The accompanying notes are an integral
part of these unaudited condensed consolidated financial statements.
The accompanying notes are an integral
part of these unaudited condensed consolidated financial statements.
The accompanying notes are an integral
part of these unaudited condensed consolidated financial statements.
The accompanying notes are an integral part of these
unaudited condensed consolidated financial statements.
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.
AuraMetalTM 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.
AuraMotoTM 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 $21,284,233 at December 31,
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.
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:
- Identify the contract(s) with a customer
- Identify the performance obligations in the contract
- Determine the transaction price
- Allocate the transaction price to the performance
obligations in the contract
- 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 factory, we recognize
revenue which is the time we transfer control to the customer. For services, we recognize revenue when the services are complete.
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 and nine months ended
December 31, 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.
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.
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 and nine months ended December
31, 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 and nine months ended December 31, 2022 and
2021:
| |
|
For the |
|
For the |
|
For the |
|
For the |
| three months ended |
three months ended |
|
nine months ended |
nine months ended |
December 31,
2022 |
December 31, 2021 |
|
December 31, 2022 |
December 31, 2021 |
| Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Net loss |
|
$ |
(210,427 |
) |
|
$ |
(304,103 |
) |
|
$ |
(690,619 |
) |
|
$ |
(888,069 |
) |
| Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Weighted average common shares outstanding—basic |
|
|
68,780,759 |
|
|
|
68,208,151 |
|
|
|
68,544,005 |
|
|
|
68,208,151 |
|
| Dilutive common stock equivalents |
|
|
7,480,000 |
|
|
|
6,880,000 |
|
|
|
7,480,000 |
|
|
|
6,880,000 |
|
| Weighted average common shares outstanding—diluted |
|
|
76,260,759 |
|
|
|
75,088,151 |
|
|
|
76,024,005 |
|
|
|
75,088,151 |
|
| Net loss per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Basic |
|
$ |
(0.00 |
) |
|
$ |
(0.00 |
) |
|
$ |
(0.01 |
) |
|
$ |
(0.01 |
) |
| Diluted |
|
$ |
(0.00 |
) |
|
$ |
(0.00 |
) |
|
$ |
(0.01 |
) |
|
$ |
(0.01 |
) |
Concentration of Credit
Risk — Financial instruments that potentially subject the Company to a concentration of credit risk consist of cash. The
Company maintains its cash with high credit quality financial institutions; at times, such balances with any one financial institution
may exceed Federal Deposit Insurance Corporation (“FDIC”) insured limits.
Financial Instruments and
Fair Value of Financial Instruments — Our financial instruments consist of cash, accounts payable and notes payable.
The carrying values of cash, accounts payable and notes payable are representative of the fair values due to their short-term maturities.
We measure the fair value (“FV”) of financial assets and liabilities on a recurring basis. FV is defined as the price that
would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement
date. FV measurements are to be considered from the perspective of a market participant that holds the asset or owes the liability. We
also establish a FV hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs
when measuring FV.
The standard describes three levels
of inputs that may be used to measure FV:
| Level 1: |
|
Quoted prices in active markets for identical or similar assets and liabilities. |
| |
|
|
| Level 2: |
|
Quoted prices for identical or similar assets and liabilities in markets that are not active or observable inputs other than quoted prices in active markets for identical or similar assets and liabilities. |
| |
|
|
| Level 3: |
|
Unobservable inputs that are supported by little or no market activity and that are significant to the FV of the assets or liabilities. |
The Company evaluates
embedded conversion features within convertible debt under ASC Topic 815, “Derivatives and Hedging,” to determine
whether the embedded conversion feature should be bifurcated from the host instrument and accounted for as a derivative at FV with changes
in FV recorded in earnings.
Recently Issued Accounting
Standards
In August 2020, the
Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2020-06, Debt —
Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging — Contracts in Entity’s Own Equity (Subtopic
815-40) (“ASU 2020-06”) to simplify accounting for certain financial instruments. ASU 2020-06 eliminates the current models
that require separation of beneficial conversion and cash conversion features from convertible instruments and simplifies the derivative
scope exception guidance pertaining to equity classification of contracts in an entity’s own equity. The new standard also introduces
additional disclosures for convertible debt and freestanding instruments that are indexed to and settled in an entity’s own equity.
ASU 2020-06 amends the diluted earnings per share guidance, including the requirement to use the if-converted method for all convertible
instruments. ASU 2020-06 is effective January 1, 2022 and should be applied on a full or modified retrospective basis, with early adoption
permitted beginning on January 1, 2021. The Company adopted ASU 2020-06 effective January 1, 2021. The adoption of ASU 2020-06 did not
have an impact on the Company’s financial statements.
NOTE 2 - CONCENTRATION OF CREDIT RISK
As of December 31, 2022 and March
31, 2022, our deposits did not exceed amounts insured by the FDIC (up to $250,000, per financial institution as of December 31, 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.
Currently, all of our revenue
is from one customer.
NOTE 3 – ACCOUNTS PAYABLE – RELATED
PARTIES
As of December 31, 2022 and March
31, 2022, $3,107,267 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. $2,314,922 is owed under the note
as of December 31, 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. $645,740 is owed under
the note as of December 31, 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 December 31, 2022 is $92,123.
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 2020. As of December 31, 2022, the principal and interest of the PPP Note is $13,837. 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 December 31, 2022, the principal and interest of the note is $14,186.
NOTE 6 – STOCK ISSUANCE
During the quarter ended June
30, 2022, the Company issued 190,000 shares of common stock for $9,500.
During the quarter ended September
30, 2022, the Company issued 200,000 shares of common stock for $10,000.
During the quarter ended December
31, 2022, the Company issued 300,000 shares of common stock for $15,000.
As of December 31, 2022, there
are 68,898,151 shares of common stock issued and outstanding.
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. On July 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. On October 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 nine months ended
December 31, 2022 and 2021, the Company recorded $60,800 and $250,000, 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 |
|
|
350% |
|
| Average expected option life |
|
5 years |
|
| Risk-free interest rate |
|
|
2.39% - 2.88% |
|
The following table summarizes activity in the Company's
stock option grants for the nine months ended December 31, 2022 and year ended March 31, 2022:
| |
|
|
Number of Shares |
|
|
Weighted Average Price Per Share |
|
|
Weighted Average Contractual Term (in years) |
|
|
Aggregate Intrinsic Value |
| Balance at March 31, 2021 |
|
|
|
6,120,000 |
|
|
$ |
0.25 |
|
|
|
3.50 |
|
|
$ |
- |
| Granted |
|
|
|
800,000 |
|
|
$ |
0.05 |
|
|
|
3.50 |
|
|
$ |
33,600 |
| Expired |
|
|
|
(40,000) |
|
|
$ |
0.75 |
|
|
|
0.00 |
|
|
$ |
|
| Balance at March 31, 2022 |
|
|
|
6,880,000 |
|
|
$ |
0.24 |
|
|
|
3.50 |
|
|
$ |
- |
| Granted |
|
|
|
600,000 |
|
|
$ |
0.05 |
|
|
|
4.50 |
|
|
$ |
16,800 |
| Balance at December 31, 2022 |
|
|
|
7,480,000 |
|
|
$ |
0.24 |
|
|
|
3.75 |
|
|
$ |
- |
NOTE 8 - COMMITMENTS AND CONTINGENCIES
Leases — We currently lease
2,507 square feet of office space at 2103 E. Cedar Street, Suites 6 Tempe, Arizona for $2,565 per month. The lease expires June 30, 2025
and $79,710 is due through the remainder of the lease. We believe that our facilities are adequate to meet our current and near-term needs.
| |
|
|
December 31, 2022 |
| Lease Cost |
|
|
|
| Operating lease cost (included in general and administration in the Company’s statement of operations) |
|
$ |
22,493 |
| |
|
|
|
| Other Information |
|
|
|
| Cash
paid for amounts included in the measurement of lease liabilities for the nine months ended December 31, 2022 |
|
$ |
21,928 |
| Remaining lease term – operating leases (in years) |
|
|
4.500 |
| Average discount rate – operating leases |
|
|
10% |
| The supplemental balance sheet information related to leases for the periods are as follows: |
|
|
|
| Operating leases |
|
|
|
| Right-of-use assets |
|
$ |
67,958 |
| Total operating lease assets |
|
$ |
67,958 |
| |
|
|
|
| Short-term operating lease liabilities |
|
$ |
25,639 |
| Long-term operating lease liabilities |
|
$ |
42,551 |
| Total operating lease liabilities |
|
$ |
68,190 |
| |
|
|
|
| Maturities of the Company’s lease liabilities are as follows: |
|
|
|
| |
|
|
|
| Period
ending December 31, |
|
Operating |
| Lease |
| 2023 |
|
|
79,710 |
| |
|
|
|
| Total lease payments |
|
|
79,710 |
| |
|
|
|
| Less: Imputed interest/present value discount |
|
|
11,520 |
| Present value of lease liabilities |
|
$ |
68,190 |