10-Q

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

For Quarterly Period Ended December 31, 2013

or

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number 0-28585

 

AuraSource, Inc.

(Exact name of registrant as specified in its charter)

Nevada (State or Other Jurisdiction of Incorporation or Organization) 68-0427395 (IRS Employer Identification No.)

1490 South Price Rd. #219

Chandler, AZ 85286

(Address of principal executive offices, zip code)

Registrant's telephone number (including area code): (480) 292-7179

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 [ ]

 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.

Large Accelerated Filer [ ] Accelerated Filer [ ] Non-accelerated Filer [ ] Smaller reporting company [x]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [x]

 Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Class	Outstanding at February 13, 2013
Common Stock, $.001 par value	52,089,903

AURASOURCE, INC.

INDEX

PART I	FINANCIAL INFORMATION	Page
ITEM 1.	CONSOLIDATED FINANCIAL STATEMENTS:
	Consolidated Balance Sheets — December 31, 2013 (Unaudited) and March 31, 2013	3
	Consolidated Statements of Operations (Unaudited) – Three and nine months ended December 31, 2013 and 2012	4
	Consolidated Statements of Cash Flows (Unaudited) - Nine months ended December 31, 2013 and 2012	5
	Notes to Consolidated Financial Statements	6
ITEM 2.	MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	15
ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	18
ITEM 4.	CONTROLS AND PROCEDURES	19
PART II	OTHER INFORMATION	21
ITEM 4.	SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS	21
ITEM 6.	EXHIBITS	21
	Signatures	22

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PART I - FINANCIAL INFORMATION

ITEM 1 — CONSOLIDATED FINANCIAL STATEMENTS 

AuraSource, Inc.

Consolidated Balance Sheets

	December 31,			March 31,
	2013			2013
ASSETS	(Unaudited)
Current assets
Cash and equivalents	$	18,719		$	75,508
Due from affiliate		55,808			54,418
Inventory		42,580			10,000
Deposits and other current assets		542,109			621,254
Total current assets		659,216			761,180
Fixed assets, net		325,078			445,704
Intangible assets, net		791,219			818,427
Total assets	$	1,775,513		$	2,025,311
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued expenses	$	42,442		$	28,234
Due to related parties		700,596			412,615
Deferred revenue		—			63,754
Loans payable		195,485			—
Loans payable – related parties		95,716			—
Note payable		540,000			500,000
Convertible notes payable, net of unamortized beneficial conversion feature		94,202			—
Customer advances		70,000			570,000
Total current liabilities		1,738,441			1,574,603
Commitments and contingencies
Stockholders' equity
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 52,089,940 and 50,401,940 shares issued and outstanding at December 31, 2013 and March 31, 2013, respectively		52,090			50,402
Additional paid in capital		9,342,975			8,493,178
Accumulated deficit		(9,357,993	)		(8,092,872	)
Total stockholders' equity		37,072			450,708
Total liabilities and stockholders' equity	$	1,775,513		$	2,025,311

The accompanying notes are an integral part of these consolidated financial statements.

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AuraSource, Inc.

Consolidated Statements of Operations

(Unaudited)

	Three Months Ended December 31,						Nine Months Ended December 31,
	2013			2012			2013			2012
Revenue	$	—		$	—		$	104,820		$	—
Cost of revenue		—			—			72,859			—
Gross profit		—			—			31,961			—
Operating expenses:
General & administrative expenses		233,437			305,768			926,041			971,089
Total operating expenses		233,437			305,768			926,041			971,089
Loss from operations		(233,437	)		(305,768	)		(894,080	)		(971,089	)
Interest income (expense) and other, net		(52,093	)		—			(371,041	)		(5,868	)
Net loss applicable to common stockholders	$	(285,530	)	$	(305,768	)	$	(1,265,121	)	$	(976,957	)
Basic & diluted loss per share	$	(0.01	)	$	(0.01	)	$	(0.02	)	$	(0.02	)
Weighted average shares outstanding		52,089,903			48,334,690			51,672,516			48,133,208

The accompanying notes are an integral part of these consolidated financial statements.

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AuraSource, Inc.

Consolidated Statements of Cash Flows

(Unaudited) 

	Nine Months Ended December 31,
	2013			2012
Cash flows from operating activities
Net loss	$	(1,265,121	)	$	(976,957	)
Adjustments to reconcile net loss to net cash used in operating activities
Depreciation and amortization		226,124			22,601
Stock issued for services and interest		259,583			13,200
Options issued for services		10,385			7,190
Changes in operating assets and liabilities
Due from affiliate		(1,390	)		(22,270	)
Inventory		(32,580	)		(10,000	)
Deposits and other current assets, net		79,145			(446,925	)
Accounts payable and accrued expenses		56,569			(15,518	)
Accounts payable – related parties		287,981			187,944
Deferred revenue		(63,754	)		—
Customer advances		—			570,000
Net cash used in operating activities		(443,058	)		(670,735	)
Cash flows from investing activities
Capital equipment purchases		—			(2,954	)
Cash paid for acquisition of intangible		(8,088	)		(30,593	)
Net cash used in investing activities		(8,088	)		(33,547	)
Cash flows from financing activities
Proceeds from issuance of common stock, net		—			245,000
Net proceeds from issuance of notes payable		190,501			500,000
Repayment of note payable		(87,345	)		—
Net proceeds from loans payable		195,485			—
Advances from related parties, net		95,716			—
Net cash provided by financing activities		394,357			745,000
Net change in cash and equivalents		(56,789	)		40,718
Cash and equivalents - beginning balance		75,508			404,331
Cash and equivalents - ending balance	$	18,719		$	445,049

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for
Interest	$	2,361	$	—
Income taxes	$	—	$	—

NON-CASH INVESTING AND FINANCING ACTIVITY 

The Company issued 600,000 shares of common stock for the acquisition of intangibles.  The shares issued in connection with the intangibles were valued at $1.01 per share or $606,000.	$	—	$	606,000
The Company issued 1,250,000 shares of common stock for settlement of a 500,000 deposit from customer.	$	500,000	$	—

The accompanying notes are an integral part of these consolidated financial statements.

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AURASOURCE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2013 (UNAUDITED) AND MARCH 31, 2013

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Current Operations and Background — AuraSource, Inc. (“AuraSource” or “Company”) focuses on the development and production of environmentally friendly and cost effective industrial energy and fuel used for industrial applications. AuraCoal, AuraSource’s core technology, includes ultrafine grinding and impurities removal processes. Initial industrial applications of AuraSource technology are ultra-fine coal water mixture for heavy oil substitution, and low grade iron ore fine and slimes beneficiation. AuraSource formed AuraSource Qinzhou Co. Ltd. (“Qinzhou”), a wholly owned subsidiary in China, to acquire these types of Hydrocarbon Clean Fuel (“HCF”) technologies, performing research and development (“R&D”) related to the reduction of harmful emissions and energy costs for HCF technology and products based on this technology, licensing HCF technology to third parties and selling services and products derived from this technology. Currently, we have seven patents patent issued related to our technologies: 1) ultrafine grinding and 2) ultrafine separation.

There can be no assurance we will be able to carry out our development plans for our HCF technology, including AuraCoal and AuraFuel. Our ability to pursue this strategy is subject to the availability of additional capital and further development of our HCF technology.  We also need to finance the cost of effectively protecting our intellectual property rights in the United States (“US”) and abroad where we intend to market our technology and products.

Going Concern — The accompanying 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 $9,357,993 at December 31, 2013.  The consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or amounts and classifications of liabilities that might be necessary should the Company be unable to continue its existence.  The recovery of the Company’s assets is dependent upon continued operations of the Company. In addition, the Company's recovery is dependent upon future events, the outcome of which is undetermined.  The Company intends to continue to attempt to raise additional capital, but there can be no certainty such efforts will be successful.

Basis of Presentation and Principles of Consolidation — The accompanying consolidated financial statements were prepared in conformity with accounting principles generally accepted in the United States of America (“US GAAP”) and include the accounts of AuraSource and its subsidiary, Qinzhou. All significant intercompany transactions and balances were eliminated in consolidation.

The unaudited consolidated financial statements were prepared by us pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). The information furnished herein reflects all adjustments (consisting of normal recurring accruals and adjustments) which are, in the opinion of management, necessary to fairly present the operating results for the respective periods. Certain information and footnote disclosures normally present in annual consolidated financial statements prepared in accordance with US GAAP was omitted pursuant to such rules and regulations. These consolidated financial statements should be read in conjunction with the audited consolidated financial statements and footnotes for the year ended March 31, 2013 included in our Annual Report on Form 10-K. The results of the three and nine months ended December 31, 2013 are not necessarily indicative of the results to be expected for the full year ending March 31, 2014.

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Use of Estimates — The preparation of consolidated financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Cash and Equivalents — We consider investments with original maturities of 90 days or less to be cash equivalents.

Income Taxes — The Company accounts for income taxes in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 740, “Income Taxes.” Deferred tax assets and liabilities are recognized to reflect the estimated future tax effects, calculated at currently effective tax rates, of future deductible or taxable amounts attributable to events that have been recognized on a cumulative basis in the financial statements. A valuation allowance for a deferred tax asset is recorded when it is more likely than not that some portion of the deferred tax asset will not be realized.

Stock-Based Compensation — The Company recognizes the cost of employee services received for an award of equity instruments in the consolidated financial statements over the period the employee is required to perform the services.

Foreign Currency Transactions — The Company recognizes foreign currency gains and losses in other income (expense) on the accompanying statement of operations. Foreign currency gains and losses arise as the Company conducts business with other entity’s whose functional currency is not in US dollars. Generally, these gains and losses are recorded at an exchange rate difference between the foreign currency and the functional currency that arises between the transaction date and the payment date.

Net Loss Per Share — The Company computes basic and diluted net loss per share by dividing the net loss available to common stockholders for the period by the weighted average number of shares of common stock outstanding during the period. Common equivalent shares arising from stock options and warrants were excluded from the computation of basic and diluted earnings per share, for the three and nine months ended December 31, 2013 and 2012 because their effect is anti-dilutive.

Concentration of Credit Risk — Financial instruments that potentially subject the Company to a concentration of credit risk consist of cash.  The Company maintains its cash with high credit quality financial institutions; at times, such balances with any one financial institution may exceed Federal Deposit Insurance Corporation (“FDIC”) insured limits.  

Financial Instruments and Fair Value of Financial Instruments — Our financial instruments consist of cash, accounts payable and notes payable. The carrying values of cash, accounts payable and notes payable are representative of the fair values due to their short-term maturities. We measure the fair value (“FV”) of financial assets and liabilities on a recurring basis. FV is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. FV measurements are to be considered from the perspective of a market participant that holds the asset or owes the liability. We also establish a FV hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring FV.

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The standard describes three levels of inputs that may be used to measure FV:

Level 1:	Quoted prices in active markets for identical or similar assets and liabilities.
Level 2:	Quoted prices for identical or similar assets and liabilities in markets that are not active or observable inputs other than quoted prices in active markets for identical or similar assets and liabilities.
Level 3:	Unobservable inputs that are supported by little or no market activity and that are significant to the FV of the assets or liabilities.

The Company evaluates embedded conversion features within convertible debt under ASC Topic 815, “Derivatives and Hedging,” to determine whether the embedded conversion feature should be bifurcated from the host instrument and accounted for as a derivative at FV with changes in FV recorded in earnings. If the conversion feature does not require derivative treatment under ASC 815, the instrument is evaluated under ASC subtopic 470-20, “Debt with Conversion and Other Options,” for consideration of any beneficial conversion feature.

Reclassifications — Certain reclassifications were made to the prior period amounts disclosed in the consolidated financial statements to conform to the presentation form the three and nine months ended December 31, 2013. These reclassifications had no effect on reported net loss or stockholders’ equity.

Recent Accounting Pronouncements – There were no significant changes in the Company’s critical accounting policies and estimates during the three and nine months ended December 31, 2013 compared to what was disclosed in the Company’s Annual Report on Form 10-K for the year ended March 31, 2013.

NOTE 2 - CONCENTRATION OF CREDIT RISK

We maintain our cash balances in financial institutions that from time to time exceed amounts insured by the FDIC (up to $250,000, per financial institution as of December 31, 2013). As of December 31, 2013 and March 31, 2013, our deposits did not exceed insured amounts. We have not experienced any losses in such accounts and we believe we are not exposed to any credit risk on cash.

Currently, we maintain a bank account in China. This account is not insured and we believe is exposed to credit risk on cash.

NOTE 3 – DUE FROM AFFILIATE

As of December 31, 2013 and March 31, 2013, an affiliated party, Timeway International Ltd, holds in trust $55,808 and $54,418, respectively. This money is used to pay various day to day expenses. Timeway International Ltd is controlled by our Chief Executive Officer.

NOTE 4 – INVENTORY

In the three months ended June 30, 2012, the Company agreed to purchase certain minerals from Hong Kong Minerals Holdings, Ltd. (“HKMHL”) for $50,000. The $10,000 as of March 31, 2013 represents a payment towards that purchase. In the three months ended December 31, 2013, the Company purchased additional equipment to be sold for $32,580.

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NOTE 5 – DEPOSITS AND OTHER CURRENT ASSETS

Deposits and other current assets as of December 31, 2013 and March 31, 2013, respectively, were comprised of the following:

	December 31, 2013		March 31, 2013
	(Unaudited)
Shipping deposits		10,205		96,254
Mineral reserve deposits		525,000		525,000
Prepaid expenses		6,904		—
Balance at December 31, 2013 and March 31, 2013	$	542,109	$	621,254

On January 25, 2013, the Company entered into a broker transportation agreement with M&L Logistics, Inc. to arrange transportation of minerals for various carriers, consignors or consignees for one year. This agreement can be terminated at any time upon notice by either party. As of December 31, 2013 and March 31, 2013, these deposits were recorded as shipping deposits.

On February 9, 2012, we entered into an agreement with Gulf Coast Holdings, LLC (“GCH”), an affiliate with over 10% voting rights, to reserve export ready one million tons of 64% Fe higher content iron ore, 13 million tons of 45% grade lower content iron ore and two million tons of manganese ore, at $1.00 per ton. In lieu of cash, GCH agreed to accept shares of the Company common stock at $1.00 per share. In conjunction with this agreement, we issued five million shares of our common stock immediately and agreed to issue 11 million upon the successful completion of the first customer order of over $5 million (the “Mineral Deposit Shares”) to GCH or its assigns. On February 19, 2012, GCH assigned 100% of its interest in the Mineral Reserve Agreement to HKMHL. Success shall be defined as customer acceptance of order and final payment. To the extent a successful order does not occur, the unvested Mineral Deposit Shares shall be returned to our treasury and cancelled. The Company has no material prior relationship with GCH or HKMHL other than what is set forth above. To date, the Company has not achieved $5 million in revenue, as such the 11 million shares is being held by the Company. As of December 31, 2013, the Company has not obtained possession of the above noted minerals. As such, the issuance of the shares have been recorded as a charge to additional paid in capital and a credit to common stock at par value of $0.001 per share for a total of $16,000. GCH has the right to designate two members on the Board of Directors (“BOD”), one of whom is to be mutually agreed. To date GCH has not designated any board members. Additionally, we entered into an agreement with Gulf Coast Mining Group, LLC (“GCM”) to purchase minerals which will be delivered loose in bulk modified FOB. We entered into an agreement with GCH appointing GCH as the exclusive North American licensee for use and exploitation of our technology as it relates to applications involving precious metals in exchange for royalty payments of 5% of gross revenues. Between August 2012 and January 2013, the Company made prepayments of $525,000 for delivery of minerals.

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NOTE 6 – FIXED ASSETS, NET

Fixed assets, net consisted of the following:

	December 31,			March 31,
	2013			2013
	(Unaudited)
Office equipment	$	2,954		$	2,954
Vehicles		147,390			147,390
Equipment		391,118			391,118
Total fixed assets		541,462			541,462
Less: accumulated depreciation		(216,384	)		(95,758	)
Total fixed assets, net	$	325,078		$	445,704

Depreciation for the three and nine months ended December 31, 2013 was $40,208 and $120,626, respectively. Depreciation for the three and nine months ended December 31, 2012 was $7,616 and $22,601, respectively. The Company attributed $97,779 and $0 of such depreciation in 2013 and 2012, respectively, to R&D expense.

NOTE 7 – INTANGIBLE ASSETS, NET

We entered into an agreement with Beijing Pengchuang Technology Development Co., Ltd. (“Pengchuang”), an independent Chinese company, to purchase 50% of the intellectual property related to ultrafine particle processing. Pengchuang developed a highly efficient and low energy consumption grinding technology, which utilizes fluid shock waves to make ultrafine particles. This technology can be applied to the coal water slurry, solid lubricant and other material grinding processes. Through a joint development and ownership agreement, AuraSource will enrich its intellectual property portfolio, enabling the further development of AuraCoal, its HCF technology. Qinzhou will utilize the particle grinding technology in its AuraCoal Qinzhou production line, as well as license it to others in non-related industries.

We issued 600,000 shares of common stock for the acquisition of certain intangibles. The shares issued in connection with $753,530 of the acquired intangibles were valued at $606,000 or $1.01 per share which was the share price on August 8, 2010, the acquisition date. The Company paid cash for the remainder of the amount due. The Company recorded $11,765 and $35,296 in amortization expense in the three and nine months ended December 31, 2013, respectively, and $0 for the same periods in 2012.

NOTE 8 ––DUE TO RELATED PARTIES

As of December 31, 2013 and March 31, 2013, $700,596 and $412,615, respectively, is owed to the officers and directors of the Company. In December 2012, the officers and directors of the Company agreed to accrue compensation for their services until such time the Company had sufficient funds to pay this liability.

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NOTE 9 – DEFERRED REVENUE

As of December 31, 2013 and March 31, 2013, the deferred revenue was $0 and $63,754, respectively. This represented amount received from a customer for an order that was completed in September 2013.

NOTE 10 – DEBT

As of December 31, 2013 and March 31, 2013, loans payable were $195,485 and $0, respectively. In June 2013, the company issued 275,783 common shares as a finance charge for the $108,382 of the borrowed amount and recorded $124,102 expense incurred in connection with the loan. The loan is due on demand.

The loans payable to related parties were $95,716 and $0, respectively. In June 2013, the Company issued 162,180 common shares as a finance charge for $63,102 of related party loan and recorded $72,981 expense in connection with the loan. This loan is due on demand.

On December 31, 2012, the Company received $500,000 from Pelican Creek, LLC (Pelican Creek”), an unrelated party, and recorded the corresponding note as a current liability on the balance sheet. As an inducement to receive this loan, the Company issued 1,250,000 shares of its common stock to Pelican Creek. The FV of the shares issued was $812,500 valued at $0.65 per share, using the closing price on the effective date of the agreement and has been completely expensed. See Note 14 - Stock Issuance, for further details. The coupon interest on this note accrues daily on the outstanding principal amount at 8% per annum. As such, as of December 31, 2013, the Company accrued interest of $40,000 and recorded it as part of the accounts payable and accrued expenses account. The Company finalized the terms and conditions of this payment on June 7, 2013.

NOTE 11 – CONVERTIBLE NOTES PAYABLE

On April 5, 2013 the Company entered into a Securities Purchase Agreement (“SPA”) with Asher Enterprises, Inc. (“Asher”). Under the terms of the SPA, the Company issued to Asher a convertible promissory note of $63,000. The note had a nine month maturity date from issuance. The note bears interest at 8%. Any principal or interest on this note which is not paid when due shall bear interest at 22% from the due date until paid. The conversion price shall equal the variable conversion price, 61% multiplied by the market price (representing a discount rate of 39%). Market price is the average of the lowest three trading prices for the common stock during the ten trading day period ending on the latest complete trading day prior to the conversion date. This note had beneficial conversion feature (“BCF”) of $40,279 and was recorded in the balance sheet at face value less the unamortized BCF. On September 20, 2013 the Company paid off this note for $87,345.

On July 19, 2013 the Company entered into an SPA with Asher. Under the terms of the SPA, the Company issued to Asher a convertible promissory note of $37,500. The note had a nine month maturity date from issuance. The note bears interest at 8%. Any principal or interest on this note which is not paid when due shall bear interest at 22% from the due date until paid. The conversion price shall equal the variable conversion price, 61% multiplied by the market price (representing a discount rate of 39%). Market price is the average of the lowest three trading prices for the common stock during the ten trading day period ending on the latest complete trading day prior to the conversion date. This note had BCF of $23,975 and was recorded in the balance sheet at face value less the unamortized BCF.

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On September 20, 2013 the Company entered into an SPA with Todd Andis (“Andis”). Under the terms of the SPA, the Company issued to Andis a convertible promissory note of $90,000. The note had a six month maturity date from issuance. The note bears interest at 8%. Any principal or interest on this note which is not paid when due shall bear interest at 22% from the due date until paid. The conversion price shall equal the variable conversion price, 61% multiplied by the market price (representing a discount rate of 39%). Market price is the average of the lowest three trading prices for the common stock during the ten trading day period ending on the latest complete trading day prior to the conversion date. This note had BCF of $57,541 and was recorded in the balance sheet at face value less the unamortized BCF.

At December 31, 2013, convertible notes payable consisted of the following:

	December 31, 2013
Convertible note payable - Asher, 8% interest, due in April 22, 2014	$	37,500
Convertible note payable - Andis, 8% interest, due March 31, 2014		90,000
Accrued interest		3,368
Less: unamortized discount of BCF - Asher		(9,694	)
Less: unamortized discount of BCF - Andis		(26,972	)
Convertible notes payable and interest, net of BCF	$	94,202

The amortization expense on the discount of BCF for these notes for the three and nine months ended December 31, 2013 was $35,535 and $69,391 and was recorded as interest expense. The accrued interest as of December 31, 2013 was $3,368.

NOTE 12 – CUSTOMER ADVANCES

As of March 31, 2013, we had received $500,000 and $70,000 from two customers, respectively, to be applied towards the purchase of various minerals by those customers. As of December 31, 2013, the balance of such advances was $70,000. On April 12, 2013, the Company issued 1,250,000 shares of common stock for the settlement of the $500,000 customer advance.

NOTE 13 – STOCK ISSUANCE

During the year ended March 31, 2013, the Company issued 1,250,000 shares of common stock in connection with finance charges to enter a note payable agreement in the amount of $500,000 and 817,250 shares of common stock as interest for delaying repayment of the balances due to related parties for services rendered. The total expense for such common shares issued during the year ended March 31, 2013 was $1,261,988. The Company issued 612,500 shares for $0.40 per share. The company recorded net proceeds from the sale of these shares of $245,000. On June 11, 2012, the BOD granted 60,000 shares for services in connection with fund raising activities, all of which vested immediately and were valued at $13,200. 

During the nine months ended December 31, 2013, the Company issued 437,963 shares of common stock as finance charge for loans to related and unrelated parties. For further details refer to Note 11, Loans Payable. On April 12, 2013, the Company agreed to issue 1,250,000 shares as a settlement for an advance from a customer in the amount of $500,000.

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NOTE 14 - STOCK OPTIONS

In January 2009, we granted 60,000 options to purchase shares of our common stock at $3.50 per share to members of our BOD. In April 2010, we granted an additional 60,000 options to purchase shares of our common stock at $1.00 per share to members of our BOD. The options vest quarterly and have an expiration period of 10 years. In April 2011, we granted an additional 60,000 options to purchase shares of our common stock at $0.75 per share to certain members of our BOD. The options vest quarterly and have an expiration period of 10 years. In February 2012, we granted an additional 2,850,000 options to purchase shares of our common stock at $0.28 per share to certain members of our BOD. The options will vest upon the Company earning $5 million in revenues. The options expire in 5 years. In April 2012, we granted an additional 60,000 options to purchase shares of our common stock at $0.27 per share to certain members of our BOD. In April 2013, we granted an additional 60,000 options to purchase shares of our common stock at $0.45 per share to certain members of our BOD. The total grant date FV of the outstanding options was $810,722.

We will record stock based compensation expense over the requisite service period, which in our case approximates the vesting period of the options. During the three and nine months ended December 31, 2013 and 2012, the Company recorded $3,462, $10,385, 3,595 and $7,190 in compensation expense arising from the vesting of options, respectively. The Company assumed all stock options issued during the quarter will vest. Though these expenses result in a deferred tax benefit, we have a full valuation allowance against the deferred tax benefit.

The Company adopted the detailed method provided in FASB ASC Topic 718, “Compensation – Stock Compensation,” for calculating the beginning balance of the additional paid-in capital pool (“APIC pool”) related to the tax effects of employee stock-based compensation, and to determine the subsequent impact on the APIC pool and Consolidated Statements of Cash Flows of the income tax effects of employee stock-based compensation awards that are outstanding.

The fair value of each stock option granted is estimated on the grant date using the Black-Scholes option pricing model (“BSOPM”). The BSOPM has assumptions for risk free interest rates, dividends, stock volatility and expected life of an option grant. The risk free interest rate is based upon market yields for United States Treasury debt securities at a 7-year constant maturity. Dividend rates are based on the Company’s dividend history. The stock volatility factor is based on the last 60 days of market prices prior to the grant date. The expected life of an option grant is based on management’s estimate. The fair value of each option grant, as calculated by the BSOPM, is recognized as compensation expense on a straight-line basis over the vesting period of each stock option award.

These assumptions were used to determine the FV of stock options granted:

Dividend yield		0.0%
Volatility		25% to 155%
Average expected option life	10.00 years
Risk-free interest rate		1.76% to 2.59%

The following table summarizes activity in the Company's stock option grants for the nine months ended December 31, 2013:

-13-

	Number of Shares		Weighted Average Price Per Share
Balance at March 31, 2013		3,090,000	$	0.37
Granted		60,000	$	0.45
Balance at December 31, 2013		3,150,000	$	0.37

The following summarizes pricing and term information for options issued to employees and directors outstanding as of December 31, 2013:

	Options Outstanding						Options Exercisable
Range of Exercise Prices	Number Outstanding at December 31, 2013		Weighted Average Remaining Contractual Life		Weighted Average Exercise Price		Number Exercisable at December 31, 2013		Weighted Average Exercise Price
$3.50		60,000		5.25		$3.50		60,000		$3.50
$1.00		60,000		6.25		$1.00		60,000		$1.00
$0.75		60,000		7.25		$0.75		60,000		$0.75
$0.28		2,850,000		3.38		$0.28		-		-
$0.27		60,000		8.25		$0.27		60,000		$0.28
$0.26		60,000		9.25		$0.26		60,000		$0.26
$0.45		30,000		5.00		$0.45		30,000		$0.45
Balance at December 31, 2013		3,180,000		3.67		$0.37		330,000		$1.30

NOTE 15 - LOSS PER SHARE

The following table sets forth common stock equivalents (potential common stock) for the three and nine months ended December 31, 2013 and 2012 not included in the loss per share calculation above because their effect would be anti-dilutive for the period indicated:

	2013		2012
Weighted average common stock equivalents
Non-Plan Stock Options		3,180,000		3,090,000

-14-

ITEM 2 - MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The information contained in this Form 10-Q is intended to update the information contained in our Annual Report on Form 10-K for the year ended March 31, 2013 and presume readers have access to, and will have read, the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and other information contained in such Form 10-K. The following discussion and analysis also should be read together with our consolidated financial statements and the notes to the consolidated financial statements included elsewhere in this Form 10-Q.

The following discussion contains certain statements that may be deemed “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements appear in a number of places in this Report, including, without limitation, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” These statements are not guarantees of future performance and involve risks, uncertainties and requirements that are difficult to predict or are beyond our control. Forward-looking statements speak only as of the date of this quarterly report. You should not put undue reliance on any forward-looking statements. We strongly encourage investors to carefully read the factors described in our Annual Report on Form 10-K for the year ended March 31, 2013 in the section entitled “Risk Factors” for a description of certain risks that could, among other things, cause actual results to differ from these forward-looking statements. We assume no responsibility to update the forward-looking statements contained in this quarterly report on Form 10-Q. The following should also be read in conjunction with the unaudited consolidated financial statements and notes thereto that appear elsewhere in this report.

Overview

We focus on the development and production of environmentally friendly and cost effective industrial energy and feedstock used for industrial applications. AuraCoal, AuraSource’s core technology, includes ultrafine grinding and impurities removal processes. Initial industrial applications of AuraSource technology are ultra-fine coal water mixture for heavy oil substitution, and low grade iron ore fine and slimes beneficiation. AuraSource formed Qinzhou to acquire these types of HCF technologies; to perform research and development related to the reduction of harmful emission and energy costs; to license HCF technology to third parties; and to sell services and products derived from these technologies. Currently, we have seven patents patent issued related to our technologies: 1) ultrafine grinding and 2) ultrafine separation.

On February 15, 2012, we entered into an agreement with GCH to reserve export ready 1 million tons of 64% Fe higher content iron ore and 13 million tons of 45% grade lower content iron ore, and 2 million tons of manganese ore. We agreed to issue the Mineral Deposit Shares to GCH or its assigns. The Mineral Deposit Shares shall vest and be delivered as follows; 5 million immediately, 11 million upon the successful completion of the first customer order over $5 million. Success is defined as customer acceptance of order and final payment. To the extent a successful order does not occur the unvested Mineral Deposit Shares shall be returned to our treasury and cancelled. Additionally, we entered into an agreement with GCM to purchase Minerals which will be delivered loose in bulk modified FOB. We entered into an agreement with GCH appointing GCH as the exclusive North American licensee for use and exploitation of our technology as relates to applications involving precious metals in exchange for royalty payments of five percent of gross revenues.

-15-

Critical Accounting Policies and Estimates

The preparation of our consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (“US GAAP”) requires management to make estimates, judgments and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amount of expenses during the reporting period. On an ongoing basis, we evaluate our estimates which are based on historical experience and on other assumptions that we believe to be reasonable under the circumstances. The result of these evaluations forms the basis for making judgments about the carrying values of assets and liabilities and the reported amount of expenses that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions. The following accounting policies require significant management judgments and estimates:

We account for our business acquisitions under the purchase method of accounting in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 805, "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 not readily apparent from other sources. There can be no assurance that actual results will not differ from these estimates.

Results of Operations

For the Three Months Ended December 31, 2013 and 2012

Revenues

Revenues were $0 for the three months ended December 31, 2013 and 2012, respectively.

Gross Profit

Gross profit was $0 for the three months ended December 31, 2013 and 2012.

General and Administrative Expenses

General and administrative expenses were $233,437 and $305,768 for the three months ended December 31, 2013 and 2012, respectively. The decrease of $72,331 was due primarily to a decrease in professional fees for the three months ended December 31, 2013 compared to 2012.

-16-

Interest Income (Expense) and Other

Interest income (expense) and other was $(52,093) and $0 for the three months ended December 31, 2013 and 2012, respectively. The increase in expense was primarily due to amortization of the beneficial conversion feature on convertible notes payable (see Note 12) of $35,535 for the three months ended December 31, 2013. Interest expense on notes payable was $12,571 and $0 for the three months ended December 31, 2013 and 2012, respectively.

For the Nine Months Ended December 31, 2013 and 2012

Revenues

Revenues were $104,820 and $0 for the nine months ended December 31, 2013 and 2012, respectively. The increase in revenue was due to the Company selling ultra-fine coal water mixture processing machinery and iron ore during the nine months ended December 31, 2013.

Gross Profit

Gross profit was $31,961 and $0 for the nine months ended December 31, 2013 and 2012. The increase in gross profit in the nine months ended December 31, 2013 was due to an increase in revenues from $0 for the three months in the prior period. Cost of sales was $72,859 for the nine months ended December 31, 2013 and was primarily constituted product and shipping costs.

General and Administrative Expenses

General and administrative expenses were $926,041 and $971,089 for the nine months ended December 31, 2013 and 2012, respectively. The decrease of $45,048 was due primarily to an increase in depreciation and amortization expense of $133,322 offset by a decrease of $160,792 in professional fees for the nine months ended December 31, 2013 compared to 2012.

Interest Income (Expense) and Other

Interest income (expense) and other was $(371,041) and $(5,868) for the nine months ended December 31, 2013 and 2012, respectively. The increase in expense was primarily due to finance charges incurred in connection with obtaining loans from related and unrelated parties and recording $197,083 in interest expense for issuance of 437,963 common shares in lieu of these charges and a loss on settlement of customer deposit of $62,500. In addition, the Company recorded amortization of the beneficial conversion feature on convertible notes payable (see Note 12) of $66,834 for the nine months ended December 31, 2013. Interest expense on notes payable was $35,730 and $0 for the nine months ended December 31, 2013 and 2012, respectively.

Liquidity and Capital Resources

Net cash used in operating activities was $443,058 and $670,735 in the nine months ended December 31, 2013 and 2012, respectively. The decrease was primarily due to the officers accruing their salaries and less cash provided to our affiliate.

Net cash used in investing activities was $8,088 and $33,547 in the nine months ended December 31, 2013 and 2012, respectively. The difference was the decrease in capital expenditures on equipment and intangibles purchases for the nine months ending December 31, 2013.

-17-

Net cash provided by financing activities was $394,357 and $745,000 in the nine months ended December 31, 2013 and 2012, respectively. The difference of $350,643 in cash flows from financing activities was due to greater proceeds from borrowings during the nine months ending December 31, 2013 as opposed to the issuance of common stock in the prior period.

The Company suffered recurring losses from operations and has an accumulated deficit of $9,357,993 at December 31, 2013. The Company has incurred losses of $1,265,121 and $976,958 for the nine months ended December 31, 2013 and 2012, respectively. The Company has not continually generated significant revenues. Unless our operations continue to generate significant revenues and cash flows from operating activities, our continued operations will depend on whether we are able to raise additional funds through various sources, such as equity and debt financing, other collaborative agreements and strategic alliances. Our management is actively engaged in seeking additional capital to fund our operations in the short to medium term. Such additional funds may not become available on acceptable terms and there can be no assurance that any additional funding that we do obtain will be sufficient to meet our needs in the long term.

Inflation and Seasonality

Inflation has not been material to us during the past five years. Seasonality has not been material to us.

Recent Accounting Pronouncements

Refer to the notes to the consolidated financial statements in our March 31, 2013 Annual Report on Form 10-K 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 the current year.

Off-Balance Sheet Arrangements

As of December 31, 2013, we did not have any off-balance sheet arrangements as defined in Item 303(a)(4)(ii) of Regulation S-K.

ITEM 3 – QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

As a “smaller reporting company” as defined by Rule 229.10(f)(1), we are not required to provide the information required by this Item 3.

-18-

ITEM 4 - CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures:  We conducted an evaluation under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures.  The term "disclosure controls and procedures", as defined in Rules 13a-15(e) and 15d-15(e) under the Securities and Exchange Act of 1934, as amended ("Exchange Act"), means controls and other procedures of a company that are designed to ensure that information required to be disclosed by the company in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC's rules and forms.  Disclosure controls and procedures also include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company's management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure.  Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded as of December 31, 2013, that our disclosure controls and procedures are effective to a reasonable assurance level of achieving such objectives.  However, it should be noted that the design of any system of controls 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, regardless of how remote.

Management's Report on Internal Control Over Financial Reporting:  Our management is responsible for establishing and maintaining adequate internal control over financial reporting (“ICFR”) as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act.  Our ICFR is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with US GAAP.  The internal controls for the Company are provided by executive management's review and approval of all transactions.  Our ICFR also includes those policies and procedures that:

1. Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets;
2. Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with US GAAP, and that our receipts and expenditures are being made only in accordance with the authorization of our management; and
3. Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.

Because of its inherent limitations, ICFR may not prevent or detect misstatements.  Also, projections of any evaluation of effectiveness 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 assessed the effectiveness of the Company's ICFR as of December 31, 2013.  In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control-Integrated Framework.  Management's assessment included an evaluation of the design of our ICFR and testing of the operational effectiveness of these controls.

Based on this assessment, management has concluded that as of December 31, 2013, our ICFR was effective to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with US GAAP.

-19-

This quarterly report does not include an attestation report of the Company's registered public accounting firm regarding ICFR.  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.

Changes in Internal Control over Financial Reporting:  There were no changes in our ICFR during the quarter ending December 31, 2013, that have materially affected, or are reasonably likely to materially affect, our ICFR. 

-20-

PART II - OTHER INFORMATION

ITEM 1 – 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 1A – RISK FACTORS

In addition to the other risk factors and information set forth in this report, you should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended March 31, 2013, which could materially affect our business, financial condition or future results. The risks described in our Annual Report on Form 10-K is not the only risks facing the Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition, operating results and/or cash flows.

ITEM 2 - UNREGISTERED SALES OF EQUITY SECURITIES

During the nine months ended December 31, 2013, the Company issued 437,963 shares of common stock as finance charges for loans to related and unrelated parties. On April 12, 2013, the Company issued 1,250,000 shares for an advance from a customer in amount of $500,000. The issuances of the shares of our common stock to investors is intended to be exempt from registration under the Securities Act of 1933, as amended (the “Securities Act”), pursuant to Section 4(2) thereof and Rule 506 of Regulation D (“Regulation D”) as promulgated by the SEC under the Securities Act, as the shares were sold to accredited investors and were not sold through any general solicitation or advertisement. The shares sold by the Company have not been registered under the Securities Act of 1933 and may not be offered or sold in the United States absent such registration or an available exemption from registration. 

ITEM 3 - DEFAULTS UPON SENIOR SECURITIES

None

ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None

ITEM 5 - OTHER INFORMATION

None

-21-

ITEM 6 – EXHIBITS

Exhibit	Description
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.

-22-

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.

	AURASOURCE, INC.
Date: February 13, 2013	/s/ PHILIP LIU
	Name: Hongliang Philip Liu
	Title: Chief Executive Officer
Date: February 13, 2013	/s/ ERIC STOPPENHAGEN
	Name: Eric Stoppenhagen
	Title: Chief Financial Officer

-23-

EXHIBIT INDEX

Exhibit	Description
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.

-24-

EX-31.1

EXHIBIT 31.1

AURASOURCE, INC.

Certification of Chief Executive Officer Pursuant to

Securities Exchange Act Rules 13a-14(a) and 15d-14(a)

as Adopted Pursuant to

Section 302 of the Sarbanes-Oxley Act of 2002

I, Philip Liu, certify that:

1. I have reviewed this Form 10-Q of AuraSource, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c. Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's Board of Directors (or persons performing the equivalent functions):

a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

February 13, 2013
	/s/ PHILIP LIU
	Philip Liu Chief Executive Officer

EX-31.2

EXHIBIT 31.2

AURASOURCE, INC.

Certification of Chief Financial Officer Pursuant to

Securities Exchange Act Rules 13a-14 and 15d-14

as Adopted Pursuant to

Section 302 of the Sarbanes-Oxley Act of 2002

I, Eric Stoppenhagen, certify that:

1. I have reviewed this Form 10-Q of AuraSource, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c. Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's Board of Directors (or persons performing the equivalent functions):

a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

February 13, 2013
	/s/ ERIC STOPPENHAGEN
	Eric Stoppenhagen Chief Financial Officer

EX-32

EXHIBIT 32

AURASOURCE, INC.

CERTIFICATION

PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

(SUBSECTIONS (a) AND (b) OF SECTION 1350, CHAPTER 63 OF TITLE 18,

UNITED STATES CODE)

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned officer of AuraSource, Inc. (the “Company”), does hereby certify, to the best of his knowledge and belief that:

(1) The Quarterly Report on Form 10-Q for the period ended December 31, 2013 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

February 13, 2013

/s/ PHILIP LIU

Chief Executive Officer

February 13, 2013

/s/ ERIC STOPPENHAGEN

Chief Financial Officer

XML

STOCK OPTIONS - STOCK OPTIONS (Details) (USD $)	9 Months Ended
	Dec. 31, 2013	Apr. 02, 2013	Mar. 31, 2013	Apr. 02, 2012	Feb. 15, 2012	Apr. 02, 2011	Apr. 02, 2010	Jan. 01, 2009
Notes to Financial Statements
Number of Options	3,180,000	60,000	3,090,000	60,000	2,850,000	60,000	60,000	60,000
Weighted Average Price Per Share	$ 0.37		$ 0.37
Options granted	$ 60,000
Option exercise price	$ 0.45

XML

DEFERRED REVENUE (Details Narrative) (USD $)	Dec. 31, 2013	Mar. 31, 2013
Revenue Recognition [Abstract]
deferred revenue	$ 0	$ 63,754

XML

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details Narrative) (USD $)	Dec. 31, 2013	Mar. 31, 2013
Notes to Financial Statements
Retained earnings accumulated deficit	$ (9,357,993)	$ (8,092,872)

XML

CUSTOMER ADVANCES (Details Narrative) (USD $)	9 Months Ended
	Dec. 31, 2013	Mar. 31, 2013
Banking and Thrift [Abstract]
Customer deposit	$ 70,000	$ 570,000
Decrease in customer deposit	$ 500,000

XML

INVENTORY

9 Months Ended

Dec. 31, 2013

Inventory Disclosure [Abstract]

INVENTORY

NOTE 4 – INVENTORY

In the three months ended June 30, 2012, the Company agreed to purchase certain minerals from Hong Kong Minerals Holdings, Ltd. (“HKMHL”) for $50,000. The $10,000 as of March 31, 2013 represents a payment towards that purchase. In the three months ended December 31, 2013, the Company purchased additional equipment to be sold for $32,580.

XML

FIXED ASSETS - FIXED ASSETS (Details) (USD $)	Dec. 31, 2013	Mar. 31, 2013
Property, Plant and Equipment [Abstract]
Office equipment	$ 2,954	$ 2,954
Vehicles	147,390	147,390
Equipment	391,118	391,118
Total fixed assets	541,462	541,462
Less: accumulated depreciation	(216,384)	(95,758)
Total fixed assets, net	$ 325,078	$ 445,704

XML

DEPOSITS AND OTHER CURRENT ASSETS (Details Narrative) (USD $)	Dec. 31, 2013	Mar. 31, 2013
Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Abstract]
Shipping deposits	$ 10,205	$ 96,254
Mineral reserve deposits	525,000	525,000
Prepaid expenses	6,904	0
Prepaid expenses	$ 542,109	$ 621,254

XML

FIXED ASSETS (Details Narrative) (USD $)	3 Months Ended		9 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2013	Dec. 31, 2012
Property, Plant and Equipment [Abstract]
depreciation expense	$ 40,208	$ 7,616	$ 120,626	$ 22,601

XML

INTANGIBLE (Details Narrative) (USD $)	3 Months Ended		9 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2013	Dec. 31, 2012	Mar. 31, 2013	Aug. 08, 2010
Notes to Financial Statements
Intangible assets, net	$ 791,219		$ 791,219		$ 818,427	$ 147,530
Common stock issued	52,089,940		52,089,940		50,401,940	600,000
Common stock value	52,090		52,090		50,402	606,000
Paid intangibles	791,219		791,219		818,427	147,530
Intangible amortization	$ 11,765	$ 0	$ 35,296	$ 0

XML

DUE FROM AFFILIATE

9 Months Ended

Dec. 31, 2013

Related Party Transactions [Abstract]

DUE FROM AFFILIATE

NOTE 3 – DUE FROM AFFILIATE

As of December 31, 2013 and March 31, 2013, an affiliated party, Timeway International Ltd, holds in trust $55,808 and $54,418, respectively. This money is used to pay various day to day expenses. Timeway International Ltd is controlled by our Chief Executive Officer.

XML

DUE TO RELATED PARTIES (Details Narrative) (USD $)	Dec. 31, 2013	Mar. 31, 2013
Notes to Financial Statements
Accounts payable related parties	$ 700,596	$ 412,615

XML

STOCK OPTIONS (Details Narrative) (USD $)	Dec. 31, 2013	Apr. 02, 2013	Mar. 31, 2013	Apr. 02, 2012	Feb. 15, 2012	Apr. 02, 2011	Apr. 02, 2010	Jan. 01, 2009
Notes to Financial Statements
Options granted	3,180,000	60,000	3,090,000	60,000	2,850,000	60,000	60,000	60,000
Exercise price of options	$ 0.37	$ 0.26		$ 0.27	$ 0.28	$ 0.75	$ 1.00	$ 3.50

XML

Balance Sheets (USD $)	Dec. 31, 2013	Mar. 31, 2013
Current assets
Cash and equivalents	$ 18,719	$ 75,508
Due from affiliate	55,808	54,418
Inventory	42,580	10,000
Deposits and other current assets	542,109	621,254
Total current assets	659,216	761,180
Fixed assets, net of accumulated depreciation	325,078	445,704
Intangible assets, net	791,219	818,427
Total assets	1,775,513	2,025,311
Current liabilities
Accounts payable	42,442	28,234
Deferred revenue	0	63,754
Accounts payable related parties	700,596	412,615
Loans payable	195,485	0
Loans payable - related parties	95,716	0
Note payable	540,000	500,000
Convertible note payable, net of unamortized beneficial conversion feature	94,202	0
Customer advances	70,000	570,000
Total current liabilities	1,738,441	1,574,603
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 52,089,940 and 50,401,940 shares issued and outstanding at September 30, 2013 and March 31, 2013, respectively	52,090	50,402
Additional paid in capital	9,342,975	8,493,178
Accumulated deficit	(9,357,993)	(8,092,872)
Total shareholders equity	37,072	450,708
Total liabilities and shareholders equity	$ 1,775,513	$ 2,025,311

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

9 Months Ended

Dec. 31, 2013

Accounting Policies [Abstract]

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Current Operations and Background — AuraSource, Inc. (“AuraSource” or “Company”) focuses on the development and production of environmentally friendly and cost effective industrial energy and fuel used for industrial applications. AuraCoal, AuraSource’s core technology, includes ultrafine grinding and impurities removal processes. Initial industrial applications of AuraSource technology are ultra-fine coal water mixture for heavy oil substitution, and low grade iron ore fine and slimes beneficiation. AuraSource formed AuraSource Qinzhou Co. Ltd. (“Qinzhou”), a wholly owned subsidiary in China, to acquire these types of Hydrocarbon Clean Fuel (“HCF”) technologies, performing research and development (“R&D”) related to the reduction of harmful emissions and energy costs for HCF technology and products based on this technology, licensing HCF technology to third parties and selling services and products derived from this technology. Currently, we have seven patents patent issued related to our technologies: 1) ultrafine grinding and 2) ultrafine separation.

There can be no assurance we will be able to carry out our development plans for our HCF technology, including AuraCoal and AuraFuel. Our ability to pursue this strategy is subject to the availability of additional capital and further development of our HCF technology.  We also need to finance the cost of effectively protecting our intellectual property rights in the United States (“US”) and abroad where we intend to market our technology and products.

Going Concern — The accompanying 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 $9,357,993 at December 31, 2013.  The consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or amounts and classifications of liabilities that might be necessary should the Company be unable to continue its existence.  The recovery of the Company’s assets is dependent upon continued operations of the Company. In addition, the Company's recovery is dependent upon future events, the outcome of which is undetermined.  The Company intends to continue to attempt to raise additional capital, but there can be no certainty such efforts will be successful.

Basis of Presentation and Principles of Consolidation — The accompanying consolidated financial statements were prepared in conformity with accounting principles generally accepted in the United States of America (“US GAAP”) and include the accounts of AuraSource and its subsidiary, Qinzhou. All significant intercompany transactions and balances were eliminated in consolidation.

The unaudited consolidated financial statements were prepared by us pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). The information furnished herein reflects all adjustments (consisting of normal recurring accruals and adjustments) which are, in the opinion of management, necessary to fairly present the operating results for the respective periods. Certain information and footnote disclosures normally present in annual consolidated financial statements prepared in accordance with US GAAP was omitted pursuant to such rules and regulations. These consolidated financial statements should be read in conjunction with the audited consolidated financial statements and footnotes for the year ended March 31, 2013 included in our Annual Report on Form 10-K. The results of the three and nine months ended December 31, 2013 are not necessarily indicative of the results to be expected for the full year ending March 31, 2014.

Use of Estimates — The preparation of consolidated financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Cash and Equivalents — We consider investments with original maturities of 90 days or less to be cash equivalents.

Income Taxes — The Company accounts for income taxes in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 740, “Income Taxes.” Deferred tax assets and liabilities are recognized to reflect the estimated future tax effects, calculated at currently effective tax rates, of future deductible or taxable amounts attributable to events that have been recognized on a cumulative basis in the financial statements. A valuation allowance for a deferred tax asset is recorded when it is more likely than not that some portion of the deferred tax asset will not be realized.

Stock-Based Compensation — The Company recognizes the cost of employee services received for an award of equity instruments in the consolidated financial statements over the period the employee is required to perform the services.

Foreign Currency Transactions — The Company recognizes foreign currency gains and losses in other income (expense) on the accompanying statement of operations. Foreign currency gains and losses arise as the Company conducts business with other entity’s whose functional currency is not in US dollars. Generally, these gains and losses are recorded at an exchange rate difference between the foreign currency and the functional currency that arises between the transaction date and the payment date.

Net Loss Per Share — The Company computes basic and diluted net loss per share by dividing the net loss available to common stockholders for the period by the weighted average number of shares of common stock outstanding during the period. Common equivalent shares arising from stock options and warrants were excluded from the computation of basic and diluted earnings per share, for the three and nine months ended December 31, 2013 and 2012 because their effect is anti-dilutive.

Concentration of Credit Risk — Financial instruments that potentially subject the Company to a concentration of credit risk consist of cash.  The Company maintains its cash with high credit quality financial institutions; at times, such balances with any one financial institution may exceed Federal Deposit Insurance Corporation (“FDIC”) insured limits.  

Financial Instruments and Fair Value of Financial Instruments — Our financial instruments consist of cash, accounts payable and notes payable. The carrying values of cash, accounts payable and notes payable are representative of the fair values due to their short-term maturities. We measure the fair value (“FV”) of financial assets and liabilities on a recurring basis. FV is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. FV measurements are to be considered from the perspective of a market participant that holds the asset or owes the liability. We also establish a FV hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring FV.

The standard describes three levels of inputs that may be used to measure FV:

Level 1:	Quoted prices in active markets for identical or similar assets and liabilities.
Level 2:	Quoted prices for identical or similar assets and liabilities in markets that are not active or observable inputs other than quoted prices in active markets for identical or similar assets and liabilities.
Level 3:	Unobservable inputs that are supported by little or no market activity and that are significant to the FV of the assets or liabilities.

The Company evaluates embedded conversion features within convertible debt under ASC Topic 815, “Derivatives and Hedging,” to determine whether the embedded conversion feature should be bifurcated from the host instrument and accounted for as a derivative at FV with changes in FV recorded in earnings. If the conversion feature does not require derivative treatment under ASC 815, the instrument is evaluated under ASC subtopic 470-20, “Debt with Conversion and Other Options,” for consideration of any beneficial conversion feature.

Reclassifications — Certain reclassifications were made to the prior period amounts disclosed in the consolidated financial statements to conform to the presentation form the three and nine months ended December 31, 2013. These reclassifications had no effect on reported net loss or stockholders’ equity.

Recent Accounting Pronouncements – There were no significant changes in the Company’s critical accounting policies and estimates during the three and nine months ended December 31, 2013 compared to what was disclosed in the Company’s Annual Report on Form 10-K for the year ended March 31, 2013.

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CONVERTIBLE NOTE PAYABLE - CONVERTIBLE NOTE PAYABLE (Details) (USD $)	Dec. 31, 2013	Mar. 31, 2013
Notes to Financial Statements
Convertible note payable, 8% interest, due in 2014	$ 127,500
Accrued interest	3,368
Less: unamortized discount of BCF	(36,666)
Convertible note payable, net of unamortized beneficial conversion feature	$ 94,202	$ 0

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FIXED ASSETS (Tables)

9 Months Ended

Dec. 31, 2013

Property, Plant and Equipment [Abstract]

FIXED ASSETS

	December 31,			March 31,
	2013			2013
	(Unaudited)
Office equipment	$	2,954		$	2,954
Vehicles		147,390			147,390
Equipment		391,118			391,118
Total fixed assets		541,462			541,462
Less: accumulated depreciation		(216,384	)		(95,758	)
Total fixed assets, net	$	325,078		$	445,704

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CONVERTIBLE NOTE PAYABLE (Details Narrative) (USD $)	9 Months Ended
	Dec. 31, 2013
Notes to Financial Statements
convertible note	$ 127,500
beneficial conversion feature	$ 81,516

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STOCK OPTIONS (Tables)

9 Months Ended

Dec. 31, 2013

Equity [Abstract]

Stock option grant

	Number of Shares		Weighted Average Price Per Share
Balance at March 31, 2013		3,090,000	$	0.37
Granted		60,000	$	0.45
Balance at December 31, 2013		3,150,000	$	0.37

Price and term share based compensation

	Options Outstanding						Options Exercisable
Range of Exercise Prices	Number Outstanding at December 31, 2013		Weighted Average Remaining Contractual Life		Weighted Average Exercise Price		Number Exercisable at December 31, 2013		Weighted Average Exercise Price
$3.50		60,000		5.25		$3.50		60,000		$3.50
$1.00		60,000		6.25		$1.00		60,000		$1.00
$0.75		60,000		7.25		$0.75		60,000		$0.75
$0.28		2,850,000		3.38		$0.28		-		-
$0.27		60,000		8.25		$0.27		60,000		$0.28
$0.26		60,000		9.25		$0.26		60,000		$0.26
$0.45		30,000		5.00		$0.45		30,000		$0.45
Balance at December 31, 2013		3,180,000		3.67		$0.37		330,000		$1.30

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CONCENTRATION OF CREDIT RISK

9 Months Ended

Dec. 31, 2013

Risks and Uncertainties [Abstract]

CONCENTRATION OF CREDIT RISK

NOTE 2 - CONCENTRATION OF CREDIT RISK

We maintain our cash balances in financial institutions that from time to time exceed amounts insured by the FDIC (up to $250,000, per financial institution as of December 31, 2013). As of December 31, 2013 and March 31, 2013, our deposits did not exceed insured amounts. We have not experienced any losses in such accounts and we believe we are not exposed to any credit risk on cash.

Currently, we maintain a bank account in China. This account is not insured and we believe is exposed to credit risk on cash.

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Balance Sheets (Parenthetical)	Dec. 31, 2013	Mar. 31, 2013
Statement of Financial Position [Abstract]
Preferred stock, Authorized	10,000	10,000
Preferred Stock, Issued	0	0
Common Stock, Authorized	150,000,000	150,000,000
Common Stock, Issued	52,089,940	50,401,940

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CUSTOMER ADVANCES

9 Months Ended

Dec. 31, 2013

Banking and Thrift [Abstract]

CUSTOMER ADVANCES

NOTE 12 – CUSTOMER ADVANCES

As of March 31, 2013, we had received $500,000 and $70,000 from two customers, respectively, to be applied towards the purchase of various minerals by those customers. As of December 31, 2013, the balance of such advances was $70,000. On April 12, 2013, the Company issued 1,250,000 shares of common stock for the settlement of the $500,000 customer advance.

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Document and Entity Information (USD $)	9 Months Ended
	Dec. 31, 2013	Feb. 13, 2014
Document And Entity Information
Entity Registrant Name	AuraSource, Inc.
Entity Central Index Key	0001083922
Document Type	10-Q
Document Period End Date	Dec. 31, 2013
Amendment Flag	false
Current Fiscal Year End Date	--03-31
Is Entity a Well-known Seasoned Issuer?	No
Is Entity a Voluntary Filer?	No
Is Entity's Reporting Status Current?	Yes
Entity Filer Category	Smaller Reporting Company
Entity Public Float		$ 3,741,976
Entity Common Stock, Shares Outstanding		52,089,940
Document Fiscal Period Focus	Q3
Document Fiscal Year Focus	2014

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STOCK ISSUANCE

9 Months Ended

Dec. 31, 2013

Equity [Abstract]

STOCK ISSUANCE

NOTE 13 – STOCK ISSUANCE

During the year ended March 31, 2013, the Company issued 1,250,000 shares of common stock in connection with finance charges to enter a note payable agreement in the amount of $500,000 and 817,250 shares of common stock as interest for delaying repayment of the balances due to related parties for services rendered. The total expense for such common shares issued during the year ended March 31, 2013 was $1,261,988. The Company issued 612,500 shares for $0.40 per share. The company recorded net proceeds from the sale of these shares of $245,000. On June 11, 2012, the BOD granted 60,000 shares for services in connection with fund raising activities, all of which vested immediately and were valued at $13,200. 

During the nine months ended December 31, 2013, the Company issued 437,963 shares of common stock as finance charge for loans to related and unrelated parties. For further details refer to Note 11, Loans Payable. On April 12, 2013, the Company agreed to issue 1,250,000 shares as a settlement for an advance from a customer in the amount of $500,000.

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Consolidated Statements of Operations (Unaudited) (USD $)	3 Months Ended		9 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2013	Dec. 31, 2012
Income Statement [Abstract]
Revenue	$ 0	$ 0	$ 104,820	$ 0
Cost of revenue	0	0	72,859	0
Gross profit	0	0	31,961	0
Operating expenses:
General & administrative expenses	233,437	305,768	926,041	971,089
Total operating expenses	233,437	305,768	926,041	971,089
Loss from operations	(233,437)	(305,768)	(894,080)	(971,089)
Interest income / (expense) and other, net	(52,093)	0	(371,041)	(5,868)
Net loss applicable to common stockholders	$ (285,530)	$ (305,768)	$ (1,265,121)	$ (976,957)
Basic & Diluted Loss per share	$ (0.01)	$ (0.01)	$ (0.02)	$ (0.02)
Weighted average shares outstanding	52,089,903	48,334,690	51,672,516	48,133,208

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INTANGIBLE

9 Months Ended

Dec. 31, 2013

Goodwill and Intangible Assets Disclosure [Abstract]

INTANGIBLE

NOTE 7 – INTANGIBLE ASSETS, NET

We entered into an agreement with Beijing Pengchuang Technology Development Co., Ltd. (“Pengchuang”), an independent Chinese company, to purchase 50% of the intellectual property related to ultrafine particle processing. Pengchuang developed a highly efficient and low energy consumption grinding technology, which utilizes fluid shock waves to make ultrafine particles. This technology can be applied to the coal water slurry, solid lubricant and other material grinding processes. Through a joint development and ownership agreement, AuraSource will enrich its intellectual property portfolio, enabling the further development of AuraCoal, its HCF technology. Qinzhou will utilize the particle grinding technology in its AuraCoal Qinzhou production line, as well as license it to others in non-related industries.

We issued 600,000 shares of common stock for the acquisition of certain intangibles. The shares issued in connection with $753,530 of the acquired intangibles were valued at $606,000 or $1.01 per share which was the share price on August 8, 2010, the acquisition date. The Company paid cash for the remainder of the amount due. The Company recorded $11,765 and $35,296 in amortization expense in the three and nine months ended December 31, 2013, respectively, and $0 for the same periods in 2012.

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FIXED ASSETS

9 Months Ended

Dec. 31, 2013

Property, Plant and Equipment [Abstract]

FIXED ASSETS

NOTE 6 – FIXED ASSETS, NET

Fixed assets, net consisted of the following:

	December 31,			March 31,
	2013			2013
	(Unaudited)
Office equipment	$	2,954		$	2,954
Vehicles		147,390			147,390
Equipment		391,118			391,118
Total fixed assets		541,462			541,462
Less: accumulated depreciation		(216,384	)		(95,758	)
Total fixed assets, net	$	325,078		$	445,704

Depreciation for the three and nine months ended December 31, 2013 was $40,208 and $120,626, respectively. Depreciation for the three and nine months ended December 31, 2012 was $7,616 and $22,601, respectively. The Company attributed $97,779 and $0 of such depreciation in 2013 and 2012, respectively, to R&D expense.

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CONVERTIBLE NOTE PAYABLE (Tables)

9 Months Ended

Dec. 31, 2013

Notes to Financial Statements

convertible debt table

	December 31, 2013
Convertible note payable - Asher, 8% interest, due in April 22, 2014	$	37,500
Convertible note payable - Andis, 8% interest, due March 31, 2014		90,000
Accrued interest		3,368
Less: unamortized discount of BCF - Asher		(9,694	)
Less: unamortized discount of BCF - Andis		(26,972	)
Convertible notes payable and interest, net of BCF	$	94,202

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STOCK OPTIONS

9 Months Ended

Dec. 31, 2013

Equity [Abstract]

STOCK OPTIONS

NOTE 14 - STOCK OPTIONS

In January 2009, we granted 60,000 options to purchase shares of our common stock at $3.50 per share to members of our BOD. In April 2010, we granted an additional 60,000 options to purchase shares of our common stock at $1.00 per share to members of our BOD. The options vest quarterly and have an expiration period of 10 years. In April 2011, we granted an additional 60,000 options to purchase shares of our common stock at $0.75 per share to certain members of our BOD. The options vest quarterly and have an expiration period of 10 years. In February 2012, we granted an additional 2,850,000 options to purchase shares of our common stock at $0.28 per share to certain members of our BOD. The options will vest upon the Company earning $5 million in revenues. The options expire in 5 years. In April 2012, we granted an additional 60,000 options to purchase shares of our common stock at $0.27 per share to certain members of our BOD. In April 2013, we granted an additional 60,000 options to purchase shares of our common stock at $0.45 per share to certain members of our BOD. The total grant date FV of the outstanding options was $810,722.

We will record stock based compensation expense over the requisite service period, which in our case approximates the vesting period of the options. During the three and nine months ended December 31, 2013 and 2012, the Company recorded $3,462, $10,385, 3,595 and $7,190 in compensation expense arising from the vesting of options, respectively. The Company assumed all stock options issued during the quarter will vest. Though these expenses result in a deferred tax benefit, we have a full valuation allowance against the deferred tax benefit.

The Company adopted the detailed method provided in FASB ASC Topic 718, “Compensation – Stock Compensation,” for calculating the beginning balance of the additional paid-in capital pool (“APIC pool”) related to the tax effects of employee stock-based compensation, and to determine the subsequent impact on the APIC pool and Consolidated Statements of Cash Flows of the income tax effects of employee stock-based compensation awards that are outstanding.

The fair value of each stock option granted is estimated on the grant date using the Black-Scholes option pricing model (“BSOPM”). The BSOPM has assumptions for risk free interest rates, dividends, stock volatility and expected life of an option grant. The risk free interest rate is based upon market yields for United States Treasury debt securities at a 7-year constant maturity. Dividend rates are based on the Company’s dividend history. The stock volatility factor is based on the last 60 days of market prices prior to the grant date. The expected life of an option grant is based on management’s estimate. The fair value of each option grant, as calculated by the BSOPM, is recognized as compensation expense on a straight-line basis over the vesting period of each stock option award.

These assumptions were used to determine the FV of stock options granted:

Dividend yield		0.0%
Volatility		25% to 155%
Average expected option life	10.00 years
Risk-free interest rate		1.76% to 2.59%

The following table summarizes activity in the Company's stock option grants for the nine months ended December 31, 2013:

	Number of Shares		Weighted Average Price Per Share
Balance at March 31, 2013		3,090,000	$	0.37
Granted		60,000	$	0.45
Balance at December 31, 2013		3,150,000	$	0.37

The following summarizes pricing and term information for options issued to employees and directors outstanding as of December 31, 2013:

	Options Outstanding						Options Exercisable
Range of Exercise Prices	Number Outstanding at December 31, 2013		Weighted Average Remaining Contractual Life		Weighted Average Exercise Price		Number Exercisable at December 31, 2013		Weighted Average Exercise Price
$3.50		60,000		5.25		$3.50		60,000		$3.50
$1.00		60,000		6.25		$1.00		60,000		$1.00
$0.75		60,000		7.25		$0.75		60,000		$0.75
$0.28		2,850,000		3.38		$0.28		-		-
$0.27		60,000		8.25		$0.27		60,000		$0.28
$0.26		60,000		9.25		$0.26		60,000		$0.26
$0.45		30,000		5.00		$0.45		30,000		$0.45
Balance at December 31, 2013		3,180,000		3.67		$0.37		330,000		$1.30

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DEBT

9 Months Ended

Dec. 31, 2013

Debt Disclosure [Abstract]

LOANS PAYABLE

NOTE 10 – DEBT

As of December 31, 2013 and March 31, 2013, loans payable were $195,485 and $0, respectively. In June 2013, the company issued 275,783 common shares as a finance charge for the $108,382 of the borrowed amount and recorded $124,102 expense incurred in connection with the loan. The loan is due on demand.

The loans payable to related parties were $95,716 and $0, respectively. In June 2013, the Company issued 162,180 common shares as a finance charge for $63,102 of related party loan and recorded $72,981 expense in connection with the loan. This loan is due on demand.

On December 31, 2012, the Company received $500,000 from Pelican Creek, LLC (Pelican Creek”), an unrelated party, and recorded the corresponding note as a current liability on the balance sheet. As an inducement to receive this loan, the Company issued 1,250,000 shares of its common stock to Pelican Creek. The FV of the shares issued was $812,500 valued at $0.65 per share, using the closing price on the effective date of the agreement and has been completely expensed. See Note 14 - Stock Issuance, for further details. The coupon interest on this note accrues daily on the outstanding principal amount at 8% per annum. As such, as of December 31, 2013, the Company accrued interest of $40,000 and recorded it as part of the accounts payable and accrued expenses account. The Company finalized the terms and conditions of this payment on June 7, 2013.

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ACCOUNTS PAYABLE RELATED PARTIES

9 Months Ended

Dec. 31, 2013

Payables and Accruals [Abstract]

ACCOUNTS PAYABLE RELATED PARTIES

NOTE 8 ––DUE TO RELATED PARTIES

As of December 31, 2013 and March 31, 2013, $700,596 and $412,615, respectively, is owed to the officers and directors of the Company. In December 2012, the officers and directors of the Company agreed to accrue compensation for their services until such time the Company had sufficient funds to pay this liability.

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DEFERRED REVENUE

9 Months Ended

Dec. 31, 2013

Revenue Recognition [Abstract]

DEFERRED REVENUE

NOTE 9 – DEFERRED REVENUE

As of December 31, 2013 and March 31, 2013, the deferred revenue was $0 and $63,754, respectively. This represented amount received from a customer for an order that was completed in September 2013.

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CONVERTIBLE NOTE PAYABLE

9 Months Ended

Dec. 31, 2013

Notes to Financial Statements

CONVERTIBLE NOTE PAYABLE

NOTE 11 – CONVERTIBLE NOTES PAYABLE

On April 5, 2013 the Company entered into a Securities Purchase Agreement (“SPA”) with Asher Enterprises, Inc. (“Asher”). Under the terms of the SPA, the Company issued to Asher a convertible promissory note of $63,000. The note had a nine month maturity date from issuance. The note bears interest at 8%. Any principal or interest on this note which is not paid when due shall bear interest at 22% from the due date until paid. The conversion price shall equal the variable conversion price, 61% multiplied by the market price (representing a discount rate of 39%). Market price is the average of the lowest three trading prices for the common stock during the ten trading day period ending on the latest complete trading day prior to the conversion date. This note had beneficial conversion feature (“BCF”) of $40,279 and was recorded in the balance sheet at face value less the unamortized BCF. On September 20, 2013 the Company paid off this note for $87,345.

On July 19, 2013 the Company entered into an SPA with Asher. Under the terms of the SPA, the Company issued to Asher a convertible promissory note of $37,500. The note had a nine month maturity date from issuance. The note bears interest at 8%. Any principal or interest on this note which is not paid when due shall bear interest at 22% from the due date until paid. The conversion price shall equal the variable conversion price, 61% multiplied by the market price (representing a discount rate of 39%). Market price is the average of the lowest three trading prices for the common stock during the ten trading day period ending on the latest complete trading day prior to the conversion date. This note had BCF of $23,975 and was recorded in the balance sheet at face value less the unamortized BCF.

On September 20, 2013 the Company entered into an SPA with Todd Andis (“Andis”). Under the terms of the SPA, the Company issued to Andis a convertible promissory note of $90,000. The note had a six month maturity date from issuance. The note bears interest at 8%. Any principal or interest on this note which is not paid when due shall bear interest at 22% from the due date until paid. The conversion price shall equal the variable conversion price, 61% multiplied by the market price (representing a discount rate of 39%). Market price is the average of the lowest three trading prices for the common stock during the ten trading day period ending on the latest complete trading day prior to the conversion date. This note had BCF of $57,541 and was recorded in the balance sheet at face value less the unamortized BCF.

At December 31, 2013, convertible notes payable consisted of the following:

	December 31, 2013
Convertible note payable - Asher, 8% interest, due in April 22, 2014	$	37,500
Convertible note payable - Andis, 8% interest, due March 31, 2014		90,000
Accrued interest		3,368
Less: unamortized discount of BCF - Asher		(9,694	)
Less: unamortized discount of BCF - Andis		(26,972	)
Convertible notes payable and interest, net of BCF	$	94,202

The amortization expense on the discount of BCF for these notes for the three and nine months ended December 31, 2013 was $35,535 and $69,391 and was recorded as interest expense. The accrued interest as of December 31, 2013 was $3,368.

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LOANS PAYABLE (Details Narrative) (USD $)	Dec. 31, 2013	Mar. 31, 2013
Debt Disclosure [Abstract]
loan payable	$ 195,485	$ 0
loan payable	95,716	0
Note Payable	540,000	500,000
Interest payable	$ 40,000

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)

9 Months Ended

Dec. 31, 2013

Accounting Policies [Abstract]

Going Concern

 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 $9,357,993 at December 31, 2013.  The consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or amounts and classifications of liabilities that might be necessary should the Company be unable to continue its existence.  The recovery of the Company’s assets is dependent upon continued operations of the Company. In addition, the Company's recovery is dependent upon future events, the outcome of which is undetermined.  The Company intends to continue to attempt to raise additional capital, but there can be no certainty such efforts will be successful.

~

Basis of Presentation and Principles of Consolidation

Basis of Presentation and Principles of Consolidation — The accompanying consolidated financial statements were prepared in conformity with accounting principles generally accepted in the United States of America (“US GAAP”) and include the accounts of AuraSource and its subsidiary, Qinzhou. All significant intercompany transactions and balances were eliminated in consolidation.

The unaudited consolidated financial statements were prepared by us pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). The information furnished herein reflects all adjustments (consisting of normal recurring accruals and adjustments) which are, in the opinion of management, necessary to fairly present the operating results for the respective periods. Certain information and footnote disclosures normally present in annual consolidated financial statements prepared in accordance with US GAAP was omitted pursuant to such rules and regulations. These consolidated financial statements should be read in conjunction with the audited consolidated financial statements and footnotes for the year ended March 31, 2013 included in our Annual Report on Form 10-K. The results of the three and nine months ended December 31, 2013 are not necessarily indicative of the results to be expected for the full year ending March 31, 2014.

Use of estimates

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

 Cash and Equivalents — We consider investments with original maturities of 90 days or less to be cash equivalents.

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Income Taxes

Income Taxes — The Company accounts for income taxes in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 740, “Income Taxes.” Deferred tax assets and liabilities are recognized to reflect the estimated future tax effects, calculated at currently effective tax rates, of future deductible or taxable amounts attributable to events that have been recognized on a cumulative basis in the financial statements. A valuation allowance for a deferred tax asset is recorded when it is more likely than not that some portion of the deferred tax asset will not be realized.

Stock based compensation

Stock-Based Compensation — The Company recognizes the cost of employee services received for an award of equity instruments in the consolidated financial statements over the period the employee is required to perform the services.

Foreign currency transactions

 Foreign Currency Transactions — The Company recognizes foreign currency gains and losses in other income (expense) on the accompanying statement of operations. Foreign currency gains and losses arise as the Company conducts business with other entity’s whose functional currency is not in US dollars. Generally, these gains and losses are recorded at an exchange rate difference between the foreign currency and the functional currency that arises between the transaction date and the payment date.

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Net loss per share

 Net Loss Per Share — The Company computes basic and diluted net loss per share by dividing the net loss available to common stockholders for the period by the weighted average number of shares of common stock outstanding during the period. Common equivalent shares arising from stock options and warrants were excluded from the computation of basic and diluted earnings per share, for the three and nine months ended December 31, 2013 and 2012 because their effect is anti-dilutive.

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Concentration of Credit Risk

 Concentration of Credit Risk — Financial instruments that potentially subject the Company to a concentration of credit risk consist of cash.  The Company maintains its cash with high credit quality financial institutions; at times, such balances with any one financial institution may exceed Federal Deposit Insurance Corporation (“FDIC”) insured limits.  

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Financial instruments and fair value of financial instruments

Financial Instruments and Fair Value of Financial Instruments — Our financial instruments consist of cash, accounts payable and notes payable. The carrying values of cash, accounts payable and notes payable are representative of the fair values due to their short-term maturities. We measure the fair value (“FV”) of financial assets and liabilities on a recurring basis. FV is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. FV measurements are to be considered from the perspective of a market participant that holds the asset or owes the liability. We also establish a FV hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring FV.

The standard describes three levels of inputs that may be used to measure FV:

Level 1:	Quoted prices in active markets for identical or similar assets and liabilities.
Level 2:	Quoted prices for identical or similar assets and liabilities in markets that are not active or observable inputs other than quoted prices in active markets for identical or similar assets and liabilities.
Level 3:	Unobservable inputs that are supported by little or no market activity and that are significant to the FV of the assets or liabilities.

The Company evaluates embedded conversion features within convertible debt under ASC Topic 815, “Derivatives and Hedging,” to determine whether the embedded conversion feature should be bifurcated from the host instrument and accounted for as a derivative at FV with changes in FV recorded in earnings. If the conversion feature does not require derivative treatment under ASC 815, the instrument is evaluated under ASC subtopic 470-20, “Debt with Conversion and Other Options,” for consideration of any beneficial conversion feature.

Reclassifications

 Reclassifications — Certain reclassifications were made to the prior period amounts disclosed in the consolidated financial statements to conform to the presentation form the three and nine months ended December 31, 2013. These reclassifications had no effect on reported net loss or stockholders’ equity.

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DUE FROM AFFILIATE (Details Narrative) (USD $)	Dec. 31, 2013	Mar. 31, 2013
Notes to Financial Statements
Due from Affiliate Current	$ 55,808	$ 54,418

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LOSS PER SHARE (Details Narrative)	9 Months Ended
	Dec. 31, 2013	Dec. 31, 2012
Notes to Financial Statements
Common stock equivalents	3,180,000	3,090,000

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Statements of Cash Flows (USD $)	9 Months Ended
	Dec. 31, 2013	Dec. 31, 2012
Statement of Cash Flows [Abstract]
Net loss	$ (1,265,121)	$ (976,957)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	226,124	22,601
Stock issued for services and interest	259,583	13,200
Options issued for services	10,385	7,190
Changes in operating assets and liabilities:
Due from affiliate	(1,390)	(22,270)
Inventory	(32,580)	(10,000)
Deposits and other current assets net	79,145	(446,925)
Accounts payable	56,569	(15,518)
Accounts payable - related parties	287,981	187,944
Deferred revenue	(63,754)	0
Customer advances	0	570,000
Net cash used in operating activities	(443,058)	(670,735)
Cash flows from investing activities :
Capital equipment purchases	0	(2,954)
Cash paid for acquisition of intangible	(8,088)	(30,593)
Net cash used in investing activities	(8,088)	(33,547)
Cash flows from financing activities
Proceeds from issuance of common stock, net	0	245,000
Net proceeds from issuance of note payable	190,501	500,000
Repayment of note payable	(87,345)	0
Loans payable related parties net	195,485	0
Advances from related parties, net	95,716	0
Net cash provided by financing activities	394,357	745,000
Net change in cash and equivalents	(56,789)	40,718
Cash and equivalents - beginning balance	75,508	404,331
Cash and equivalents - ending balance	18,719	445,049
Interest	2,361	0
Income taxes	0	0
The Company issued shares of common stock for the acquisition of intangibles.	0	606,000
The Company issued shares of common stock in lieu of a customer deposit	$ 500,000	$ 0

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DEPOSITS AND OTHER CURRENT ASSETS

9 Months Ended

Dec. 31, 2013

Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Abstract]

DEPOSITS AND OTHER CURRENT ASSETS

NOTE 5 – DEPOSITS AND OTHER CURRENT ASSETS

Deposits and other current assets as of December 31, 2013 and March 31, 2013, respectively, were comprised of the following:

	December 31, 2013		March 31, 2013
	(Unaudited)
Shipping deposits		10,205		96,254
Mineral reserve deposits		525,000		525,000
Prepaid expenses		6,904		—
Balance at December 31, 2013 and March 31, 2013	$	542,109	$	621,254

On January 25, 2013, the Company entered into a broker transportation agreement with M&L Logistics, Inc. to arrange transportation of minerals for various carriers, consignors or consignees for one year. This agreement can be terminated at any time upon notice by either party. As of December 31, 2013 and March 31, 2013, these deposits were recorded as shipping deposits.

On February 9, 2012, we entered into an agreement with Gulf Coast Holdings, LLC (“GCH”), an affiliate with over 10% voting rights, to reserve export ready one million tons of 64% Fe higher content iron ore, 13 million tons of 45% grade lower content iron ore and two million tons of manganese ore, at $1.00 per ton. In lieu of cash, GCH agreed to accept shares of the Company common stock at $1.00 per share. In conjunction with this agreement, we issued five million shares of our common stock immediately and agreed to issue 11 million upon the successful completion of the first customer order of over $5 million (the “Mineral Deposit Shares”) to GCH or its assigns. On February 19, 2012, GCH assigned 100% of its interest in the Mineral Reserve Agreement to HKMHL. Success shall be defined as customer acceptance of order and final payment. To the extent a successful order does not occur, the unvested Mineral Deposit Shares shall be returned to our treasury and cancelled. The Company has no material prior relationship with GCH or HKMHL other than what is set forth above. To date, the Company has not achieved $5 million in revenue, as such the 11 million shares is being held by the Company. As of December 31, 2013, the Company has not obtained possession of the above noted minerals. As such, the issuance of the shares have been recorded as a charge to additional paid in capital and a credit to common stock at par value of $0.001 per share for a total of $16,000. GCH has the right to designate two members on the Board of Directors (“BOD”), one of whom is to be mutually agreed. To date GCH has not designated any board members. Additionally, we entered into an agreement with Gulf Coast Mining Group, LLC (“GCM”) to purchase minerals which will be delivered loose in bulk modified FOB. We entered into an agreement with GCH appointing GCH as the exclusive North American licensee for use and exploitation of our technology as it relates to applications involving precious metals in exchange for royalty payments of 5% of gross revenues. Between August 2012 and January 2013, the Company made prepayments of $525,000 for delivery of minerals.

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INVENTORY (Details Narrative) (USD $)	3 Months Ended		9 Months Ended
	Dec. 31, 2013	Jun. 30, 2012	Dec. 31, 2013	Dec. 31, 2012	Mar. 31, 2013
Inventory Disclosure [Abstract]
Inventory	$ 42,580		$ 42,580		$ 10,000
Purchase of inventory	$ 32,580	$ 50,000	$ (32,580)	$ (10,000)

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STOCK ISSUANCE (Details Narrative) (USD $)	9 Months Ended	12 Months Ended
	Dec. 31, 2013	Mar. 31, 2013
Equity [Abstract]
shares issued for debt	437,963	1,250,000
shares issed during period services		817,250
stock expense		$ 1,261,988
shares issued for cash	1,250,000	612,500
per share price		$ 0.40
proceeds from sale of stock		$ 245,000

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LOSS PER SHARE

9 Months Ended

Dec. 31, 2013

Earnings Per Share [Abstract]

Loss Per Share

NOTE 15 - LOSS PER SHARE

The following table sets forth common stock equivalents (potential common stock) for the three and nine months ended December 31, 2013 and 2012 not included in the loss per share calculation above because their effect would be anti-dilutive for the period indicated:

	2013		2012
Weighted average common stock equivalents
Non-Plan Stock Options		3,180,000		3,090,000