Quarterly Report (10-q)

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

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

THE SECURITIES EXCHANGE ACT OF 1934

 

For Quarterly Period Ended June 30, 2022

 

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.)

 

2103 E. Cedar St., Suite 6, Tempe, AZ 85281

(Address of principal executive offices, zip code)

 

Registrant's telephone number (including area code): [phone]

  

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

YES [ ] NO [x]

  

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] Emerging growth 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 August 5, 2022
Common Stock, $.001 par value		68,398,151

 

 

AURASOURCE, INC.

  

INDEX

 

PART I	FINANCIAL INFORMATION	Page
ITEM 1.	CONSOLIDATED FINANCIAL STATEMENTS:
	Condensed Consolidated Balance Sheets — June 30, 2022 (Unaudited) and March 31, 2022	3
	Condensed Consolidated Statements of Operations and Comprehensive Income (Unaudited) – Three Months Ended June 30, 2022 and 2021	4
	Consolidated Statements of Stockholders’ Deficit (Unaudited) – Three Months Ended June 30, 2022 and 2021	5
	Condensed Consolidated Statements of Cash Flows (Unaudited) – Three Months Ended June 30, 2022 and 2021	6
	Notes to Unaudited Condensed Consolidated Financial Statements	7
ITEM 2.	MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	16
ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	19
ITEM 4.	CONTROLS AND PROCEDURES	19
PART II	OTHER INFORMATION	20
ITEM 4.	SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS	20
ITEM 6.	EXHIBITS	21
	Signatures	22

 

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PART I - FINANCIAL INFORMATION

 

ITEM 1 — CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 

AuraSource, Inc.

Condensed Consolidated Unaudited Balance Sheets

 

 

		June 30, 2022				March 31, 2022
ASSETS
CURRENT ASSETS
Cash		$	26,310			$	3,437
TOTAL CURRENT ASSETS			26,310				3,437
Deposit			15,695				2,262
Operating lease right-of-use assets, net			—				5,145
TOTAL ASSETS		$	42,005			$	10,844
LIABILITIES AND STOCKHOLDERS' (DEFICIT)
CURRENT LIABILITIES
Accounts payable		$	107,963			$	136,107
Due to related parties			2,894,271				2,787,773
Operating lease obligations, current			—				4,606
Customer deposits			47,413				—
Note payable and accrued interest			119,416				119,594
Note payable and accrued interest – related party			2,820,623				2,490,702
TOTAL CURRENT LIABILITIES			5,989,686				5,798,628
TOTAL LIABILITIES			5,989,686				5,798,628
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, 68,398,151 and 68,208,151 shares issued and outstanding at June 30, 2022 and March 31, 2022, respectively			68,398				68,208
Additional paid in capital			14,783,034				14,724,399
Accumulated other comprehensive income			40,774				13,223
Accumulated deficit			(20,839,887	)			(20,593,614	)
Total stockholders' deficit			(5,947,681	)			(5,787,784	)
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT		$	42,005			$	10,844

 

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

-3-

 

 

AuraSource, Inc.

Condensed Consolidated Statements of Operations

(Unaudited)

 

		Three months ended June 30,
		2022				2021
Revenue		$	—			$	—
Cost of revenue			—				—
Gross profit (loss)			—				—
Operating expenses
General and administrative expenses			149,029				198,853
Total operating expenses			149,029				198,853
Loss from operations			(149,029	)			(198,853	)
Interest income (expense) and other, net			(97,244	)			(85,057	)
Net loss		$	(246,273	)		$	(283,910	)
Other Comprehensive Income
Foreign currency translation gain (loss)			(27,552	)			8,656
Total Comprehensive Loss		$	(273,825	)		$	(275,254	)
NET LOSS PER SHARE OF COMMON STOCK—Basic and diluted		$	(0.00	)		$	(0.00	)
Weighted average shares outstanding —Basic and diluted			68,357,601				68,208,151

 

 

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

-4-

 

 

AuraSource, Inc.

Consolidated Statements of Stockholders’ Deficit

Three Months Ended June 30, 2022 and 2021

 

 

 Three Month Comparison

 

 

 

			Preferred Stock								Common Stock
			Shares				Amount				Shares				Amount				APIC				Accumulated Deficit				Other Comprehensive Income				Total
Balance at March 31, 2021			—			$	—				68,208,151			$	68,208			$	14,357,975			$	(19,463,916)			$	31,223			$	(5,006,510)
Issuance of options			—				—				—				—				80,000				—				—				80,000
Imputed interest																			21,519												21,519
Net loss			—				—				—				—				—				(283,910)				—				(283,910)
Foreign currency translation adjustment			—				—				—				—				—				—				(8,656)				(8,656)
Balance at June 30, 2021			—			$	—				68,208,151			$	68,208			$	14,459,494			$	(19,747,827)			$	22,567			$	(5,197,558)

 

 

			Preferred Stock								Common Stock
			Shares				Amount				Shares				Amount				APIC				Accumulated Deficit				Other Comprehensive Income				Total
Balance at March 31, 2022			—			$	—				68,208,151			$	68,208			$	14,724,399			$	(20,593,614)			$	13,223			$	(5,787,784)
Issuance of common stock											190,000				190				9,310												9,500
Issuance of options			—				—				—				—				24,000				—				—				24,000
Imputed interest																			25,325												25,325
Net loss			—				—				—				—				—				(246,273)				—				(246,273)
Foreign currency translation adjustment			—				—				—				—				—				—				27,552				27,552
Balance at June 30, 2022			—			$	—				68,398,151			$	68,398			$	14,783,034			$	(20,839,887)			$	40,775			$	(5,947,681)

 

 

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

-5-

 

AuraSource, Inc.

Condensed Consolidated Statements of Cash Flows

(Unaudited) 

 

   

		Three Months Ended June 30,
		2022				2021
Cash flows from operating activities
Net loss		$	(246,273	)		$	(283,910	)
Adjustments to reconcile net loss to net cash used in operating activities
Options issued for services			24,000				80,000
Imputed interest – related party			25,325				22,790
Changes in operating assets and liabilities
Customer deposits			77,413				—
Vendor deposits			(43,433	)			—
Accounts payable and accrued expenses			(27,783	)			3,241
Accounts payable – related parties			176,573				171,766
Net cash used in operating activities			(14,178	)			(6,113	)
Cash flows from financing activities
Proceeds from the issuance of common stock			9,500				—
Net cash provided by financing activities			9,500				—
Effect of exchange rate fluctuation on cash			27,551				(8,657	)
Net change in cash			22,873				(9,289	)
Cash - beginning balance			3,437				65,887
Cash - ending balance		$	26,310			$	56,598

 

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

 

 

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

-6-

 

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 two areas AuraMetal and AuraMoto.

 AuraMetal^TM is focused on the development and production of environmentally friendly and cost-effective beneficiation process for complex ore, tailings and slimes materials as industrial application solutions. AuraSource’s core technology includes physical separation, hydrometallurgical and pyrometallurgy processes. We have developed seven patented technologies: 1) ultrafine grinding and 2) ultrafine separation. To date, we have not had any sustainable projects. As such, there can be no assurances that our efforts towards this line of business will succeed.

 

AuraMoto^TM is focused on sourcing various vendors and customers in the automotive industry. We entered into the industry due to our various international sourcing contacts. We have been requested from various parties to source vendors and customers in the automotive industry. This business line is still in development. As this is a new enterprise for the Company, there can be no assurances that our efforts towards this line of business will succeed.

 

There can be no assurance we will be able to carry out our development plans for AuraMetals or AuraMoto. Our ability to pursue this strategy is subject to the availability of additional capital and further development of our 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 $20,839,887 at June 30, 2022.  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.

 

Management’s Plan to Continue as a Going Concern

 

In order to continue as a going concern, the Company will need, among other things, additional capital resources. Management’s plans to obtain such resources for the Company include (1) obtaining capital from the sale of its equity securities, (2) sales of its products, and (3) short-term or long-term borrowings from banks, stockholders or other party(ies) when needed. However, management cannot provide any assurance that the Company will be successful in accomplishing any of its plans. The Company plans to look for opportunities to merge with other companies in the graphite industry.

 

The ability of the Company to continue as a going concern is dependent upon its ability to successfully accomplish the plans described in the preceding paragraph and eventually to secure other sources of financing and attain profitable operations.

 

-7-

 

 

Revenue Recognition - The Company recognizes revenue in accordance with ASC 606, Revenue Recognition. ASC 606 requires that five basic criteria must be met before revenue can be recognized:

1. Identify the contract(s) with a customer
2. Identify the performance obligations in the contract
3. Determine the transaction price
4. Allocate the transaction price to the performance obligations in the contract
5. Recognize revenue when or as you satisfy a performance obligation

When we are paid in advance for products or services, we classify these amounts as deferred revenue. Upon the receipt of these products at the destination port, we recognize revenue. For services, and we amortized the price over the term of the agreement. 

 

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, 2022 included in our Annual Report on Form 10-K. The results of the three months ended June 30, 2022 are not necessarily indicative of the results to be expected for the full year ending March 31, 2023.

 

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.

 

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.

-8-

 

Leases- In February 2016, the FASB established Topic 842, Leases, by issuing ASU No. 2016-02, which requires lessees to recognize the rights and obligations created by leases on the balance sheet and disclose key information about leasing arrangements. Topic 842 was subsequently amended by ASU No. 2018-11, Targeted Improvements, ASU No. 2018-10, Codification Improvements to Topic 842, and ASU No. 2018-01, Land Easement Practical Expedient for Transition to Topic 842. The new standard establishes a right-of-use model (ROU) that requires a lessee to recognize a ROU asset and lease liability on the balance sheet for all leases with a term longer than 12 months. Leases will be classified as finance or operating, with classification affecting the pattern and classification of expense recognition in the statement of operations.

 

The new standard became effective April 1, 2019. A modified retrospective transition approach is required, applying the new standard to all leases existing at the date of initial application. An entity may choose to use either (1) its effective date or (2) the beginning of the earliest comparative period presented in the financial statements as its date of initial application. If an entity chooses the second option, the transition requirements for existing leases also apply to leases entered into between the date of initial application and the effective date. The entity must also recast its comparative period financial statements and provide the disclosures required by the new standard for the comparative periods. The Company adopted the new standard on April 1, 2019 using the modified retrospective transition approach as of the effective date of the initial application. Consequently, financial information will not be updated and the disclosures required under the new standard will not be provided for dates and periods before January 1, 2019. The new standard provides a number of optional practical expedients in transition. The Company elected the “package of practical expedients”, which permits entities not to reassess under the new lease standard prior conclusions about lease identification, lease classification and initial direct costs. The Company does not expect to elect the use-of-hindsight or the practical expedient pertaining to land easements.

 

The most significant effects of the adoption of the new standard relate to the recognition of new ROU assets and lease labilities on our balance sheet for office operating leases and providing significant new disclosures about our leasing activities.

 

The new standard also provides practical expedients for an entity’s ongoing accounting. The Company has also elected the short-term leases recognition exemption for all leases that qualify. This means that the Company will not recognize ROU assets or lease liabilities, and this includes not recognizing ROU assets and lease liabilities, for existing short-term leases of those assets in transition. The Company also currently expects to elect the practical expedient to not separate lease and non-lease components for its leases. The new standard did not have a material impact.

  

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.

-9-

 

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 options and restricted stock awards to employees at grant date fair-value of the instruments in the consolidated financial statements over the period the employee is required to perform the services.

 

Foreign Currency Translation. - Our consolidated financial statements are expressed in U.S. dollars, but the functional currency of our operating subsidiary is RMB. Results of operations and cash flows are translated at average exchange rates during the period, assets and liabilities are translated at the unified exchange rate at the end of the period and equity is translated at historical exchange rates. Translation adjustments resulting from the process of translating the financial statements denominated in RMB into U.S. dollars are included in determining comprehensive income.

 

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, 2022 and 2021 because their effect is anti-dilutive.

 

The table below presents the computation of basic and diluted earnings per share for the three months ended June 30, 2022 and 2021:

 

		For the three months ended June 30, 2022				For the three months ended June, 2021
Numerator:
Net loss		$	(273,825	)		$	(275,254	)
Denominator:
Weighted average common shares outstanding—basic			68,357,601				68,208,151
Dilutive common stock equivalents			7,080,000				6,680,000
Weighted average common shares outstanding—diluted			75,437,601				74,888,151
Net loss per share:
Basic		$	(0.00	)		$	(0.00	)
Diluted		$	(0.00	)		$	(0.00	)

 

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.  

 

-10-

 

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

 

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

 

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

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

 

Recently Issued Accounting Standards

 

On January 1, 2021, the Company adopted ASU No. 2019-12, Income Taxes— Simplifying the Accounting for Income Taxes (“ASU 2019-12”). This new standard removes certain exceptions for recognizing deferred taxes of foreign investments, the incremental approach to performing intraperiod allocation, and calculating income taxes for year-to-date interim period losses when such losses exceed anticipated full year losses. The standard also adds guidance to reduce complexity in certain areas, including accounting for franchise taxes that are partially based on income, transactions with a government that result in a step up in goodwill tax basis, enacted tax law changes impact during interim periods, and allocation of taxes to members of a consolidated group which are not subject to tax. The adoption of ASU 2019-12 did not have a material impact on the consolidated financial statements.

NOTE 2 - CONCENTRATION OF CREDIT RISK

 

As of June 30, 2022 and March 31, 2022, our deposits did not exceed amounts insured by the FDIC (up to $250,000, per financial institution as of June 30, 2022). 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.

 

-11-

 

NOTE 3 – DUE TO RELATED PARTIES

 

As of June 30, 2022 and March 31, 2022, $2,894,271 and $2,787,773, respectively, is owed to the officers and directors. Since 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 4 – NOTE PAYABLE – RELATED PARTY

 

On April 26, 2016, we entered into a note payable with Philip Liu, our CEO, whereby he converted amounts owed of $1,565,169. On February 15, 2018, Mr. Liu converted $303,266 of the note into 4,332,374 shares of common stock which was considered the fair market value. $2,205,998 is owed under the note as of June 30, 2022. The note has an interest rate of 10% which is compounded quarterly is in default.

 

On April 26, 2016, we entered into a note payable with Eric Stoppenhagen, our CFO, whereby he converted amounts owed of $411,214. On February 15, 2018, Mr. Stoppenhagen converted $91,950 of the note into 1,313,556 shares of common stock which was considered the fair market value. $614,625 is owed under the note as of June 30, 2022. The note has an interest rate of 10% which is compounded quarterly is in default.

 

NOTE 5 – NOTE PAYABLE

 

In December 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 Company paid $7,500 to reduce the amount of the note. The amount of principal and interest as of June 30, 2022 is $89,439. The principal and interest are due on September 15, 2016. The note payable is currently in default.

 

On May 3, 2020, we entered into a loan borrowed $29,332 from Bank of America (“Lender”), pursuant to a Promissory Note issued by Company to Lender (the “PPP Note”). The loan was made pursuant to the Payroll Protection Program established as part of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”). The PPP Note bears interest at 1.00% per annum, payable monthly beginning December 3, 2020, and is due on May 3, 2022. The PPP Note may be repaid at any time without penalty. The PPP Note contains customary events of default relating to, among other things, payment defaults, breach of representations and warranties, or provisions of the promissory note. The occurrence of an event of default may result in a claim for the immediate repayment of all amounts outstanding under the PPP Note. We repaid $10,000 in August 5020. As of June 30, 2022, the balance of the PPP Note is $17,232. The Company plans to pay off this loan balance in the next year.

 

On June 13, 2020, we entered into a note with the US Small Business Administration for a loan amount of $12,900 and an annual interest rate of 3.75% which is due in 30 years. As of June 30, 2022, the balance of the note is $13,795. 

 

NOTE 6 – STOCK ISSUANCE

  

During the quarter ended June 30, 2022, the Company issued 190,000 shares of common stock for $9,500.

 

As of June 30, 2022, there are 68,398,151 shares of common stock issued and outstanding.

 

-12-

 

NOTE 7 - STOCK OPTIONS

 

On April 1, 2021, we granted 200,000 vested options to purchase shares of our common stock at $0.052 per share to certain our CEO and CFO per their employment agreements. On July 1, 2021, we granted 200,000 vested options to purchase shares of our common stock at $0.052 per share to certain our CEO and CFO per their employment agreements. On October 1, 2021, we granted 200,000 vested options to purchase shares of our common stock at $0.052 per share to certain our CEO and CFO per their employment agreements. On January 1, 2022, we granted 200,000 vested options to purchase shares of our common stock at $0.052 per share to certain our CEO and CFO per their employment agreements.  On April 1, 2022, we granted 200,000 vested options to purchase shares of our common stock at $0.052 per share to certain our CEO and CFO per their employment agreements.  All options have a term of ten years. 

 

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 quarter ended June 30, 2022 and 2021, the Company recorded $24,000 and $80,000, respectively, in compensation expense arising from the vesting of options, respectively. The Company assumed all stock options issued during the quarter will vest. Though these expenses result in a deferred tax benefit, we have a full valuation allowance against the deferred tax benefit.

 

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

 

The fair value of each stock option granted is estimated on the grant date using the Black-Scholes option pricing model (“BSOPM”). The BSOPM has assumptions for risk free interest rates, dividends, stock volatility and expected life of an option grant. The risk-free interest rate is based upon market yields for United States Treasury debt securities at a 10-year constant maturity. Dividend rates are based on the Company’s dividend history. The stock volatility factor is based on the last five years 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			500%
Average expected option life		5 years
Risk-free interest rate			0.27% - 0.37%

 

-13-

 

The following table summarizes activity in the Company's stock option grants for the three months ended June 30, 2022 and year ended March 31, 2022:

 

				Number of Shares				Weighted Average Price Per Share
	Balance at March 31, 2021				6,120,000			$	0.25
	Granted				800,000			$	0.05
	Expired				(40,000)			$	0.75
	Balance at March 31, 2022				6,880,000			$	0.24
	Granted				200,000			$	0.05
	Balance at June 30, 2022				7,080,000			$	0.25

 

 NOTE 8 – CUSTOMER DEPOSIT

 

In the quarter ending June 30, 2022, we received $47,500 in deposits for the purchase of electric vehicles.

 

NOTE 9 – SUBSEQUENT EVENT

 

Leases — On July 1, 2022, we entered into a lease for 2,507 square feet of office space at 2103 E. Cedar Street, Suites 6 Tempe, Arizona for $2,265 per month. The lease expires June 30, 2025 and $95,098 is due through the remainder of the lease. We believe that our facilities are adequate to meet our current and near-term needs.

-14-

 

 

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, 2022 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, 2022 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

 

AuraSource focuses on the development and production of environmentally friendly and cost-effective beneficiation process for complex ore, tailings and slimes materials as industrial application solutions. AuraSource’s core technology includes physical separation, hydrometallurgical and pyrometallurgy processes.

 

Recently, due to our various international sourcing contacts, we have been requested from various parties to source vendors and customers in the automotive industry. There can be no assurances that our efforts towards this line of business will succeed.

 

AuraSource’s physical separation includes ultrafine grinding and impurities removal, which separate metallic and non-metallic minerals. AuraSource develops and tests hydrometallurgical flow sheets for the recovery and refining of metals from concentrate leaching, precipitation, cementation, ion-exchange, solvent extraction, electro-winning, and process simulations. AuraSource also carries out high-temperature research and process development for the production of a wide variety of mineral commodities.

 

AuraSource formed AuraSource Qinzhou, to acquire these types of technologies, performing R&D related to the reduction of harmful emissions and energy costs. AuraSource is currently looking to license this technology to third parties through joint ventures with strategic partners and/or 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.

 

-15-

 

There can be no assurance we will be able to carry out our development plans for our technology. Our ability to pursue this strategy is subject to the availability of additional capital and further development of our 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.

 

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 June 30, 2022 and 2021

 

General and Administrative Expenses

 

General and administrative expenses were $149,029 and $198,853 for the three months ended June 30, 2022 and 2021, respectively. The increase is mainly due to the decrease in stock compensation expense.

 

Interest Income (Expense) and Other, net

 

Interest income (expense) and other, net was $(97,244) and $(85,057) for the three months ended June 30, 2022 and 2021, respectively. The increase was mainly due to the increase finance charge due to the increase in debt and the imputed interest of related party payable.

 

-16-

 

Liquidity and Capital Resources

 

Net cash used in operating activities was $(14,177) and $(6,113) in the three months ended June 30, 2022 and 2021, respectively.

 

Net cash used in investing activities was $0 and $0 in the three months ended June 30, 2022 and 2021, respectively.

 

Net cash received from / (used in) financing activities was $9,500 and $0 in the three months ended June 30, 2022 and 2021, respectively. This was primarily due to the proceeds from the issuance of common stock.

 

The Company suffered recurring losses from operations and has an accumulated deficit of $20,839,887 at June 30, 2022. The Company has incurred losses of $246,273 and $283,910 for the three months ended June 30, 2022 and 2021, 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 short and 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, 2022 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 June 30, 2022, 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 June 30, 2022, that our disclosure controls and procedures are not effective to a reasonable assurance level of achieving such objectives.  However, it should be noted that the design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote.

 

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

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

 

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

-18-

 

Management assessed the effectiveness of the Company's ICFR as of June 30, 2022.  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 June 30, 2022, our ICFR was not 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 June 30, 2022 that have materially affected, or are reasonably likely to materially affect, our ICFR. 

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, 2022, 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

-19-

 

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.
101.INS			XBRL Instance
101.SCH			XBRL Taxonomy Extension Schema
101.CAL			XBRL Taxonomy Extension Calculation
101.DEF			XBRL Taxonomy Extension Definition
101.LAB			XBRL Taxonomy Extension Labels
101.PRE			XBRL Taxonomy Extension Presentation

 

-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: August 5, 2022	/s/ PHILIP LIU
	Name: Hongliang Philip Liu
	Title: Chief Executive Officer
Date: August 5, 2022	/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.
101.INS			XBRL Instance
101.SCH			XBRL Taxonomy Extension Schema
101.CAL			XBRL Taxonomy Extension Calculation
101.DEF			XBRL Taxonomy Extension Definition
101.LAB			XBRL Taxonomy Extension Labels
101.PRE			XBRL Taxonomy Extension Presentation