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 $18,150,196 at September 30, 2019. 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 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, 2019 included
in our Annual Report on Form 10-K. The results of the three and six months ended September 30, 2019 are not necessarily indicative
of the results to be expected for the full year ending March 31, 2019.
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.
We
entered into a new lease on July 1, 2019. The new policy will impact us July 1, 2019.
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 six months ended September 30, 2019 and 2018 because their effect is anti-dilutive.
Concentration
of Credit Risk — Financial instruments that potentially subject the Company to a concentration of credit risk consist
of cash. The Company maintains its cash with high credit quality financial institutions; at times, such balances with
any one financial institution may exceed Federal Deposit Insurance Corporation (“FDIC”) insured limits.
Financial
Instruments and Fair Value of Financial Instruments — Our financial instruments consist of cash, accounts payable
and notes payable. The carrying values of cash, accounts payable and notes payable are representative of the fair values due to
their short-term maturities. We measure the fair value (“FV”) of financial assets and liabilities on a recurring basis.
FV is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between
market participants at the measurement date. FV measurements are to be considered from the perspective of a market participant
that holds the asset or owes the liability. We also establish a FV hierarchy which requires an entity to maximize the use of observable
inputs and minimize the use of unobservable inputs when measuring FV.
The
standard describes three levels of inputs that may be used to measure FV:
|
Level 1:
|
|
Quoted prices in active markets for
identical or similar assets and liabilities.
|
|
|
|
|
|
Level 2:
|
|
Quoted prices
for identical or similar assets and liabilities in markets that are not active or observable inputs other than quoted prices
in active markets for identical or similar assets and liabilities.
|
|
|
|
|
|
Level 3:
|
|
Unobservable inputs
that are supported by little or no market activity and that are significant to the FV of the assets or liabilities.
|
The
Company evaluates embedded conversion features within convertible debt under ASC Topic 815, “Derivatives and Hedging,”
to determine whether the embedded conversion feature should be bifurcated from the host instrument and accounted for as a
derivative at FV with changes in FV recorded in earnings. If the conversion feature does not require derivative treatment under
ASC 815, the instrument is evaluated under ASC subtopic 470-20, “Debt with Conversion and Other Options,” for
consideration of any beneficial conversion feature.
Recently
Issued Accounting Standards
In
June 2016, the FASB issued ASU 2016-13, "Measurement of Credit Losses on Financial Statements." This update provides
financial statement users with more decision-useful information about the expected credit losses on financial instruments and
other commitments to extend credit held by a reporting entity at each reporting date. The update replaces the incurred loss impairment
methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range
of reasonable and supportable information to inform credit loss estimates. ASU No. 2016-13 is effective for public entities for
annual periods beginning after December 15, 2019. The Company is evaluating the impact of adopting this guidance to its consolidated
financial statements and related disclosures.
In
August 2018, the FASB issued ASU 2018-13, "Fair Value Measurement," which changed the disclosure requirements for fair
value measurements by removing, adding and modifying certain disclosures. The standard is effective for all entities for fiscal
years, and interim periods within those fiscal years, beginning after December 15, 2019. Early adoption is permitted. The Company
is evaluating the impact of adopting this guidance to its consolidated financial statements and related disclosures.
In
August 2018, the FASB issued ASU 2018-15, "Cloud Computing Arrangements," which aligns the requirements for capitalizing
implementation costs in a Cloud Computing Arrangement service contract with the requirements for capitalizing implementation costs
incurred for an internal-use software license. The standard is effective for all entities for fiscal years, and interim periods
within those fiscal years, beginning after December 15, 2019. Early adoption is permitted. The Company is evaluating the impact
of adopting this guidance to its consolidated financial statements and related disclosures.
Other
recent accounting pronouncements issued by the FASB (including its Emerging Issues Task Force), the AICPA, and the SEC did not
or are not believed by management to have a material impact on our present or future consolidated financial statements.
NOTE
2 - CONCENTRATION OF CREDIT RISK
As
of September 30, 2019 and March 31, 2019, our deposits did not exceed amounts insured by the FDIC (up to $250,000, per financial
institution as of September 30, 2019). We have not experienced any losses in such accounts, and we believe we are not exposed
to any credit risk on cash.
Currently,
we maintain a bank account in China. This account is not insured, and we believe is exposed to credit risk on cash.
NOTE
3 – DUE TO RELATED PARTIES
As
of September 30, 2019 and March 31, 2019, $1,727,087 and $1,540,695, 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.
$1,679,292 is owed under the note as of September 30, 2019. 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 $91,949 of the note into 1,313,556 shares of common stock which was considered
the fair market value. $468,434 is owed under the note as of September 30, 2019. The note has an interest rate of 10% which is
compounded quarterly is in default.
NOTE
5 – NOTE PAYABLE
On
December 31, 2012, the Company received $500,000 from Pelican Creek, LLC (Pelican Creek”), a former related party who resigned
in June 2014, and recorded the corresponding note as a current liability on the balance sheet. Our former director, Larry Kohler,
manages Pelican Creek. As an inducement to receive this loan, the Company issued 1,250,000 shares of its common stock to Pelican
Creek for the year ended March 31, 2012. The FV of the shares issued was $812,500 valued at $0.65 per share, using the closing
price on the effective date of the agreement. The coupon interest on this note accrues daily on the outstanding principal amount
at 8% per annum. On March 26, 2014, the Company issued 2,000,000 shares of common stock in exchange for the cancelation of a $500,000
note payable. As such, as of June 30, 2019, the Company accrued interest of $109,259 and remained in the note payable account. This
note was settled on July 12, 2019 in exchange for the issuance of 437,032 shares of the Company’s common stock. We recognized
a loss on debt settlement of $15,295. We issued 215,000 shares to Mr. Kohler to settle pass due amounts. We recognized a loss
on debt settlement of $7,525.
In
December 31, 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. In May 2018, the Company paid $5,000 to reduce the amount of the note. The
amount of principle and interest as of June 30, 2019 is $78,224. The principle and interest are due on September 15, 2016. The
note payable is currently in default.
NOTE
6 – STOCK ISSUANCE
During
the quarter ended June 30, 2018, 16 million shares of common stock were cancelled.
During
the quarter ended September 30, 2018, the Company issued 520,000 shares of common stock for $83,600.
During
the quarter ended December 31, 2018, the Company issued 397,143 shares of common stock for $34,000 and 57,143 shares of common
stock for past investment.
During
the quarter ended March 31, 2019, the Company issued 1,382,500 shares of common stock for $94,400.
During
the quarter ended June 30, 2019, the Company issued 500,000 shares of common stock for $40,000.
During
the quarter ended September 30, 2019, the Company issued 200,000 shares of common stock for $10,000.
During
the quarter ended September 30, 2019, the Company issued 652,032 shares of common stock for settlement of liabilities.
NOTE
7 - STOCK OPTIONS
In
April 2018, we granted an additional 40,000 options to purchase shares of our common stock at $0.11 per share to certain members
of our BOD. In April 2018, we granted 200,000 options to purchase shares of our common stock at $0.25 per share to certain our
CEO and CFO per their employment agreements. In July 2018, we granted 200,000 options to purchase shares of our common stock at
$0.25 per share to certain our CEO and CFO per their employment agreements. In October 2018, we granted 200,000 options to purchase
shares of our common stock at $0.25 per share to certain our CEO and CFO per their employment agreements. In January 2019, we
granted 200,000 options to purchase shares of our common stock at $0.25 per share to certain our CEO and CFO per their employment
agreements. In April 2019, we granted an additional 40,000 options to purchase shares of our common stock at $0.17 per share to
certain members of our BOD. In April 2019, we granted 200,000 options to purchase shares of our common stock at $0.25 per share
to certain our CEO and CFO per their employment agreements. In July 2019, we granted 200,000 options to purchase shares of our
common stock at $0.25 per share to certain our CEO and CFO per their employment agreements.
In
the quarter ended June 30, 2018, 2.85 million options were cancelled. Due to the unsuccessful outcome these options were cancelled.
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 year ended March 31, 2019, the Company recorded $135,363, 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 7-year constant maturity.
Dividend rates are based on the Company’s dividend history. The stock volatility factor is based on the last 60 days of
market prices prior to the grant date. The expected life of an option grant is based on management’s estimate. The fair
value of each option grant, as calculated by the BSOPM, is recognized as compensation expense on a straight-line basis over the
vesting period of each stock option award.
These
assumptions were used to determine the FV of stock options granted:
|
|
|
|
|
|
Dividend
yield
|
|
|
0.0%
|
|
|
Volatility
|
|
|
330%
|
|
|
Average
expected option life
|
|
5
years
|
|
|
Risk-free
interest rate
|
|
|
0.70%
|
|
The
following table summarizes activity in the Company's stock option grants for the years ended March 31, 2019 and 2020:
|
|
|
Number
of Shares
|
|
Weighted
Average Price Per Share
|
|
|
Balance at March
31, 2018
|
|
|
|
6,730,000
|
|
|
$
|
0.32
|
|
|
|
Granted
|
|
|
|
840,000
|
|
|
$
|
0.25
|
|
|
|
Cancelled
|
|
|
|
(2,850,000)
|
|
|
$
|
0.28
|
|
|
|
Balance at March
31, 2019
|
|
|
|
4,720,000
|
|
|
$
|
0.33
|
|
|
|
Granted
|
|
|
|
420,000
|
|
|
$
|
0.25
|
|
|
|
Balance at September
30, 2019
|
|
|
|
5,140,000
|
|
|
$
|
0.28
|
|
The
following summarizes pricing and term information for options issued to employees and directors outstanding as of September 30,
2019:
|
|
|
Options
Outstanding
|
|
Options
Exercisable
|
|
|
Range
of Exercise Prices
|
|
Number
Outstanding at September 30, 2019
|
|
Weighted
Average Remaining Contractual
Life
|
|
Weighted
Average Exercise Price
|
|
Number
Exercisable at September 30, 2019
|
|
Weighted
Average Exercise Price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$3.50
|
|
|
60,000
|
|
|
2.00
|
|
|
$3.50
|
|
|
60,000
|
|
|
$3.50
|
|
|
$1.00
|
|
|
60,000
|
|
|
2.75
|
|
|
$1.00
|
|
|
60,000
|
|
|
$1.00
|
|
|
$0.75
|
|
|
60,000
|
|
|
3.75
|
|
|
$0.75
|
|
|
60,000
|
|
|
$0.75
|
|
|
$0.50
|
|
|
60,000
|
|
|
5.75
|
|
|
$0.50
|
|
|
60,000
|
|
|
$0.50
|
|
|
$0.49
|
|
|
40,000
|
|
|
6.75
|
|
|
$0.49
|
|
|
40,000
|
|
|
$0.49
|
|
|
$0.45
|
|
|
60,000
|
|
|
5.75
|
|
|
$0.45
|
|
|
60,000
|
|
|
$0.45
|
|
|
$0.27
|
|
|
60,000
|
|
|
5.00
|
|
|
$0.27
|
|
|
60,000
|
|
|
$0.28
|
|
|
$0.25
|
|
|
4,640,000
|
|
|
8.25
|
|
|
$0.25
|
|
|
4,640,000
|
|
|
$0.25
|
|
|
$0.19
|
|
|
40,000
|
|
|
9.00
|
|
|
$0.19
|
|
|
40,000
|
|
|
$0.19
|
|
|
$0.15
|
|
|
40,000
|
|
|
7.75
|
|
|
$0.15
|
|
|
40,000
|
|
|
$0.15
|
|
|
$0.075
|
|
|
40,000
|
|
|
7.75
|
|
|
$0.075
|
|
|
40,000
|
|
|
$0.075
|
|
|
Balance
at September 30, 2019
|
|
|
5,140,000
|
|
|
6.10
|
|
|
$0.32
|
|
|
5,140,000
|
|
|
$0.32
|
|
