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 June 30,
2012
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
x
Smaller reporting company
£
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 August 13, 2012
|
Common Stock, $.001 par value
|
|
48,222,190
|
AURASOURCE, INC.
INDEX
PART I
|
FINANCIAL INFORMATION
|
Page
|
ITEM 1.
|
CONSOLIDATED FINANCIAL STATEMENTS:
|
|
|
Consolidated Balance Sheets — June 30, 2012 (Unaudited) and March 31, 2012
|
3
|
|
Consolidated Statements of Operations (Unaudited) — Three ended June 30, 2012 and 2011
|
4
|
|
Consolidated Statements of Cash Flows (Unaudited) —Three months ended June 30, 2012 and 2011
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5
|
|
Notes to Consolidated Financial Statements
|
6
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ITEM 2.
|
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|
10
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ITEM 3.
|
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|
11
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ITEM 4.
|
CONTROLS AND PROCEDURES
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11
|
|
|
|
PART II
|
OTHER INFORMATION
|
12
|
ITEM 4.
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SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
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12
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ITEM 6.
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EXHIBITS
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12
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|
Signatures
|
13
|
PART I - FINANCIAL INFORMATION
ITEM I — CONSOLIDATED FINANCIAL STATEMENTS
AuraSource, Inc.
(A Development Stage Enterprise)
Consolidated Balance Sheets
|
|
June 30,
|
|
March 31,
|
|
|
2012
|
|
2012
|
ASSETS
|
|
(Unaudited)
|
|
|
Current assets
|
|
|
|
|
|
|
|
|
Cash and equivalents
|
|
$
|
328,459
|
|
|
$
|
404,331
|
|
Due from affiliate
|
|
|
81,889
|
|
|
|
63,193
|
|
Prepaid expenses
|
|
|
10,000
|
|
|
|
3,075
|
|
Total current assets
|
|
|
420,348
|
|
|
|
470,599
|
|
|
|
|
|
|
|
|
|
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Fixed assets, net of accumulated depreciation
|
|
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407,986
|
|
|
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415,355
|
|
|
|
|
|
|
|
|
|
|
Intangible assets, net
|
|
|
759,651
|
|
|
|
759,651
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
1,587,985
|
|
|
$
|
1,645,605
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
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|
|
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|
LIABILITIES AND SHAREHOLDERS' EQUITY
|
|
|
|
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Current liabilities
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
17,332
|
|
|
$
|
18,634
|
|
Accounts payable- related parties
|
|
|
220,544
|
|
|
|
151,600
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
237,876
|
|
|
|
170,234
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
|
|
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|
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Shareholders' equity
|
|
|
|
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|
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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 48,222,190 and 47,662,190
shares issued and outstanding at June 30, 2012 and March 31, 2012, respectively.
|
|
|
48,222
|
|
|
|
47,662
|
|
Additional paid in capital
|
|
|
7,177,585
|
|
|
|
6,961,350
|
|
Accumulated deficit
|
|
|
(5,875,698
|
)
|
|
|
(5,533,641
|
)
|
Total shareholders' equity
|
|
|
1,350,109
|
|
|
|
1,475,371
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders' equity
|
|
$
|
1,587,985
|
|
|
$
|
1,645,605
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AuraSource, Inc.
(A Development Stage Enterprise)
Consolidated Statements of Operations
Three Months Ended June 30, 2012 and
2011 and the Period March 15, 1990 (Inception) through June 30, 2012
(Unaudited)
|
|
Three months ended June 30,
|
|
From March 15, 1990 (Inception) to June 30,
|
|
|
2012
|
|
2011
|
|
2012
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenue
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
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Gross profit
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
General & administrative expenses
|
|
|
338,284
|
|
|
|
332,919
|
|
|
|
5,929,513
|
|
Total operating expenses
|
|
|
338,284
|
|
|
|
332,919
|
|
|
|
5,929,513
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(338,284
|
)
|
|
|
(332,919
|
)
|
|
|
(5,929,513
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income / (expense) and other, net
|
|
|
(3,773
|
)
|
|
|
8,608
|
|
|
|
53,815
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss applicable to common stockholders
|
|
$
|
(342,057
|
)
|
|
$
|
(324,311
|
)
|
|
$
|
(5,875,698
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic & Diluted Loss per share
|
|
$
|
(0.01
|
)
|
|
$
|
(0.01
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding
|
|
|
47,839,553
|
|
|
|
30,343,509
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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The accompanying notes are an integral
part of these consolidated financial statements.
AuraSource, Inc.
(A Development Stage Enterprise)
Consolidated Statements of Cash Flows
Three Months Ended June 30, 2012 and
2011 and the Period March 15, 1990 (Inception) through June 30, 2012
(Unaudited)
|
|
Three Months Ended June 30,
|
|
March 15, 1990
(Inception) to June 30,
|
|
|
2012
|
|
2011
|
|
2012
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(342,057
|
)
|
|
$
|
(324,311
|
)
|
|
$
|
(5,875,698
|
)
|
Adjustments to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
7,369
|
|
|
|
1,939
|
|
|
|
43,737
|
|
Stock issued for services
|
|
|
13,200
|
|
|
|
52,000
|
|
|
|
1,586,704
|
|
Options issued for services
|
|
|
3,595
|
|
|
|
17,350
|
|
|
|
249,128
|
|
Fair value of salaries donated as capital
|
|
|
—
|
|
|
|
—
|
|
|
|
189,681
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Due from affiliate
|
|
|
(18,696
|
)
|
|
|
(70,897
|
)
|
|
|
(81,889
|
)
|
Prepaid expenses
|
|
|
(6,925
|
)
|
|
|
(5,374
|
)
|
|
|
(10,000
|
)
|
Accounts payable
|
|
|
(1,302
|
)
|
|
|
(5,793
|
)
|
|
|
17,332
|
|
Accounts payable – related parties
|
|
|
68,944
|
|
|
|
8,400
|
|
|
|
220,544
|
|
Non-refundable deposits
|
|
|
—
|
|
|
|
—
|
|
|
|
(100,000
|
)
|
Net cash used in operating activities
|
|
|
(275,872
|
)
|
|
|
(326,486
|
)
|
|
|
(3,760,461
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
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Cash flows from investing activities :
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital equipment purchases
|
|
|
—
|
|
|
|
(58,878
|
)
|
|
|
(451,721
|
)
|
Cash paid for acquisition of intangible
|
|
|
—
|
|
|
|
—
|
|
|
|
(153,651
|
)
|
Sale of assets to MongSource net of cash on hand
|
|
|
—
|
|
|
|
—
|
|
|
|
(90,119
|
)
|
Net cash used in investing activities
|
|
|
—
|
|
|
|
(58,878
|
)
|
|
|
(695,491
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of common stock, net
|
|
|
200,000
|
|
|
|
1,001,046
|
|
|
|
4,494,721
|
|
Net proceeds from issuance of note payable
|
|
|
—
|
|
|
|
—
|
|
|
|
289,690
|
|
Net cash provided by financing activities
|
|
|
200,000
|
|
|
|
1,001,046
|
|
|
|
4,784,411
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in cash and equivalents
|
|
|
(75,872
|
)
|
|
|
615,682
|
|
|
|
328,459
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and equivalents - beginning balance
|
|
|
404,331
|
|
|
|
642,247
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and equivalents - ending balance
|
|
$
|
328,459
|
|
|
$
|
1,257,929
|
|
|
$
|
328,459
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of cash flows information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash received/(paid) during the period for:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Income taxes
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
The accompanying notes are an integral
part of these consolidated financial statements.
AURASOURCE, INC.
(A Development Stage Enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2012 (UNAUDITED) and March
31, 2012
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Current Operations
and Background
— AuraSource, Inc. (“AuraSource” or “Company”) was incorporated on March 15,
1990 and is focused on the development and production of environmentally friendly and cost effective industrial energy and feedstock
used for industrial applications. AuraCoal, AuraSource’s core technology, includes ultrafine grinding and impurities removal.
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., a wholly owned subsidiary in China
(“Qinzhou”), to acquire these types of Hydrocarbon Clean Fuel (“HCF”) technologies, performing research
and development related to the reduction of harmful emission 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 developed
two patent pending technologies: 1) ultrafine grinding and 2) ultrafine separation.
In early 2010, we
formed Qinzhou Kai Yu Yuan New Energy Co., Ltd., a joint venture (“JV”) with Mongolia Energy and Kaiyuyuan Mineral
Investment Group (“KMIG”), to build an AuraFuel plant. KMIG was to provide the full funding for this plant. AuraSource
was to provide project management and the license from China Chemical Economic Cooperation Center (“CCECC”). The JV
was to pay 10% of net profit as a technology license fee. In 2010, KMIG paid $3 million for the license fee deposit to CCECC and
$2 million for start-up expenditures. AuraSource invested its management resources and expenses. The JV contracted China Shandong
Metallurgical Engineering Corp. (“CSMEC”) as EPC general contractor which would provide a turnkey solution under an
operation service contract. In January 2011, since KMIG failed to fund the JV, the JV was unable to make payments on the property
and pay CSMEC. As such, the construction was put on hold. On June 29, 2011, KMIG informed AuraSource it was dissolving the JV.
We are currently seeking alternative arrangements regarding this project and exploring all of our options. With limited capital
resources, we will focus on our AuraCoal technology.
On February 15,
2012, we entered into an agreement with Gulf Coast Holdings, LLC (“GCH”) to reserve export ready 1 million tons of
64% Fe higher content iron ore and 13 million of 45% grade lower content iron ore, and 2 million tons of manganese ore. We agreed
to issue
16 million shares of our common stock to GCH or its assigns (“Mineral Deposit Shares”).
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 Gulf Coast Mining Group, LLC (“GCM”) to purchase (i) higher content
iron ore, lower content iron ore and manganese ore (collectively, the "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 5% of gross revenues.
Going Concern
— The accompanying consolidated financial statements were prepared assuming we will continue as a going concern. We have
suffered recurring losses from operations since inception and have an accumulated deficit of $5,875,698 at June 30, 2012. 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 asset
recovery is dependent upon future events, the outcome of which is unknowable. The Company intends to continue to attempt to raise
additional capital, but there can be no certainty that such efforts will be successful.
Basis of Presentation
and Principles of Consolidation
— The accompanying consolidated financial statements were prepared in conformity
with accounting principles generally accepted in the United States of America (“US GAAP”).
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, 2012 included in our Annual Report on Form 10-K. The
results of the three months ended June 30, 2012 are not necessarily indicative of the results to be expected for the full year
ending March 31, 2013.
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.
Income Taxes
— The Company accounts for income taxes in accordance with ASC Topic 740. 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 June 30, 2012 and 2011 because their effect is anti-dilutive.
Financial
Instruments and Fair Value of Financial Instruments
— Our financial instruments consist of cash and accounts payable.
The carrying values of cash and accounts payable are representative of their fair values due to their short-term maturities. We
measure the fair value of financial assets and liabilities on a recurring basis. Fair value 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. Fair value measurements are to be considered from the perspective of a market participant that holds the asset or owes the
liability. We also establish a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize
the use of unobservable inputs when measuring fair value.
The standard describes
three levels of inputs that may be used to measure fair value:
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 fair value of the assets or liabilities.
|
The Company had no assets
or liabilities recorded at fair value on the basis above at June 30, 2012 or March 31, 2012.
Recent Accounting Pronouncements
On July 27, 2012,
the FASB issued ASU 2012-02, Intangibles-Goodwill and Other (Topic 350) - Testing Indefinite-Lived Intangible Assets for Impairment.
The ASU provides entities with an option to first assess qualitative factors to determine whether events or circumstances indicate
that it is more likely than not that the indefinite-lived intangible asset is impaired. If an entity concludes that it is
more than 50% likely that an indefinite-lived intangible asset is not impaired, no further analysis is required. However,
if an entity concludes otherwise, it would be required to determine the fair value of the indefinite-lived intangible asset to
measure the amount of actual impairment, if any, as currently required under US GAAP. The ASU is effective for annual and interim
impairment tests performed for fiscal years beginning after September 15, 2012. Early adoption is permitted. The adoption
of this pronouncement will not have a material impact on these financial statements.
There were
no other significant changes in the Company’s critical accounting policies and estimates during the three months ended June
30, 2012 compared to what was disclosed in the Company’s Form 10-K for the year ended March 31, 2012.
NOTE 2 - CONCENTRATION OF CREDIT
RISK
We maintain our
cash balances in financial institutions that from time to time exceed amounts insured by the Federal Deposit Insurance Corporation
(up to $250,000, per financial institution as of June 30, 2012). As of June 30, 2012 and March 31, 2012, 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 of $167,000.
NOTE 3 – DUE FROM AFFILIATE
As of June
30, 2012 and March 31, 2012, an affiliated party, Timeway International Ltd, holds in trust $81,889 and $63,193, respectively.
This money is used to pay various day to day expenses. Timeway International Ltd is controlled by our CEO.
NOTE 4 – ACCOUNTS PAYABLE RELATED
PARTIES
As of June 30, 2012 and
March 31, 2012, $220,544 and $151,600, respectively, is owed to the officers and directors of the Company. In December 2011, the
officers and directors of the Company agreed to accrue compensation for their services until such time the Company had sufficient
funds to pay this liability.
NOTE 5 – UNVESTED STOCK
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 issued the Mineral Deposit Shares to GCH or its
assigns. On February 19, 2012, GCH assigned 100% of its interest in the Mineral Reserve Agreement to Hong Kong Minerals Holdings
Ltd (“HKMHL”). 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 of total revenue 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. The Company has no material prior relationship with GCH or HKMHL other than what is set forth above.
We valued the shares issued at $4,480,000.
NOTE 6 – INTANGIBLE
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 an 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 the joint development and ownership agreement,
AuraSource will enrich its intellectual property portfolio, enabling the further development of AuraCoal, its Hydrocarbon Clean
Fuel technology. AuraSource Qinzhou will utilize the particle grinding technology in its AuraCoal Qinzhou production line, as well
as license it to others in non-related industries.
We issued 600,000
shares of common stock for the acquisition of certain intangibles. The shares issued in connection with 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
$147,530 cash for the remainder of the amount due.
NOTE 7 – STOCK ISSUANCE
During the year
ended March 31, 2012, the Company completed a private placement to certain accredited investors pursuant to which the Company sold
2,000,000 shares of the Company’s common stock resulting in gross proceeds of $1,000,000 to the Company. The Company issued
300,000 shares of the Company’s common stock to two employees. The Company recorded $195,000 in compensation expense for
these shares. The Company issued 16,000,000 shares of the Company’s common stock for a deposit. The shares issued in connection
with the deposit were valued at $4,480,000 (See Note 4).
During the three
months ended June 30, 2012, the Company made a private placement pursuant to which the Company sold 500,000 shares of the Company’s
common stock resulting in gross proceeds of $200,000 to the Company.
NOTE 8 - 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. The total grant date fair value of the outstanding options was $796,873.
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 June 30, 2012 and 2011, the Company recorded $3,595 and $9,018 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 ASC 718 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 fair value of stock options granted using the BSOPM:
These assumptions
were used to determine the fair value of stock options granted:
|
|
|
|
Dividend yield
|
|
|
0.0%
|
|
Volatility
|
|
|
25% to 155%
|
|
Average expected option life
|
|
10.00 years
|
|
Risk-free interest rate
|
|
|
1.76% to 2.59%
|
|
|
|
|
|
|
|
The following table
summarizes activity in the Company's stock option grants for the three months ending June 30, 2012:
|
|
Number of
Shares
|
|
Weighted Average Price Per Share
|
|
Balance at March 31, 2012
|
|
|
|
3,030,000
|
|
|
$
|
.37
|
|
|
Granted
|
|
|
|
60,000
|
|
|
|
.27
|
|
|
Balance at June 30, 2012
|
|
|
|
3,090,000
|
|
|
|
.37
|
|
The following summarizes
pricing and term information for options issued to employees and directors outstanding as of June 30, 2012:
|
|
Options Outstanding
|
|
Options Exercisable
|
|
Range of Exercise Prices
|
|
Number Outstanding at June 30, 2012
|
|
Weighted Average Remaining
Contractual
Life
|
|
Weighted Average Exercise Price
|
|
Number Exercisable at June 30, 2012
|
|
Weighted Average Exercise Price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$3.50
|
|
|
60,000
|
|
|
6.75
|
|
|
$3.50
|
|
|
60,000
|
|
|
$3.50
|
|
$1.00
|
|
|
60,000
|
|
|
7.75
|
|
|
$1.00
|
|
|
60,000
|
|
|
$1.00
|
|
$0.75
|
|
|
60,000
|
|
|
8.75
|
|
|
$0.75
|
|
|
60,000
|
|
|
$0.75
|
|
$0.28
|
|
|
2,910,000
|
|
|
4.63
|
|
|
$0.28
|
|
|
15,000
|
|
|
$0.27
|
|
Balance at March 31, 2012
|
|
|
3,090,000
|
|
|
5.07
|
|
|
$0.37
|
|
|
180,000
|
|
|
$1.75
|
|
NOTE 9 - LOSS PER
SHARE
The following table
sets forth common stock equivalents (potential common stock) for the three months ended June 30, 2012 and 2011 that are not included
in the loss per share calculation above because their effect would be anti-dilutive for the period indicated:
|
|
|
|
|
|
2012
|
|
|
|
2011
|
|
Weighted average common stock equivalents:
|
|
|
|
|
|
|
|
|
Non-Plan Stock Options
|
|
|
3,090,000
|
|
|
|
180,000
|
|
|
|
|
|
|
|
|
|
|
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, 2012 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, 2012 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.
AuraCoal, 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, performing research and devolopment
related to the reduction of harmful emission 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 developed two patent
pending technologies: 1) ultrafine grinding and 2) ultrafine separation.
In early 2010, we
formed Qinzhou Kai Yu Yuan New Energy Co., Ltd., a JV along with Mongolia Energy and KMIG to build an AuraFuel plant. KMIG was
to provide the full funding for this plant. AuraSource was to provide the project management expertise and the license from CCECC.
The joint venture (“JV”) was to pay 10% of net profit as a technology license fee. In 2010, KMIG paid $3 million for
the license fee deposit to CCECC and $2 million for start-up expenditures. AuraSource invested its management resources and expenses.
The JV contracted CSMEC as EPC general contractor which would provide a turnkey solution under an operation service contract. In
January 2011, since KMIG failed to fund the JV, the JV was unable to make payments on the property and pay CSMEC. As such, the
construction was put on hold. On June 29, 2011, KMIG informed AuraSource it was dissolving the JV. We are currently seeking alternative
arrangements regarding this project and exploring all of our options. With limited capital resources, we will focus on our AuraCoal
technology.
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.
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”)
Codification 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.
Results of Operations
For the Three Months Ended June 30, 2012 and 2011
General and Administrative Expenses
General and administrative
expenses were $338,284 and $332,919 for the three months ended June 30, 2012 and 2011, respectively. The increase of $5,365 was
due primarily to an increase in activities in China.
Interest Income, Interest Expense
and Other
Interest income/(expense)
and other was ($3,773) and $8,608 for the three months ended June 30, 2012 and 2011, respectively. The decrease is due to an decrease
in bank balance and therefore a decrease in foreign currency exchange gain.
Liquidity and Capital Resources
Net cash used in
operating activities was $275,872 and $326,486 in the three months ended June 30, 2012 and 2011, respectively. The decrease was
primarily due to the officers accruing their salaries and less cash provided to our affiliate.
Net cash used in
investing activities was zero and $58,878 in the three months ended June 30, 2012 and 2011, respectively. The difference is the
increase in capital equipment purchases for the three months ending June 30, 2011.
Net cash provided
by financing activities was $200,000 and $1,001,046 in the three months ended June 30, 2012 and 2011, respectively. The difference
of $801,046 in cash flows from financing activities was due to greater proceeds from the issuance of common stock in 2011.
The Company suffered
recurring losses from operations and has an accumulated deficit of $5,875,698 at June 30, 2012. The Company has incurred losses
of $342,057 and $324,311 for the three months ended June 30, 2012 and 2011, respectively. Currently, we have not generated any
revenues.
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, 2012 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 June 30, 2012,
we did not have any off-balance sheet arrangements as defined in Item 303(a)(4)(ii) of Regulation S-K.
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
We maintain disclosure
controls and procedures that are designed to ensure that information required to be disclosed in our reports filed pursuant to
the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules, regulations
and related forms, and that such information is accumulated and communicated to our principal executive officer and principal financial
officer, as appropriate, to allow timely decisions regarding required disclosure.
As of June 30, 2012,
we carried out an evaluation, under the supervision and with the participation of our principal executive officer and our principal
financial officer of the effectiveness of the design and operation of our disclosure controls and procedures. Based on this evaluation,
our principal executive officer and our principal financial officer concluded that our disclosure controls and procedures were
effective as of the end of the period covered by this report.
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, 2012, 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 three
months ended June 30, 2012, the Company made a private placement with certain accredited investors pursuant to which the Company
sold 500,000 shares of the Company’s common stock resulting in gross proceeds of $200,000 to the Company. 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
ITME 5
|
- OTHER INFORMATION
|
None
ITEM 6.
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.
|
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: August 13, 2012
|
/s/ PHILIP LIU
|
|
|
Name: Hongliang Philip Liu
|
|
|
Title: Chief Executive Officer
|
|
|
|
|
Date: August 13, 2012
|
/s/ ERIC STOPPENHAGEN
|
|
|
Name: Eric Stoppenhagen
|
|
|
Title: Chief Financial Officer
|
|
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.
|
|
|
|
AuraSource (CE) (USOTC:ARAO)
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