NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Current Operations and Background — AuraSource, Inc. (“AuraSource” or “Company”) focuses on the development and production of environmentally friendly and cost effective industrial energy and fuel used for industrial applications. AuraMetal, AuraSource’s core technology, includes ultrafine grinding and impurities removal processes. Initial industrial applications of AuraSource technology are ultra-fine coal water mixture for heavy oil substitution, and low grade iron ore fine and slimes beneficiation. AuraSource formed AuraSource Qinzhou Co. Ltd. (“Qinzhou”), a wholly owned subsidiary in China, to acquire these types of Hydrocarbon Clean Fuel (“HCF”) technologies, performing research and development (“R&D”) related to the reduction of harmful emissions and energy costs for HCF technology and products based on this technology, licensing HCF technology to third parties and selling services and products derived from this technology. Currently, we have seven patents patent issued related to our technologies: 1) ultrafine grinding and 2) ultrafine separation.
There can be no assurance we will be able to carry out our development plans for our HCF technology. Our ability to pursue this strategy is subject to the availability of additional capital and further development of our HCF technology. We also need to finance the cost of effectively protecting our intellectual property rights in the United States (“US”) and abroad where we intend to market our technology and products.
Going Concern — The accompanying unaudited consolidated financial statements were prepared assuming the Company will continue as a going concern. The Company has suffered recurring losses from operations since its inception and has an accumulated deficit of $13,276,122 at December 31, 2015. The consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or amounts and classifications of liabilities that might be necessary should the Company be unable to continue its existence. The recovery of the Company’s assets is dependent upon continued operations of the Company. In addition, the Company's recovery is dependent upon future events, the outcome of which is undetermined. The Company intends to continue to attempt to raise additional capital, but there can be no certainty such efforts will be successful.
Basis of Presentation and Principles of Consolidation — The accompanying condensed consolidated financial statements were prepared in conformity with accounting principles generally accepted in the United States of America (“US GAAP”) and include the accounts of AuraSource and its subsidiary, Qinzhou. All significant intercompany transactions and balances were eliminated in consolidation.
The unaudited consolidated financial statements were prepared by us pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). The information furnished herein reflects all adjustments (consisting of normal recurring accruals and adjustments) which are, in the opinion of management, necessary to fairly present the operating results for the respective periods. Certain information and footnote disclosures normally present in annual consolidated financial statements prepared in accordance with US GAAP was omitted pursuant to such rules and regulations. These consolidated financial statements should be read in conjunction with the audited consolidated financial statements and footnotes for the year ended March 31, 2015 included in our Annual Report on Form 10-K. The results of the three and nine months ended December 31, 2015 are not necessarily indicative of the results to be expected for the full year ending March 31, 2016.
Use of Estimates — The preparation of consolidated financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Cash and Equivalents — We consider investments with original maturities of 90 days or less to be cash equivalents.
Accounts Receivable - The Company extends credit to its customers. Collateral is generally not required. Credit losses are provided for in the financial statements based on management’s evaluation of historical and current industry trends. Although the Company expects to fully collect amounts due, actual collections may differ from estimated amounts. The Company estimates an allowance for doubtful accounts based upon a percentage of revenue earned. When the Company expects that there is less than a 20% chance of collection, the Company writes the receivable off to its allowance for doubtful accounts. The Company does not typically accrue interest or fees on past due amounts.
Inventory - Inventory is valued at the lower of cost or market. Cost is determined using standard costs, which approximates the first-in, first-out method.
Property and Equipment - Property and Equipment are stated at historical cost less accumulated depreciation and amortization. Cost represents the purchase price of the asset and other costs incurred to bring the asset into its existing use. Depreciation is provided on a straight-line basis over the assets' estimated useful lives. The useful lives of the assets are as follows: machinery and equipment 3 years, office equipment 3 years, vehicles 5 years. Additions and improvements are capitalized while routine repairs and maintenance are charged to expense as incurred. Upon sale or disposition, the historically recorded asset cost and accumulated depreciation are removed from the accounts and the net amount less proceeds from disposal is charged or credited to other income / expense.
Revenue Recognition - The Company recognizes revenue in accordance with ASC 605, Revenue Recognition. ASC 605 requires that four basic criteria must be met before revenue can be recognized: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred or services rendered; (3) the fee is fixed and determinable; and (4) collectability is reasonably assured. When we are paid in advance for products or services we classify these amounts as deferred revenue and recognize over the term of the agreement.
Cost of Goods Sold- Cost of goods sold includes cost of inventory sold during the period, net of discounts and allowances, freight and shipping costs, warranty and rework costs, and sales tax.
Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of- In accordance with ASC 350-30, we evaluate long-lived assets for impairment whenever events or changes in circumstances indicate that their net book value may not be recoverable. When such factors and circumstances exist, we compare the projected undiscounted future cash flows associated with the related asset or group of assets over their estimated useful lives against their respective carrying amount. Impairment, if any, is based on the excess of the carrying amount over the fair value, based on market value when available, or discounted expected cash flows, of those assets and is recorded in the period in which the determination is made. We currently believe there is no impairment of our long-lived assets. There can be no assurance, however, that market conditions will not change or demand for our products under development will continue. Either of these could result in future impairment of long-lived assets.
Beneficial Conversion Features- From time to time, the Company may issue convertible notes that may contain an embedded beneficial conversion feature. A beneficial conversion feature exists on the date a convertible note is issued when the fair value of the underlying common stock to which the note is convertible into is in excess of the remaining unallocated proceeds of the note after first considering the allocation of a portion of the note proceeds to the fair value of the warrants, if related warrants have been granted. The intrinsic value of the beneficial conversion feature is recorded as a debt discount with a corresponding amount to additional paid in capital. The debt discount is amortized to interest expense over the life of the note using the effective interest method.
Income Taxes — The Company accounts for income taxes in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 740, “Income Taxes.” Deferred tax assets and liabilities are recognized to reflect the estimated future tax effects, calculated at currently effective tax rates, of future deductible or taxable amounts attributable to events that have been recognized on a cumulative basis in the financial statements. A valuation allowance for a deferred tax asset is recorded when it is more likely than not that some portion of the deferred tax asset will not be realized.
Stock-Based Compensation — The Company recognizes the cost of employee services received for an award of equity instruments in the consolidated financial statements over the period the employee is required to perform the services.
Foreign Currency Transactions — The Company recognizes foreign currency gains and losses in other income (expense) on the accompanying statement of operations. Foreign currency gains and losses arise as the Company conducts business with other entity’s whose functional currency is not in US dollars. Generally, these gains and losses are recorded at an exchange rate difference between the foreign currency and the functional currency that arises between the transaction date and the payment date.
Net Loss Per Share — The Company computes basic and diluted net loss per share by dividing the net loss available to common stockholders for the period by the weighted average number of shares of common stock outstanding during the period. Common equivalent shares arising from stock options and warrants were excluded from the computation of basic and diluted earnings per share, for the three months ended December 31, 2015 and 2014 because their effect is anti-dilutive.
Concentration of Credit Risk — Financial instruments that potentially subject the Company to a concentration of credit risk consist of cash. The Company maintains its cash with high credit quality financial institutions; at times, such balances with any one financial institution may exceed Federal Deposit Insurance Corporation (“FDIC”) insured limits.
Financial Instruments and Fair Value of Financial Instruments — Our financial instruments consist of cash, accounts payable and notes payable. The carrying values of cash, accounts payable and notes payable are representative of the fair values due to their short-term maturities. We measure the fair value (“FV”) of financial assets and liabilities on a recurring basis. FV is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. FV measurements are to be considered from the perspective of a market participant that holds the asset or owes the liability. We also establish a FV hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring FV.
The standard describes three levels of inputs that may be used to measure FV:
| Level 1: | Quoted prices in active markets for identical or similar assets and liabilities. | |
| Level 2: | Quoted prices for identical or similar assets and liabilities in markets that are not active or observable inputs other than quoted prices in active markets for identical or similar assets and liabilities. | |
| Level 3: | Unobservable inputs that are supported by little or no market activity and that are significant to the FV of the assets or liabilities. |
The Company evaluates embedded conversion features within convertible debt under ASC Topic 815, “Derivatives and Hedging,” to determine whether the embedded conversion feature should be bifurcated from the host instrument and accounted for as a derivative at FV with changes in FV recorded in earnings. If the conversion feature does not require derivative treatment under ASC 815, the instrument is evaluated under ASC subtopic 470-20, “Debt with Conversion and Other Options,” for consideration of any beneficial conversion feature.
Reclassifications — Certain reclassifications were made to the prior period amounts disclosed in the consolidated financial statements to conform to the presentation form the three and nine months ended December 31, 2015. These reclassifications had no effect on reported net loss or stockholders’ equity.
Recent Accounting Pronouncements – There were no significant changes in the Company’s critical accounting policies and estimates during the three months ended December 31, 2015 compared to what was disclosed in the Company’s Annual Report on Form 10-K for the year ended March 31, 2015.
Going Concern — The accompanying unaudited consolidated financial statements were prepared assuming the Company will continue as a going concern. The Company has suffered recurring losses from operations since its inception and has an accumulated deficit of $13,276,122 at December 31, 2015. The consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or amounts and classifications of liabilities that might be necessary should the Company be unable to continue its existence. The recovery of the Company’s assets is dependent upon continued operations of the Company. In addition, the Company's recovery is dependent upon future events, the outcome of which is undetermined. The Company intends to continue to attempt to raise additional capital, but there can be no certainty such efforts will be successful.
Basis of Presentation and Principles of Consolidation — The accompanying condensed consolidated financial statements were prepared in conformity with accounting principles generally accepted in the United States of America (“US GAAP”) and include the accounts of AuraSource and its subsidiary, Qinzhou. All significant intercompany transactions and balances were eliminated in consolidation.
The unaudited consolidated financial statements were prepared by us pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). The information furnished herein reflects all adjustments (consisting of normal recurring accruals and adjustments) which are, in the opinion of management, necessary to fairly present the operating results for the respective periods. Certain information and footnote disclosures normally present in annual consolidated financial statements prepared in accordance with US GAAP was omitted pursuant to such rules and regulations. These consolidated financial statements should be read in conjunction with the audited consolidated financial statements and footnotes for the year ended March 31, 2015 included in our Annual Report on Form 10-K. The results of the nine months ended December 31, 2015 are not necessarily indicative of the results to be expected for the full year ending March 31, 2016.
Use of Estimates — The preparation of consolidated financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
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Cash and Equivalents — We consider investments with original maturities of 90 days or less to be cash equivalents.
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Income Taxes — The Company accounts for income taxes in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 740, “Income Taxes.” Deferred tax assets and liabilities are recognized to reflect the estimated future tax effects, calculated at currently effective tax rates, of future deductible or taxable amounts attributable to events that have been recognized on a cumulative basis in the financial statements. A valuation allowance for a deferred tax asset is recorded when it is more likely than not that some portion of the deferred tax asset will not be realized.
Stock-Based Compensation — The Company recognizes the cost of employee services received for an award of equity instruments in the consolidated financial statements over the period the employee is required to perform the services.
Foreign Currency Transactions — The Company recognizes foreign currency gains and losses in other income (expense) on the accompanying statement of operations. Foreign currency gains and losses arise as the Company conducts business with other entity’s whose functional currency is not in US dollars. Generally, these gains and losses are recorded at an exchange rate difference between the foreign currency and the functional currency that arises between the transaction date and the payment date.
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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 December 31, 2015 and 2014 because their effect is anti-dilutive.
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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.
NOTE 6 – DUE TO RELATED PARTIES
As of December 31, 2015 and March 31, 2015, $2,069,902 and $1,508,955, respectively, is owed to the officers and directors of the Company. As of December 31, 2015, $626,698 is from the advancement of expenses and $1,443,204 is for past due compensation. As of March 31, 2015, $169,949 is from the advancement of expenses and $1,339,006 is for past due compensation.
NOTE 5 – INTANGIBLE ASSETS, NET
We entered into an agreement with Beijing Pengchuang Technology Development Co. (“Pengchuang”), Ltd., an independent Chinese company, to purchase 50% of the intellectual property related to ultrafine particle processing. Pengchuang developed a highly efficient and low energy consumption grinding technology, which utilizes fluid shock waves to make ultrafine particles. This technology can be applied to the coal water slurry, solid lubricant and other material grinding processes. Through a joint development and ownership agreement, AuraSource will enrich its intellectual property portfolio, enabling the further development of AuraMetal, its HCF technology. AuraSource Qinzhou will utilize the particle grinding technology in its AuraMetal Qinzhou production line, as well as license it to others in non-related industries.
The net intangibles were $707,464 and $733,463 as of December 31, 2015 and March 31, 2015. We issued 600,000 shares of common stock for the acquisition of certain intangibles. The shares issued in connection with $753,530 of the acquired intangibles were valued at $606,000 or $1.01 per share which was the share price on August 8, 2010, the acquisition date. The Company paid cash for the remainder of the amount due. The Company recorded $11,840 and $11,780 in amortization expense in the three months ended December 31, 2015 and 2014, respectively. The Company recorded $35,460 and $35,339 in amortization expense in the nine months ended December 31, 2015 and 2014, respectively.
NOTE 9 - STOCK OPTIONS
In January 2009, we granted 60,000 options to purchase shares of our common stock at $3.50 per share to members of our BOD. In April 2010, we granted an additional 60,000 options to purchase shares of our common stock at $1.00 per share to members of our BOD. The options vest quarterly and have an expiration period of 10 years. In April 2011, we granted an additional 60,000 options to purchase shares of our common stock at $0.75 per share to certain members of our BOD. The options vest quarterly and have an expiration period of 10 years. In February 2012, we granted an additional 2,850,000 options to purchase shares of our common stock at $0.28 per share to certain members of our BOD. The options will vest upon the Company earning $5 million in revenues. The options expire in 5 years. In April 2012, we granted an additional 60,000 options to purchase shares of our common stock at $0.27 per share to certain members of our BOD. In April 2013, we granted an additional 60,000 options to purchase shares of our common stock at $0.45 per share to certain members of our BOD. In January 2014, we granted 200,000 options to purchase shares of our common stock at $0.25 per share to certain our CEO and CFO. In April 2014, we granted an additional 60,000 options to purchase shares of our common stock at $0.50 per share to certain members of our BOD. In April 2014, we granted 200,000 options to purchase shares of our common stock at $0.25 per share to certain our CEO and CFO per their employment agreements. In July 2014, we granted 200,000 options to purchase shares of our common stock at $0.25 per share to certain our CEO and CFO per their employment agreements. In October 2014, we granted 200,000 options to purchase shares of our common stock at $0.25 per share to certain our CEO and CFO per their employment agreements. In January 2015, we granted 200,000 options to purchase shares of our common stock at $0.25 per share to certain our CEO and CFO per their employment agreements. In April 2015, we granted an additional 40,000 options to purchase shares of our common stock at $0.49 per share to certain members of our BOD. In April 2015, we granted 200,000 options to purchase shares of our common stock at $0.25 per share to certain our CEO and CFO per their employment agreements. In July 2015, we granted 200,000 options to purchase shares of our common stock at $0.25 per share to certain our CEO and CFO per their employment agreements. In October 2015, we granted 200,000 options to purchase shares of our common stock at $0.25 per share to certain our CEO and CFO per their employment agreements.
We will record stock based compensation expense over the requisite service period, which in our case approximates the vesting period of the options. During the three and nine months ended December 31, 2015, the Company recorded $32,366 and $188,153 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 | 25% to 198% | |||
| Average expected option life | 2.5 to 5 years | |||
| Risk-free interest rate | 0.68% to 2.59% | |||
The following table summarizes activity in the Company's stock option grants for the three months ended December 31, 2015:
| Number of Shares |
Weighted Average Price Per Share | |||||||||
| Balance at March 31, 2014 | 3,350,000 | $ | 0.36 | |||||||
| Granted | 860,000 | $ | 0.25 | |||||||
| Balance at March 31, 2015 | 4,210,000 | $ | 0.35 | |||||||
| Granted | 640,000 | $ | 0.25 | |||||||
| Balance at December 31, 2015 | 4,850,000 | $ | 0.34 | |||||||
The following summarizes pricing and term information for options issued to employees and directors outstanding as of December 31, 2015:
| Options Outstanding | Options Exercisable | |||||||||||||||
| Range of Exercise Prices | Number Outstanding at December 31, 2015 |
Weighted Average Remaining Contractual Life |
Weighted Average Exercise Price | Number Exercisable at December 31, 2015 | Weighted Average Exercise Price | |||||||||||
| $3.50 | 60,000 | 3.25 | $3.50 | 60,000 | $3.50 | |||||||||||
| $1.00 | 60,000 | 4.25 | $1.00 | 60,000 | $1.00 | |||||||||||
| $0.75 | 60,000 | 5.25 | $0.75 | 60,000 | $0.75 | |||||||||||
| $0.50 | 60,000 | 8.25 | $0.50 | 60,000 | $0.50 | |||||||||||
| $0.49 | 40,000 | 9.25 | $0.49 | 10,000 | $0.49 | |||||||||||
| $0.45 | 60,000 | 7.25 | $0.45 | 60,000 | $0.45 | |||||||||||
| $0.28 | 2,850,000 | 1.88 | $0.28 | - | - | |||||||||||
| $0.27 | 60,000 | 6.25 | $0.27 | 60,000 | $0.28 | |||||||||||
| $0.25 | 1,600,000 | 8.25 | $0.25 | 1,600,000 | $0.25 | |||||||||||
| Balance at December 31, 2015 | 4,850,000 | 3.00 | $0.345 | 1,925,000 | $0.57 | |||||||||||
| Number of Shares |
Weighted Average Price Per Share | |||||||||
| Balance at March 31, 2014 | 3,350,000 | $ | 0.36 | |||||||
| Granted | 860,000 | $ | 0.25 | |||||||
| Balance at March 31, 2015 | 4,210,000 | $ | 0.35 | |||||||
| Granted | 640,000 | $ | 0.25 | |||||||
| Balance at September 30, 2015 | 4,850,000 | $ | 0.34 | |||||||
| Options Outstanding | Options Exercisable | |||||||||||||||
| Range of Exercise Prices | Number Outstanding at September 30, 2015 |
Weighted Average Remaining Contractual Life |
Weighted Average Exercise Price | Number Exercisable at September 30, 2015 | Weighted Average Exercise Price | |||||||||||
| $3.50 | 60,000 | 3.25 | $3.50 | 60,000 | $3.50 | |||||||||||
| $1.00 | 60,000 | 4.25 | $1.00 | 60,000 | $1.00 | |||||||||||
| $0.75 | 60,000 | 5.25 | $0.75 | 60,000 | $0.75 | |||||||||||
| $0.50 | 60,000 | 8.25 | $0.50 | 60,000 | $0.50 | |||||||||||
| $0.49 | 40,000 | 9.25 | $0.49 | 10,000 | $0.49 | |||||||||||
| $0.45 | 60,000 | 7.25 | $0.45 | 60,000 | $0.45 | |||||||||||
| $0.28 | 2,850,000 | 1.88 | $0.28 | - | - | |||||||||||
| $0.27 | 60,000 | 6.25 | $0.27 | 60,000 | $0.28 | |||||||||||
| $0.25 | 1,600,000 | 8.25 | $0.25 | 1,600,000 | $0.25 | |||||||||||
| Balance at September 30, 2015 | 4,850,000 | 3.00 | $0.345 | 1,925,000 | $0.57 | |||||||||||
NOTE 3 – DEPOSITS AND OTHER CURRENT ASSETS
Deposits and other current assets were $526,963 and $526,963 as of December 31, 2015 and March 31, 2015, respectively, and were comprised of the following:
|
December 31, 2015 |
March 31, 2015 | |||||||
| (Unaudited) | (Audited) | |||||||
| Inventory | $ | — | $ | — | ||||
| Shipping deposits | 10,918 | 10,918 | ||||||
| Mineral reserve deposits | 516,045 | 516,045 | ||||||
| Prepaid expenses | — | — | ||||||
| Ending Balance | $ | 526,963 | $ | 526,963 | ||||
NOTE 2 - CONCENTRATION OF CREDIT RISK
We maintain our cash balances in financial institutions that from time to time exceed amounts insured by the FDIC (up to $250,000, per financial institution as of December 31, 2015). As of December 31, 2015 and March 31, 2015, our deposits did not exceed insured amounts. We have not experienced any losses in such accounts and we believe we are not exposed to any credit risk on cash.
Currently, we maintain a bank account in China. This account is not insured and we believe is exposed to credit risk on cash.
NOTE 4 – FIXED ASSETS, NET
Fixed assets, net consisted of the following:
| December 31, | March 31, | |||||||
| 2015 | 2015 | |||||||
| (Unaudited) | (Audited) | |||||||
| Office equipment | $ | 5,013 | $ | 5,013 | ||||
| Vehicles | 147,390 | 147,390 | ||||||
| Equipment | 391,118 | 391,118 | ||||||
| Total fixed assets | 543,521 | 543,521 | ||||||
| Less accumulated depreciation | (529,017 | ) | (414,185 | ) | ||||
| Total fixed assets, net | $ | 14,504 | $ | 129,336 | ||||
The depreciation expense for the three and nine months ended December 31, 2014 was $38,441 and $117,092, respectively. The depreciation expense for the three and nine months ended December 31, 2015 was $38,195 and $114,832, respectively.
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.
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NOTE 7 – NOTE PAYABLE
On December 31, 2012, the Company received $500,000 from Pelican Creek, LLC (Pelican Creek”), a former related party who resigned in June 2014, and recorded the corresponding note as a current liability on the balance sheet. Our former director, Larry Kohler, manages Pelican Creek. As an inducement to receive this loan, the Company issued 1,250,000 shares of its common stock to Pelican Creek for the year ended March 31, 2012. The FV of the shares issued was $812,500 valued at $0.65 per share, using the closing price on the effective date of the agreement. The coupon interest on this note accrues daily on the outstanding principal amount at 8% per annum. On March 26, 2014, the Company issued 2,000,000 shares of common stock in exchange for the cancelation of a $500,000 note payable. As such, as of December 31, 2015, the Company accrued interest of $69,101 and remains in the note payable account with no conversion right.
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. The amount of interest as of December 31, 2015 is $2,850. The principle and interest are due on September 15, 2016.
| September 30, | March 31, | |||||||
| 2015 | 2015 | |||||||
| (Unaudited) | (Audited) | |||||||
| Office equipment | $ | 5,013 | $ | 5,013 | ||||
| Vehicles | 147,390 | 147,390 | ||||||
| Equipment | 391,118 | 391,118 | ||||||
| Total fixed assets | 543,521 | 543,521 | ||||||
| Less accumulated depreciation | (529,017 | ) | (414,185 | ) | ||||
| Total fixed assets, net | $ | 14,504 | $ | 129,336 | ||||
NOTE 8 – STOCK ISSUANCE
On June 4, 2014, we issued 20,000 shares of the Company common stock for $6,000 at a share price of $0.30. On February 3, 2015, the Company issued 1,781,920 shares of its common stock at $0.20 per share for a total of $356,384.
Reclassifications — Certain reclassifications were made to the prior period amounts disclosed in the consolidated financial statements to conform to the presentation form the three and nine months ended December 31, 2015. These reclassifications had no effect on reported net loss or stockholders’ equity.
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Accounts Receivable - The Company extends credit to its customers. Collateral is generally not required. Credit losses are provided for in the financial statements based on management’s evaluation of historical and current industry trends. Although the Company expects to fully collect amounts due, actual collections may differ from estimated amounts. The Company estimates an allowance for doubtful accounts based upon a percentage of revenue earned. When the Company expects that there is less than a 20% chance of collection, the Company writes the receivable off to its allowance for doubtful accounts. The Company does not typically accrue interest or fees on past due amounts.
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Inventory - Inventory is valued at the lower of cost or market. Cost is determined using standard costs, which approximates the first-in, first-out method.
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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 5 years, office equipment 5 to 7 years, vehicles 5 years, and leasehold improvements use the shorter of the estimated useful life or the remaining term of the agreements, generally ranging from 3 to 15 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.
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Revenue Recognition - The Company recognizes revenue in accordance with ASC 605, Revenue Recognition. ASC 605 requires that four basic criteria must be met before revenue can be recognized: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred or services rendered; (3) the fee is fixed and determinable; and (4) collectability is reasonably assured. When we are paid in advance for products or services we classify these amounts as deferred revenue. Upon the receipt of these products at the destination port, we recognize revenue. For services, we amortized the price over the term of the agreement.
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Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of- In accordance with ASC 350-30, we evaluate long-lived assets for impairment whenever events or changes in circumstances indicate that their net book value may not be recoverable. When such factors and circumstances exist, we compare the projected undiscounted future cash flows associated with the related asset or group of assets over their estimated useful lives against their respective carrying amount. Impairment, if any, is based on the excess of the carrying amount over the fair value, based on market value when available, or discounted expected cash flows, of those assets and is recorded in the period in which the determination is made. We currently believe there is no impairment of our long-lived assets. There can be no assurance, however, that market conditions will not change or demand for our products under development will continue. Either of these could result in future impairment of long-lived assets.
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Beneficial Conversion Features- From time to time, the Company may issue convertible notes that may contain an embedded beneficial conversion feature. A beneficial conversion feature exists on the date a convertible note is issued when the fair value of the underlying common stock to which the note is convertible into is in excess of the remaining unallocated proceeds of the note after first considering the allocation of a portion of the note proceeds to the fair value of the warrants, if related warrants have been granted. The intrinsic value of the beneficial conversion feature is recorded as a debt discount with a corresponding amount to additional paid in capital. The debt discount is amortized to interest expense over the life of the note using the effective interest method.
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|
September 30, 2015 |
March 31, 2015 | |||||||
| (Unaudited) | (Audited) | |||||||
| Inventory | $ | — | $ | — | ||||
| Shipping deposits | 10,918 | 10,918 | ||||||
| Mineral reserve deposits | 516,045 | 516,045 | ||||||
| Prepaid expenses | — | — | ||||||
| Ending Balance | $ | 526,963 | $ | 526,963 | ||||