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 September 30, 2015
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 has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (section 232.405 of this chapter) during the preceding twelve months (or shorter period that the registrant was required to submit and post such files).
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 November 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 — September 30, 2015 (Unaudited) and March 31, 2015 | 3 | |
Condensed Consolidated Statements of Operations (Unaudited) – Three and six months ended September 30, 2015 and 2014 | 4 | |
Condensed Consolidated Statements of Cash Flows (Unaudited) - Six months ended September 30, 2015 and 2014 | 5 | |
Notes to Unaudited Condensed Consolidated Financial Statements | 6 | |
ITEM 2. | MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS | 14 |
ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK | 18 |
ITEM 4. | CONTROLS AND PROCEDURES | 18 |
PART II | OTHER INFORMATION | 20 |
ITEM 4. | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS | 20 |
ITEM 6. | EXHIBITS | 20 |
Signatures | 21 |
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PART I - FINANCIAL INFORMATION
ITEM 1 — CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AuraSource, Inc.
Condensed Consolidated Balance Sheets
September 30, 2015 | March 31, 2015 | |||||||
(Unaudited) | (Audited) | |||||||
ASSETS | ||||||||
CURRENT ASSETS | ||||||||
Cash | $ | 4,853 | $ | 9,784 | ||||
Accounts receivable, net | — | — | ||||||
Deposits and other current assets | 526,963 | 526,963 | ||||||
TOTAL CURRENT ASSETS | 531,816 | 536,747 | ||||||
Fixed assets, net | 52,699 | 129,336 | ||||||
Intangible assets, net | 714,682 | 733,463 | ||||||
TOTAL ASSETS | $ | 1,299,197 | $ | 1,399,546 | ||||
LIABILITIES AND STOCKHOLDERS' DEFICIT | ||||||||
CURRENT LIABILITIES | ||||||||
Accounts payable | $ | 348,980 | $ | 334,778 | ||||
Customer advances | 5,832 | 5,832 | ||||||
Due to related parties | 1,887,605 | 1,508,955 | ||||||
Note payable and accrued interest | 134,358 | 132,458 | ||||||
TOTAL CURRENT LIABILITIES | 2,376,775 | 1,982,023 | ||||||
Commitments and contingencies | ||||||||
STOCKHOLDERS' DEFICIT | ||||||||
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, 60,206,655 shares issued and outstanding, respectively | 60,206 | 60,206 | ||||||
Additional paid in capital | 11,909,260 | 11,753,473 | ||||||
Accumulated deficit | (13,047,044 | ) | (12,396,156 | ) | ||||
Total stockholders' deficit | (1,077,578 | ) | (582,477 | ) | ||||
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT | $ | 1,299,197 | $ | 1,399,546 | ||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
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AuraSource, Inc.
Condensed Consolidated Statements of Operations
(Unaudited)
Three Months Ended September 30, | Six Months Ended September 30, | |||||||||||||||
2015 | 2014 | 2015 | 2014 | |||||||||||||
Revenue | $ | — | $ | — | $ | — | $ | 45,000 | ||||||||
Cost of revenue | — | — | — | 16,500 | ||||||||||||
Gross profit | — | — | — | 28,500 | ||||||||||||
Operating expenses: | ||||||||||||||||
General & administrative expenses | 310,667 | 398,009 | 645,200 | 786,313 | ||||||||||||
Total operating expenses | 310,667 | 398,009 | 645,200 | 786,313 | ||||||||||||
Loss from operations | (310,667 | ) | (398,009 | ) | (645,200 | ) | (757,813 | ) | ||||||||
Interest income (expense) and other, net | (3,917 | ) | (2,140 | ) | (5,688 | ) | (83,622 | ) | ||||||||
Net loss applicable to common stockholders | $ | (314,304 | ) | $ | (400,149 | ) | $ | (650,888 | ) | $ | (841,435 | ) | ||||
Basic & diluted loss per share | $ | (0.01 | ) | $ | (0.01 | ) | $ | (0.01 | ) | $ | (0.01 | ) | ||||
Weighted average shares outstanding | 60,206,654 | 58,424,734 | 60,206,654 | 58,417,630 | ||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
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AuraSource, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Six Months Ended September 30, | ||||||||
2014 | 2013 | |||||||
Cash flows from operating activities | ||||||||
Net loss | $ | (650,888 | ) | $ | (841,435 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities | ||||||||
Depreciation and amortization | 100,257 | 102,210 | ||||||
Options issued for services | 155,787 | 190,955 | ||||||
Changes in operating assets and liabilities | ||||||||
Accounts receivable | — | 50,000 | ||||||
Deposits and other current assets, net | — | (122,750 | ) | |||||
Accounts payable and accrued expenses | 16,102 | 74,773 | ||||||
Accounts payable – related parties | 248,994 | 184,632 | ||||||
Deferred revenue | — | 80,000 | ||||||
Customer deposits | — | 450,000 | ||||||
Net cash provided by / (used) in operating activities | (129,748 | ) | 168,385 | |||||
Cash flows from investing activities | ||||||||
Cash paid for acquisition of intangible | (4,839 | ) | — | |||||
Net cash used in investing activities | (4,839 | ) | — | |||||
Cash flows from financing activities | ||||||||
Proceeds from issuance of common stock, net | — | 336,362 | ||||||
Repayment of note payable | — | (177,500 | ) | |||||
Advances (payments) to related parties | 129,656 | (36,519 | ) | |||||
Net cash provided by financing activities | 129,656 | 122,342 | ||||||
Net change in cash | (4,931 | ) | 290,727 | ) | ||||
Cash - beginning balance | 9,784 | 11,112 | ||||||
Cash - ending balance | $ | 4,853 | $ | 301,839 | ||||
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION | ||||||||
Cash paid during the period for | ||||||||
Interest | $ | — | $ | 5,000 | ||||
Income taxes | $ | — | $ | — | ||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
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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 $13,047,044 at September 30, 2015. 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, 2015 included in our Annual Report on Form 10-K. The results of the three and six months ended September 30, 2015 are not necessarily indicative of the results to be expected for the full year ending March 31, 2016.
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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.
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.
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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 months ended September 30, 2015 and 2014 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.
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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 six months ended September 30, 2015. 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 three months ended September 30, 2015 compared to what was disclosed in the Company’s Annual Report on Form 10-K for the year ended March 31, 2015.
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 September 30, 2015). As of September 30, 2015 and March 31, 2015, our deposits did not exceed 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.
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NOTE 3 – DEPOSITS AND OTHER CURRENT ASSETS
Deposits and other current assets were $526,963 and $526,963 as of September 30, 2015 and March 31, 2015, respectively, and were comprised of the following:
September 30, 2015 | March 31, 2015 | |||||||
(Unaudited) | (Audited) | |||||||
Inventory | $ | — | $ | — | ||||
Shipping deposits | 10,918 | 10,918 | ||||||
Mineral reserve deposits | 516,045 | 516,045 | ||||||
Prepaid expenses | — | — | ||||||
Ending Balance | $ | 526,963 | $ | 526,963 | ||||
NOTE 4 – FIXED ASSETS, NET
Fixed assets, net consisted of the following:
September 30, | March 31, | |||||||
2015 | 2015 | |||||||
(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 | (490,822 | ) | (414,185 | ) | ||||
Total fixed assets, net | $ | 52,699 | $ | 129,336 |
The depreciation expense for the three and six months ended September 30, 2014 was $38,441 and $90,429, respectively. The depreciation expense for the three and six months ended September 30, 2015 was $38,195 and $76,637, 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.
The net intangibles were $714,682 and $733,463 as of September 30, 2015 and March 31, 2015. 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 $11,840 and $11,780 in amortization expense in the three months ended September 30, 2015 and 2014, respectively. The Company recorded $23,620 and $23,559 in amortization expense in the six months ended September 30, 2015 and 2014, respectively.
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NOTE 6 – DUE TO RELATED PARTIES
As of September 30, 2015 and March 31, 2015, $1,887,605 and $1,508,955, respectively, is owed to the officers and directors of the Company. As of September 30, 2015, $553,898 is from the advancement of expenses and $1,333,707 is for past due compensation. As of March 31, 2015, $169,949 is from the advancement of expenses and $1,339,006 is for past due compensation.
NOTE 7 – NOTE PAYABLE
On December 31, 2012, the Company received $500,000 from Pelican Creek, LLC (Pelican Creek”), a former related party who resigned in June 2014, and recorded the corresponding note as a current liability on the balance sheet. Our former director, Larry Kohler, manages Pelican Creek. 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, 2012. 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. 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 September 30, 2015, the Company accrued interest of $69,101 and remains in the note payable account with no conversion right.
In September 30, 2014, we entered into a note payable for $63,357 which bears an interest rate of 6% per year as a settlement for previously due amounts recorded in accounts payable. The amount of interest as of September 30, 2015 is $1,900. The principle and interest are due on September 15, 2016.
NOTE 8 – 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.
NOTE 9 - 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. In January 2015, 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 April 2015, we granted an additional 40,000 options to purchase shares of our common stock at $0.49 per share to certain members of our BOD. In April 2015, 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 2015, 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.
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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 months ended March 31, 2015, the Company recorded $75,161 in compensation expense arising from the vesting of options. 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 160% | |||
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 three months ended September 30, 2015:
Number of Shares |
Weighted Average Price Per Share | |||||||||
Balance at March 31, 2014 | 3,350,000 | $ | 0.36 | |||||||
Granted | 860,000 | $ | 0.25 | |||||||
Balance at March 31, 2015 | 4,210,000 | $ | 0.35 | |||||||
Granted | 440,000 | $ | 0.25 | |||||||
Balance at September 30, 2015 | 4,650,000 | $ | 0.34 |
The following summarizes pricing and term information for options issued to employees and directors outstanding as of September 30, 2015:
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Options Outstanding | Options Exercisable | |||||||||||||||
Range of Exercise Prices | Number Outstanding at September 30, 2015 |
Weighted Average Remaining Contractual Life |
Weighted Average Exercise Price | Number Exercisable at September 30, 2015 | Weighted Average Exercise Price | |||||||||||
$3.50 | 60,000 | 3.50 | $3.50 | 60,000 | $3.50 | |||||||||||
$1.00 | 60,000 | 4.50 | $1.00 | 60,000 | $1.00 | |||||||||||
$0.75 | 60,000 | 5.50 | $0.75 | 60,000 | $0.75 | |||||||||||
$0.50 | 60,000 | 8.50 | $0.50 | 60,000 | $0.50 | |||||||||||
$0.49 | 40,000 | 9.50 | $0.49 | 10,000 | $0.49 | |||||||||||
$0.45 | 60,000 | 7.50 | $0.45 | 60,000 | $0.45 | |||||||||||
$0.28 | 2,850,000 | 2.13 | $0.28 | - | - | |||||||||||
$0.27 | 60,000 | 6.50 | $0.27 | 60,000 | $0.28 | |||||||||||
$0.25 | 1,400,000 | 8.50 | $0.25 | 1,400,000 | $0.25 | |||||||||||
Balance at September 30, 2015 | 4,650,000 | 3.25 | $0.345 | 1,725,000 | $0.57 |
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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, 2015 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, 2015 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.
-14- |
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 September 30, 2015 and 2014
Revenues
Revenues were $0 for the three months ended September 30, 2015 and 2014, respectively.
Gross Profit
Gross profit was $0 for the three months ended September 30, 2015 and 2014.
General and Administrative Expenses
General and administrative expenses were $310,667 and $398,009 for the three months ended September 30, 2015 and 2014, respectively. The decrease of $87,342 was due primarily to an overall reduction in expenses to conserve cash.
-15- |
Interest Income (Expense) and Other
Interest income (expense) and other was $(3,917) and $(2,140) for the three months ended September 30, 2015 and 2014, respectively. The interest expense for the three months ended September 30, 2015 and 2014 was primarily due to the outstanding note payables.
For the Six Months Ended September 30, 2015 and 2014
Revenues
Revenues were $0 and $45,000 for the six months ended September 30, 2015 and 2014, respectively. The decrease in revenue was attributable to the not shipping minerals for processing.
Gross Profit
Gross profit was $0 and $28,500 for the six months ended September 30, 2015 and 2014.
General and Administrative Expenses
General and administrative expenses were $645,200 and $786,313 for the six months ended September 30, 2015 and 2014, respectively. The decrease of $141,113 was due primarily to an overall reduction in expenses to conserve cash.
Interest Income (Expense) and Other
Interest income (expense) and other was $(5,689) and $(83,622) for the six months ended September 30, 2015 and 2014, respectively. The interest expense for the six months ended September 30, 2015 was primarily due to the outstanding note payables. The interest expense for the six months ended September 30, 2014 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.
Liquidity and Capital Resources
Net cash provided by / (used) in operating activities was $(129,748) and $168,385 in the six months ended September 30, 2015 and 2014, respectively. The increase in cash used for operations was mainly due to a customer deposit in 2014 offset by the reduced net loss.
Net cash used in investing activities was $4,839 and $0 in the six months ended September 30, 2015 and 2014, respectively. The increase was due to amounts paid for patents.
Net cash provided by financing activities was $129,656 and $122,342 in the six months ended September 30, 2015 and 2014, respectively.
-16- |
The Company suffered recurring losses from operations and has an accumulated deficit of $13,047,044 at September 30, 2015. The Company has incurred losses of $650,888 and $841,435 for the six months ended September 30, 2015 and 2014, 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.
Recent Accounting Pronouncements
Refer to the notes to the consolidated financial statements in our March 31, 2015 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 September 30, 2015, we did not have any off-balance sheet arrangements as defined in Item 303(a)(4)(ii) of Regulation S-K.
-17- |
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 September 30, 2015, 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:
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.
-18- |
Management assessed the effectiveness of the Company's ICFR as of September 30, 2015. 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 September 30, 2015, 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.
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 September 30, 2015 that have materially affected, or are reasonably likely to materially affect, our ICFR.
-19- |
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, 2015, 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
None
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. |
-20- |
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: November 13, 2015 | /s/ PHILIP LIU | |
Name: Hongliang Philip Liu | ||
Title: Chief Executive Officer | ||
Date: November 13, 2015 | /s/ ERIC STOPPENHAGEN | |
Name: Eric Stoppenhagen | ||
Title: Chief Financial Officer |
-21- |
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. | |
-22- |
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. | ||||
November 13, 2015 | ||
/s/ PHILIP LIU | ||
Philip Liu Chief Executive Officer |
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. | ||
November 13, 2015 | ||
/s/ ERIC STOPPENHAGEN | ||
Eric Stoppenhagen Chief Financial Officer |
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 September 30, 2015 (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.
November 13, 2015 | ||
/s/ PHILIP LIU | ||
Chief Executive Officer | ||
November 13, 2015 | ||
/s/ ERIC STOPPENHAGEN | ||
Chief Financial Officer | ||
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LOANS PAYABLE (Details Narrative) - USD ($) |
Sep. 30, 2015 |
Mar. 31, 2015 |
---|---|---|
Debt Disclosure [Abstract] | ||
Interest payable | $ 69,101 | $ 69,101 |
FIXED ASSETS |
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2015 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Property, Plant and Equipment [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
FIXED ASSETS |
NOTE 4 FIXED ASSETS, NET
Fixed assets, net consisted of the following:
The depreciation expense for the three and six months ended September 30, 2014 was $38,441 and $90,429, respectively. The depreciation expense for the three and six months ended September 30, 2015 was $38,195 and $76,637, respectively.
|
DEPOSITS AND OTHER CURRENT ASSETS |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2015 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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 $526,963 and $526,963 as of September 30, 2015 and March 31, 2015, respectively, and were comprised of the following:
|
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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
6 Months Ended | |||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2015 | ||||||||||||||||
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, AuraSources 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 $13,047,044 at September 30, 2015. 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 Companys 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, 2015 included in our Annual Report on Form 10-K. The results of the three and six months ended September 30, 2015 are not necessarily indicative of the results to be expected for the full year ending March 31, 2016.
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 managements 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.
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 entitys 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 months ended September 30, 2015 and 2014 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:
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 six months ended September 30, 2015. These reclassifications had no effect on reported net loss or stockholders equity.
Recent Accounting Pronouncements There were no significant changes in the Companys critical accounting policies and estimates during the three months ended September 30, 2015 compared to what was disclosed in the Companys Annual Report on Form 10-K for the year ended March 31, 2015. |
FIXED ASSETS (Details Narrative) - USD ($) |
3 Months Ended | 6 Months Ended | ||
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Sep. 30, 2015 |
Sep. 30, 2014 |
Sep. 30, 2015 |
Sep. 30, 2014 |
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Property, Plant and Equipment [Abstract] | ||||
depreciation expense | $ 38,195 | $ 38,441 | $ 76,637 | $ 90,429 |
DUE TO RELATED PARTIES (Details Narrative) - USD ($) |
Sep. 30, 2015 |
Mar. 31, 2015 |
---|---|---|
Notes to Financial Statements | ||
Accounts payable related parties | $ 1,887,605 | $ 1,508,955 |
CONCENTRATION OF CREDIT RISK |
6 Months Ended |
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Sep. 30, 2015 | |
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 $250,000, per financial institution as of September 30, 2015). As of September 30, 2015 and March 31, 2015, our deposits did not exceed insured amounts. We have not experienced any losses in such accounts and we believe we are not exposed to any credit risk on cash.
Currently, we maintain a bank account in China. This account is not insured and we believe is exposed to credit risk on cash. |
Balance Sheets (Parenthetical) - shares |
Sep. 30, 2015 |
Mar. 31, 2015 |
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Statement of Financial Position [Abstract] | ||
Preferred stock, Authorized | 10,000 | 10,000 |
Preferred Stock, Issued | 0 | 0 |
Common Stock, Authorized | 150,000,000 | 150,000,000 |
Common Stock, Issued | 60,206,655 | 60,206,655 |
FIXED ASSETS (Tables) |
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FIXED ASSETS |
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Document and Entity Information - USD ($) |
6 Months Ended | |
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Sep. 30, 2015 |
Nov. 13, 2015 |
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Document And Entity Information | ||
Entity Registrant Name | AuraSource, Inc. | |
Entity Central Index Key | 0001083922 | |
Document Type | 10-Q | |
Document Period End Date | Sep. 30, 2015 | |
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 | $ 26,377,573 | |
Entity Common Stock, Shares Outstanding | 60,206,655 | |
Document Fiscal Period Focus | Q2 | |
Document Fiscal Year Focus | 2016 |
STOCK OPTIONS (Tables) |
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Equity [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Stock option grant |
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Price and term share based compensation |
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