Attached files
| file | filename |
|---|---|
| EXCEL - IDEA: XBRL DOCUMENT - Aurios Inc. | Financial_Report.xls |
| EX-31.2 - EXHIBIT 31.2 - Aurios Inc. | v239343_ex31-2.htm |
| EX-32.1 - EXHIBIT 32.1 - Aurios Inc. | v239343_ex32-1.htm |
| EX-31.1 - EXHIBIT 31.1 - Aurios Inc. | v239343_ex31-1.htm |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(Mark One)
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x
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the quarterly period ended September 30, 2011
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¨
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TRANSITION 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
Commission File Number: 000-53643
Aurios Inc.
(Exact name of registrant as specified in its charter)
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Arizona
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86-1037558
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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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7608 N. Shadow Mountain Rd.
Paradise Valley, AZ 85253
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(Address of principal executive offices)
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(602) 321-1313
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(Registrant’s telephone number, including area code)
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________________________________________________________________
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(Former name, former address and former fiscal year, if changed since last report)
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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 issuer was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.ý Yes ¨ No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).¨ Yes ¨ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” “non-accelerated filer,” and “a smaller reporting company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filer ¨
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Accelerated filer ¨ |
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Non-accelerated filer ¨ (Do not check if a smaller reporting company)
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Smaller reporting company ý |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
¨ Yes ý No
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:
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Class
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Outstanding at November 9, 2011
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Common Stock, no par value
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3,678,000
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FORM 10-Q
AURIOS INC.
SEPTEMBER 30, 2011
TABLE OF CONTENTS
| PART I – FINANCIAL INFORMATION | Page | |
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Item 1.
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Financial Statements.
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Condensed Balance Sheets—As of September 30, 2011 (Unaudited) and December 31, 2010
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1 | |
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Condensed Statements of Operations (Unaudited)—for the three and nine months ended September 30, 2011 and 2010
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2 | |
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Condensed Statements of Changes in Stockholders’ Equity (Deficit) for the nine months ended September 30, 2011 (Unaudited)
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3 | |
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Condensed Statements of Cash Flows (Unaudited) for the nine months ended September 30, 2011 and 2010
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4 | |
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Notes to Condensed Financial Statements (Unaudited)
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5 | |
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Item 2.
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Management’s Discussion and Analysis of Financial Condition and Results of Operations.
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12
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Item 3.
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Quantitative and Qualitative Disclosures About Market Risk.
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15
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Item 4.
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Controls and Procedures.
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16
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PART II – OTHER INFORMATION
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||
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Item 1.
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Legal Proceedings.
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16
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Item 1A.
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Risk Factors.
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16
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Item 2.
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Unregistered Sales of Equity Securities and Use of Proceeds.
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16
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Item 3.
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Defaults Upon Senior Securities.
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16
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Item 4.
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(Removed and Reserved).
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16
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Item 5.
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Other Information.
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17
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Item 6.
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Exhibits.
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17
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Signatures
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18 | |
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Exhibits
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Certifications
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AURIOS INC.
CONDENSED BALANCE SHEETS
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(Unaudited)
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||||||||
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September 30,
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December 31,
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||||||
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2011
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2010
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|||||||
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ASSETS
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||||||||
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Current Assets:
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||||||||
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Cash
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$ | 7,327 | $ | 23,438 | ||||
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Accounts receivable
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479 | 975 | ||||||
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Inventory
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3,335 | 5,135 | ||||||
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Total Assets
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$ | 11,141 | $ | 29,548 | ||||
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LIABILITIES AND STOCKHOLDERS' EQUITY / (DEFICIT)
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||||||||
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Current Liabilities:
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||||||||
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Accounts payable
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$ | 85,331 | $ | 67,148 | ||||
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Accrued interest
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15,448 | 84 | ||||||
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Notes payable - related party, net of discount
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120,437 | 15,625 | ||||||
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Total Current Liabilities
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221,216 | 82,857 | ||||||
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Long-Term Liabilities
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||||||||
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Accrued interest
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- | 15,623 | ||||||
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Note payable - related party, net of discount
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- | 66,245 | ||||||
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Total Liabilities
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221,216 | 164,725 | ||||||
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Stockholders' Equity / (Deficit):
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||||||||
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Common stock - no par value; 90,000,000 shares authorized,
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||||||||
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3,678,000 shares issued and outstanding at September 30, 2011
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||||||||
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and December 31, 2010, respectively
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197,795 | 197,795 | ||||||
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Additional paid-in capital
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37,124 | 37,124 | ||||||
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Accumulated deficit
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(444,994 | ) | (370,096 | ) | ||||
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Total Stockholders' Equity/(Deficit)
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(210,075 | ) | (135,177 | ) | ||||
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Total Liabilities and Stockholders' Equity / (Deficit)
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$ | 11,141 | $ | 29,548 | ||||
The Accompanying Notes are an Integral
Part of the Condensed Financial Statements
1
AURIOS INC.
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
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Three Months Ended
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Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
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2011
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2010
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2011
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2010
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Sales
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$ | 6,178 | $ | 7,727 | $ | 15,727 | $ | 17,350 | ||||||||
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Cost of Sales
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3,660 | 4,937 | 7,115 | 10,623 | ||||||||||||
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Gross Profit
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2,518 | 2,790 | 8,612 | 6,727 | ||||||||||||
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General and Administrative Expenses
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8,282 | 13,542 | 51,706 | 53,165 | ||||||||||||
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Loss from Operations
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(5,764 | ) | (10,752 | ) | (43,094 | ) | (46,438 | ) | ||||||||
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Interest Expense
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10,691 | 985 | 31,804 | 2,955 | ||||||||||||
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Net Loss (Unaudited)
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$ | (16,455 | ) | $ | (11,737 | ) | $ | (74,898 | ) | $ | (49,393 | ) | ||||
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Loss per share - basic and diluted
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$ | (0.00 | ) | $ | (0.00 | ) | $ | (0.02 | ) | $ | (0.01 | ) | ||||
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Weighted average shares outstanding
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3,678,000 | 3,678,000 | 3,678,000 | 3,359,670 | ||||||||||||
The Accompanying Notes are an Integral
Part of the Condensed Financial Statements
2
AURIOS INC.
CONDENSED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY/(DEFICIT)
For the nine months ended September 30, 2011
(Unaudited)
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Total
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||||||||||||||||||||
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Additional
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Stockholders'
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||||||||||||||||||
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Common Stock
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Paid-in
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Accumulated
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Equity
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|||||||||||||||||
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Shares
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Amount
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Capital
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Deficit
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(Deficit)
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||||||||||||||||
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Balance at December 31, 2010
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3,678,000 | $ | 197,795 | $ | 37,124 | $ | (370,096 | ) | $ | (135,177 | ) | |||||||||
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Net loss for the nine months ended
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||||||||||||||||||||
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September 30, 2011 (Unaudited)
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- | - | - | (74,898 | ) | (74,898 | ) | |||||||||||||
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Balance at September 30, 2011 (Unaudited)
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3,678,000 | $ | 197,795 | $ | 37,124 | $ | (444,994 | ) | $ | (210,075 | ) | |||||||||
The Accompanying Notes are an Integral
Part of the Condensed Financial Statements
3
AURIOS INC.
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
| Nine Months Ended | ||||||||
| September 30, | ||||||||
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2011
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2010
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Cash flows from operating activities:
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Net Loss
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$ | (74,898 | ) | $ | (49,393 | ) | ||
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Adjustments to reconcile net loss to net cash
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||||||||
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used by operating activities:
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||||||||
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Amortization of debt discount
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26,567 | - | ||||||
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Changes in Assets and Liabilities:
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||||||||
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Accounts receivable
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496 | 2,932 | ||||||
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Inventory
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1,800 | 13,759 | ||||||
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Accounts payable
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18,183 | (3,395 | ) | |||||
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Accrued interest
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(259 | ) | 2,955 | |||||
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Due to related party
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- | 40 | ||||||
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Net cash used by operating activities
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(28,111 | ) | (33,102 | ) | ||||
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Cash flows from financing activities:
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||||||||
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Proceeds from notes payable - related party
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12,000 | - | ||||||
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Proceeds from issuance of common stock
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- | 32,000 | ||||||
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Net cash provided by financing activities
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12,000 | 32,000 | ||||||
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Net change in cash and cash equivalents
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(16,111 | ) | (1,102 | ) | ||||
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Cash and cash equivalents at beginning of period
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23,438 | 6,676 | ||||||
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Cash and cash equivalents at end of period
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$ | 7,327 | $ | 5,574 | ||||
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Supplemental Information:
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||||||||
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Interest paid
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$ | 5,495 | $ | - | ||||
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Income taxes paid
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$ | - | $ | - | ||||
The Accompanying Notes are an Integral
Part of the Condensed Financial Statements
4
AURIOS INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
Note 1
Summary of Significant Accounting Policies, Nature of Operations and Use of Estimates
Presentation of Interim Information
The accompanying unaudited condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) for interim financial information and with the instructions to Form 10-Q for smaller reporting companies. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements and should be read in conjunction with our December 31, 2010 Annual Report filed on Form 10-K. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted, as permitted by the SEC, although we believe the disclosures made are adequate to make the information presented not misleading. Further, the condensed financial statements reflect, in the opinion of management, all normal recurring adjustments necessary to fairly present our financial position at September 30, 2011 and the results of our operations and cash flows for the periods presented. The December 31, 2010 condensed balance sheet data was derived from audited financial statements, but does not include all disclosures required by GAAP. The results of operations for the nine months ended September 30, 2011 are not necessarily indicative of the results to be expected for the full year.
Nature of Corporation
Aurios Inc. (the “Company” or “we”) is a corporation which was formed under the laws of the State of Arizona on August 7, 2001. Its principal business activity is the marketing of vibration and motion control technology to the audio/video markets. The Company’s sales occur throughout the United States.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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 financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates are used when accounting for stock-based compensation, as well as the recoverability of inventory, and the collectability of accounts receivable. These are discussed in the respective notes to the financial statements.
Revenue Recognition
The Company derives its revenues primarily from the sale of vibration and motion control devices through sales from the Company’s website and its distributors. Revenues are recognized at the time the sale is completed and shipped. Once shipped, title to the products, as well as the risks and rewards of ownership, passes to the customers.
Advertising Costs
Advertising costs are expensed as incurred. The Company incurred no advertising expense for the nine months ended September 30, 2011 and 2010.
Cash and Cash Equivalents
For financial accounting purposes, cash and cash equivalents are considered to be all highly liquid investments purchased with an initial maturity of three (3) months or less.
5
AURIOS INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED) (Continued)
Note 1
Summary of Significant Accounting Policies, Nature of Operations and Use of Estimates (Continued)
Accounts Receivable
The Company provides for potentially uncollectible accounts receivable by use of the allowance method. The allowance is provided based upon a review of the individual accounts outstanding and the Company’s prior history of uncollectible accounts receivable. As of September 30, 2011 and December 31, 2010, there was no provision for uncollectible trade accounts receivable. The Company does not accrue interest charges on delinquent accounts receivable. The accounts are generally unsecured.
Inventory
Inventories are stated at the lower of cost (first-in, first-out method) or market value. We regularly assess inventory quantities on hand and record provisions for excess and obsolete inventory based primarily on our estimated forecast of product demand. Inventories at September 30, 2011 were determined using a perpetual inventory system with periodic counts.
Deferred Income Taxes
Deferred income taxes are provided for on an asset and liability method, whereby deferred tax assets and liabilities are recognized for deductible temporary differences and operating loss carryforwards. Deferred tax liabilities are recognized for taxable temporary differences. Deferred tax assets are reduced by a valuation allowance when it is more likely than not that the carryforwards will not be utilized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.
Discount on Debt
During the year ended December 31, 2010, the Company issued convertible debt instruments together with detachable warrants. This resulted in a beneficial conversion feature and the value of the warrants creating a discount on the debt. The intrinsic value of a beneficial conversion feature inherent to a convertible note payable, which is not bifurcated and accounted for separately from the convertible note payable and may not be settled in cash upon conversion, is treated as a discount to the convertible note payable. This discount is amortized over the period from the date of issuance to the date the note is due using the straight line method which approximates the effective interest method. If the note payable is retired prior to the end of its contractual term, the unamortized discount is expensed in the period of retirement to interest expense.
In general, the beneficial conversion feature is measured by comparing the effective conversion price, after considering the relative fair value of detachable instruments included in the financing transaction, if any, to the fair value of the common shares at the commitment date to be received upon conversion.
New Accounting Pronouncements
There have been no recent accounting pronouncements issued which are expected to have a material effect on the Company’s financial statements.
6
AURIOS INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED) (Continued)
Note 1
Summary of Significant Accounting Policies, Nature of Operations and Use of Estimates (Continued)
Stock-Based Compensation
The Company recognizes stock-based compensation based on the fair value of the award on the date of grant. The fair value of option grants and warrants is estimated as of the date of grant utilizing the Black-Scholes option-pricing model.
Earnings Per Share
The earnings per share accounting guidance provides for the calculation of basic and diluted earnings per share. Basic earnings per share includes no dilution and is computed by dividing income available to common shareholders by the weighted average number of common shares outstanding for the period. Diluted earnings per share reflect the potential dilution of securities that could share in the earnings of an entity.
As of September 30, 2011, warrants to purchase 247,489 shares of the Company’s common stock were not included in the determination of diluted loss per share, as they were antidilutive, and would decrease the loss per share. In addition, the notes payable and related accrued interest, were convertible into 255,678 shares of common stock, which also would have been anti-dilutive and have been excluded in the calculation of loss per share. There were no potentially dilutive securities outstanding as of September 30, 2010.
Fair Values of Financial Instruments
The carrying amounts of certain financial instruments, including cash and cash equivalents, accounts receivable, accounts payable, and short-term loans approximate their fair values because of the relatively short-term maturity of these instruments, or for long-term debt based on borrowing rates currently available to the Company for loans with similar terms and maturities.
Note 2
Related Party Transactions
The Company had a note payable to a related party, TGE, in the amount of $44,121 as of September 30, 2011 and December 31, 2010, bearing interest at a rate of 8.25%. All outstanding principal and interest was due and payable on December 15, 2010. In December 2010, the note and accrued interest were extended from December 15, 2010 until January 15, 2012. As of September 30, 2011 and December 31, 2010, there was accrued interest in the amount of $12,888 and $15,623, respectively.
In July 2007, the Company entered into a non-exclusive License Agreement with a related party, TGE, giving the Company rights in various patents, pending applications for patents and trademarks in various countries of the world, including the United States. The Company pays the related party five percent (5.0%) of worldwide net sales of the licensed products. In October 2007, the License Agreement was amended to provide that the royalty would begin to accrue on January 1, 2008. This agreement was terminated on February 25, 2010 as a result of the sale of substantially all of TGE’s assets to AVT; such sale included the sale of the licensed patent. The Company entered into a License Agreement with AVT and now pays AVT a royalty equal to five percent (5%) of worldwide net sales of the licensed products.
On February 25, 2010, TGE sold substantially all of its assets to AVT, an Arizona corporation.
The Company and TGE, its affiliate and former parent, entered into an administrative services/rental agreement on January 1, 2009. Under such agreement, TGE performed certain administrative duties for Aurios and provided it office space as required at $1,500 per month. Aurios has no employees and had contracted with TGE for all services. Paul Attaway controls TGE as its principal shareholder and an officer and director. This agreement was terminated on February 25, 2010 as a result of the sale of substantially all of TGE’s assets to AVT. After February 25, 2010, AVT provided administrative support and personnel to the Company at $1,500 per month under a Management and Rental Agreement that expired on July 31, 2010. During the nine months ended September 30, 2010, the Company paid fees of $10,500 for the aforementioned services.
7
AURIOS INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED) (Continued)
Note 2
Related Party Transactions (Continued)
On March 26, 2010, TGE, the Company’s affiliate and former parent, assigned the Company its federally registered trademark “Aurios” in consideration for a payment of $100. On April 1, 2010, TGE assumed ownership of all parts and raw materials maintained in the inventory. The Company now maintains only a finished goods inventory.
On March 25, 2010, Paul Attaway, an officer and director of the Company, purchased 48,000 shares of common stock for $0.25 per share for a total of $12,000 in the Company's private placement of common stock.
On March 26, 2010 and March 29, 2010, Ira J. Gaines and Christian J. Hoffmann, III, respectively, both of whom are principal shareholders of the Company, each purchased 40,000 shares of common stock for $0.25 per share for a total of $10,000 each in the Company's private placement of common stock.
On December 15, 2010, Ira J. Gaines, Paul Attaway, and Christian J. Hoffmann III, respectively all of whom are principal shareholders of the Company, each issued convertible promissory notes in the amount of $10,000 for a total of $30,000 to the Company. Under the terms of the notes, each note bears interest at a rate of 6.0% with principal and interest due on December 14, 2011. The notes and any accrued interest are convertible into common stock of the Company at the issuers request at a rate of $0.30 per share. As of September 30, 2011 and December 31, 2010, there was accrued interest on the notes of $1,449 and $84, respectively. In addition, each note holder was issued 33,333 common stock warrants for a total of 99,999 total warrants. The warrants vested immediately, have an exercise price of $0.30 per share and have a 10 year term expiring December 14, 2020. As a result of the warrants and the conversion feature, a discount was recorded on the debt in the amount of $15,000. The discount is amortized over the one year term of the debt. As of September 30, 2011 and December 31, 2010, there was $3,125 and $14,375, respectively, of non-amortized discount netted against the carrying amount of the debt.
On August 8, 2011, Ira J. Gaines, Paul Attaway, and Christian J. Hoffmann III, respectively all of whom are principal shareholders of the Company, each issued promissory notes in the amount of $4,000 for a total of $12,000 to the Company. Under the terms of the notes, each note bears interest at a rate of 6.0% with principal and interest due on December 15, 2011. As of September 30, 2011 and December 31, 2010, there was accrued interest on the notes of $104 and $0, respectively.
During the nine months ended September 30, 2011 and 2010, the Company paid $13,066 and $9,634, respectively, in legal services to a firm in which a principal stockholder of Aurios is a partner. He also performed or supervised the legal services rendered by his law firm. As of September 30, 2011 and December 31, 2010, the Company owed the law firm $50,178 and $43,057, respectively. In addition, on December 31, 2010, the Company converted a portion of legal fees incurred into a convertible note payable. Under the terms of the note, the company owed the firm $44,248, the note bears interest at a rate of 3.0%, with all outstanding principal and interest due on January 15, 2012, or earlier upon the occurrence of certain events. The note is convertible into shares of the Company’s common stock at a rate of $0.30 per share. As of September 30, 2011 and December 31, 2010, there was accrued interest on the note of $1,007 and $0, respectively. The law firm was also issued 147,490 common stock warrants, which vested immediately, have an exercise price of $0.30 per share, and have a 10 year term expiring December 30, 2020. As a result of the warrants and the conversion feature, a discount was recorded on the debt in the amount of $22,124. The discount is amortized over the one year term of the debt. As of September 30, 2011 and December 31, 2010, there was $6,807 and $22,124, respectively, of non-amortized discount netted against the carrying amount of the debt.
A schedule of minimum future principal payments on the above notes payable is as follows:
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Period Ending
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Principal
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Net
|
||||||||||
|
September 30,
|
Amount
|
Discount
|
Amount
|
|||||||||
|
2012
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$ | 130,369 | $ | 9,932 | $ | 120,437 | ||||||
| $ | 130,369 | $ | 9,932 | $ | 120,437 | |||||||
8
AURIOS INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED) (Continued)
Note 3
Accounts Receivable
Accounts Receivable consists of:
|
September 30,
|
December 31,
|
|||||||
|
2011
|
2010
|
|||||||
|
Accounts Receivable
|
$ | 479 | $ | 975 | ||||
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Less: Allowance for Doubtful Accounts
|
- | - | ||||||
| $ | 479 | $ | 975 | |||||
Note 4
Concentration of Credit Risk
The Company maintains cash accounts at a financial institution. At September 30, 2011 and December 31, 2010, the Company had no uninsured cash and cash equivalents.
For the nine months ended September 30, 2011 and 2010, the Company had 83% and 93% of sales to five customers and three customers, respectively. As of September 30, 2011 and December 31, 2010 receivables from these customers were $430 and $450, respectively.
Note 5
Stockholders’ Equity
Common Stock:
On August 31, 2009, the Company commenced a private placement of a minimum of 80,000 shares and a maximum of 400,000 shares of its Common Stock to accredited investors at a price of $0.25 per share. As of September 30, 2010, the private placement was closed and the Company had sold 288,000 shares, for gross proceeds of $72,000.
Stock Options:
The Company, under its 2007 Stock Option Plan, is authorized to grant options for up to 625,000 shares of common stock, no par value. Options may be granted as incentive stock options or nonqualified stock options. Incentive stock options shall not be granted at less than one hundred percent (100%) of the fair market value of the common stock on the date of the grant, and have exercise terms of up to ten years with vesting periods determined at the discretion of the Company’s board of directors. As of September 30, 2011 no stock options had been granted.
Warrants:
The fair value of warrant grants is estimated as of the date of grant utilizing the Black-Scholes option-pricing model with the following weighted average assumptions for all grants: 5 year expected life of warrants using the “plain vanilla method”, which management believes approximates the actual expected term, risk-free interest rates of 2.01% - 2.11%, volatility of approximately 32.4%, and a 0% dividend yield.
On December 15, 2010, the Company granted warrants to purchase shares of common stock at $0.30 per share to Ira Gaines, Paul Attaway, and Christian Hoffmann III, respectively all of whom are principal shareholders of the Company, each were issued 33,333 common stock warrants for a total of 99,999 total warrants. The warrants vested immediately, have an exercise price of $0.30 per share and have a 10 year term expiring December 14, 2020. The Company valued the warrants at $0.10 per warrant using the Black-Scholes option pricing model.
9
AURIOS INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED) (Continued)
Note 5
Stockholders’ Equity (Continued)
On December 31, 2010, the Company granted 147,490 warrants to purchase shares of common stock at $0.30 per share to the law firm of Quarles & Brady LLP. The warrants vested immediately, have an exercise price of $0.30 per share and have a 10 year term expiring December 30, 2020. The Company valued the warrants at $0.10 per warrant using the Black-Scholes option pricing model.
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Warrants Outstanding and Exercisable
|
||||||||||||||
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Number of
Shares
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Weighted
Average
Exercise
Price
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Aggregate
Intrinsic
Value
|
Weighted
Average
Remaining
Contractural
Life
(In Years)
|
|||||||||||
| 247,489 | $ | 0.30 | $ | - | 9.24 | |||||||||
Note 6
Income Taxes
The provisions for income tax expense consist of the following:
| Nine Months Ended | ||||||||
| September 30, | ||||||||
|
Deferred:
|
2011
|
2010
|
||||||
|
Income tax benefit at statutory rates
|
$ | 29,200 | $ | 19,300 | ||||
|
Valuation allowance of net operating loss
|
(29,200 | ) | (19,300 | ) | ||||
| $ | - | $ | - | |||||
The Company’s deferred tax asset consists of the following:
|
September 30,
|
December 31,
|
|||||||
|
2011
|
2010
|
|||||||
|
Deferred tax asset:
|
||||||||
|
Net operating loss carryforward
|
$ | 161,000 | 131,800 | |||||
|
Less: Valuation allowance
|
(161,000 | ) | (131,800 | ) | ||||
|
Net deferred tax asset
|
$ | - | $ | - | ||||
As of September 30, 2011 and December 31, 2010, the Company had net operating loss carryforwards of approximately $413,000 and $338,000, respectively. The loss carryforwards, unless utilized, will expire from 2027 through 2031.
Our federal and state tax returns are subject to changes upon examination. For federal income tax purposes, years 2008 through 2011 are open for examination and for state income tax purposes the years 2007 through 2011 are open for examination.
The Company’s policy is to classify any interest and penalties to income taxes in the financial statements.
10
AURIOS INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED) (Continued)
Note 7
Going Concern
The Company has incurred an accumulated deficit and has had negative cash flows from its operations. Realization of the Company’s assets is dependent upon the Company’s ability to meet its future financing requirements and the success of future operations. These factors raise substantial doubt about the Company’s ability to continue as a going concern. The financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
The Company has no expansion plans that would require significant infusions of capital into its operations; however, it expects that it will need additional working capital in the next twelve months if it does not generate positive cash flow from operations. No assurances can be given that the Company will be able to raise such additional capital, when needed or at all, or that such capital, if available, will be on terms acceptable to the Company. If the Company is unable to raise additional funds, it could be required to either substantially reduce or terminate its operations.
11
|
Item 2.
|
Management’s Discussion and Analysis of Financial Condition and Results of Operations.
|
Forward-Looking Statements
This Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. The words “believe,” “expect,” “anticipate,” “intend,” “estimate,” “may,” “should,” “could,” “will,” “plan,” “future,” “continue” and other expressions that are predictions of or indicate future events and trends and that do not relate to historical matters identify forward-looking statements. These forward-looking statements are based largely on our expectations or forecasts of future events, can be affected by inaccurate assumptions, and are subject to various business risks and known and unknown uncertainties, a number of which are beyond our control. Therefore, actual results could differ materially from the forward-looking statements contained in this document, and readers are cautioned not to place undue reliance on such forward-looking statements. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. A wide variety of factors could cause or contribute to such differences and could adversely impact revenues, profitability, cash flows and capital needs. There can be no assurance that the forward-looking statements contained in this document will, in fact, transpire or prove to be accurate.
Factors that could cause or contribute to our actual results differing materially from those discussed herein or for our stock price to be adversely affected include, but are not limited to: (i) our history of declining operating results; (ii) our auditors have expressed a going concern opinion; (iii) our ability to raise additional working capital that we may require and, if available, that such working capital will be on terms favorable to us; (iv) our ability to implement our business plan; (v) uncertainties regarding our ability to increase revenues and penetrate our market; (vi) economic and general risks relating to business; (vii) our ability to manage our cost of production; (viii) our ability to protect our intellectual property through patents and other intellectual property protection; (ix) our dependence on key personnel; (x) increased competition or our failure to compete successfully; (xi) our ability to keep pace with technological advancements in our industry; (xii) our ability to continue to comply with the Sarbanes-Oxley Act of 2002; (xiii) our nonpayment of dividends and lack of plans to pay dividends in the future; (xiv) future sale of a substantial number of shares of our common stock that could depress the trading price of our common stock, lower our value and make it more difficult for us to raise capital; (xv) our additional securities available for issuance, which, if issued, could adversely affect the rights of the holders of our common stock; (xvi) the price of our stock is likely to be highly volatile because of several factors, including a relatively limited public float; and (xvii) indemnification of our officers and directors.
As used in this Report, the terms “we,” “us,” “our,” and “Aurios” mean Aurios Inc. unless otherwise indicated.
General
The following discussion should be read in conjunction with our Financial Statements and notes thereto. The following discussion contains forward-looking statements, including, but not limited to, statements concerning our plans, anticipated expenditures, the need for additional capital and other events and circumstances described in terms of our expectations and intentions. You are urged to review the information set forth under the captions for factors that may cause actual events or results to differ materially from those discussed below.
Overview
We were formed in August 2001 by our former parent, TGE. Our corporate offices are located at 7608 N. Shadow Mountain Blvd., Paradise Valley, AZ 85253 and our telephone number is (602) 321-1313.
We produce, market and distribute vibration isolation products to the high-end audio and video markets in the United States and in certain foreign countries. Our products are the Classic MIB, the PRO MIB, the Isotone MIB, the Series 100 Component Shelf, a shelf product, and Pivot Points, a spike mount product.
Our vibration isolation products produce superior sound quality by sharpening, not softening, the sound. AVT holds the patents respecting our products in the United States and Taiwan. AVT has granted us a non-exclusive world-wide license to sell the products under the patents (“AVT License”). The AVT License automatically renews every year as long as we are in compliance with its terms. We pay AVT a royalty of 5% of our net sales for the license. We outsource the manufacture of our products to several qualified machine shops in the Phoenix metropolitan area. On March 26, 2010, TGE assigned its federally registered trademark respecting the “Aurios” name to us in consideration of $100.
12
For the Three Months Ended September 30, 2011 and 2010
Results From Operations
Revenues
Since our inception, our activities have focused on product and market development with a nominal level of operations. Revenues for the three months ended September 30, 2011 and 2010 were $6,178 and $7,727, respectively. Revenues declined slightly as a result of the current poor economic conditions.
Most of our sales are made through audio equipment distributors, with the balance being direct retail sales. For the three months ended September 30, 2011, 52%, 28% and 14% of sales were made through distributors, Won Sang Sa Co., Absolute Hi End and Non Stop Audio Co., respectively. For the three months ended September 30, 2010, 64% and 36% of sales were made through distributors, Music Direct and Roksan Trading Company, respectively. No other customer accounted for more than 10% of sales in either period.
Cost of Sales
The cost of sales on units sold for the three months ended September 30, 2011 totaled $3,660 (59.2% of revenues) compared to $4,937 (63.9% of revenues) for the three months ended September 30, 2010. The cost of sales for the three months ended September 30, 2011 was lower as a percentage of revenues in 2011 due to a decrease in the cost of materials for the products sold.
Gross Margin
Gross margin for the three months ended September 30, 2011 totaled $2,518 (40.8% of revenues) compared to $2,790 (36.1% of revenues) for the three months ended September 30, 2010. The percentage increase in gross margin was due to sales of products with lower material costs.
Operating Expenses
Prior to February 25, 2010, all selling and operating expenses, as well as research and development expenses, were incurred through a contractual relationship with TGE, which performed these services under an administrative services agreement with the Company. On February 25, 2010, substantially all the assets of TGE were sold to AVT. The Company entered into the same agreement with AVT, which agreement terminated on July 31, 2010. These expenses were $0 and $1,500 in the three months ended September 30, 2011 and 2010, respectively. In the three months ended September 30, 2011, we had additional expenses consisting of legal expenses of $1,264 and accounting expenses of $3,254 related to being publicly held. In the three months ended September 30, 2010, we had additional expenses consisting of legal expenses of $4,313 and accounting expenses of $6,162 related to being publicly held.
Interest Expense
Interest expense was $10,691 and $985 for the three months ended September 30, 2011 and 2010, respectively. The increase was primarily related to interest expense from the issuance of convertible debt and common stock purchase warrants and a beneficial conversion feature on debt entered into in the year ended December 31, 2010.
Income Tax Provision
The Company had a potential tax provision benefit of approximately $6,400 and $4,600 for the three months ended September 30, 2011 and 2010, respectively, arising from losses generated during the aforementioned periods. The Company has fully reserved against these benefits due to the uncertainty of their realization.
Net Loss
For the reasons listed above, for the three months ended September 30, 2011 and 2010, we recorded net loss of $16,455 and $11,737, respectively, an increase in our net loss of $4,718.
Basic and Diluted Loss per Share
The basic and diluted loss per share was <$0.00> for the three months ended September 30, 2011 and 2010, for the reasons previously noted.
13
For the Nine months ended September 30, 2011 and 2010
Results From Operations
Revenues
Since our inception, our activities have focused on product and market development with a nominal level of operations. Revenues for the nine months ended September 30, 2011 and 2010 were $15,727 and $17,350, respectively. Revenues declined slightly as a result of the current poor economic conditions.
Most of our sales are made through audio equipment distributors, with the balance being direct retail sales. For the nine months ended September 30, 2011, 23%, 20%, 18%, 11% and 11% of sales were made through distributors, Music Direct, Won Sang Sa Co., Roksan Trading Company, Absolute Hi End and RAM Technology, respectively. For the nine months ended September 30, 2010, 57%, 20% and 16% of sales were made through distributors, Music Direct, Bernard Knoop and Roksan Trading Company, respectively. No other customer accounted for more than 10% of sales in either period.
Cost of Sales
The cost of sales on units sold for the nine months ended September 30, 2011 totaled $7,115 (45.2% of revenues) compared to $10,623 (61.2% of revenues) for the nine months ended September 30, 2010. The cost of sales for the nine months ended September 30, 2011 was lower as a percentage of revenues in 2011 due to sales of products with lower material costs.
Gross Margin
Gross margin for the nine months ended September 30, 2011 increased to $8,612 (54.8% of revenues) compared to $6,727 (38.8% of revenues) for the nine months ended September 30, 2010 due to sales of products with lower material costs.
Operating Expenses
Prior to February 25, 2010, all selling and operating expenses, as well as research and development expenses, were incurred through a contractual relationship with TGE, which performed these services under an administrative services agreement with the Company. On February 25, 2010, substantially all the assets of TGE were sold to AVT. The Company entered into the same agreement with AVT, which agreement terminated on July 31, 2010. These expenses were $0 and $10,500 in the nine months ended September 30, 2011 and 2010, respectively. In the nine months ended September 30, 2011, we had additional expenses consisting of legal expenses of $13,066 and accounting expenses of $31,974 related to being publicly held. In the nine months ended September 30, 2010, we had additional expenses consisting of legal expenses of $9,634 and accounting expenses of $30,869 related to being publicly held.
Interest Expense
Interest expense was $31,804 and $2,955 for the nine months ended September 30, 2011 and 2010, respectively. The increase was primarily related to interest expense from the issuance of convertible debt and common stock purchase warrants and a beneficial conversion feature on debt entered into in the year ended December 31, 2010.
Income Tax Provision
The Company had a potential tax provision benefit of approximately $29,200 and $19,300 for the nine months ended September 30, 2011 and 2010, respectively, arising from losses generated during the aforementioned periods. The Company has fully reserved against these benefits due to the uncertainty of their realization.
Net Loss
For the reasons listed above, for the nine months ended September 30, 2011 and 2010, we recorded net loss of $74,898 and $49,393, respectively, an increase in our net loss of $25,505.
Basic and Diluted Loss per Share
The basic and diluted loss per share was <$0.02> and <$0.01> for the nine months ended September 30, 2011 and 2010, respectively, for the reasons previously noted.
14
Liquidity and Capital Resources
Our independent registered public accounting firm has rendered a going concern opinion. We provided for our cash requirements in the first half of 2010 with the capital we raised through the sale of Common Stock yielding $72,000 in the fourth quarter of 2009 and first quarter of 2010. In addition, we raised $30,000 in the fourth quarter of 2010 through the issuance of convertible debt to our three principal shareholders and $12,000 in debt during third quarter of 2011 to our three principal shareholders. We intend to obtain the working capital that we will require to operate for the next twelve months through the sale of debt or equity securities, deferral of payment of certain accounts payable and, if we are able to, by generating operating income through increased sales. We can make no assurances that we will be successful in this regard. If our revenues do not increase and our cash flow is not positive or not sufficient to meet our working capital needs, we will need to seek to raise capital through the sale of our equity or debt securities. We have no commitments for obtaining such financing and there can be no assurance that we could obtain the necessary funds or obtain them on terms favorable to us. Any future financing may be on terms that substantially dilute the ownership interests of present shareholders. If we are unable to raise sufficient additional capital as necessary, we may have to suspend or contract operations or cease operations entirely, the financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
We do not anticipate that we will have any large capital requirements over the next twelve months. In addition, we have relationships with third parties through our connection with TGE who will manufacture small quantities of our products quickly and charge us the same lower prices as we would be charged for larger orders, particularly in the current economic environment. Accordingly, we believe we can continue to place smaller orders at favorable prices and will not have to allocate our working capital to the building of surplus inventory.
As of September 30, 2011, we had a working capital deficit of ($210,075).
Capital Commitments
We had no material commitments for capital expenditures.
Off-Balance Sheet Arrangements
There were no off-balance sheet arrangements as of September 30, 2011 and December 31, 2010.
Critical Accounting Policies and Estimates
Our financial statements are prepared in accordance with U.S. Generally Accepted Accounting Principles. Preparation of the statements in accordance with these principles requires that we make estimates, using available data and our judgment, for such things as valuing assets, accruing liabilities and estimating expenses. The following is a discussion of what we feel is the most critical estimate that we must make when preparing our financial statements.
Recoverability of Inventory. We assume that our inventory can be sold for at least its carrying cost.
Stock Based Compensation. The Company uses the Black-Scholes option pricing model to estimate fair value of warrant grants.
New Accounting Pronouncements
There have been no recent accounting pronouncements issued which are expected to have a material effect on the Company’s financial statements.
|
Item 3.
|
Quantitative and Qualitative Disclosures About Market Risk
|
A smaller reporting company is not required to provide the information required by this Item.
15
|
Item 4.
|
Controls and Procedures
|
Evaluation of Disclosure Controls and Procedures
We conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of September 30, 2011. This evaluation was carried out under the supervision and with the participation of our President, Chief Executive Officer and Chief Financial Officer, Paul Attaway. Based upon that evaluation, he has concluded that, as of September 30, 2011, our disclosure controls and procedures are effective to provide reasonable assurance that material information required to be disclosed by us in this report was recorded, processed, summarized and communicated to our management as appropriate and within the time periods specified in SEC rules and forms.
Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act are recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.
Limitations on the Effectiveness of Internal Controls
Our management does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent all fraud and material error. Our disclosure controls and procedures are designed to provide reasonable assurance of achieving our objectives and our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective at that reasonable assurance level. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the internal control. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate.
Changes in Internal Control Over Financial Reporting
There have been no changes in our internal controls over financial reporting, as such term is defined in Rules 13a – 15(f) and 15d – 15(f) under the Exchange Act, during the quarter ended September 30, 2011 that have materially affected or are reasonably likely to materially affect such controls.
PART II – OTHER INFORMATION
|
Item 1.
|
Legal Proceedings.
|
We are not a party to any pending legal proceeding. We are not aware of any pending legal proceeding to which any of our officers, directors, or any beneficial holders of five percent or more of our voting securities are adverse to us or have a material interest adverse to us.
|
Item 1A.
|
Risk Factors.
|
A smaller reporting company is not required to provide the information required by this Item.
|
Item 2.
|
Unregistered Sales of Equity Securities and Use of Proceeds.
|
None.
|
Item 3.
|
Defaults upon Senior Securities.
|
None.
|
Item 4.
|
(Removed and Reserved).
|
16
|
Item 5.
|
Other Information.
|
None.
|
Item 6.
|
Exhibits.
|
|
Exhibit
Number
|
Description of Exhibit
|
|
31.1
|
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|
|
31.2
|
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|
|
32.1
|
Certification of 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
|
17
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
|
Aurios Inc.
|
|||
|
November 14, 2011
|
|||
|
|
By:
|
/s/ Paul Attaway | |
| Paul Attaway | |||
| Title: | President, Chief Executive Officer, Chief Financial Officer and Director | ||
18