to interest expense over the life of the note using the effective interest method.

~

Income Taxes

Income Taxes — The Company accounts for income taxes in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 740, “Income Taxes.” Deferred tax assets and liabilities are recognized to reflect the estimated future tax effects, calculated at currently effective tax rates, of future deductible or taxable amounts attributable to events that have been recognized on a cumulative basis in the financial statements. A valuation allowance for a deferred tax asset is recorded when it is more likely than not that some portion of the deferred tax asset will not be realized.

Stock based compensation

Stock-Based Compensation — The Company recognizes the cost of employee services received for an award of equity instruments in the consolidated financial statements over the period the employee is required to perform the services.

Foreign currency transactions

 Foreign Currency Transactions — The Company recognizes foreign currency gains and losses in other income (expense) on the accompanying statement of operations. Foreign currency gains and losses arise as the Company conducts business with other entity’s whose functional currency is not in US dollars. Generally, these gains and losses are recorded at an exchange rate difference between the foreign currency and the functional currency that arises between the transaction date and the payment date.

~

Net loss per share

Net Loss Per Share — The Company computes basic and diluted net loss per share by dividing the net loss available to common stockholders for the period by the weighted average number of shares of common stock outstanding during the period. Common equivalent shares arising from stock options and warrants were excluded from the computation of basic and diluted earnings per share, for the three and nine months ended December 31, 2014 and 2013 because their effect is anti-dilutive.

Concentration of Credit Risk

 Concentration of Credit Risk — Financial instruments that potentially subject the Company to a concentration of credit risk consist of cash.  The Company maintains its cash with high credit quality financial institutions; at times, such balances with any one financial institution may exceed Federal Deposit Insurance Corporation (“FDIC”) insured limits.  

~

Financial instruments and fair value of financial instruments

Financial Instruments and Fair Value of Financial Instruments — Our financial instruments consist of cash, accounts payable and notes payable. The carrying values of cash, accounts payable and notes payable are representative of the fair values due to their short-term maturities. We measure the fair value (“FV”) of financial assets and liabilities on a recurring basis. FV is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. FV measurements are to be considered from the perspective of a market participant that holds the asset or owes the liability. We also establish a FV hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring FV.

The standard describes three levels of inputs that may be used to measure FV:

Level 1:	Quoted prices in active markets for identical or similar assets and liabilities.
Level 2:	Quoted prices for identical or similar assets and liabilities in markets that are not active or observable inputs other than quoted prices in active markets for identical or similar assets and liabilities.
Level 3:	Unobservable inputs that are supported by little or no market activity and that are significant to the FV of the assets or liabilities.

The Company evaluates embedded conversion features within convertible debt under ASC Topic 815, “Derivatives and Hedging,” to determine whether the embedded conversion feature should be bifurcated from the host instrument and accounted for as a derivative at FV with changes in FV recorded in earnings. If the conversion feature does not require derivative treatment under ASC 815, the instrument is evaluated under ASC subtopic 470-20, “Debt with Conversion and Other Options,” for consideration of any beneficial conversion feature.

Reclassifications

Reclassifications — Certain reclassifications were made to the prior period amounts disclosed in the consolidated financial statements to conform to the presentation form the three and nine months ended December 31, 2014. These reclassifications had no effect on reported net loss or stockholders’ equity.

~

XML

DEPOSITS AND OTHER CURRENT ASSETS (Details Narrative) (USD $)	Dec. 31, 2014	Mar. 31, 2014
Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Abstract]
Inventory	$ 42,580	$ 42,580
Shipping deposits	17,123	10,205
Mineral reserve deposits	516,045	525,000
Prepaid expenses	6,904	6,904
Prepaid expenses	$ 582,652	$ 584,689

XML

LOANS PAYABLE (Details Narrative) (USD $)	Dec. 31, 2014	Mar. 31, 2014
Debt Disclosure [Abstract]
Interest payable	$ 60,000	$ 60,000

XML

Statements of Cash Flows (USD $)	9 Months Ended
	Dec. 31, 2014	Dec. 31, 2013
Statement of Cash Flows [Abstract]
Net loss	$ (1,066,969)	$ (1,265,121)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	152,431	226,124
Stock issued for services and interest	0	259,583
Options issued for services	205,816	10,385
Bad debt expense	60,000	0
Changes in operating assets and liabilities:
Accounts receivable	50,000	0
Due from affiliate	0	(1,390)
Inventory	0	(32,580)
Deposits and other current assets net	2,036	79,145
Accounts payable	105,143	56,569
Deferred revenue	37,500	(63,754)
Accounts payable related parties	253,395	287,981
Interest payable	107,639	0
Customer deposits	5,832	0
Net cash used in operating activities	(87,177)	(443,058)
Cash flows from investing activities :
Capital equipment purchases	0	0
Cash paid for acquisition of intangible	0	(8,088)
Net cash used in investing activities	0	(8,088)
Cash flows from financing activities
Proceeds from issuance of common stock, net	338,527	0
Net proceeds from issuance of note payable	0	190,501
Repayment of note payable	(177,500)	(87,345)
Proceeds from loans payable, net	0	195,485
Advances from related parties, net	(36,518)	95,716
Net cash provided by financing activities	124,509	394,357
Net change in cash and equivalents	37,332	(56,789)
Cash and equivalents - beginning balance	11,112	75,508
Cash and equivalents - ending balance	48,444	18,719
Interest	0	2,361
Income taxes	0	0
The Company issued shares of common stock in lieu of a customer deposit	$ 0	$ 500,000

XML

INTANGIBLE

9 Months Ended

Dec. 31, 2014

Goodwill and Intangible Assets Disclosure [Abstract]

INTANGIBLE

NOTE 5 – INTANGIBLE ASSETS, NET

We entered into an agreement with Beijing Pengchuang Technology Development Co. (“Pengchuang”), Ltd., an independent Chinese company, to purchase 50% of the intellectual property related to ultrafine particle processing. Pengchuang developed a highly efficient and low energy consumption grinding technology, which utilizes fluid shock waves to make ultrafine particles. This technology can be applied to the coal water slurry, solid lubricant and other material grinding processes. Through a joint development and ownership agreement, AuraSource will enrich its intellectual property portfolio, enabling the further development of AuraMetal, its HCF technology. AuraSource Qinzhou will utilize the particle grinding technology in its AuraMetal Qinzhou production line, as well as license it to others in non-related industries.

The net intangibles were $745,243 and $780,582 as of December 31, 2014 and March 31, 2014. We issued 600,000 shares of common stock for the acquisition of certain intangibles. The shares issued in connection with $753,530 of the acquired intangibles were valued at $606,000 or $1.01 per share which was the share price on August 8, 2010, the acquisition date. The Company paid cash for the remainder of the amount due. The Company recorded $11,780 and $11,765 in amortization expense in the three months ended December 31, 2014 and 2013, respectively. The Company recorded $35,339 and $35,296 in amortization expense in the nine months ended December 31, 2014 and 2013, respectively.

XML

CONVERTIBLE NOTE PAYABLE - CONVERTIBLE NOTE PAYABLE (Details) (USD $)	Dec. 31, 2014
Notes to Financial Statements
Convertible note payable, 8% interest, due in 2014	$ 0
Accrued interest	$ 0

XML

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details Narrative) (USD $)	Dec. 31, 2014	Mar. 31, 2014
Notes to Financial Statements
Retained earnings accumulated deficit	$ (12,008,219)	$ (10,941,250)