AuraSource, Inc. - Annual Report: 2009 (Form 10-K)
UNITED
STATES SECURITIES AND EXCHANGE COMMISSION
Washington,
D.C. 20549
Form 10-K
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(Mark
One)
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x
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ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
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For the
fiscal year ended March 31, 2009
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OR
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ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
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For
the transition period from
to
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AURASOURCE,
INC.
(Exact
name of registrant as specified in its charter)
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NEVADA
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68-0427395
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(State
or other jurisdiction of
incorporation
or organization)
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(I.R.S.
Employer Identification No.)
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7377
E. Doubletree Ranch Rd. #288, Scottsdale,
AZ
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85258
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(Address
of principal executive offices)
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(Zip
Code)
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Registrant’s
telephone number, including area code:
(480)
368-1829
Securities
registered pursuant to Section 12(b) of the Act:
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Title
of each class
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Name
of each exchange on which registered
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None
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None
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Securities
registered pursuant to Section 12(g) of the Act:
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Common
Stock, par value $0.001 per share
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Indicate
by check mark if the registrant is a well-known seasoned issuer as defined in
Rule 405 of the Securities Act. Yes o No
x
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act. Yes o No x
Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes x
No o
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of the registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company. See the definitions of “large accelerated filer,”
“accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act. (Check one):
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Large
accelerated filer o
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Accelerated
filer o
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Non-accelerated
filer o (Do not
check if a smaller reporting company)
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Smaller
reporting company x
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Indicate
by check mark whether the registrant is a shell company (as defined by Rule
12b-2 of the Act). Yes o No
x
At July
7, 2009, the aggregate market value of the voting common stock held by
non-affiliates of the Registrant (without admitting that any person whose shares
are not included in such calculation is an affiliate) was approximately
$2,182,250. At July 7, 2009, there were 21,650,000 shares of the
Registrant’s common stock outstanding.
DOCUMENTS
INCORPORATED BY REFERENCE
None.
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FORWARD-LOOKING
STATEMENTS
This report includes forward-looking statements with-in the
meaning of Section 27A of the Securities Act (the "Securities Act") and
Section 21E of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"). We have based these statements on our beliefs and assumptions,
based on information currently available to us. These forward-looking statements
are subject to risks and uncertainties. Forward-looking statements include the
information concerning our possible or assumed future results of operations, our
total market opportunity and our business plans and objectives set forth under
the sections entitled "Business" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
Forward-looking statements are not
guarantees of performance. Our future results and requirements may differ
materially from those described in the forward-looking statements. Many of the
factors that will determine these results and requirements are beyond our
control. In addition to the risks and uncertainties discussed in "Business" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," investors should consider those discussed under "Risk Factors" and,
among others, the following:
These forward-looking statements speak
only as of the date of this report. We do not intend to update or revise any
forward-looking statements to reflect changes in our business anticipated
results of our operations, strategy or planned capital expenditures, or to
reflect the occurrence of unanticipated events.
PART
I
Item
1. Description of Business
General
AuraSource,
Inc., a Nevada corporation (“AuraSource” or the “Company”), is majority owned by
MongSource USA, LLC, an Arizona limited liability company
(“Mongsource”). In turn, Mongsource is a subsidiary of MongSource
Ltd., a privately held a company organized and existing under the laws of the
Territory of the British Virgin Islands (“Mongsource BVI”).
On May
20, 2008, the Company entered into a Share Purchase Agreement (the "Agreement")
with Mongsource USA, LLC ("Mongsource USA"), under which Mongsource USA agreed
to purchase, and the Company agreed to sell, an aggregate of 19,426,500 shares
of common stock of Mobile Nation, Inc $200,000, or $0.0103 per share. The
transaction closed on July 8, 2008.
Originally
our plan was to explore and develop mineral resources in Mongolia, Guinea, China
and other international markets. However, price of natural resources during our
fund raising efforts declined and we decided hold off on these activities until
market conditions improve.
As a result of our involvement in China
and Mongolia, we acquired hydrocarbon clean fuel technology which we plan to
patent and license. AuraSource is forming a wholly owned foreign
entity in Beijing, China named AuraCoal, a Chinese corporation (“AC”) for the
purpose of acquiring hydrocarbon clean fuel (“HCF”) technology, performing
research and development related to HCF technology and products based on this
technology, licensing HCF technology to third parties and selling services and
products derived from this technology.
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Hydrocarbon Clean Fuel
Technology
We
believe our HCF technology, AuraCoaltm, will
be a next generation of hydrocarbon clean fuel technology. It involves grinding
coal into very fine particles, mixing it with water and selected chemicals to
make a slurry mixture and using a proprietary biological treatment of the coal
slurry mixture to remove the heavy minerals, such as sulfur. We
believe this slurry mixture, AuraFueltm, will
have sufficient fluidity to move through pipelines, process delivery piping and
burner injection nozzles. Our goal is to demonstrate to power plants and similar
users that converting their plants to our HCF technology will provide greater
cost savings than current alternatives. Given sufficient capital and
we plan to market our HCF technology to plants in China and in the United States
with the objective of having a beta demonstration site in each country. More
specifically, we intend to pursue the following core elements of our business
strategy:
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license
the HCF technology to international clients in applicable industries, such
as coal producers and power plants.
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develop
strategic partnerships to deliver consulting services with respect to
design, engineering, procurement and construction for HCF
applications.
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enter
into joint ventures with coal producers to supply HCF treated coal to
power plants.
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process
coal using the HCF technology and sell such coal to end users at a
marked-up price.
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assist
customers to convert their plants to HCF rather than oil, gas or other
natural resources in order to save energy
costs.
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establish
centers for processing the coal with its HCF technology to supply power
plants and other customers.
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Our
ability to pursue this strategy is subject to the availability of additional
capital and further development of our HCF technology. We will also
need to finance the cost of pursuing a strategy to effectively protect our
intellectual property rights in the United States and abroad where we intend to
market our technology and products.
AuraCoaltm Clean
Coal Technology
AuraCoaltm is a
new generation of HCF technology. With the adoption of our proprietary clean
coal technology, we believe will enable us to convert old coal systems into
power generating systems that produce emissions containing only trace amounts of
sulfur and ash. We believe the AuraCoaltm
technology can:
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reduce
harmful emissions and energy costs;
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reduce
and/or eliminate the need for
scrubbers;
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reduce
carbon (CO2) emissions by up to 33% before implementation of additional
carbon recapture technology;
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reduce
a power plant’s need for related precipitators and/or sulfur acceptors;
and
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enable
a power plant to effectively manage its carbon
emissions.
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An existing gas or oil power plant can
be converted to use the AuraCoaltm
technology with minimal engineering processes. Given sufficient
capital, our goal is to start a pilot plant and begin seven plant conversions in
the third and fourth calendar quarters of 2009.
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AuraFueltm Liquid
Fuel
AuraFueltm is the
resulting coal based, clean industrial fuel produce by the AuraCoaltm
technology. We believe AuraFueltm will
burn cleaner and more efficiently than its predecessors and it can be delivered
via pipeline in a non-volatile state. We believe the AuraFueltm:
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has
excellent fuel economy, good liquidity and stability, is easily loaded and
unloaded, and can be stored and transported by pipeline or tanker without
precipitation;
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is
conducive to pumping over long-distance pipelines, transport by railway,
truck tankers and maritime
shipping;
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has
excellent atomization performance, can be stably fired and directly
combusted. AuraFueltm
may be combusted in industrial boilers, industrial kilns and power
generation boilers making it a substitute for conventional oil and
coal;
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produces
virtually no pollution, therefore allowing the use of coal as an energy
source at a time of environmental pollution concern and
conservation. AuraFueltm
yields almost no coal ash by virtue of its high burning efficiency (99%)
and can significantly reduce CO2 emissions;
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is
an attractive alternative to oil or natural
gas.
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There can be no assurance that we will
be able to carry out our development plans for the HCF technology, including
AuraCoaltm
and AuraFueltm.
HCF
Overview
We
believe our HCF technology will provide an emerging type of energy saving and
emission reducing fuel substitute for oil. The HCF coal product appears to
exhibit fuel economy, liquidity and stability, ease of loading and unloading,
storage and transportation without precipitation of the product. It seems to be
conducive to pumping over long-distance pipelines, transport by railway and
truck tankers and maritime shipping.
Hydrocarbon
clean fuel atomization performance depends on the energy value of coal
preparation and concentration, which we believe is generally the equivalent of
half the energy value of heavy oil, industrial boilers, industrial kilns, power
generation boiler oil and coal combustion generation.
We
believe HCF has a broad range of industrial applications. Our initial
objective will be to pursue applications related to power plants and industrial
boilers, including steam and hot water boilers.
Coal Water Slurry
Technology
The first
use of Coal Water Slurry Technology occurred at the U.S. Black Mesa
coal slurry pipeline, which is the only operating long-distance coal-water
slurry pipeline in the world. See www.informaworld.com/index/778734328.pdf. This
pipeline traverses a distance of 273 miles, with an annual capacity 4,800,000
tons. See http://www.britannica.com/EBchecked/topic/68053/Black-Mesa-pipeline.
Coal Water Mixture
Technology
In the
second generation process, Coal Water Mixture, the coal is a coal-water slurry
physically processed with new products, consisting of approximately 65% to 70%
coal and 35% to 30% water and trace chemical additives prepared in a paste,
commonly known as high concentration coal-water slurry, or water coal
slurry.
Ultra-Fine HCF
Technology
We
believe that our technology will be the next generation of HCF technology. We
believe the next generation of HCF will be a lower-cost and more efficient
technology that can be used in greater depth and in a wider array of
applications, and may be an alternative to oil resource
applications. We expect the HCF technology will contain only trace
amounts of sulfur and ash, in fine particle sizes, which allows burning the
mixture to cause less wear and tear on equipment. Additionally, we believe the
use of ultra-fine grinding machines allows preparation of an ultra-fine paste
for a new type of fuel. We believe the HCF technology may yield potential
environmental advantages relative to heavy oil.
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Competition
HCF
Technology
We face heavy competition from large
companies like Arch Coal, Peabody Massey Energy Company, CONSOL Energy,
Foster-Wheeler, GreatPoint Energy, Evergreen Energy, Inc., CoalTek, Inc.,
Babcock & Wilcox Company, and Yanzhou Coal Mining Company as well as
numerous universities and government agencies who have greater financial,
marketing, distribution and technological resources than we have,
and they may have more well-known brand names in the
markets. They may also seek to enter and compete with us in our
market.
More
indirect competition comes from alternative low-pollution energy sources,
including: wind, bio-fuels and solar; all of which need additional technological
advancements to be able to produce power at the scale of coal-fueled plants,
which today produce 43% of world’s electricity according to U.S. Department of
Energy figures published in May 2008.
Patent
and Trademarks
The
company currently relies on unregistered trademarks and patents, and
confidentiality of trade secrets. Our ability to compete effectively
will depend on our success in protecting the HCF proprietary technology, both in
the United States and abroad. There are numerous patents or patent
applications relating to hydrocarbon clean fuel technology. We have not filed
for patent protection or taken the steps required to obtain international patent
protection.
No
assurance can be given that any patents relating to the HCF technology will be
issued by the United States or any foreign patent offices. Further,
no assurance can be given that we will receive any patents in the future based
on the continued development of the HCF technology, or that the HCF technology
patent protection within and/or outside of the United States will be sufficient
to deter others, legally or otherwise, from developing or marketing competitive
products utilizing our HCF technology. If patent protection is not
available for the HCF technology, we plan to treat it as a trade
secret. There can be no assurance that we will be successful in this
regard.
In
addition to seeking patent protection, we will rely on trade secrets, know-how
and continuing technological advancement to seek to achieve and thereafter
maintain a competitive advantage in the HCF market. Although we have
entered into or intend to enter into confidentiality and invention agreements
with its employees, consultants and advisors, no assurance can be given that
such agreements will be honored or that it will be able to effectively protect
our rights to its unpatented trade secrets and know-how. Moreover, no
assurance can be given that others will not independently develop substantially
equivalent proprietary information and techniques or otherwise gain access to
our trade secrets and know-how.
Government
Regulations
United
States
We
believe that existing and proposed legislation and regulations could impact
fossil fuel-fired, and specifically coal-fired, power generating facilities
nationally and internationally.
The
following briefly describes the most significant existing national laws and
regulations affecting the potential market for coal processed using our
technology. State and regional policies may also impact our market.
The Clean Air Act and Acid Rain
Program. The Clean Air Act of 1970, as amended, is
currently the primary mechanism for regulating emissions of sulfur dioxide and
nitrogen oxide from coal-fired power generating facilities. A key component of
the act regulates sulfur dioxide and nitrogen oxide emissions. Specifically,
title IV set a goal of reducing sulfur dioxide emissions by 10 million tons
below 1980 levels and imposed a two-phased tightening of restrictions on fossil
fuel-fired power plants. Phase I began in 1995 and focused primarily on
coal-burning electric utility plants in the east and midwest. In 2000,
Phase II began and this phase tightened the annual emissions' limits on
larger higher emitting plants and set restrictions on smaller, cleaner plants
fired by coal, oil, and gas. The Acid Rain Program calls for a 2 million
ton reduction in nitrogen oxide emission and focuses on one set of sources that
emit nitrogen oxide: coal-fired electric utility boilers. Beginning in January
2000, nitrogen oxide emissions are to be reduced 900,000 tons per year beyond
the 1.2 million per year reduction set by the EPA in 1995.
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Clean Air Interstate
Rule. The Clean Air Interstate Rule was finalized
by the EPA in March 2005. Once fully implemented, this rule will reduce sulfur
dioxide emissions in 28 states and the District of Columbia by more than 70% and
nitrogen oxide emissions by more than 60% from the 2003 levels. Through the use
of a cap-and-trade approach, the rule promises to achieve substantial reduction of sulfur dioxide and nitrogen
oxide emissions. Reductions of nitrogen oxide emissions begin in January 2009,
followed by reductions of sulfur dioxide emissions in January 2010. The program
will be fully implemented by January 2015.
Clean Air Mercury
Rule. The U.S. Environmental Protection Agency, or
EPA, finalized the Clean Air Mercury Rule, or CAMR, on March 15, 2005 to
reduce mercury emissions from coal-fired power plants. Phase 1 of CAMR was
set to go into effect on January 1, 2010. However, on February 8,
2008, the U.S. Circuit Court of Appeals for the District of Columbia vacated the
rule, requiring EPA to draft a new regulation. As a result of this ruling, it is
likely that individual coal-fired boilers and power plants will be held to
stringent levels of mercury emission reductions instead of averaging mercury
emissions across multiple plants and across the country.
China
Violators
of the EPL and various environmental regulations may be subject to warnings,
payment of damages and fines. Any entity undertaking construction work or
manufacturing activities before the pollution and waste control and processing
facilities are inspected and approved by the relevant environmental protection
bureau may be ordered to suspend production or operations and may be fined. The
violators of relevant environment protection laws and regulations may be exposed
to criminal liability if violations result in severe loss of property, personal
injuries or death.
In
addition, China is a signatory to the 1992 United Nations Framework Convention
on Climate Change and the 1997 Kyoto Protocol, which are intended to limit
emissions of greenhouse gases. Efforts to control greenhouse gas
emission in China could result in reduced use of coal if power generators switch
to sources of fuel with lower carbon dioxide emissions, which in turn could
reduce the revenues of our business and have a material adverse effect on
our results of operations.
The
Company endeavors to ensure the safe and lawful operation of its facilities in
manufacturing and distribution of HCF and believes it is in compliance in all
material respects with applicable PRC laws and regulations.
No
enterprise may start production at its facilities until it receives approval
from the Ministry of Commerce to begin operations
Other
Any
international plants will also be subject to various permitting and operational
regulations specific to each country. International initiatives, such as the
Kyoto Protocol, are expected to create increasing pressures on the electric
power generation industry on a world-wide basis to reduce emissions of various
pollutants, which management expects will create additional demand for our
technology.
Employees
The
Company currently has no employees. The Company engages the services of
independent consultants to assist it with management and business
development. We plan to engage full-time employees in this area as
our business develops.
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Item
1A. Risk Factors
The following important factors, and
the important factors described elsewhere in this report or in our other filings
with the SEC, could affect (and in some cases have affected) our results and
could cause our results to be materially different from estimates or
expectations. Other risks and uncertainties may also affect our
results or operations adversely. The following and these other risks
could materially and adversely affect our business, operations, results or
financial condition.
Risks
Related to the Company
We
are a development stage company, have a history of operating losses and we may
never achieve or maintain profitability.
We are a development stage
company. Thus, we have a limited operating history upon which
investors may rely to evaluate our prospects and have only a preliminary
business plan upon which investors may consider to evaluate our
prospects. Such prospects must be considered in light of the
problems, expenses, delays and complications associated with a business that
seeks to commence more significant revenue operations. We have a history of
incurring losses from operations. As of March 31, 2009, we had an accumulated
deficit of $624,525. We expect to continue to incur operating losses until such
time, if ever, as we achieve sufficient levels of revenue from
operations. We anticipate our existing cash and cash equivalents will
not be sufficient to fund our business needs. Our ability to commence revenue
operations and achieve profitability will depend on our obtaining additional
capital, entering into satisfactory agreements with strategic partners,
acquiring the HCF technology and finding customers for such
technology. There can be no assurance that we will ever generate
revenues or achieve profitability. Accordingly, we cannot predict the extent of
future losses and the time required to achieve profitability, if
ever.
Investors
may lose all of their investment in us.
Investment in
us involves a high degree of risk. Investors may never recoup all or
part of or realized any return on their investment. Accordingly,
investors may lose all of their investment and must be prepared to do
so.
We
have no revenue and cannot assure that we will have revenue or profits in the
future.
We have not and currently do not
generate any revenue while in our development stage. We are incurring operating
losses and cannot assure investors that we will generate revenue or be
profitable in the future. Continued losses could cause us to limit
our operations in order to preserve working capital.
We
will need additional financing.
Our cash requirements may vary
materially from those now planned depending on numerous factors, including our
ability to obtain the HCF technology, finding customers to use such technology
and competition. We may not have sufficient funds to institute our business plan
set forth in this report. We therefore would need to raise additional
funds to finance our capital requirements through new financings to achieve the
level of operations we anticipate. Such financings could include
equity financing, which may be dilutive to stockholders, or debt financing,
which would likely restrict our ability to borrow from other
sources. In addition, such securities may contain rights, preferences
or privileges senior to those of the rights of our current
stockholders. We do not have any commitments for additional
financing. There can be no assurance that additional funds will be
available on terms attractive to us, or at all. If adequate funds are
not available, we may be required to curtail our development of the HCF
technology and/or otherwise materially curtail or reduce our
operations. Alternatively, we may be forced to sell or dispose of our
right or assets. Any inability to raise adequate funds on
commercially viable terms could have a material adverse effect on our business,
results of operation and financial condition.
Substantially
all of our business activities will be overseas and we will be subject to all of
the risks of international operations.
We expect that substantially all of our
operations will involve performing research and development related to HCF in
China and selling services and products related to and licenses for this
technology to buyers in China and other international markets. Thus,
substantially all of our business operations will be subject to the risks of
international operations. Our business, financial condition, and
results of operations could be materially adversely affected by changes or
uncertainties in the political or economic climates, laws, regulations, tariffs,
duties, import quotas, or other trade, intellectual property or tax policies in
China and possibly other foreign countries. We will also be subject
to adverse exchange rate fluctuations among Chinese currency and the U.S. dollar
since we anticipate that any revenue generated as well as and costs and expenses
for our operations in China will be paid in the Chinese RMB.
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We
will continue to incur the expenses of complying with public company reporting
requirements.
We have an obligation to continue to
comply with the applicable reporting requirements of the Exchange Act, as
amended, even though compliance with such reporting requirements is economically
burdensome.
We
may experience difficulties in the future in complying with Section 404 of the
Sarbanes-Oxley Act.
As a public company, we will be
required to evaluate our internal controls under Section 404 of the
Sarbanes-Oxley Act of 2002. In this regard, we will be required to
comply with the internal control requirements of Section 404 of the
Sarbanes-Oxley Act for each fiscal year ending on or after March 31,
2010. If we fail to maintain the adequacy of our internal controls,
we could be subject to regulatory scrutiny, civil or criminal penalties and/or
stockholder litigation. Any inability to provide reliable financial
reports could harm our business. Section 404 of the Sarbanes-Oxley
Act also requires our independent registered public accounting firm report on
management’s evaluation of our system of internal
controls. Furthermore, any failure to implement required new or
improved controls, or difficulties encountered in the implementation of adequate
controls over our financial processes and reporting in the future, could harm
our operating results or cause us to fail to meet our reporting
obligations.
If we fail to maintain proper and
effective internal controls in future periods, it could adversely affect our
operating results, financial condition and our ability to run our business
effectively and could cause investors to lose confidence in our financial
reporting.
We
may be unable to continue as a going concern if we do not successfully raise
additional capital or if we fail to generate sufficient revenue from
operations.
Primarily as a result of our recurring
losses and our lack of liquidity, in connection with our fourth quarter ended
March 31, 2009 we received a report from our independent auditors that includes
an explanatory paragraph describing the substantial uncertainty as to our
ability to continue as a going concern.
Reliance
on and experience of our officers and directors.
Our officers and directors will be
responsible for the management and control of the Company. Our
success will, to a large extent, depend on the quality of the management
provided by the officers and directors. Although our officers and
directors believe they have the ability to manage the Company, they can give no
assurance that their efforts will result in success. The officers and
directors have no experience in performing research and development activities
in foreign countries and no experience in selling services and products related
to and licenses for this technology in foreign
countries. Stockholders have no right or power to take part in the
management of the Company. Accordingly, no person should purchase any
of the Shares offered hereby unless he is willing to entrust all aspects of the
management of the Company to the officers and directors.
We
may have difficulty managing growth in our business.
Assuming we are successful in
commencing revenue generating activities, because of our small size and the
relatively large scale of operations required for our business to yield revenue,
growth in accordance with our business plan, if achieved, will place a
significant strain on our financial, technical, operational and management
resources. As we expand our activities, there will be additional demands on
these resources. The failure to continue to upgrade our technical,
administrative, operating and financial control systems or the occurrence of
unexpected expansion difficulties, including issues relating to our performance
of research and development activities related to HCF and retention of
experienced scientists, managers and engineers, could have a material adverse
effect on our business, financial condition and results of operations and our
ability to timely execute our business plan. If we are unable to
implement these actions in a timely manner, our results may be adversely
affected.
If
we borrow money to expand our business, we will face the risks of
leverage.
We anticipate that we may in the future
incur debt to finance our growth. Our ability to borrow funds will
depend upon a number of factors, including the condition of the financial
markets. The risk of loss in such circumstances is increased because
we would be obligated to meet fixed payment obligations on specified dates
regardless of our revenue. If we do not meet our debt service
payments when due, we may sustain the loss of our equity investment in any of
our assets securing such debt upon the foreclosure on such debt by a secured
lender.
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Our
stock price is likely to be highly volatile because of several factors,
including a limited public float.
The market price of our stock is likely
to be highly volatile because there has been a relatively thin trading market
for our stock, which causes trades of small blocks of stock to have a
significant impact on our stock price. You may not be able to resell our common
stock following periods of volatility because of the market’s adverse reaction
to volatility.
Other
factors that could cause such volatility may include, among other
things:
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announcements
concerning our strategy;
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litigation;
and
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general
market conditions.
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Our
common stock is considered a “penny stock,” any investment in our shares is
considered to be a high-risk investment and is subject to restrictions on
marketability
Our common stock is considered a “penny
stock” because it is quoted and traded on the Pink OTC Markets (“Pink Sheets”)
and it trades for less than $5.00 per share. The Pink Sheets is
generally regarded as a less efficient trading market than the NASDAQ Capital or
Global Markets or the New York Stock Exchange.
The SEC has adopted rules that regulate
broker-dealer practices in connection with transactions in “penny
stocks.” Penny stocks generally are equity securities with a price of
less than $5.00 (other than securities registered on certain national securities
exchanges or quoted on the NASDAQ system, provided that current price and volume
information with respect to transactions in such securities is provided by the
exchange or system). The penny stock rules require a broker-dealer,
prior to a transaction in a penny stock not otherwise exempt from those rules,
to deliver a standardized risk disclosure document prepared by the SEC, which
specifies information about penny stocks and the nature and significance of
risks of the penny stock market. The broker-dealer also must provide
the customer with bid and offer quotations for the penny stock, the compensation
of the broker-dealer and any salesperson in the transaction, and monthly account
statements indicating the market value of each penny stock held in the
customer’s account. In addition, the penny stock rules require that,
prior to effecting a transaction in a penny stock not otherwise exempt from
those rules, the broker-dealer must make a special written determination that
the penny stock is a suitable investment for the purchaser and receive the
purchaser’s written agreement to the transaction. These disclosure
requirements may have the effect of reducing the trading activity in the
secondary market for our common stock.
Since our common stock will be subject
to the regulations applicable to penny stocks, the market liquidity for our
common stock could be adversely affected because the regulations on penny stocks
could limit the ability of broker-dealers to sell our common stock and thus your
ability to sell our common stock in the secondary market in the future. We can
provide no assurance that our common stock will be quoted or listed on the OTC
Bulletin Board, NASDAQ or any exchange, even if eligible in the
future
We
have additional securities available for issuance, including preferred stock,
which if issued could adversely affect the rights of the holders of our common
stock.
Our articles of incorporation authorize
issuance of 150,000,000 shares of common stock and 10,000 shares of preferred
stock. The common stock and preferred stock can be issued by our board of
directors without stockholder approval. Accordingly, our stockholders will be
dependent upon the judgment of our management in connection with the future
issuance and sale of shares of our common and preferred stock, in the event that
buyers can be found. Any future issuances of common stock would further dilute
the percentage ownership of our Company held by the public
stockholders.
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10 -
Risks
Related to Doing Business in China
Most,
if not all, of our sales may be in China.
China is a developing country and has
only a limited history of trade practices as a nation. Because we
will likely direct a substantial amount of our sales efforts to customers in
China, we will be subject to the laws, rules, regulations, and political
authority of the government of the PRC. We may encounter material
problems while doing business in China, such as in interactions with the Chinese
government and the uncertainty of foreign legal precedent pertaining to our HCF
business in China. Risks inherent in international operations also
include the following:
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·
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local
currency instability;
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·
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inflation;
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·
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the
risk of realizing economic currency exchange losses when transactions are
completed in the Chinese RMB and other
currencies;
|
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·
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the
ability to repatriate earnings under existing exchange control laws;
and
|
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·
|
political
unrest.
|
Changes in import and export laws and
tariffs can also materially impact international operations. In
addition, international operations involve political, as well as economic risks,
including:
|
·
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nationalization;
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·
|
expropriation;
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·
|
contract
renegotiations; and
|
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·
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changes
in laws resulting from governmental
changes.
|
In addition, we may be subject to rules
and regulations of the PRC or the jurisdiction of other governmental agencies in
the PRC that may adversely affect our ability to perform under, or our rights
and obligations in, our contracts with Chinese companies or government
entities. In the event of a dispute, we will likely be subject to the
exclusive jurisdiction of foreign courts. We may also be hindered or
prevented from enforcing our rights with respect to a governmental
instrumentality because of the doctrine of sovereign immunity.
Adverse
changes in political and economic policies of the PRC government could have a
material adverse effect on the overall economic growth of China, which could
reduce the demand for our products and materially and adversely affect our
competitive position.
Some or all of our sales may be made in
China. Accordingly, our business, financial condition, results of operations and
prospects are affected significantly by economic, political and legal
developments in China. The Chinese economy differs from the economies of most
developed countries in many respects, including:
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·
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the
amount of government involvement;
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·
|
the
level of development;
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·
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the
growth rate;
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·
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the
control of foreign exchange; and
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·
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the
allocation of resources.
|
While it is our understanding that the
economy in China has grown significantly in the past 20 years, the growth has
been uneven, both geographically and among various economic sectors. The
government of the PRC has implemented various measures to encourage or control
economic growth and guide the allocation of resources. Some of these
measures benefit the overall Chinese economy, but may also have a negative
effect on us. For example, our financial condition and results of
operations may be adversely affected by government control over capital
investments or changes in tax regulations that are applicable to
us.
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11 -
The Chinese economy has been
transitioning from a planned economy to a more market-oriented economy. Although
in recent years the PRC government has implemented measures emphasizing the
utilization of market forces for economic reform, the reduction of state
ownership of productive assets and the establishment of sound corporate
governance in business enterprises, a substantial portion of the productive
assets in China is still owned by the PRC government. The continued control of
these assets and other aspects of the national economy by the PRC government
could materially and adversely affect our business. The PRC
government also exercises significant control over Chinese economic growth
through the allocation of resources, controlling payment of foreign
currency-denominated obligations, setting monetary policy and providing
preferential treatment to particular industries or companies. Efforts
by the PRC government to slow the pace of growth of the Chinese economy could
result in decreased capital expenditure by power plants, which in turn could
reduce demand for our products and services.
We
risk the effects of general economic conditions in China.
Sales we secure in China could be
adversely affected by a sustained economic recession in
China. Therefore, a sustained economic recession in that country
could result in lower demand or lower prices for the use of our HCF
technology.
Uncertainties
with respect to the Chinese legal system could have a material adverse effect on
us.
We plan to conduct some of our sales
and substantially all of our administrative activities in China. We
will be generally subject to laws and regulations applicable to foreign
investment in China. The PRC legal system is based, at least in part,
on written statutes. Prior court decisions may be cited for reference
but may have limited precedential value. It is our understanding that
since 1979, PRC legislation and regulations have significantly enhanced the
protections afforded to various forms of foreign investments in
China. However, since these laws and regulations are relatively new
and the PRC legal system continues to rapidly evolve, the interpretations of
many laws, regulations and rules are not always uniform and enforcement of these
laws, regulations and rules involves uncertainties. We cannot predict
the effect of future developments in the PRC legal system, including the
promulgation of new laws, changes to existing laws or the interpretation or
enforcement thereof, the preemption of local regulations by national laws, or
the overturn of local government’s decisions by the superior
government. These uncertainties may limit legal protections available
to us. In addition, any litigation in China may be protracted and
result in substantial costs and diversion of resources and management
attention.
Risks
Related to HCF Technology
Our
business venture into the HCF business is subject to a high risk of
failure.
Our business venture into the HCF
technology business through our investment in AC and the HCF technology is at a
very early stage and is subject to a high risk of failure. The HCF fuel
technology has not been proven by us to be a commercially viable fuel
alternative. In order to establish commercial viability, we will have to either
undertake the construction and operation of the contemplated demonstration
facility or convert an existing facility to be compatible with our HCF
technology, both of which would be very costly. Even if the demonstration
facility were constructed or an existing facility converted and operational,
there is no assurance that the commercial viability of this HCF process would be
established or that we would be able to expand the facility into a commercially
viable operation or to generate revenues from this technology.
We
are uncertain of our ability to protect technology through patents.
Our ability to compete effectively
will depend on the success of AC in protecting its proprietary technology, both
in the United States and abroad. We believe that many patents have
already been issued in the area of HCF, both in the United States and abroad,
although to date we have not conducted a patent search. AC directly, or through
us, plans to file for patent protection in the United States and possibly
outside the United States after it acquires the HCF technology. No
assurances can be given that any patents will be issued to AC or to
us.
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12 -
No assurance can be given that any
patents relating to the existing HCF technology will be issued by the United
States or any foreign patent offices, that it will directly or through us
receive any patents in the future based on its continued development of the HCF
technology, or that our HCF patent protection within and/or outside of the
United States will be sufficient to deter others, legally or otherwise, from
developing or marketing competitive products utilizing AC’s HCF
technologies.
If AC directly, or through us,
obtains patents, there can be no assurance that they will be enforceable to
prevent others from developing and marketing competitive products or
methods. If AC directly, or through us, brings an infringement action
relating to any future patents, it may require the diversion of substantial
funds from its or our operations and may require management to expend efforts
that might otherwise be devoted to its or our
operations. Furthermore, there can be no assurance that AC or us will
be successful in enforcing our HCF patent rights.
Further, if any patents issue, there
can be no assurance that patent infringement claims in the United States or in
other countries will not be asserted against AC or us by a competitor or others,
or if asserted, that we will be successful in defending against such
claims. If one of our products is adjudged to infringe patents of
others with the likely consequence of a damage award, we may be enjoined from
using and selling such product or be required to obtain a royalty-bearing
license, if available on acceptable terms. Alternatively, in the
event a license is not offered, we or AC might be required, if possible, to
redesign those aspects of the product held to infringe so as to avoid
infringement liability. Any redesign efforts undertaken by AC or us
might be expensive, could delay the introduction or the re-introduction of our
products into certain markets, or may be so significant as to be
impractical.
We
are uncertain of our ability to protect the HCF proprietary technology and
information.
In addition to seeking patent
protection, we will rely on trade secrets, know-how and continuing technological
advancement to achieve and thereafter maintain a competitive advantage with
respect to the HCF technology. Although we have entered into and AC
intends to enter into confidentiality and invention agreements with employees,
consultants, certain potential customers and advisors, no assurance can be given
that such agreements will be honored or that we or AC will be able to
effectively protect our rights to our unpatented trade secrets and
know-how. Moreover, no assurance can be given that others will not
independently develop substantially equivalent proprietary information and
techniques or otherwise gain access to our trade secrets and
know-how.
Risk
Related to the Alternative Energy Industry
A
drop in the retail price of conventional energy or other alternative energy may
have a negative effect on our business.
A
customer's decision to purchase HCF will be primarily driven by the return on
investment resulting from the energy savings from HCF. Any fluctuations in
economic and market conditions that impact the viability of conventional and
other alternative energy sources, such as decreases in the prices of oil and
other fossil fuels could cause the demand for HCF to decline. Although we
believe current levels of retail energy prices support a reasonable return on
investment for HCF, there can be no assurance that future retail pricing of
conventional energy and other alternative energy will remain at such
levels.
Existing
regulations and changes to such regulations may present technical, regulatory
and economic barriers to the purchase and use of HCF, which may significantly
affect the demand for our products.
HCF is
subject to oversight and regulations in accordance with national and local
ordinances and regulations relating to safety, environmental protection, and
related matters. We are responsible for knowing such ordinances and regulations,
and must comply with these varying standards. Any new government regulations or
utility policies pertaining to our product may result in significant additional
expenses to us and our customers and, as a result, could cause a significant
reduction in demand for our product.
The
market for HCF is emerging and rapidly evolving, and its future success remains
uncertain. If HCF is not suitable for widespread adoption or sufficient demand
for HCF does not develop or takes longer to develop than we anticipate, we would
be unable to generate revenue or to achieve or sustain profitability. In
addition, demand for HCF in the markets and geographic regions where we operate
may not develop or may develop more slowly than we anticipate. Many factors will
influence the widespread adoption of HCF and demand for our products,
including:
|
|
cost-effectiveness
of HCF as compared with conventional and other alternative energy products
and technologies;
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|
|
performance
and reliability of HCF as compared with conventional and other alternative
energy products and technologies;
|
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capital
expenditures by customers that tend to decrease if the PRC or global
economy slows down; and
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availability
of government subsidies and
incentives.
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13 -
Our
limited marketing capability limits our ability to generate
revenue.
We have limited marketing
capabilities and resources to expend on marketing the HCF
technology. In order to achieve market penetration we will have to
undertake significant efforts and expenditures to create awareness of, and
demand for, our HCF technology and products. Our ability to penetrate
the market and build our customer base will be substantially dependent on our
marketing efforts, including our ability to encourage power plants to convert
the plants to be compatible with our HCF technology. No assurance can
be given that we will succeed. Our failure to successfully develop our marketing
capabilities, both internally and through third-party joint ventures, would
negatively impact our ability to generate revenue and have a material adverse
effect on our business, operating results and financial condition.
We
are dependent on key personnel and the loss of the services of these personnel
could harm our business.
Our success in the HCF technology
business largely depends upon the efforts of our executive officers and those
who are developing the HCF technology and the employees hired by AC or by us to
assist such principals in developing such technology. The loss of the
services of any of these individuals could have a material adverse effect on our
HCF business and prospects. There can be no assurance that we will be
able to retain the services of such individuals in the future. Our
success will be dependent upon our ability to hire and retain qualified
technical, research, management, marketing and financial personnel. We will
compete with other companies with greater financial and other resources for such
personnel. Although AC has not to date experienced difficulty in
attracting qualified personnel, there can be no assurance that it will be able
to retain the personnel it hires or acquire additional qualified personnel as
and when needed.
Risks
Related to an Investment in Our Securities
To
date, we have not paid any cash dividends and no cash dividends are expected to
be paid in the foreseeable future.
We do not
anticipate paying cash dividends on our common stock in the foreseeable future
and we may not have sufficient funds legally available to pay dividends. Even if
the funds are legally available for distribution, we may nevertheless decide not
to pay any dividends. We intend to retain all earnings for our
operations.
The
application of the “penny stock” rules could adversely affect the market price
of our common stock and increase your transaction costs to sell those
shares.
As long
as the trading price of our common shares is below $5 per share, the open-market
trading of our common shares will be subject to the “penny stock” rules. The
“penny stock” rules impose additional sales practice requirements on
broker-dealers who sell securities to persons other than established customers
and accredited investors (generally those with assets in excess of $1,000,000 or
annual income exceeding $200,000 or $300,000 together with their spouse). For
transactions covered by these rules, the broker-dealer must make a special
suitability determination for the purchase of securities and have received the
purchaser’s written consent to the transaction before the purchase.
Additionally, for any transaction involving a penny stock, unless exempt, the
broker-dealer must deliver, before the transaction, a disclosure schedule
prescribed by the Securities and Exchange Commission relating to the penny stock
market. The broker-dealer also must disclose the commissions payable to both the
broker-dealer and the registered representative and current quotations for the
securities. Finally, monthly statements must be sent disclosing recent price
information on the limited market in penny stocks. These additional burdens
imposed on broker-dealers may restrict the ability or decrease the willingness
of broker-dealers to sell our common shares, and may result in decreased
liquidity for our common shares and increased transaction costs for sales and
purchases of our common shares as compared to other securities.
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14 -
Our
common shares are thinly traded and, you may be unable to sell at or near ask
prices or at all if you need to sell your shares to raise money or otherwise
desire to liquidate your shares.
The
Company cannot predict the extent to which an active public market for its
common stock will develop or be sustained. However, the Company does not rule
out the possibility of applying for listing on the Nasdaq National Market or
other exchanges.
Our
common shares have historically been sporadically or "thinly-traded" on the Pink
Sheets, meaning that the number of persons interested in purchasing our common
shares at or near bid prices at any given time may be relatively small or
non-existent. This situation is attributable to a number of factors,
including the fact that we are a small company which is relatively unknown to
stock analysts, stock brokers, institutional investors and others in the
investment community that generate or influence sales volume, and that even if
we came to the attention of such persons, they tend to be risk-averse and would
be reluctant to follow an unproven company such as ours or purchase or recommend
the purchase of our shares until such time as we became more seasoned and
viable. As a consequence, there may be periods of several days or
more when trading activity in our shares is minimal or non-existent, as compared
to a seasoned issuer which has a large and steady volume of trading activity
that will generally support continuous sales without an adverse effect on share
price. We cannot give you any assurance that a broader or more active
public trading market for our common stock will develop or be sustained, or
that current trading levels will be sustained.
The
market price for our common stock is particularly volatile given our status as a
relatively small company with a small and thinly traded “float” and lack of
current revenues that could lead to wide fluctuations in our share
price. The price at which you purchase our common stock may not
be indicative of the price that will prevail in the trading
market. You may be unable to sell your common stock at or above your
purchase price if at all, which may result in substantial losses to
you.
The
market for our common shares is characterized by significant price volatility
when compared with seasoned issuers, and we expect that our share price will
continue to be more volatile than a seasoned issuer for the indefinite
future. The volatility in our share price is attributable to a number
of factors. First, as noted above, our common shares are sporadically
and/or thinly traded. As a consequence of this lack of liquidity, the
trading of relatively small quantities of shares by our shareholders may
disproportionately influence the price of those shares in either
direction. The price for our shares could, for example, decline
precipitously in the event that a large number of our common shares are sold on
the market without commensurate demand, as compared to a seasoned issuer
which could better absorb those sales without adverse impact on its share
price. Secondly, we are a speculative or "risky" investment due to
our lack of revenues or profits to date and uncertainty of future market
acceptance for our current and potential products. As a consequence
of this enhanced risk, more risk-adverse investors may, under the fear of losing
all or most of their investment in the event of negative news or lack of
progress, be more inclined to sell their shares on the market more quickly and
at greater discounts than would be the case with the stock of a seasoned
issuer. The following factors may add to the volatility in the price
of our common shares: actual or anticipated variations in our quarterly or
annual operating results; adverse outcomes; and additions or departures of our
key personnel, as well as other items discussed under this "Risk
Factors" section, as well as elsewhere in this annual
report.
Many of
these factors are beyond our control and may decrease the market price of our
common shares, regardless of our operating performance. We cannot
make any predictions or projections as to what the prevailing market price for
our common shares will be at any time, including as to whether our common shares
will sustain their current market prices, or as to what effect that the sale of
shares or the availability of common shares for sale at any time will have on
the prevailing market price. However, we do not rule out the
possibility of applying for listing on the Nasdaq National Market or other
exchanges.
Stockholders
should be aware that, according to SEC Release No. 34-29093, the market for
penny stocks has suffered in recent years from patterns of fraud and abuse. Such
patterns include (1) control of the market for the security by one or a few
broker-dealers that are often related to the promoter or issuer; (2)
manipulation of prices through prearranged matching of purchases and sales and
false and misleading press releases; (3) boiler room practices involving
high-pressure sales tactics and unrealistic price projections by inexperienced
sales persons; (4) excessive and undisclosed bid-ask differential and markups by
selling broker-dealers; and (5) the wholesale dumping of the same securities by
promoters and broker-dealers after prices have been manipulated to a desired
level, along with the resulting inevitable collapse of those prices and with
consequent investor losses. Our management is aware of the abuses
that have occurred historically in the penny stock market. Although
we do not expect to be in a position to dictate the behavior of the market or of
broker-dealers who participate in the market, management will strive within the
confines of practical limitations to prevent the described patterns from being
established with respect to our securities. The occurrence of these
patterns or practices could increase the volatility of our share
price.
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15 -
Our corporate
actions are substantially controlled by our principal shareholders and
affiliated entities.
As of
July 7, 2009, our principal stockholders and their affiliated entities own
approximately 89.73% of our outstanding common shares, representing
approximately 89.73% of our voting power. These stockholders, acting
individually or as a group, could exert substantial influence over matters such
as electing directors and approving mergers or other business combination
transactions. In addition, because of the percentage of ownership and voting
concentration in these principal stockholders and their affiliated entities,
elections of our board of directors will generally be within the control of
these stockholders and their affiliated entities. While all of our stockholders
are entitled to vote on matters submitted to our stockholders for approval, the
concentration of shares and voting control presently lies with these principal
stockholders and their affiliated entities. As such, it would be difficult for
stockholders to propose and have approved proposals not supported by management.
There can be no assurances that matters voted upon by our officers and directors
in their capacity as stockholders will be viewed favorably by all stockholders
of the company.
The
elimination of monetary liability against our directors, officers and employees
under Nevada law and the existence of indemnification rights to our directors,
officers and employees may result in substantial expenditures by our company and
may discourage lawsuits against our directors, officers and
employees.
Our
articles of incorporation contains a provision that eliminates the liability of
our directors for monetary damages to our company and shareholders to the extent
allowed under Nevada law and we are prepared to give such indemnification to our
directors and officers to the extent provided by Nevada law. The
foregoing indemnification obligations could result in our company incurring
substantial expenditures to cover the cost of settlement or damage awards
against directors and officers, which we may be unable to
recoup. These provisions and resultant costs may also discourage our
company from bringing a lawsuit against directors and officers for breaches of
their fiduciary duties, and may similarly discourage the filing of derivative
litigation by our shareholders against our directors and officers even though
such actions, if successful, might otherwise benefit our company and
shareholders.
Legislative
actions, higher insurance costs and potential new accounting pronouncements may
impact our future financial position and results of operations.
There
have been regulatory changes, including the Sarbanes-Oxley Act of 2002, and
there may potentially be new accounting pronouncements or additional regulatory
rulings that will have an impact on our future financial position and results of
operations. The Sarbanes-Oxley Act of 2002 and other similar rule changes are
likely to increase general and administrative costs and expenses. Additionally,
there could be changes in certain accounting rules. These and other potential
changes could materially increase the expenses we report under generally
accepted accounting principles, and adversely affect our operating
results.
The
market price for our stock may be volatile which may place downward pressure on
our stock price.
The
market price for our stock may be volatile and subject to wide fluctuations in
response to factors including the following:
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actual
or anticipated fluctuations in our quarterly operating
results;
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changes
in financial estimates by securities research
analysts;
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conditions
in alternative energy and coal-based product
markets;
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changes
in the economic performance or market valuations of other alternative
energy and coal-based products
companies;
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announcements
by us or our competitors of new products, acquisitions, strategic
partnerships, joint ventures or capital
commitments;
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addition
or departure of key personnel;
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intellectual
property litigation; and
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general
economic or political conditions in
China.
|
In
addition, the securities market has from time to time experienced significant
price and volume fluctuations that are not related to the operating performance
of particular companies. These market fluctuations may also materially and
adversely affect the market price of our stock.
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16 -
We
may need additional capital, and the sale of additional shares or other equity
securities could result in additional dilution to our shareholders.
We may
require additional cash resources due to changed business conditions or other
future developments, including any investments or acquisitions we may decide to
pursue. If our resources are insufficient to satisfy our cash
requirements, we may seek to sell equity or debt securities or obtain a credit
facility. The sale of equity securities could result in dilution to
our shareholders. The incurrence of indebtedness would result in
increased debt service obligations and could result in operating and financing
covenants that would restrict our operations. We cannot assure you
that financing will be available in amounts or on terms acceptable to us, if at
all.
Shares
eligible for future sale may adversely affect the market.
From time
to time, certain of our stockholders may be eligible to sell all or some of
their shares of common stock by means of ordinary brokerage transactions in the
open market pursuant to Rule 144, promulgated under the Securities Act, subject
to certain limitations. In general, pursuant to amended Rule 144, non-affiliate
stockholders may sell freely after six months subject only to the current public
information requirement (which disappears after one year). Affiliates may sell
after six months subject to the Rule 144 volume, manner of sale (for equity
securities), current public information and notice requirements.
If
we fail to maintain an effective system of internal controls, we may not be able
to accurately report our financial results or prevent fraud.
We are
subject to reporting obligations under the U.S. securities laws. The SEC, as
required by Section 404 of the Sarbanes-Oxley Act of 2002, adopted rules
requiring every public company to include a management report on such company’s
internal controls over financial reporting in its annual report, which contains
management’s assessment of the effectiveness of our internal controls over
financial reporting. In addition, beginning with our annual report for fiscal
2010, an independent registered public accounting firm must attest to and report
on management’s assessment of the effectiveness of our internal controls over
financial reporting. In our annual report on Form 10-K for the year ended March
31, 2008, we reported certain material weaknesses involving control activities,
specifically (1) accounting and finance personnel weaknesses in that the current
staff in the accounting department is relatively inexperienced and requires
substantial training; (2) lack of internal audit function in that we lack
qualified resources to perform the internal audit functions properly, and the
scope and effectiveness of internal audit function are yet been fully developed;
and (3) lack of internal audit system in that we do not have an internal audit
department to prevent and detect control lapses and errors in the accounting of
certain key areas in accordance with the appropriate costing method used by
us.
In light
of the foregoing, our management began undertaking steps to address these
issues, including the engagement of a chief financial officer whom management
believes has the requisite financial reporting experience, skills and knowledge
to complement our existing personnel. Additionally, four independent directors
now sit on our board of directors, including a member who is appropriately
credentialed as a financial expert. The independent directors have been tasked
to establish certain internal audit functions within our company, and we have
also established audit and compensation committees comprising entirely of
independent directors. We have also hired additional accounting and operational
personnel. However, there is no assurance that additional remedial measures will
not be necessary, or that after the remediation our management will be able to
conclude that our internal controls over our financial reporting are effective.
Moreover, even if our management concludes that our internal controls over
financial reporting are effective, our independent registered public accounting
firm may still decline to attest to our management’s assessment or may issue a
report that is qualified if it is not satisfied with our controls or the level
at which our controls are documented, designed, operated or reviewed, or if it
interprets the relevant requirements differently from us.
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17 -
Our
reporting obligations as a public company will place a significant strain on our
management, operational and financial resources and systems for the foreseeable
future. Effective internal controls, particularly those related to revenue
recognition, are necessary for us to produce reliable financial reports and are
important to help prevent fraud. As a result, our failure to achieve and
maintain effective internal controls over financial reporting could result in
the loss of investor confidence in the reliability of our consolidated financial
statements, which in turn could harm our business and negatively impact the
trading price of our stock. Furthermore, we anticipate that we will incur
considerable costs and use significant management time and other resources in an
effort to comply with Section 404 and other requirements of the Sarbanes-Oxley
Act.
We
will incur increased costs as a result of being a public company.
As a
public company, we will incur significant legal, accounting and other expenses
that we did not incur as a private company. In addition, the
Sarbanes-Oxley Act, as well as new rules subsequently implemented by SEC, has
required changes in corporate governance practices of public
companies. We expect these new rules and regulations to increase our
legal, accounting and financial compliance costs and to make certain corporate
activities more time-consuming and costly. In addition, we will incur additional
costs associated with our public company reporting requirements. We are
currently evaluating and monitoring developments with respect to these new
rules, and we cannot predict or estimate the amount of additional costs we may
incur or the timing of such costs.
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18 -
None.
Item
2. Properties.
Item
3. Legal Proceedings.
We are
not a party to any current or pending legal proceedings that, if decided
adversely to us, would have a material adverse effect upon our business, results
of operations, or financial condition, and we are not aware of any threatened or
contemplated proceeding by any governmental authority against us. To
our knowledge, we are not a party to any threatened civil or criminal action or
investigation.
Item
4. Submission of Matters to a Vote of Security Holders.
None
Item
5. Market for Registrant’s Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities.
Market
Prices
The
shares of our common stock have been listed and principally quoted on the OTC
Pink Sheets under the trading symbol “ARAO.PK” since September
2008. Prior to September 2008, the Company’s common stock was traded
on the OTC Pink Sheets under the symbol “MTNT.PK”
The
following table sets forth, for the fiscal quarters indicated, the high and low
sale price for our common stock, as reported on the OTC Pink
Sheets.
|
Quarterly
period
|
High
|
Low
|
||||||
|
Fiscal
year ended March 31, 2008:
|
||||||||
|
First
Quarter
|
$ | 3.00 | $ | 1.05 | ||||
|
Second
Quarter
|
$ | 3.00 | $ | 1.05 | ||||
|
Third
Quarter
|
$ | 1.05 | $ | 1.05 | ||||
|
Fourth
Quarter
|
$ | 0.35 | $ | 0.35 | ||||
|
Fiscal
year ended March 31, 2009:
|
||||||||
|
First
Quarter
|
$ | 1.01 | $ | 0.35 | ||||
|
Second
Quarter
|
$ | 3.00 | $ | 1.01 | ||||
|
Third
Quarter
|
$ | 4.25 | $ | 2.00 | ||||
|
Fourth
Quarter
|
$ | 3.50 | $ | 2.25 | ||||
As of July 7, 2009, there were
approximately 726 record holders of the Company's Common Stock.
Holders
of common stock are entitled to receive such dividends as the board of directors
may from time to time declare out of funds legally available for the payment of
dividends. No dividends have been paid on our common stock, and we do
not anticipate paying any dividends on our common stock in the foreseeable
future.
-
19 -
Recent
Sale of Unregistered Securities.
On March 9, 2009, we sold 50,000 shares
of our common stock for $1.00 per share.
Not
Applicable
Item
7. Management’s Discussion and Analysis of Financial Condition
and Results of Operations.
The
following discussion should be read in
conjunction with the Financial Statements and
notes thereto included in Item 8 of Part II of this Annual
Report on Form 10-K.
Overview
AuraSource,
is majority owned by MongSource. In turn, Mongsource is a subsidiary
of MongSource.
On May
20, 2008, the Company entered into an Agreement with Mongsource USA, under which
Mongsource USA agreed to purchase, and the Company agreed to sell, an aggregate
of 19,426,500 shares of common stock of Mobile Nation, Inc $200,000, or $0.0103
per share.
Originally
our plan was to explore and develop mineral resources in Mongolia, Guinea, China
and other international markets. However, price of natural resources during our
fund raising efforts declined and we decided hold off on these activities until
market conditions improve.
As a result of our involvement in China
and Mongolia, we acquired hydrocarbon clean fuel technology which we plan to
patent and license. AuraSource is forming a wholly owned foreign
entity in Beijing, China named AuraCoal, a Chinese corporation for the purpose
of acquiring HCF technology, performing research and development related to HCF
technology and products based on this technology. We expect our
revenue to come from the licensing HCF technology to third parties and selling
services and products derived from this technology.
We intend
to pursue the following core elements of our business strategy:
|
·
|
license
the HCF technology to international clients in applicable industries, such
as coal producers and power plants.
|
|
·
|
develop
strategic partnerships to deliver consulting services with respect to
design, engineering, procurement and construction for HCF
applications.
|
|
·
|
enter
into joint ventures with coal producers to supply HCF treated coal to
power plants.
|
|
·
|
process
coal using the HCF technology and sell such coal to end users at a
marked-up price.
|
|
·
|
assist
customers to convert their plants to HCF rather than oil, gas or other
natural resources in order to save energy
costs.
|
|
·
|
establish
centers for processing the coal with its HCF technology to supply power
plants and other customers.
|
Our
ability to pursue this strategy is subject to the availability of additional
capital and further development of our HCF technology. We will also
need to finance the cost of pursuing a strategy to effectively protect our
intellectual property rights in the United States and abroad where we intend to
market our technology and products.
-
20 -
Recently Issued Accounting
Pronouncements
Refer to
Note 2 to the consolidated financial statements for a complete description of
recent accounting standards which we have not yet been required to implement and
may be applicable to our operation, as well as those significant accounting
standards that have been adopted during 2009.
Critical Accounting
Policies
We
account for our business acquisitions under the purchase method of accounting in
accordance with SFAS 141, "Business Combinations." The total cost of
acquisitions is allocated to the underlying net assets, based on their
respective estimated fair values. The excess of the purchase price over the
estimated fair value of the tangible net assets acquired is recorded as
intangibles. Determining the fair value of assets acquired and liabilities
assumed requires management's judgment and often involves the use of significant
estimates and assumptions, including assumptions with respect to future cash
inflows and outflows, discount rates, asset lives, and market multiples, among
other items.
We base
our estimates on historical experience and various other assumptions that we
believe to be reasonable under the circumstances, the results of which form the
basis for making judgments about the carrying values of assets and liabilities
that are not readily apparent from other sources. There can be no assurance that
actual results will not differ from these estimates.
Certain
reclassifications have been made to the prior fiscal year amounts disclosed in
the consolidated financial statements to conform to the presentation for the
fiscal year ended March 31, 2009. These reclassifications had no effect on the
reported net loss or stockholders’ equity.
Fiscal Year 2009 Compared to
Fiscal Year 2008
Results
from Operations
The
information below includes our historical financial information for the 2008
fiscal. In July 2008, we closed the transaction with Mongsource USA
in which Mongsource USA purchased 19,426,500 shares of our common
stock. Before that time, we operated as a shell company with no
significant assets or operations. In addition, in December 2008, we
changed our business focus and acquired hydrocarbon clean fuel technology, which
we plan to patent and license. Accordingly, the comparison of the
financial results and financial condition for the reported periods is not
meaningful. In addition, due to the change in our business strategy,
the financial results and financial condition for the reported periods do not
provide a meaningful understanding of our business and operations.
Revenues
Revenues
were zero for the years ended March 31, 2009 and 2008.
Cost
of Sales
Cost of
sales was zero for the years ended March 31, 2009 and 2008.
Selling,
General and Administrative Expenses
Selling,
general and administrative expenses were $197,655 and $22,930 for the years
ended March 31, 2009 and 2008, respectively. The increase in selling,
general and administrative expenses was due to commencing business
operations.
Interest
Income and Other, Net
Interest
income/(expense) and other, net was $(18,209) and $65,161 in the years ended
March 31, 2009 and 2008, respectively. The decrease in income is
principally due to recognizing the income of a nonrefundable deposit in a merger
in 2008.
-
21 -
Liquidity and Capital
Resources
Net cash used in operating activities
was $202,657 and $57,755 in the years ended March 31, 2009 and 2008,
respectively.
Net cash used in investing activities
was $2,058 and zero in the years ended March 31, 2009 and 2008,
respectively.
Net cash provided by in financing
activities was $341,465 and $7,500 in 2009 and 2008,
respectively. The increase of $333,965 in cash provided by financing
activities was primarily due to the $250,000 received for the issuance of common
stock and the $253,965 received for the issuance of debt. This was
offset by the repayment of debt of $170,000.
On May
20, 2008, the Company entered into a Share Purchase Agreement (the “Agreement”)
with Mongsource USA, LLC ("Mongsource USA"), under which Mongsource USA agreed
to purchase, and the Company agreed to sell, an aggregate of 19,426,500 shares
of common stock of AuraSource, Inc for a purchase price of $200,000, or $0.0103
per share. The transaction closed on July 8, 2008.
On July
11, 2008, we entered into the Note with Mongsource USA the majority stockholder
of the Company. Under the terms of the Note, Mongsource USA agreed to
advance to the Company, from time to time and at the request of the Company,
amounts up to an aggregate of $500,000 until March 31, 2009. All
advances shall be paid on or before June 30, 2009 and interest shall accrue from
the date of any advances on any principal amount withdrawn, and on accrued and
unpaid interest thereon, at the rate of 10 percent (10%) per annum, compounded
annually.
On March 9, 2009, we sold 50,000 shares
of our common stock for $1.00 per share.
The
Company suffered recurring losses from operations and has an accumulated deficit
of $624,525 at March 31, 2009. Currently, we have not generated any
revenues. The Company is seeking various forms of financing. In the
event the Company uses all of its cash resources, Mongsource has indicated the
willingness to loan the Company funds at the prevailing market rate until such
business combination is consummated. To the extent Mongsource can not
or is unable to fund us or we are unable to come up with alternative financing,
we will need to cease operations.
Going Concern
Uncertainties
As of the date of this annual report,
there is doubt regarding our ability to continue as a going concern as we have
not generated sufficient cash flow to fund our business operations and loan
commitments. Our future success and viability, therefore, are
dependent upon our ability to generate capital financing. The failure
to generate sufficient revenues or raise additional capital may have a material
and adverse effect upon the Company and our shareholders.
Capital
Expenditures
Commitments and Contractual
Obligations
None
Off-Balance Sheet
Arrangements
As
of March 31, 2009, we did not have any off-balance sheet arrangements as defined
in Item 303(a)(4)(ii) of Regulation S-K.
Item
7A. Quantitative and Qualitative Disclosures about Market
Risk.
Not
Applicable
-
22 -
Item
8.
AURASOURCE,
INC.
(a
development stage company)
|
PAGE
|
||||
|
REPORTS
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
|
24
|
|||
|
CONSOLIDATED
FINANCIAL STATEMENTS AS OF AND FOR THE YEARS ENDED March 31, 2009 and
2008
|
||||
|
Balance
Sheets
|
25
|
|||
|
Statements
of Operations
|
26
|
|||
|
Statements
of Stockholders' Deficit
|
27
|
|||
|
Statements
of Cash Flows
|
28
|
|||
|
Notes
to Consolidated financial statements
|
29 to
36
|
|||
-
23 -
To the
Board of Directors
AuraSource,
Inc
Scottsdale,
Arizona
We have
audited the accompanying consolidated balance sheet of AuraSource, Inc. (a
development stage company) (the “Company”) as of March 31, 2009, and the related
consolidated statements of operations, stockholders’ deficit and cash flows for
the year then ended. The statements of operations, stockholders’
deficit and cash flows included in the cumulative information from inception
(March 15, 1990) to March 31, 2008 have been
audited by other auditors whose report is presented separately in the Company’s
10-K filing. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audit.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our
opinion, based on our audit, the consolidated financial statements referred to
above present fairly, in all material respects, the financial position of the
Company as of March 31, 2009, and the results of its operations and its cash
flows for the year then ended. Further, in our opinion, based on our
audit and the report of other auditors’ as referred to above, the financial
statements fairly present in all material respects, the results of the Company’s
operations and cash flows for the period from inception (March 15, 1990) to
March 31, 2009 in conformity with U.S. generally accepted accounting
principles.
The
accompanying consolidated financial statements have been prepared assuming the
Company will continue as a going concern. As discussed in Note 1 to the
consolidated financial statements, the Company has incurred significant losses
from operations and has an accumulated deficit of $624,525 as of March 31, 2009.
These conditions raise substantial doubt about the Company’s ability to continue
as a going concern. These consolidated financial statements do not include any
adjustments that might result from such uncertainty.
/s/
Goldman Parks Kurland Mohidin
Encino,
California
June 16,
2009
-
24 -
Turner
Stone & Company, LLP
12700
Park Central Drive
Suite
1400
Dallas,
Texas 75251
Board of
Directors and Stockholders
AuraSource,
Inc.
Scottsdale,
Arizona
We have
audited the accompanying balance sheet of AuraSource, Inc. (formerly Mobile
Nation, Inc.), (the Company) (a development stage company) as of March 31, 2008,
and the related statements of operations, stockholders' deficit, and cash flows
for the year ended March 31, 2008 and for the period March 15, 1990 (inception)
through March 31, 2008. These financial statements are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our
audit.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of AuraSource, Inc., at March 31,
2008, and the results of its operations and cash flows for the above referenced
periods in conformity with accounting principles generally accepted in the
United States of America.
The
accompanying financial statements have been prepared assuming that the Company
will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has no business operations and has a net
working capital deficiency, both of which raise substantial doubt about its
ability to continue as a going concern. Management's plans in regard
to these matters are also described in Note 1. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
/s/Turner,
Stone & Company, L.L.P.
Certified
Public Accountants
June 9,
2008
AURASOURCE,
INC.
(A
DEVELOPMENT STAGE COMPANY)
|
March
31,
|
||||||||
|
2009
|
2008
|
|||||||
|
ASSETS
|
||||||||
|
CURRENT
ASSETS
|
||||||||
|
Cash
and cash equivalents
|
$ | 145,436 | $ | 8,686 | ||||
|
TOTAL
CURRENT ASSETS
|
145,436 | 8,686 | ||||||
|
Fixed
assets, net of accumulated depreciation
|
1,716 | — | ||||||
|
TOTAL
ASSETS
|
$ | 147,152 | $ | 8,686 | ||||
|
LIABILITIES
AND STOCKHOLDERS' DEFICIT
|
||||||||
|
CURRENT
LIABILITIES:
|
||||||||
|
Accounts
payable
|
$ | 10,734 | $ | — | ||||
|
Accrued
interest payable, related party
|
10,447 | 24,814 | ||||||
|
Note
payable, related party
|
253,965 | 170,000 | ||||||
|
TOTAL
CURRENT LIABILITIES
|
275,146 | 194,814 | ||||||
|
STOCKHOLDERS'
DEFICIT:
|
||||||||
|
Preferred
stock, 10,000 shares authorized, no shares issued and outstanding, no
rights or privileges designated
|
— | — | ||||||
|
Common
stock, $.001 par value, 150,000,000 shares authorized, 20,350,000 and
573,500 shares issued and outstanding at March 31, 2009 and 2008,
respectively.
|
20,350 | 574 | ||||||
|
Additional
paid in capital
|
476,182 | 221,960 | ||||||
|
Accumulated
deficit
|
(624,526 | ) | (408,662 | ) | ||||
|
Total
stockholders' deficit
|
(127,994 | ) | (186,128 | ) | ||||
|
TOTAL
LIABILITIES AND STOCKHOLDERS' DEFICIT
|
$ | 147,152 | $ | 8,686 | ||||
See
accompanying notes to consolidated financial statements.
-
25 -
AURASOURCE,
INC.
(A
DEVELOPMENT STAGE COMPANY)
CONSOLIDATED
STATEMENTS OF OPERATIONS
FOR
THE YEARS ENDED MARCH 31, 2009 AND 2008
AND
FOR THE PERIODS MARCH 15, 1990 (INCEPTION)
THROUGH
MARCH 31, 2009 AND 2008
|
2009
|
2008
|
Cumulative
from Inception through March 31, 2009
|
Cumulative
from Inception through March 31, 2008
|
|||||||||||||
|
REVENUES
|
|
|||||||||||||||
|
Product
|
$ | — | $ | — | $ | — | $ | — | ||||||||
|
Software
support
|
— | — | — | — | ||||||||||||
|
Total
revenues
|
— | — | — | — | ||||||||||||
|
COST
OF SALES
|
— | — | — | — | ||||||||||||
|
GROSS
PROFIT
|
— | — | — | — | ||||||||||||
|
OPERATING
EXPENSES
|
||||||||||||||||
|
Selling,
general and administrative expenses
|
197,655 | 22,930 | 626,678 | 429,023 | ||||||||||||
|
Total
operating expenses
|
197,655 | 22,930 | 626,678 | 429,023 | ||||||||||||
|
LOSS
FROM OPERATIONS
|
(197,655 | ) | (22,930 | ) | (626,678 | ) | (429,023 | ) | ||||||||
|
Merger
fee, net
|
— | 80,000 | 80,000 | 85,000 | ||||||||||||
|
Interest
income/(expense) and other, net
|
(18,209 | ) | (14,839 | ) | (77,848 | ) | (64,639 | ) | ||||||||
|
NET
INCOME/(LOSS) APPLICABLE TO COMMON STOCKHOLDERS
|
$ | (215,864 | ) | $ | 42,231 | $ | (624,526 | ) | $ | (408,662 | ) | |||||
|
NET
INCOME/(LOSS) PER SHARE OF COMMON STOCK—Basic and diluted
|
$ | (0.01 | ) | $ | (0.07 | ) | ||||||||||
|
WEIGHTED
AVERAGE SHARES OUTSTANDING—Basic and diluted
|
14,930,347 | 573,500 | ||||||||||||||
-
26 -
(A
DEVELOPMENT STAGE COMPANY)
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS' DEFICIT
FOR
THE PERIOD MARCH 15, 1990 (INCEPTION)
THROUGH
MARCH 31, 2009
|
Preferred
Stock
|
Common
Stock
|
APIC
|
Accumulated
Deficit
|
Total
|
||||||||||||||||||||||||
|
Shares
|
Amount
|
Shares
|
Amount
|
|||||||||||||||||||||||||
|
Balance
at March 15, 1990
|
$ | 40 | $ | - | $ | 370 | $ | (295 | ) | $ | 75 | |||||||||||||||||
|
Common
stock issued for services
|
352 | 2,424 | 2,424 | |||||||||||||||||||||||||
|
Acquire
oil and gas properties
|
7,000 | 280,000 | 493 | 1 | 82,807,828 | 83,087,829 | ||||||||||||||||||||||
|
Additional
capital contributed
|
22,286 | 22,286 | ||||||||||||||||||||||||||
|
Fair
value of salaries donated
|
151,500 | 151,500 | ||||||||||||||||||||||||||
|
Reclassify
common stock for repurchase obligation
|
(1 | ) | (212,500 | ) | (212,500 | ) | ||||||||||||||||||||||
|
Rescission
of oil and gas purchase:
|
||||||||||||||||||||||||||||
|
Common
stock shares not returned in lieu of services
|
(7,000 | ) | (280,000 | ) | (82,804,200 | ) | (83,084,200 | ) | ||||||||||||||||||||
|
Cancellation
of repurchase obligation
|
1 | 212,500 | 212,500 | |||||||||||||||||||||||||
|
Issuance
of preferred stock for services
|
1,100,000 | 2,200 | 2,200 | |||||||||||||||||||||||||
|
Common
stock for services
|
27,741 | 28 | 9,972 | 10,000 | ||||||||||||||||||||||||
|
Conversion
of preferred stock
|
(1,100,000 | ) | (2,200 | ) | 44,874 | 45 | 2,155 | |||||||||||||||||||||
|
Stockholder
advances contributed as additional paid in capital
|
22,725 | 22,725 | ||||||||||||||||||||||||||
|
Issuance
of shares for acquisition of Mobile Nation, Inc.
|
3,520,000 | 3,520 | 31,680 | 35,200 | ||||||||||||||||||||||||
|
Common
stock for services
|
480,000 | 480 | 4,320 | 4,800 | ||||||||||||||||||||||||
|
Shares
returned to treasury
|
(3,520,000 | ) | (3,520 | ) | (31,680 | ) | (35,200 | ) | ||||||||||||||||||||
|
Common
stock for services
|
20,000 | 20 | 1,980 | 2,000 | ||||||||||||||||||||||||
|
Additional
capital contributed
|
600 | 600 | ||||||||||||||||||||||||||
|
Net
loss
|
(450,598 | ) | (450,598 | ) | ||||||||||||||||||||||||
|
Balance
at March 31, 2007
|
573,500 | 574 | 221,960 | (450,893 | ) | (228,359 | ) | |||||||||||||||||||||
|
Net
income
|
42,231 | 42,231 | ||||||||||||||||||||||||||
|
Balance
at March 31, 2008
|
$ | - | 573,500 | 574 | 221,960 | (408,662 | ) | (186,128 | ) | |||||||||||||||||||
|
Issuance
of shares, July 2008
|
19,426,500 | 19,426 | 188,074 | 207,500 | ||||||||||||||||||||||||
|
Stock
compensation
|
300,000 | 300 | 2,791 | 3,091 | ||||||||||||||||||||||||
|
Issuance
of options
|
13,407 | 13,407 | ||||||||||||||||||||||||||
|
Issuance
of shares, March 2009
|
50,000 | 50 | 49,950 | 50,000 | ||||||||||||||||||||||||
|
Net
income
|
(215,864 | ) | (215,864 | ) | ||||||||||||||||||||||||
|
Balance
at March 31, 2009
|
$ | - | 20,350,000 | $ | 20,350 | $ | 476,182 | $ | (624,526 | ) | $ | (127,994 | ) | |||||||||||||||
See
accompanying notes to consolidated financial statements.
-
27 -
AURASOURCE,
INC.
(A
DEVELOPMENT STAGE COMPANY)
CONSOLIDATED
STATEMENTS OF CASH FLOWS
FOR
THE YEARS ENDED MARCH 31, 2009 AND 2008
AND
FOR THE PERIODS MARCH 15, 1990 (INCEPTION)
THROUGH
MARCH 31, 2009 AND 2008
|
2009
|
2008
|
Cumulative
from Inception to March 31, 2009
|
Cumulative
from Inception to March 31, 2008
|
|||||||||||||
|
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
||||||||||||||||
|
Net
loss
|
$ | (215,864 | ) | $ | 42,231 | $ | (624,526 | ) | $ | (408,662 | ) | |||||
|
Adjustments
to reconcile net loss to net cash used in operating
activities:
|
||||||||||||||||
|
Fair
value of salaries donated as capital
|
— | — | 151,500 | 151,500 | ||||||||||||
|
Depreciation
expense
|
342 | — | 342 | — | ||||||||||||
|
Options
issued for services rendered
|
13,407 | — | 13,407 | — | ||||||||||||
|
Stock
issued for services rendered
|
3,091 | — | 28,143 | 25,053 | ||||||||||||
|
Changes
in operating assets and liabilities:
|
||||||||||||||||
|
Prepaid
expenses and other assets
|
— | 25,000 | — | — | ||||||||||||
|
Accounts
payable
|
10,735 | — | 10,735 | — | ||||||||||||
|
Accrued
interest payable – related parties
|
(14,368 | ) | (24,986 | ) | 10,447 | 24,814 | ||||||||||
|
Non-refundable
deposits
|
— | (100,000 | ) | (100,000 | ) | (100,000 | ) | |||||||||
|
Net
cash used in operating activities
|
(202,657 | ) | (57,755 | ) | (509,952 | ) | (307,295 | ) | ||||||||
|
CASH
FLOWS FROM INVESTING ACTIVITIES
|
||||||||||||||||
|
Advances
to former stockholders
|
— | — | (14,018 | ) | (14,018 | ) | ||||||||||
|
Repayment
of advances from former stockholders
|
— | — | 14,018 | 14,018 | ||||||||||||
|
Advances
from stockholders, net
|
— | — | 22,725 | 22,725 | ||||||||||||
|
Capital
equipment purchases
|
(2,058 | ) | — | (2,058 | ) | — | ||||||||||
|
Net
cash used in investing activities
|
(2,058 | ) | — | 20,667 | 22,725 | |||||||||||
|
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
||||||||||||||||
|
Proceeds
from issuance of common stock
|
250,000 | — | 543,256 | 293,256 | ||||||||||||
|
Offering
costs
|
7,500 | — | 7,500 | — | ||||||||||||
|
Net
proceeds from issuance of note payable
|
253,965 | 7,500 | 253,965 | — | ||||||||||||
|
Repayment
of debt
|
(170,000 | ) | — | (170,000 | ) | — | ||||||||||
|
Net
cash provided by financing activities
|
341,465 | 7,500 | 634,721 | 293,256 | ||||||||||||
|
NET
INCREASE / (DECREASE) IN CASH
|
136,750 | (50,255 | ) | 145,436 | 8,686 | |||||||||||
|
CASH,
Beginning of period
|
8,686 | 58,941 | — | — | ||||||||||||
|
CASH,
End of period
|
$ | 145,436 | $ | 8,686 | $ | 145,436 | $ | 8,686 | ||||||||
|
2009
|
2008
|
Cumulative
from Inception to March 31, 2009
|
Cumulative
from Inception to March 31, 2008
|
|||||||||||||
|
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION:
|
||||||||||||||||
|
Cash
received/(paid) during the period for:
|
||||||||||||||||
|
Interest
|
$ | — | $ | — | $ | — | $ | |||||||||
|
Income
taxes
|
— | — | — | |||||||||||||
|
Stockholder
advances forgiven and converted to additional paid-in
capital
|
— | — | 22,725 | |||||||||||||
None.
See
accompanying notes to consolidated financial statements.
-
28 -
AURASOURCE,
INC.
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS
ENDED MARCH 31, 2009 and 2008
NOTE
1. SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Current
Operations and Background — AuraSource, a development stage Nevada
corporation, is a majority owned subsidiary of MongSource. In turn,
Mongsource is a subsidiary of MongSource BVI. In August 2008 we
changed our name from Mobile Nation, Inc. to AuraSource, Inc. after Mongsource
acquired a majority interest in us.
On May
20, 2008, the Company entered into an Agreement with Mongsource USA, under which
Mongsource USA agreed to purchase, and the Company agreed to sell, an aggregate
of 19,426,500 shares of common stock of Mobile Nation, Inc $200,000, or $0.0103
per share. The transaction closed on July 8, 2008.
AuraSource is forming a wholly owned
foreign entity in Beijing, China named AuraCoal, a Chinese corporation for the
purpose of acquiring HCF technology, performing research and development related
to HCF technology and products based on this technology, licensing HCF
technology to third parties and selling services and products derived from this
technology.
Hydrocarbon Clean Fuel
Technology
We
believe our HCF technology, AuraCoaltm, will
be a next generation of hydrocarbon clean fuel technology. It involves grinding
the coal into very fine particles, mixing it with water and selected chemicals
to make a slurry mixture and using a proprietary biological treatment of the
coal slurry mixture to remove the heavy minerals, such as sulfur. We
believe such slurry mixture, AuraFueltm, will
have sufficient fluidity to move through pipelines, process delivery piping and
burner injection nozzles. Our goal is to demonstrate to power plants and similar
users that our HCF technology can convert their plants to use the technology at
a much lower cost than any current alternative. Given sufficient
capital and development of our HCF technology, we plan to market our HCF
technology to plants in China and in the United States with the objective of
having a beta demonstration site in each country.
Given
sufficient capital, development and protection of our HCF technology, among
other factors, AuraSource plans to utilize the HCF technology as
follows:
|
·
|
license
the HCF technology to international clients in applicable industries, such
as coal producers and power plants.
|
|
·
|
develop
strategic partnerships to deliver consulting services with respect to
design, engineering, procurement and construction for HCF
applications.
|
|
·
|
enter
into joint ventures with coal producers to supply HCF treated coal to
power plants.
|
|
·
|
process
coal using the HCF technology and sell such coal to end users at a
marked-up price.
|
|
·
|
assist
customers to convert their plants to HCF rather than oil, gas or other
natural resources in order to save energy
costs.
|
|
·
|
establish
centers for processing the coal with its HCF technology to supply power
plants and other customers.
|
-
29 -
AuraCoaltm Clean
Coal Technology
AuraCoaltm is a
new generation of HCF technology. With the adoption of our proprietary
AuraCoaltm Clean
Coal technology, we believe we will be able to convert old coal systems into
power generating systems that produce emissions containing only trace amounts of
sulfur and ash. We believe the AuraCoaltm
technology can:
|
·
|
reduce
harmful emissions and energy costs;
|
|
·
|
reduce
and/or eliminate the need for
scrubbers;
|
|
·
|
reduce
carbon (CO2) emissions by up to 33% before implementation of additional
carbon recapture technology;
|
|
·
|
reduce
a power plant’s need for related precipitators and/or sulfur acceptors;
and
|
|
·
|
enable
a power plant to effectively manage its carbon
emissions.
|
An existing gas or oil power plant can
be converted to use the AuraCoaltm
technology with minimal engineering processes. Given sufficient
capital, our goal is to start a pilot plant and begin seven plant conversions in
the third and fourth calendar quarters of 2009.
AuraFueltm Liquid
Fuel
AuraFueltm is the
resulting coal based, clean industrial fuel produce by the AuraCoaltm
technology. We believe AuraFueltm will
burn cleaner and more efficiently than its predecessors and it can be delivered
via pipeline in a non-volatile state. We believe the AuraFueltm:
|
·
|
has
excellent fuel economy, good liquidity and stability, is easily loaded and
unloaded, and can be stored and transported by pipeline or tanker without
precipitation;
|
|
·
|
is
conducive to pumping over long-distance pipelines, transport by railway,
truck tankers and maritime
shipping;
|
|
·
|
has
excellent atomization performance, can be stably fired and directly
combusted. AuraFueltm
may be combusted in industrial boilers, industrial kilns and power
generation boilers making it a substitute for conventional oil and
coal;
|
|
·
|
produces
virtually no pollution, therefore allowing the use of coal as an energy
source at a time of environmental pollution concern and
conservation. AuraFueltm
yields almost no coal ash by virtue of its high burning efficiency (99%)
and can significantly reduce CO2 emissions; and
|
|
·
|
is
an attractive alternative to oil or natural
gas.
|
There can be no assurance that we will
be able to carry out our development plans for the HCF technology, including
AuraCoaltm
and AuraFueltm.
Going
Concern — The accompanying 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 $624,525 at March 31, 2009. 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 that such efforts will be
successful.
Basis of
Presentation and Principles of Consolidation — The accompanying
consolidated financial statements have been prepared in conformity with
accounting principles generally accepted in the United States of America (“US
GAAP”).
-
30 -
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 Cash
Equivalents — The Company considers investments with original maturities
of 90 days or less to be cash equivalents.
Income
Taxes —The Company records income taxes in accordance with the provisions
of Statement of Financial Accounting Standards (“SFAS”) No. 109,
“Accounting for Income Taxes.” The standard requires, among other
provisions, an asset and liability approach to recognize deferred tax
liabilities and assets for the expected future tax consequences of temporary
differences between the financial statement carrying amounts and tax basis of
assets and liabilities. Valuation allowances are provided if, based
upon the weight of available evidence, it is more likely than not that some or
all of the deferred tax assets will not be realized.
Stock-Based
Compensation— The Company uses SFAS No. 123 (revised 2004), “Share-Based
Payment,” (“SFAS 123(R)”) which was issued in December 2004. SFAS 123(R) revises
SFAS No. 123, “Accounting for Stock Based Compensation,” and supersedes APB
Opinion No. 25, “Accounting for Stock Issued to Employees,” and its related
interpretations. SFAS 123(R) requires recognition of the cost of employee
services received in exchange for an award of equity instruments in the
consolidated financial statements over the period the employee is required to
perform the services in exchange for the award. SFAS 123(R) also requires
measurement of the cost of employee services received in exchange for an award.
SFAS 123(R) also amends SFAS No. 95, “Statement of Cash Flows,” to require the
excess tax benefits be reported as financing cash inflows, rather than as a
reduction of taxes paid, which is included within operating cash
flows.
SFAS 123(R) provides that income tax
effects of share-based payments are recognized in the consolidated financial
statements for those awards that will normally result in tax deduction under
existing law. Under current U.S. federal tax law, the Company would receive a
compensation expense deduction related to non-qualified stock options only when
those options are exercised and vested shares are received. Accordingly, the
financial statement recognition of compensation cost for non-qualified stock
options creates a deductible temporary difference which results in a deferred
tax asset and a corresponding deferred tax benefit in the income statement. The
Company does not recognize a tax benefit for compensation expense related to
incentive stock options unless the underlying shares are disposed in a
disqualifying disposition.
Net Income (Loss)
Per Share — The Company computes net loss per share in accordance with
SFAS No. 128, “Earnings per Share,” and Securities and Exchange Commission
(“SEC”) Staff Accounting Bulletin No. 98 (“SAB 98”). Under the provisions of
SFAS No. 128 and SAB 98, basic and diluted net loss per share is computed 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 related to stock options and warrants
have been excluded from the computation of basic and diluted earnings per share,
for the years ended March 31, 2008 and 2009 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 FDIC insured
limits. Currently, we maintain a bank account in
Mongolia. As of March 31, 2009, we had a balance of $88,568 in this
account. This account is not insured and we believe is exposed to
significant credit risk on cash.
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 their fair values due to their
short-term maturities.
Reclassifications
— Certain reclassifications have been made to the 2008 financial statements
to conform to the 2009 financial presentation.
-
31 -
Recently Issued
Accounting Pronouncements —
Business Combinations-In
December 2007, the FASB issued SFAS No. 141 (Revised 2007), Business
Combinations (“SFAS 141R”). SFAS 141R significantly changes the accounting for
business combinations. Under SFAS 141R, an acquiring entity will be required to
recognize all the assets acquired and liabilities assumed in a transaction at
the acquisition-date fair value with limited exceptions. SFAS 141R will change
the accounting treatment for certain specific items, including:
· Acquisition
costs will be generally expensed as incurred;
· Noncontrolling
interests (formerly known as “minority interests” – see SFAS 160 discussion
below) will be valued at fair value at the acquisition date;
· Acquired
contingent liabilities will be recorded at fair value at the acquisition date
and subsequently measured at either the higher of such amount or the amount
determined under existing guidance for non-acquired contingencies;
· In-process
research and development will be recorded at fair value as an indefinite-lived
intangible asset at the acquisition date;
· Restructuring
costs associated with a business combination will be generally expensed
subsequent to the acquisition date; and
· Changes
in deferred tax asset valuation allowances and income tax uncertainties after
the acquisition date generally will affect income tax expense.
SFAS 141R
also includes a substantial number of new disclosure requirements. SFAS 141R
applies prospectively to business combinations for which the acquisition date is
on or after the beginning of the first annual reporting period beginning on or
after December 15, 2008. Earlier adoption is prohibited. Accordingly, since
we are March 31 year-end company we recorded and disclosed business combinations
following existing GAAP until April 1, 2009. We expect SFAS 141R will have
an impact on accounting for business combinations once adopted but the effect is
dependent upon acquisitions at that time.
Noncontrolling Interests in
Consolidated Financial Statements – An Amendment of ARB No. 51-In
December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in
Consolidated Financial Statements - An Amendment of ARB No. 51 (“SFAS
160”). SFAS 160 establishes new accounting and reporting standards for the
noncontrolling interest in a subsidiary and for the deconsolidation of a
subsidiary. Specifically, this statement requires the recognition of a
noncontrolling interest (minority interest) as equity in the consolidated
financial statements and separate from the parent’s equity. The amount of net
income attributable to the noncontrolling interest will be included in
consolidated net income on the face of the income statement. SFAS 160 clarifies
that changes in a parent’s ownership interest in a subsidiary that do not result
in deconsolidation are equity transactions if the parent retains its controlling
financial interest. In addition, this statement requires that a parent recognize
a gain or loss in net income when a subsidiary is deconsolidated. Such gain or
loss will be measured using the fair value of the noncontrolling equity
investment on the deconsolidation date. SFAS 160 also includes expanded
disclosure requirements regarding the interests of the parent and its
noncontrolling interest. SFAS 160 is effective for fiscal years, and interim
periods within those fiscal years, beginning on or after December 15, 2008.
Like SFAS 141R discussed above, earlier adoption is prohibited. We have not
completed our evaluation of the potential impact, if any, of the adoption of
SFAS 160 on our consolidated financial position, results of operations and cash
flows.
Fair Value Measurements-In
September 2006, FASB issued SFAS No. 157, “Fair Value
Measurements,”
which establishes a framework
for measuring fair value, and expands disclosures about fair value measurements
required under the accounting pronouncements, but does not change existing
guidance as to whether or not an instrument is carried at fair value.
Additionally, it establishes a fair value hierarchy that prioritizes the
information used to develop those assumptions. SFAS No. 157 is effective for
consolidated financial statements issued for fiscal years beginning after
November 15, 2007, and interim periods within those fiscal years. Earlier
application is encouraged, provided that the reporting entity has not yet issued
consolidated financial statements for fiscal year, including consolidated
financial statements for an interim period within the fiscal year.
-
32 -
Employers’ Accounting for Defined
Benefit Pension and Other Postretirement Plans, an Amendment of FASB Statements
No. 87, 88, 106, and 132R-In September 2006, the FASB, issued SFAS, No.
158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement
Plans, an Amendment of FASB Statements No. 87, 88, 106, and 132R,” which
requires employers to recognize the underfunded or overfunded status of a
defined benefit postretirement plan as an asset or liability in its statement of
financial position and to recognize changes in the funded status in the year in
which the changes occur through accumulated other comprehensive income.
Additionally, SFAS No. 158 requires employers to measure the funded status of a
plan as of the date of its year-end statement of financial position. The new
reporting requirements and related new footnote disclosure rules of SFAS No. 158
are effective for fiscal years ending after December 15, 2006. We adopted the
provisions of SFAS No. 158 for the year end 2006, and the effect of recognizing
the funded status in accumulated other comprehensive income was not significant.
The new measurement date requirement applies for fiscal years ending after
December 15, 2008.
NOTE
2 – NOTE PAYABLE.
On July
8, 2008, all debts and accrued interest were satisfied with C.W. Gilluly and
Affinity Financial Group, Inc. (“AFG”).
On July
11, 2008, we entered into a Revolving Promissory Note (the “Note”) with
Mongsource USA the majority stockholder of the Company. Under the
terms of the Note, Mongsouce USA agreed to advance to the Company, from time to
time and at the request of the Company, amounts up to an aggregate of $500,000
until June 30, 2009. All advances shall be paid on or before June 30,
2009 and interest shall accrue from the date of any advances on any principal
amount withdrawn, and on accrued and unpaid interest thereon, at the rate of ten
percent (10%) per annum, compounded annually. As of March 31, 2009, Mongsource
USA advanced us $275,146.
NOTE
3 – STOCK ISSUANCE
On May
20, 2008, the Company entered into a Share Purchase Agreement (the “Agreement”)
with Mongsource USA, LLC ("Mongsource USA"), under which Mongsource USA agreed
to purchase, and the Company agreed to sell, an aggregate of 19,426,500 shares
of common stock of AuraSource, Inc for a purchase price of $200,000, or $0.0103
per share. The transaction closed on July 8, 2008.
On August 4, 2008, we issued 300,000
shares of our restricted stock to our board of directors. We expensed
$3,090 in relation to this issuance.
On March 9, 2009, we sold 50,000 shares
of our common stock for $1.00 per share.
NOTE
4 - STOCK OPTIONS
In January 2009, we granted 60,000
options to purchase shares of our common stock at an exercise price of $3.50 to
our board of directors. The options vest quarterly starting January 1, 2009 and
have an expiration period of 10 years. We will record compensation expense
in the quarters in which the options vest. The Company has assumed
all stock options issued during the quarter will vest. Though these
expenses will 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 SFAS No. 123(R) 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 upon the adoption of SFAS No. 123(R).
-
33 -
The fair
value of each stock option granted is estimated on the date of the grant using
the Black-Scholes option pricing model. The Black-Scholes option
pricing model 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
Black-Scholes method, is recognized as compensation expense on a straight-line
basis over the vesting period of each stock option award.
The
following assumptions were used to determine the fair value of stock options
granted using the Black-Scholes option-pricing model:
|
2009
|
||||
|
Dividend
yield
|
0.0
|
%
|
||
|
Volatility
|
25
|
%
|
||
|
Average
expected option life
|
5.00
years
|
|||
|
Risk-free
interest rate
|
1.76
|
%
|
||
The
following table summarizes activity in the Company's stock option grants during
2009:
|
Number
of
Shares
|
Weighted
Average Price Per Share
|
|||||||
|
Balance
at March 31, 2008
|
—
|
$
|
—
|
|||||
|
Granted
|
60,000
|
3.50
|
||||||
|
Balance
at March 31, 2009
|
60,000
|
$
|
3.50
|
|||||
The
following summarizes pricing and term information for options issued to
employees and directors which are outstanding as of March 31, 2009:
|
Options
Outstanding
|
Options
Exercisable
|
|||||||||||||||
|
Range
of Exercise Prices
|
Number
Outstanding at March 31, 2009
|
Weighted
Average Remaining Contractual
Life
|
Weighted
Average Exercise Price
|
Number
Exercisable at March 31, 2009
|
Weighted
Average Exercise Price
|
|||||||||||
|
$3.50
|
60,000
|
9.75
|
$3.50
|
15,000
|
$3.50
|
|||||||||||
NOTE
5 - EARNINGS PER SHARE
The following table sets forth common
stock equivalents (potential common stock) for the years ended March 31, 2009
and 2008 that are not included in the loss per share calculation above because
their effect would be anti-dilutive for the periods indicated:
|
Year
Ended March 31,
|
||||||||
|
2009
|
2008
|
|||||||
|
Weighted
average common stock equivalents:
|
||||||||
|
Non-Plan
Stock Options
|
60,000 | — | ||||||
-
34 -
The deferred tax
asset for the
years ended March 31, 2009 and 2008 consisted of the
following:
|
2009
|
2008
|
|||||||
|
Net
operating loss carryforwards
|
$ | 73,394 | $ | 138,945 | ||||
|
Less
valuation allowance
|
(73,394 | ) | (138,945 | ) | ||||
| $ | - | $ | - | |||||
Management
provided a deferred tax asset valuation allowance equal to the potential benefit due to
the Company’s loss. When the Company demonstrates the ability to generate
taxable income, management will re-evaluate the allowance.
As
of March 31, 2009, the Company has a federal and state net operating loss
carry-forward of approximately $215,864 that is available to offset future
taxable income that expires as follows:
|
Federal
|
State
|
Net
Operating Loss
|
|||
|
2027
|
2012
|
$ | — | ||
|
2028
|
2013
|
215,864 | |||
| $ | 215,864 | ||||
A
reconciliation between the provision for income taxes and the expected tax
benefit using the federal statutory rate of 34% for 2009 and 2008 is as
follows:
|
2009
|
2008
|
|||||||
|
Income
tax benefit (expense) at federal statutory rate
|
$ | 63,215 | $ | (14,359 | ) | |||
|
State
income tax benefit, net of effect on federal taxes
|
10,178 | - | ||||||
|
(Increase)
decrease in valuation allowance
|
(73,393 | ) | 14,359 | |||||
|
Income
tax expenses (benefit)
|
$ | - | $ | - | ||||
At March 31, 2009, the Compnay has a net
operating loss carryforward of $215,864 and $215, 864 for federal and state
income tax purposes, respectively. These net operating loss carryforwards
begin to expire in 2018 and 2009, respectively. The net operating losses
can be carried forward to offset future taxable income, if any.
Realization of the above carryforwards may be subject to utilization
limitations, which may inhibit the Company's ability to use these carryforwards
in the future. Because of the change in ownership, the use of loss
carryforwards are limited per the IRS tax code.
NOTE
7 - COMMITMENTS AND CONTINGENCIES
Leases
—The Company currently is not party to any leases
Rent expense charged to operations for
the years ended March 31, 2009 and 2008 was zero.
Litigation
— The Company is currently not a party to any legal
proceedings.
-
35 -
NOTE
8 - CONCENTRATION OF CREDIT RISK
Currently,
we maintain a bank account in Mongolia. As of March 31, 2009, we had
a balance of $88,568 in this account. This account is not insured and
we believe is exposed to significant credit risk on cash.
NOTE
9 - RELATED PARTIES
On July 11, 2008, we entered into a
Revolving Promissory Note, attached hereto as Exhibit C (the “Note”), with
Mongsource, our majority stockholder. Under the terms of the Note, Mongsource
agreed to advance to the Company, from time to time and upon request of the
Company, amounts up to an aggregate of $500,000 during the commitment period,
commencing on July 11, 2008 and expiring on June 30, 2009 (the “Expiration
Date”). The Note accrues interest at a rate of ten percent (10%) per annum,
compounded annually. All advances made under the Note and all accrued and unpaid
interest thereon will become due and payable on the Expiration Date. The Note
includes customary default provisions and provides that all obligations under
the Note will accelerate and become immediately due and payable upon the
occurrence of an event of default, including default in payment, breach by the
Company of any material provisions of the Note, or the commencement and
continuation of a bankruptcy proceeding. The Note provides that upon the
occurrence of an event of default, Mongsource will hold a first credit position
on the entire amount owed on the Note, including the all unpaid principal and
interest and interest will continue to accrue after the event of default at an
interest rate of ten percent (10%) per annum or the legal rate of interest,
whichever is lower.
On
September 6, 2008, we entered into an Exploration Licenses Transfer Agreement
(“Mongolia Licenses Transfer Agreement”), with Mongsource USA, our controlling
stockholder, under which Mongsource USA agreed to transfer to the Company three
mineral exploration licenses in Mongolia (“Mongolia Exploration Licenses”) in
exchange for 30,000,000 shares of the Company’s common stock (“Mongsource
License Shares”). Under the terms of the Mongolia Licenses Transfer Agreement,
if certain conditions are satisfied and we issue the Mongsource License Shares
to Mongsource USA, then such shares will be held in escrow by the
Company until additional conditions are satisfied, including the issuance of
direct exploration licenses to the Company by the Mongolian governmental
authorities, the satisfactory completion of the Company’s due diligence
investigation, receipt of certain instruments and certificates from governmental
authorities evidencing the Company’s ownership of licenses and exploration
rights and the Company’s receipt of a legal opinion in respect of certain
matters. If any of these and other conditions specified in the Mongolia License
Transfer Agreement is neither satisfied nor waived by the Company, the License
Transfer Agreement will be terminated and the Mongsource License Shares will be
released from escrow and returned to the Company. The agreement also provides
for termination of the Mongolia Licenses Transfer Agreement by either party due
to a breach of the agreement or if the conditions specified therein have not
been either satisfied or waived by the parties by March 31, 2009. As of the date
of this filing, the conditions necessary to transfer the Mongsource License
Shares have not been satisfied.
On June
11, 2009, we entered into an agreement with MongSource USA, LLC where by we
would transfer all rights and ownership interests in our assets relating to the
exploration and development of mineral resources which includes all assets of
AuraSourse LLC, a Mongolian subsidiary, in exchange for the forgiveness of the
Note and all amounts due under the Note.
In
December 2008, we entered into an agreement with a firm affiliated with Mr. John
P. Boesel, III, who is a Senior Vice President and Branch Manager of the
Scottsdale, Arizona office, under which this firm will be entitled to receive
compensation as our placement agent in connection with certain financing
transactions. Mr. Boesel is also a founding investor and director of
Mongsource BVI and a member, manager and founding investor of
Mongsource. Under the agreement, the placement agent will be entitled
to receive a commission of ten percent (10%) and an unaccountable expense
allowance of three percent (3%) of the proceeds generated in the transactions
described in the agreement. In addition, the agreement provides that the third
party will be reimbursed up to $30,000 for certain expenses. The
placement agent will also receive a warrant to purchase shares of our common
stock based on the proceeds generated in the financing
transaction. Mr. Boesel will indirectly benefit from these
transactions through his affiliation with the placement agent.
NOTE
10 – SUBSEQUENT EVENT
On May 28, 2009, the board of directors
granted to Mr. Liu 1,000,000 restricted shares for his services from July 8,
2008 until May 31, 2009. During such time, Mr. Liu received no other
compensation.
-
36 -
Item
9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
Not
applicable
Item
9A(T). Controls and Procedures.
We
maintain disclosure controls and procedures that are designed to ensure that
information required to be disclosed in our reports filed or submitted under the
Exchange Act is recorded, processed, summarized and reported within the time
periods specified in the Securities and Exchange Commission’s rules and forms
and that such information is accumulated and communicated to our management,
including our interim President, who serves as our principal executive officer
and principal financial officer, as appropriate, to allow timely decisions
regarding required disclosure.
Our CEO
and CFO reviewed and evaluated the effectiveness of the design and operation of
our disclosure controls and procedures (as defined by Rule 240.13a-15(e) or
15d-15(e)) of the Exchange Act Rule 13a-15 as of the end of the period covered
by this report. Based upon this evaluation, our interim President
concluded that, as of the end of such period, our disclosure controls and
procedures are effective as of the end of the fiscal year
covered by this Form 10-K.
(b)
Management’s Annual Report on Internal Control over Financial
Reporting
The
Company’s management is responsible for establishing and maintaining adequate
internal control over financial reporting as defined in Rules 13a-15(f) and
15d-15(f) of the Exchange Act and for assessing the effectiveness of internal
control over financial reporting.
Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. In addition, projections of any evaluation of
effectiveness of internal control over financial reporting to future periods are
subject to the risk that controls may become inadequate because of changes in
conditions, or that the degree of compliance with the policies or procedures may
deteriorate.
Management
has assessed the effectiveness of the Company’s internal control over financial
reporting as of March 31, 2009. In making its assessment of internal
control over financial reporting, management used the criteria established in
Internal Control — Integrated Framework, issued by the Committee of
Sponsoring Organizations of the Treadway Commission. This assessment
included an evaluation of the design of the Company’s internal control over
financial reporting and testing of the operational effectiveness of those
controls. Based on the results of this assessment, management has
concluded that the Company’s internal control over financial reporting was
effective as of March 31, 2009.
This
Annual Report on Form 10-K does not include an attestation report of the
Company’s registered public accounting firm regarding internal control over
financial reporting. Management’s report was not subject to
attestation by the Company’s registered public accounting firm pursuant to
temporary rules of the SEC that permit the Company to provide only management’s
report in this Annual Report on Form 10-K.
(c)
Changes in Internal Control over Financial Reporting
There
were no changes in the Company’s internal control over financial reporting that
occurred during the fourth quarter of the year ended March 31, 2009 that have
materially affected, or that are reasonably likely to materially affect, the
Company’s internal control over financial reporting.
Item
9B. Other Information.
-
37 -
PART
III
Item
10. Directors, Executive Officers and Corporate
Governance.
Directors
and Executive Officers
The names
and ages of the directors and executive officers of the Company, and their
positions with the Company, are as follows:
|
Name
|
Age
|
Position
|
|
Philip
Liu
|
45
|
Chief
Executive Officer, President and Chairman of the Board
|
|
Lawrence
Kohler
|
63
|
Secretary
and a Director
|
|
Eric
Stoppenhagen
|
35
|
Chief
Financial Officer, Treasurer and a
Director
|
Directors
are elected for a period of one year and until their successors are duly
elected. Executive officers are elected by the Board of
Directors.
Philip Liu
is the managing director of the Company’s majority stockholder, MongSource USA
LLC. He has 24 years of experience in international trade, business
development, investment banking and financial services, as well as
entrepreneurial ventures. He has worked both in China and in the United States
and has led a number of entrepreneurial ventures, including two medical device
distribution ventures, in China. Since founding the company in 2005, Mr. Liu has
served as the managing director of Timeway International Ltd, a Hong Kong
company. Through Mr. Liu, Timeway International Ltd. has provided investment
banking advisory services to clients such as BOT Capital, Okay Airways,
Rothschild China, Sunray Group, iKang Group and Arrail Dental. Mr. Liu is also a
director of MyOEM Inc., a private corporation which he co-founded in 2000. From
1994 to 2001, Mr. Liu was the Asia Business Venture Partner of the Phoenix,
Arizona based investment-banking firm, Yee, Desmond, Schroeder & Allan Inc.
From 1988 to 1989, Mr. Liu worked as a project manager with China Kanghua
Development Corp., one of the Chinese State Council direct controlled investment
firms located in Beijing, China.. While at China Kanghua Development
Corp., Mr. Liu served on the negotiation team with multinational investment
banking firms in a major industrial joint venture project. From 1987 to 1988,
Mr. Liu worked as a project manager in China Ningbo Import & Export Corp.
From 1984 to 1986, Mr. Liu worked as a research fellow at the Economic Research
Institute of Wuhan Iron & Steel Group under the Ministry of Metallurgical
Industry of China. Mr. Liu was born and raised in China. He graduated from Hubei
Business School in 1984, after he visited the United States as an exchange
student. Mr. Liu attended North Carolina State University and Campbell
University (North Carolina) between 1990 and 1993. Mr. Liu obtained a MBA in
corporate finance from Campbell University. Mr. Lui is a resident of
Phoenix, Arizona and is a U.S. Citizen.
Lawrence
Kohler has served as the managing director of Global Capital Management,
LLC, which provides investment planning, since 1998. Mr. Kohler held
vice president positions with E.F. Hutton, Kidder Peabody and Smith Barney. Mr.
Kohler founded Capital West Investment Group, a NASD member broker dealer. Mr.
Kohler received a business degree from Mercyhurst College in 1979.
Eric
Stoppenhagen, though his consulting company, Venor, Inc., provides
financial and management services to small to medium-sized companies that either
are public or desire to become public. He provides temporary CFO services to
these companies, which includes as transaction advice, preparation of security
filings and advice regarding compliance with corporate governance requirements.
Mr. Stoppenhagen has more than ten years of financial experience having served
in an executive capacity for several public and private companies; including as
Interim President of Trestle Holdings, Inc., a public company, from 2006 to
2008; President of
Landbank Group, Inc., a public company, from 2007 to 2008 CFO of GHG Trading
Platforms, Inc., a private company, from 2007 to 2008 and Chief Financial
Officer of Jardinier Corporation, a privately owned irrigation systems company
from 2007 to 2008. Mr. Stoppenhagen is a Certified Public Accountant and holds a
Juris Doctorate and Masters of Business Administration both from George
Washington University. Additionally, he holds a Bachelor of Science in Finance
and a Bachelor of Science in Accounting both from Indiana
University.
-
38 -
All
directors hold office until the next annual meeting of the stockholders of the
Company and until their successors have been duly elected and qualified. The
Company’s Bylaws provide that the Board of Directors will consist of no less
than three members. Officers are elected by and serve at the discretion of the
Board of Directors.
Certain
Legal Proceedings
To our
knowledge, during the past five years, none of our directors, executive
officers, promoters, control persons, or nominees has been:
|
•
|
the
subject of any bankruptcy petition filed by or against any business of
which such person was a general partner or executive officer either at the
time of the bankruptcy or within two years prior to that
time;
|
|
•
|
convicted
in a criminal proceeding or is subject to a pending criminal proceeding
(excluding traffic violations and other minor
offenses);
|
|
•
|
subject
to any order, judgment, or decree, not subsequently reversed, suspended or
vacated, of any court of competent jurisdiction, permanently or
temporarily enjoining, barring, suspending or otherwise limiting his
involvement in any type of business, securities or banking activities;
or
|
|
•
|
found
by a court of competent jurisdiction (in a civil action), the Commission
or the Commodity Futures Trading Commission to have violated a federal or
state securities or commodities
law.
|
Section
16(a) Beneficial Ownership Reporting Compliance.
Section
16(a) of the Securities Exchange Act of 1934 requires our executive officers and
directors, and persons who own more than ten percent of a registered class of
our equity securities, file reports of ownership and changes in ownership with
the SEC. Executive officers, directors and greater-than-ten percent
stockholders are required by SEC regulations to furnish us with all Section
16(a) forms they file. Based solely on our review of the copies of
the forms received by us and written representations from certain reporting
persons that they have complied with the relevant filing requirements, we
believe that, during the year ended March 31, 2009, all of our executive
officers, directors and greater-than-ten percent stockholders complied with all
Section 16(a) filing requirements.
Code
of Ethics
The
Company has adopted a Code of Ethics that applies to its principal executive
officers, principal financial officer, principal accounting officer or
controller, or persons performing similar functions. A copy of the Company’s
Code of Ethics may be obtained free of charge by contacting the Company at the
address or telephone number listed on the cover page hereof.
Audit
Committee
The Audit
Committee is currently comprised of two members: Lawrence Kohler and Philip Liu
to the Audit Committee. Mr. Kohler was appointed Chairman of the Audit
Committee.
The Audit
Committee pre-approves the performance of audit and non-audit services by the
Company’s accountants and reviews the Company’s internal control systems,
financial reporting procedures, the general scope of the Company’s annual audit,
the fees charged by the independent accountants, and the fairness of any
proposed transaction between any officer, director or other affiliate of the
Company and the Company. With respect to the foregoing, the Audit Committee
makes recommendations to the full Board and performs such further functions as
may be required or delegated to the Committee by the Board of
Directors. The Board of Directors has adopted a written charter for
the Audit Committee. A copy of the Company’s Audit Committee Charter may be
obtained free of charge by contacting the Company at the address or telephone
number listed on the cover page hereof.
-
39 -
Director
Independence
Our board
of directors currently consists of three members: Philip Liu, Eric Stoppenhagen,
and Lawrence Kohler.
We do not
have a separately designated compensation or nominating committee of our board
of directors and the functions customarily delegated to these committees are
performed by our full board of directors. We are not a “listed
company” under SEC rules and are therefore not required to have separate
committees comprised of independent directors. We have, however,
determined that Mr. Kohler are “independent” as that term is defined in Section
4200 of the Marketplace Rules as required by the NASDAQ Stock
Market.
Item
11. Executive Compensation
The
following table and related footnotes show the compensation paid during the
fiscal years ended March 31, 2009 and 2008 and to the Company's executive
officer.
SUMMARY
COMPENSATION TABLE
|
Annual
Compensation
|
Long Term
Compensation
|
||||
|
Name
and Principal Position
|
Year
|
Salary
|
Bonus
|
Other
Annual Compensation
|
Awards
of
Stock,
Options
and
Warrants
|
|
Philip
Liu
Chief
Executive Officer
|
2009
2008
|
N/A
N/A
|
N/A
N/A
|
$1,250(1)
N/A
|
$1,030(2)
N/A
|
|
Eric
Stoppenhagen
Chief
Financial Officer
|
2009
2008
|
N/A
N/A
|
N/A
N/A
|
$44,500(3)
N/A
|
$1,030(2)
N/A
|
__________________________
|
(1)
|
Mr.
Liu received1 $1,250 as a director for attending board
meetings.
|
|
(2)
|
This
represents 100,000 shares issued in September 2008 for joining the board
of directors.
|
|
(3)
|
This
represents amounts paid to Venor, Inc. for Eric Stoppenhagen to provide
financial consulting services at a rate of $175 per
hour. Additionally, Mr. Stoppenhagen receives a $500 allowance
per month for office expenses. Additionally, Mr. Stoppenhagen received1
$1,500 for attending board
meetings.
|
Employment
Agreements
Currently, we have no employment
agreements. Upon sufficient fundraising, we plan to enter into an
employment contract with our CEO, Philip Liu. We pay Mr. Stoppenhagen
$175 per hour to provide financial consulting services. For the years
ended March 31, 2009 and 2008, Mr. Stoppenhagen received $43,000 and zero,
respectively.
Options
Exercised and Year-End Option Values
The
following table sets forth certain information regarding the value of
unexercised options held by the named executive officer and directors as of
March 31, 2009.
|
Name
|
Number
of Securities
Underlying
Options
and Warrants Granted
|
Percent
of Total
Options
and Warrants
Granted in Fiscal Year
|
Exercise
or Base
Price($/Share)
|
|||||||||
|
Philip
Liu
|
20,000 | 100 | % | $ | 3.50 | |||||||
|
Eric
Stoppenhagen
|
20,000 | 100 | % | $ | 3.50 | |||||||
|
Larry
Kohler
|
20,000 | 100 | % | $ | 3.50 | |||||||
-
40 -
Aggregated
Option and Warrant Exercises in the Last Fiscal Year and Fiscal Year-End Option
and Warrant Values
The following table and related
footnotes set forth option exercises in 2009 and year-end option values for the
Company's Executive Officers.
|
Name
|
Shares
Acquired
on Exercise (#)
|
Value Realized ($)
|
Number
of
Securities
Underlying
Unexercised
Options
and
Warrants
at 3/31/2009
|
Value
of Unexercised
In-the-Money
Options
and
Warrants
at 3/31/2009
|
||||||||||||
|
Philip
Liu
|
0 | N/A | 20,000 | 0 | ||||||||||||
|
Eric
Stoppenhagen
|
0 | N/A | 20,000 | 0 | ||||||||||||
|
Larry
Kohler
|
0 | N/A | 20,000 | 0 | ||||||||||||
Compensation
of Directors
Our Board
of Directors approved a compensation plan for the Board of Directors. Under such
plan, current members of the Company’s Board of Directors earn $500 for every
meeting attended in person and $250 for every meeting attended telephonically.
Additionally, the Company will grant each director 20,000 stock options on the
first business day of each calendar year, at the closing market price on the day
of grant. At the end of each fiscal quarter, 5,000 of the 20,000
stock options granted will vest. The Company will issue new members of the Board
of Directors 100,000 shares of the Company’s common stock on the date of
appointment. The Company has issued each of our current directors,
Philip Liu, Lawrence Kohler and Eric Stoppenhagen, 100,000 shares of the
Company’s common stock and 20,000 stock options as of March 31,
2009.
Item
12. Security Ownership of Certain Beneficial Owners and Management
and Related Stockholder Matters
The following table sets forth certain
information regarding beneficial ownership of our common stock as of July 7, 2009 by (i) each
person who "beneficially" owns more than
5% of all outstanding shares of our common stock, (ii) each director and the
executive officer identified above, and (iii) all directors and executive
officers as a group.
|
Name of Beneficial Owner
|
Amount
and Nature of Beneficial Ownership
|
Percentage
Ownership of Common Stock(1)
|
||||||
|
Mongsource
USA, LLC(2)
|
19,426,500 | 89.73 | % | |||||
|
Philip
Liu(3)
|
1,200,000 | 5.54 | % | |||||
|
Lawrence
Kohler
|
200,000 | 0.92 | % | |||||
|
Eric
Stoppenhagen
|
200,000 | 0.92 | % | |||||
|
All
officers and directors
|
||||||||
|
as
a group (three persons)
|
1,600,000 | 7.38 | % | |||||
| 21,026,500 | 97.11 | % | ||||||
|
|
(1)
|
The
percent of common stock owned is calculated using the sum of (A) the
number of shares of common stock owned and (B) the number of warrants and
options of the Beneficial Owner that are exercisable within 60 days, as
the numerator, and the sum of (Y) the total number of shares of common
stock outstanding (21,650,000) and the number of warrants and options of
the Beneficial Owner that are exercisable within 60 days, as the
denominator.
|
|
|
(2)
|
Mongsource
is a wholly owned subsidiary of Mongsource BVI, which, in turn, is
controlled by Mongolian Natural Resources Investment Group. The
shares do not include 30,000,000 shares of common stock that may be issued
to Mongsource if the conditions set forth in the Mongolian Licenses
Transfer Agreement are satisfied. See sections entitled
“Business - Mongolia Exploration Licenses” and “Related Party
Transactions.” Mr. Liu and John P. Boesel, III, the Senior Vice
President and Branch Manager of the Placement Agent, are both directors
and own approximately 8.2% and 5.0%, respectively, of Mongsource
BVI. See section entitled “Related Party
Transactions.”
|
|
|
(3)
|
Officer
and director of the Company. Mr. Liu is a director of and owns
approximately 8.2% of Mongsource
BVI.
|
-
41 -
Equity
Compensation Plan Information
The following table sets forth certain
information regarding the Company’s equity compensation plans as of March 31,
2009.
|
Number
of securities to be issued upon exercise of outstanding options, warrants
and rights
(a)
|
Weighted-average
exercise price of outstanding options, warrants and rights
(b)
|
Number
of securities remaining available for future issuance under equity
compensation plans (excluding securities reflected in column
(a))
(c)
|
|
|
Equity
compensation plans approved by security holders
|
0
|
0
|
0
|
|
Equity
compensation plans not approved by security holders
|
60,000
|
$
3.50
|
0
|
|
Total
|
60,000
|
$
3.50
|
0
|
Changes in Control
Arrangements
There
existed no change in control arrangements at March 31, 2009.
Item
13. Certain Relationships and Related Transactions, and Director
Independence.
Other than as under the caption
Employment Agreements above and what is set forth below, we have not been a
party to any significant transactions, proposed transactions, or series of
transactions, and in which, to our knowledge, any of our directors, officers,
five percent beneficial security holder, or any member of the immediate family
of the foregoing persons has had or will have a direct or indirect material
interest.
On July 11, 2008, we entered into a
Revolving Promissory Note, attached hereto as Exhibit C (the “Note”), with
Mongsource, our majority stockholder. Under the terms of the Note, Mongsource
agreed to advance to the Company, from time to time and upon request of the
Company, amounts up to an aggregate of $500,000 during the commitment period,
commencing on July 11, 2008 and expiring on June 30, 2009 (the “Expiration
Date”). The Note accrues interest at a rate of ten percent (10%) per annum,
compounded annually. All advances made under the Note and all accrued and unpaid
interest thereon will become due and payable on the Expiration Date. The Note
includes customary default provisions and provides that all obligations under
the Note will accelerate and become immediately due and payable upon the
occurrence of an event of default, including default in payment, breach by the
Company of any material provisions of the Note, or the commencement and
continuation of a bankruptcy proceeding. The Note provides that upon the
occurrence of an event of default, Mongsource will hold a first credit position
on the entire amount owed on the Note, including the all unpaid principal and
interest and interest will continue to accrue after the event of default at an
interest rate of ten percent (10%) per annum or the legal rate of interest,
whichever is lower.
-
42 -
On
September 6, 2008, we entered into an Exploration Licenses Transfer Agreement
(“Mongolia Licenses Transfer Agreement”), with Mongsource USA, our controlling
stockholder, under which Mongsource USA agreed to transfer to the Company three
mineral exploration licenses in Mongolia (“Mongolia Exploration Licenses”) in
exchange for 30,000,000 shares of the Company’s common stock (“Mongsource
License Shares”). Under the terms of the Mongolia Licenses Transfer Agreement,
if certain conditions are satisfied and we issue the Mongsource License Shares
to Mongsource USA, then such shares will be held in escrow by the
Company until additional conditions are satisfied, including the issuance of
direct exploration licenses to the Company by the Mongolian governmental
authorities, the satisfactory completion of the Company’s due diligence
investigation, receipt of certain instruments and certificates from governmental
authorities evidencing the Company’s ownership of licenses and exploration
rights and the Company’s receipt of a legal opinion in respect of certain
matters. If any of these and other conditions specified in the Mongolia License
Transfer Agreement is neither satisfied nor waived by the Company, the License
Transfer Agreement will be terminated and the Mongsource License Shares will be
released from escrow and returned to the Company. The agreement also provides
for termination of the Mongolia Licenses Transfer Agreement by either party due
to a breach of the agreement or if the conditions specified therein have not
been either satisfied or waived by the parties by December 31, 2008. As of the
date of this filing, the conditions necessary to transfer the Mongsource License
Shares have not been satisfied.
On June
11, 2009, we entered into an agreement with MongSource USA, LLC where by we
would transfer all rights and ownership interests in our assets relating to the
exploration and development of mineral resources which includes all assets of
AuraSourse LLC, a Mongolian subsidiary, in exchange for the forgiveness of the
Note and all amounts due under the Note.
In
December 2008, we entered into an agreement with a firm affiliated with Mr. John
P. Boesel, III, who is a Senior Vice President and Branch Manager of the
Scottsdale, Arizona office, under which this firm will be entitled to receive
compensation as our placement agent in connection with certain financing
transactions. Mr. Boesel is also a founding investor and director of
Mongsource BVI and a member, manager and founding investor of
Mongsource. Under the agreement, the placement agent will be entitled
to receive a commission of ten percent (10%) and an unaccountable expense
allowance of three percent (3%) of the proceeds generated in the transactions
described in the agreement. In addition, the agreement provides that the third
party will be reimbursed up to $30,000 for certain expenses. The
placement agent will also receive a warrant to purchase shares of our common
stock based on the proceeds generated in the financing
transaction. Mr. Boesel will indirectly benefit from these
transactions through his affiliation with the placement agent.
-
43 -
Item
14. Principal Accountant Fees and Services
Independent
Public Accountants
On July
10, 2008, the Board of Directors approved the dismissal of Turner Stone &
Company, LLP ("Turner Stone") as the Company’s independent registered public
accounting firm effective as of that date. Also on that date, the Audit
Committee approved the engagement of Goldman Parks Kurland Mohidin, LLP ("GPKM")
as the Company’s independent registered public accounting firm.
The audit
report of Turner Stone on the Company’s financial statements for the years ended
March 31, 2008 and 2007 contained an opinion as to the Company’s ability to
continue as a going concern.
In
connection with the audits of the Company’s financial statements for each of the
two fiscal years ended March 31, 2008 and 2007, there were no disagreements with
Turner Stone on any matters of accounting principles or practices, financial
statement disclosure, or auditing scope and procedures which, if not resolved to
the satisfaction of Turner Stone, would have caused Turner Stone to make
reference to the matter of such disagreements in their reports.
The
Company engaged GPKM as its new independent registered public accounting firm as
of July 14, 2008. During The Company’s two most recent fiscal years and the
subsequent interim period through July 14, 2008, neither the Company nor anyone
on its behalf has consulted with GPKM regarding either (i) the application of
accounting principles to a specified transaction, either completed or proposed;
or the type of audit opinion that might be rendered on the Company’s financial
statements, and neither a written report was provided to the Company nor oral
advice was provided by GPKM that was an important factor considered by the
Company in reaching a decision as to any accounting, auditing or financial
reporting issue; or (ii) any matter that was the subject of a disagreement, as
that term is defined in Item 304 (a)(1)(iv) of Regulation S-K and the related
instructions to Item 304 of Regulation S-K, or a reportable event, as that term
is defined in Item 304 (a)(1)(v) of Regulation S-K.
Audit
Fees
The aggregate fees billed by Turner
Stone for the audit of the Company’s consolidated financial statements in the
years ended March 31, 2009 and 2008, the reviews of the quarterly reports on
Form 10-Q for the same fiscal years and statutory and regulatory filings were
$10,100 for 2009 and $20,195 for 2008.
The
aggregate fees billed by GPKM for the audit of the Company’s consolidated
financial statements in the years ended March 31, 2009 and 2008, the reviews of
the quarterly reports on Form 10-Q for the same fiscal years and statutory and
regulatory filings were $16,500 for 2009 and zero for 2008.
Audit-Related
Fees
There were no fees billed by Tuner
Stoner or GPKM for audit-related services for the years ended March 31, 2009 and
2008.
Tax
Fees
There were no fees billed by Tuner
Stoner or GPKM for tax-related services for the years ended March 31, 2009 and
2008.
All
Other Fees
There were no fees billed by Turner
Stone or GPKM for other services not described above for the years ended March
31, 2009 and 2008.
-
44 -
Policy
on Audit Committee Pre-Approval of Audit and Permissible Non-audit Services of
Independent Auditors
The Board’s policy is to
pre-approve all audit and permissible non-audit services provided by the
independent registered public accounting firm. These services may include audit
services, audit-related services, tax services and other services. Pre-approval
is generally detailed as to the particular service or category of services and
is generally subject to a specific budget. The independent registered public
accounting firm and management are required to periodically report to the Board
regarding the extent of services provided by the independent registered public
accounting firm in accordance with this pre-approval, and the fees for the
services performed to date. The Board may also pre-approve particular services
on a case-by-case basis.
The Board has determined that
the rendering of the services other than audit services by GPKM is compatible with
maintaining the principal accountant’s independence.
1. Audit
services include audit work performed in the preparation of consolidated
financial statements, as well as work that generally only the independent
auditor can reasonably be expected to provide, including comfort letters,
statutory audits, and attest services and consultation regarding financial
accounting and/or reporting standards.
2. Audit-Related
services are for assurance and related services that are reasonably related to
the audit or review of our consolidated financial statements.
3. Tax
services include all services performed by the independent auditor’s tax
personnel except those services specifically related to the audit of the
consolidated financial statements, and includes fees in the areas of tax
compliance, tax planning, and tax advice.
4. Other Fees
are those associated with products or services not captured in the other
categories.
-
45 -
PART
IV
Item
15. Exhibits and Financial Statement Schedules.
|
(a)
|
The
following documents are filed as a part of this
Report:
|
|
1.
|
Consolidated financial
statements. The following consolidated financial
statements of AuraSource, Inc. are included in
Item 8:
|
Report of
Independent Registered Public Accounting Firm.
Balance
Sheets as of March 31, 2009 and 2008.
Statements
of Operations for the year ended March 31, 2009 and 2008.
Statements
of Stockholders’ Equity (Deficit) for the years ended March 31, 2009 and
2008.
Statements
of Cash Flows for the years ended March 31, 2009 and 2008.
Notes to
consolidated financial statements.
|
2.
|
Financial
Statement Schedule(s):
|
All
schedules are omitted for the reason that the information is included in the
consolidated financial statements or the notes thereto or that they are not
required or are not applicable.
-
46 -
|
Exhibits:
|
|
Exhibit
Number
|
Description of Exhibit
|
|||
|
*3.1
|
Certificate
of Amendment of Articles of Incorporation effective as of August 18,
2008
(incorporated
herein by reference to Exhibit 3.1 of Company's Form 10-Q dated
September 30, 2008)
|
|||
|
*3.3
|
By-laws
of the Company (incorporated herein by reference to Exhibit 3.2 of the
Company’s Form 10SB12G filed December 21, 1999)
|
|||
|
*10.1
|
Share
Purchase Agreement. (incorporated herein by reference to Exhibit 10.1 of
Company's Form 8-k dated May 20, 2008)
|
|||
|
*10.2
|
Revolving
Promissory Note dated July 11, 2008 by and among Mobile Nation, Inc. and
Mongsource USA LLC. . (incorporated herein by reference to Exhibit 10.1 of
Company's Form 8-k dated July 8, 2008)
|
|||
|
*10.3
|
Compensation
Plan for Members of the Board of Directors (incorporated herein by
reference to Exhibit 10.1 of Company's Form 8-K dated September 12,
2008)
|
|||
|
*10.4
|
Charter
of the Audit Committee of the Board of Directors (incorporated herein by
reference to Exhibit 10.1 of Company's Form 10-Q dated September 30,
2008)
|
|||
|
*10.5
|
Exploration
Licenses Transfer Agreement between Mongsource USA, LLC, Mongsource MN LLC
and AuraSource, Inc. dated September 6, 2008. (incorporated herein by
reference to Exhibit 10.2 of Company's Form 10-Q dated September 30,
2008)
|
|||
|
*10.6
|
Exploration
Licenses Transfer Agreement between Societe Guinea Consultant
International LTD SARL and AuraSource, Inc. dated September 10, 2008.
(incorporated herein by reference to Exhibit 10.3 of Company's
Form 10-Q dated September 30, 2008)
|
|||
|
*10.7
|
Exploration
Licenses Transfer Agreement between Societe Guinea Consultant
International LTD SARL and AuraSource, Inc. dated September 21, 2008.
(incorporated herein by reference to Exhibit 10.4 of Company's
Form 10-Q dated September 30, 2008)
|
|||
|
*14.1
|
Code
of Business Ethics and Conduct (incorporated herein by reference to
Exhibit 14.1 of Company's Form 10-Q dated September 30,
2008)
|
|||
|
*21
|
List
of subsidiaries(incorporated herein by reference to Exhibit 3.1 of
Company's Form 10-Q dated December 31, 2008)
|
|||
|
31.1
|
Certification
of Chief Executive Officer pursuant to Exchange Act Rule 13a-14 and 15d-14
as adopted pursuant to section 302 of the Sarbanes-Oxley Act of
2002.
|
|||
|
31.2
|
Certification
of Chief Financial Officer pursuant to Exchange Act Rule 13a-14 and 15d-14
as adopted pursuant to section 302 of the Sarbanes-Oxley Act of
2002.
|
|||
|
32
|
Certification
of the Company’s Chief Executive Officer and Chief Financial Officer,
pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
|
|||
* Previously
filed.
-
47 -
SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the Company has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
|
Date:
July 7, 2009
|
By:
|
/s/
PHILIP LIU
-----------------------------------------------------------
Name:
Philip Liu
Title:
Chief Executive Officer
(Principal
Executive Officer)
|
||||
|
Date:
July 7, 2009
|
By:
|
/s/
ERIC STOPPENHAGEN
-----------------------------------------------------------
Name:
Eric Stoppenhagen
Title:
Chief Financial Officer
(Principal
Financial and Accounting Officer)
|
||||
The
undersigned directors and officer of AuraSource, Inc. do hereby constitute and
appoint Eric Stoppenhagen with full power of substitution and resubstitution, as
their true and lawful attorneys and agents, to do any and all acts and things in
our name and behalf in our capacities as directors and officer and to execute
any and all instruments for us and in our names in the capacities indicated
below, which said attorney and agent, may deem necessary or advisable to enable
said corporation to comply with the Securities Exchange Act of 1934, as amended
and any rules, regulations and requirements of the Securities and Exchange
Commission, in connection with this Annual Report on Form 10-K, including
specifically but without limitation, power and authority to sign for us or any
of us in our names in the capacities indicated below, any and all amendments
(including post-effective amendments) hereto, and we do hereby ratify and
confirm all that said attorneys and agents, or either of them, shall do or cause
to be done by virtue hereof.
Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the Registrant and in the
capacities and on the dates indicated.
|
SIGNATURE
|
TITLE
|
DATE
|
||||
|
/s/
PHILIP LIU
------------------------------------
Philip
Liu
|
Chief
Executive Officer
(Principal Executive
Officer)
|
July
7, 2009
|
||||
|
/s/
ERIC STOPPENHAGEN
------------------------------------
Eric
Stoppenhagen
|
Chief
Financial Officer
(Principal
Financial and Accounting Officer)
|
July
7, 2009
|
||||
|
/s/
PHILIP LIU
------------------------------------
Philip
Liu
|
Chairman
|
July
7, 2009
|
||||
|
/s/
ERIC STOPPENHAGEN
-------------------------------------
Eric
Stoppenhagen
|
Director
|
July
7, 2009
|
||||
|
/s/
LARRY KOHLER
------------------------------------
Larry
Kohler
|
Director
|
July
7, 2009
|
||||
-
48 -