UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(Mark One)
| [X] | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period endedJune 30, 2014
| [ ] | 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:000-53643
Aurios Inc.
(Exact name of registrant as specified in its charter)
| Arizona | | 86-1037558 |
| (State or other jurisdiction of | | (I.R.S. Employer |
| incorporation or organization) | | Identification No.) |
15941 N. 77th Street, Suite #4 Scottsdale, AZ 85260 |
| (Address of principal executive offices) |
| |
| (480) 745-2611 |
| (Registrant’s telephone number, including area code) |
| |
| ________________________________________________________________ |
| (Former name, former address and former fiscal year, if changed since last report) |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the issuer was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. [X] Yes [ ] No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). [ ] Yes [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,” “non-accelerated filer,” and “a smaller reporting company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer [ ] | Accelerated filer [ ] |
| | |
| Non-accelerated filer [ ] (Do not check if a smaller reporting company) | 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). [X] Yes [ ] No
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 August 14, 2014 |
| Common Stock, no par value | | 4,597,500 |
FORM 10-Q
AURIOS INC.
June 30, 2014
TABLE OF CONTENTS
PART I – FINANCIAL INFORMATION
Item 1. Financial Statements.
AURIOS INC.
CONDENSED BALANCE SHEETS
| | | Unaudited
June 30, 2014 | | | December 31, 2013 | |
| | | | | | | |
| ASSETS | | | | | | | | |
| Current Assets: | | | | | | | | |
| Cash | | $ | - | | | $ | 758 | |
| | | | | | | | | |
| Total Assets | | $ | - | | | $ | 758 | |
| | | | | | | | | |
| LIABILITIES AND STOCKHOLDERS’ DEFICIT | | | | | | | | |
| Current Liabilities: | | | | | | | | |
| Accounts payable | | $ | 5,590 | | | $ | 102,512 | |
| Accrued interest | | | - | | | | 10,506 | |
| Notes payable and advances - related party | | | - | | | | 91,068 | |
| Total Current Liabilities | | | 5,590 | | | | 204,086 | |
| | | | | | | | | |
| Total Liabilities | | | 5,590 | | | | 204,086 | |
| | | | | | | | | |
| Stockholders’ Deficit: | | | | | | | | |
| Convertible Preferred stock; no par value; 10,000,000 shares authorized, and zero shares issued and outstanding as of June 30, 2014 and December, 31, 2013. | | | | | | | | |
| Common stock - no par value; 90,000,000 shares authorized, 4,597,500 and 3,678,000 shares issued and outstanding at June 30, 2014 and December 31, 2013, respectively | | | 197,795 | | | | 197,795 | |
| Additional paid-in capital | | | 289,444 | | | | 98,936 | |
| Accumulated deficit | | | (492,829 | ) | | | (500,059 | ) |
| Total Stockholders’ Deficit | | | (5,590 | ) | | | (203,328 | ) |
| Total Liabilities and Stockholders’ Deficit | | $ | - | | | $ | 758 | |
The Accompanying Notes are an Integral Part of the Condensed Financial Statements
AURIOS INC.
CONDENSED STATEMENTS OF OPERATIONS
| | | Three months ended June 30, | | | Six months ended June 30, | |
| | | 2014 | | | 2013 | | | 2014 | | | 2013 | |
| | | (unaudited) | | | (unaudited) | | | (unaudited) | | | (unaudited) | |
| | | | | | | | | | | | | |
| Sales | | $ | - | | | $ | - | | | $ | - | | | $ | - | |
| Cost of goods sold | | | - | | | | - | | | | - | | | | - | |
| Gross profit | | | - | | | | - | | | | - | | | | - | |
| | | | | | | | | | | | | | | | | |
| General and administrative | | | 6,115 | | | | 23,293 | | | | 16,781 | | | | 36,013 | |
| Total operating expenses | | | 6,115 | | | | 23,293 | | | | 16,781 | | | | 36,013 | |
| | | | | | | | | | | | | | | | | |
| Loss from operations | | | (6,115 | ) | | | (23,293 | ) | | | (16,781 | ) | | | (36,013 | ) |
| | | | | | | | | | | | | | | | | |
| Other (income) and expenses | | | | | | | | | | | | | | | | |
| Other income | | | - | | | | (13,279 | ) | | | (25,000 | ) | | | (13,279 | ) |
| Interest expense | | | - | | | | 1,670 | | | | 989 | | | | 3,570 | |
| Total other income and expenses | | | - | | | | (11,609 | ) | | | (24,011 | ) | | | (9,709 | ) |
| | | | | | | | | | | | | | | | | |
| Income/(loss) before provision for income taxes | | | (6,115 | ) | | | (11,684 | ) | | | 7,230 | | | | (26,304 | ) |
| | | | | | | | | | | | | | | | | |
| Provision for income taxes | | | - | | | | - | | | | - | | | | - | |
| | | | | | | | | | | | | | | | | |
| Net income /(loss) | | $ | (6,115 | ) | | $ | (11,684 | ) | | $ | 7,230 | | | $ | (26,304 | ) |
| | | | | | | | | | | | | | | | | |
| Basic and diluted loss per share | | | (0.00 | ) | | | (0.00 | ) | | $ | 0.00 | | | | (0.01 | ) |
| | | | | | | | | | | | | | | | | |
| Weighted average number of common shares outstanding (basic and diluted) | | | 4,274,159 | | | | 3,678,000 | | | | 3,976,080 | | | | 3,678,000 | |
The Accompanying Notes are an Integral Part of the Condensed Financial Statements
AURIOS INC.
CONDENSED STATEMENT OF STOCKHOLDERS’ DEFICIT
FOR THE SIX MONTHS ENDED JUNE 30, 2014
| | | | | | Additional | | | | | | | |
| | | Common Stock | | | Paid -In | | | Accumulated | | | Stockholders’ | |
| | | Shares | | | Par Value | | | Capital | | | Deficit | | | Equity | |
| | | | | | | | | | | | | | | | |
| Balance, December 31, 2013 | | | 3,678,000 | | | $ | 197,795 | | | $ | 98,936 | | | $ | (500,059 | ) | | $ | (203,328 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| Common shares for settlement of liabilities (unaudited) | | | 919,500 | | | | - | | | | 190,508 | | | | - | | | | 190,508 | |
| | | | | | | | | | | | | | | | | | | | | |
| Net Income (unaudited) | | | - | | | | - | | | | - | | | | 7,230 | | | | 7,230 | |
| | | | | | | | | | | | | | | | | | | | | |
| Balance, June 30, 2014 (unaudited) | | | 4,597,500 | | | $ | 197,795 | | | $ | 289,444 | | | $ | (492,829 | ) | | $ | (5,590 | ) |
The Accompanying Notes are an Integral Part of the Condensed Financial Statements
AURIOS INC.
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
| | | Six Months Ended June 30, | |
| | | 2014 | | | 2013 | |
| Cash flows from operating activities: | | | | | | | | |
| Net income/(loss) | | $ | 7,230 | | | $ | (26,304 | ) |
| | | | | | | | | |
| Adjustments to reconcile net income/(loss) to net cash used by operating activities: | | | | | | | | |
| Inventory reserve | | | - | | | | 1,155 | |
| | | | | | | | | |
| Changes in Assets and Liabilities: | | | | | | | | |
| Accounts payable | | | (7,988 | ) | | | 16,975 | |
| Accrued interest | | | - | | | | 3,416 | |
| Net cash used by operating activities | | | (758 | ) | | | (4,758 | ) |
| | | | | | | | | |
| Cash flows from financing activities: | | | | | | | | |
| Proceeds from debt | | | - | | | | 7,025 | |
| Repayment of debt | | | - | | | | (2,525 | ) |
| Net cash provided by financing activities | | | - | | | | 4,500 | |
| Net change in cash and cash equivalents | | | (758 | ) | | | (258 | ) |
| Cash and cash equivalents at beginning of period | | | 758 | | | | 318 | |
| Cash and cash equivalents at end of period | | $ | - | | | $ | 60 | |
| | | | | | | | | |
| Supplemental information: | | | | | | | | |
| Interest paid | | $ | 989 | | | $ | 154 | |
| Income taxes paid | | $ | - | | | $ | - | |
| | | | | | | | | |
| Supplemental disclosure of non-cash items: | | | | | | | | |
| Common stock issued for settlement of liabilities | | $ | 190,508 | | | | | |
The Accompanying Notes are an Integral Part of the Condensed Financial Statements.
AURIOS INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
Note 1
Summary of Significant Accounting Policies, Nature of Operations and Use of Estimates
Presentation of Interim Information
The condensed financial statements included herein have been prepared by us without audit, pursuant to the rules and regulations of the United States Securities and Exchange Commission (“SEC”) and should be read in conjunction with the audited financial statements for the year ended December 31, 2013. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been condensed or omitted, as permitted by the SEC, although we believe the disclosures that are made are adequate to make the information presented herein not misleading. The accompanying condensed financial statements reflect, in the opinion of management, all normal recurring adjustments necessary to present fairly our financial position at June 30, 2014, and the results of our operations and cash flows for the periods presented. We derived the December 31, 2013 condensed balance sheet data from audited financial statements, but do not include all disclosures required by GAAP. Interim results are subject to seasonal variations and the results of operations for the three and six months ended June 30, 2014 and 2013, are not necessarily indicative of the results to be expected for the full year.
Nature of Corporation
Aurios Inc. (the “Company” or “we”) is a corporation which was formed under the laws of the State of Arizona on August 7, 2001. Our principal business activity was the marketing of vibration and motion control technology to the audio/video markets. Because we lost our license to produce and sell such products on December 31, 2012, we ceased such business. Given this development, we are now a shell company with nominal assets. We are seeking a new business opportunity. We plan to identify, evaluate, and investigate various companies with the intent to conduct a reverse merger transaction under which we would acquire a target company with an operating business to continue the acquired company’s business as a publicly-held entity. There can be no assurance that we will find a suitable acquisition candidate or, if we do, that the terms will be favorable to our existing shareholders.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates are used when accounting for stock-based compensation and the valuation of deferred tax assets. These are discussed in the respective notes to the financial statements.
New Accounting Pronouncements
There have been no recent accounting pronouncements issued which are expected to have a material effect on the Company’s financial statements.
Earnings Per Share
The earnings per share accounting guidance provides for the calculation of basic and diluted earnings per share. Basic earnings per share includes no dilution and is computed by dividing income available to common shareholders by the weighted average number of common shares outstanding for the period. Diluted earnings per share reflect the potential dilution of securities that could share in the earnings of an entity.
AURIOS INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
Note 1
Summary of Significant Accounting Policies, Nature of Operations and Use of Estimates (Continued)
Earnings Per Share (Continued)
As of April 30, 2014, warrants to purchase 247,489 shares of the Company’s common stock were cancelled by mutual agreement of the Company and the warrant holders for no consideration. Accordingly, the warrants are no longer outstanding and not included in the determination of diluted earnings per share for the three and six months ended June 30, 2014. The Company had convertible notes payable and related accrued interest which were settled as of May 2, 2014; accordingly, these convertible instruments were excluded from the determination of diluted earnings per share for the three and six months ended June 30, 2014.
For the three and six months ended June 30, 2013 warrants to purchase 247,489 shares of the Company’s common stock were not included in the determination of diluted loss per share, as they were antidilutive. In addition, the Company had notes payable and related accrued interest as of June 30, 2013 that were convertible into 317,613 shares of common stock, which also were anti-dilutive and have been excluded in the calculation of diluted loss per share.
Note 2
Related Party Transactions
The Company and TGE, its affiliate and former parent, entered into an administrative services/rental agreement with TGE on January 1, 2009. Under such agreement, TGE performs certain administrative duties for Aurios and provided it office space as required at $1,500 per month. Aurios has no employees and previously contracted with TGE for all services. Paul Attaway controls TGE as its principal shareholder, and an officer and director. This agreement was terminated on February 25, 2010 as a result of the sale of substantially all of TGE’s assets to AVT. Mr. Attaway provided administrative services, office and warehouse space in his residence to the Company in 2013 at no cost.
On April 12, 2013, Ira J. Gaines, Paul Attaway and Christian J. Hoffmann, all of whom are principal shareholders of the Company, advanced a total of $7,025. These advances were repaid in September 2013 with interest at the rate of 6% per annum totaling approximately $116.
During the six and three months ended June 30, 2014 and 2013, the Company paid nil in fees to Quarles & Brady LLP, in which Mr. Hoffmann, a principal shareholder of the Company, is a partner. The principal shareholder also performed or supervised a majority of the legal services performed for the Company.
On December 15, 2010 the Company sold $10,000 principal amount of a Series A Convertible Note (the “Series A Note”) to Paul J. Attaway, our former President, a former director and principal shareholder of the Company. The Series A Note bears interest at 6% per annum, was due and payable on December 14, 2013 and is convertible into common stock at a price of $0.30 per share. Maturity has been extended to December 15, 2014. In connection with each Series A Note, the Company issued a warrant exercisable to purchase 33,333 shares of common stock at a price of $0.30 per share through December 14, 2020. Also on such date the Company sold two additional Series A Notes, each in the principal amount of $10,000, to Ira J. Gaines and Christian J. Hoffmann, III, both principal shareholders of the Company, and issued each of them a warrant to purchase 33,333 shares of common stock. The Series A Notes and warrants were on the same terms as those issued to Mr. Attaway.
In December 2010 we issued the law firm of Quarles and Brady, LLP, our former legal counsel, a Series B Convertible Note in the principal amount of $44,248 to represent amounts we owed to such firm under certain outstanding invoices. Such Note was due and payable on January 15, 2013, bears interest at 3% per annum and is convertible into shares of our common stock at a price of $0.30 per share for a total of 147,490 shares. Maturity has been extended to December 15, 2014. The Note is payable prior to its maturity date if the Company raises $100,000 or more from the sale of its debt or equity securities to one or more third parties in a transaction or series of transactions or in the event of a merger, sale of all or substantially all of our assets or similar transaction. In addition, the Company issued warrants in connection with the Note, which warrants are exercisable to purchase 147,490 shares of common stock at a price of $0.30 per share through December 30, 2020. Mr. Hoffmann, a principal shareholder of the Company, is a partner of Quarles & Brady, LLP.
AURIOS INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
On August 14, 2012, Ira J. Gaines, Paul Attaway and Christian J. Hoffmann III, respectively all of whom are principal shareholders of the Company, advanced a total of $6,820 to the Company. Each advance bears interest at a rate of 6.0% per annum, with principal and interest due on September 14, 2014. On November 26, 2012, Ira J. Gaines, Paul Attaway and Christian J. Hoffmann III, respectively all of whom are principal shareholders of the Company, advanced a total of $7,000 to the Company. Each advance bears interest at a rate of 6.0% per annum, with principal and interest due on November 26, 2014. As of December 31, 2013 and June 30, 2014, there was combined accrued interest on the August 2012 and November 2012 notes of nil.
On November 25, 2013, Ira J. Gaines, Paul Attaway and Christian J. Hoffmann III, respectively all of whom are principal shareholders of the Company, advanced a total of $3,000 to the Company. Each advance bears interest at a rate of 6.0% per annum, with principal and interest due on November 24, 2014. See Note 4 for a discussion of the repayment of the above debt.
Note 3
Other Income
On January 3, 2014, we entered into a letter of intent (“LOI”) with iPure, Inc. for a possible merger transaction. Pursuant to the terms of the LOI, iPure was to deposit $150,000 into an escrow account on or before January 8, 2014 and $25,000 was released as a non-refundable deposit. iPure failed to consummate the transaction and the deposit was forfeited, which was recorded as other income in the condensed statements of operations.
Note 4
Stockholders’ Deficit
On May 2, 2014, the Company entered into an escrow agreement with iPayMobil, Inc. (“iPayMobil”) and Richardson & Patel LLP (“Escrow Agent”). Under the terms of the Escrow Agreement, iPayMobil deposited $140,000 in cash with the Escrow Agent and the Company issued iPayMobil 919,500 shares of our common stock. Pursuant to the terms of the Escrow Agreement, the Escrow Agent distributed the deposited funds to settle all of the outstanding liabilities of the Company as of May 2, 2014. All parties with outstanding liabilities from the Company at May 2, 2014 agreed to accept the amount distributed, which was in total $50,508 less than the liabilities owed at the time of settlement, as full and final payment. Since the outstanding liabilities were to related parties of the Company, no gain or loss on the transaction was recorded and the difference between the total liabilities settled and the $140,000 was treated as a capital transaction and credited to additional paid in capital. Further as the cash for the issuance of common shares and the settlement payments were handled by the Escrow Agent with no cash received or paid by the Company, this transaction is treated as non-cash for statement of cash flow purposes. Just prior to this transaction, all issued and outstanding warrants of the Company were cancelled by mutual agreement of the Company and the warrant holder with no consideration paid by the Company.
AURIOS INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED) (Continued)
Note 5
Income Taxes
As of June 30, 2014 and December 31, 2013, the Company had net operating loss carryforwards of approximately $411,000 and $468,000, respectively. The loss carryforwards, unless utilized, will expire from 2027 through 2033.
Our federal and state tax returns are subject to changes upon examination. For federal income tax purposes, years 2008 through 2013 are open for examination and for state income tax purposes the years 2007 through 2013 are open for examination. The Company’s policy is to classify any interest and penalties to income taxes in the financial statements.
Note 6
Going Concern
The Company has incurred an accumulated deficit and has had negative cash flows from its operations. The Company no longer has a patent license with AVT to manufacture or sell the Aurios product line. Realization of the Company’s assets is dependent upon the Company’s ability to meet its future financing requirements and the success of future operations. These factors raise substantial doubt about the Company’s ability to continue as a going concern. As such, the Company’s independent registered public accounting firm has expressed an uncertainty about the Company’s ability to continue as a going concern in their opinion attached to our audited financial statements for the year ended December 31, 2013. The financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
The Company has no expansion plans that would require significant infusions of capital because it has no operations; however, it expects that it will need certain additional working capital in the next twelve months in order for it to seek a new business opportunity. The Company plans to identify, evaluate, and investigate various companies with the intent to conduct a reverse merger transaction under which it would acquire a target company with an operating business to continue the acquired company’s business as a publicly-held entity. On May 2, 2014, after the sale of shares to iPayMobil, Paul Attaway and Tim Louis submitted their resignations from their positions as President and Chief Financial Officer and Secretary and Treasurer of the Company, respectively, and as the sole members of the Company Board of Directors (the “Board”). On that same day, in connection with Messrs Attaway’s and Louis’ resignations, the Board appointed Andrew M. Ling as President and Chief Executive Officer and Gary Pryor as Chief Financial Officer. In addition Messrs Ling and Pryor were appointed to the Board to fill the vacancies created by the resignation of Messrs Attaway and Louis. Mr. Pryor was appointed to the Board as Executive Chairman to fill the vacancy created by the resignation of Mr. Louis. There can be no assurance that the Company will find a suitable acquisition candidate or, if it does, that the terms will be favorable to its existing shareholders. Further, no assurances can be given that the Company will be able to raise such additional capital, when needed or at all, or that such capital, if available, will be on terms acceptable to the Company. If the Company is unable to raise additional funds, it could be required to halt its search for a suitable acquisition.
Note 7
Subsequent Events
The Company is currently contemplating a reverse merger transaction that may require an increase to the authorized shares and a significant issuance of our Common Stock to the entity we would be acquiring. The terms of the agreement have not been finalized.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Forward-Looking Statements
This Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. The words “believe,” “expect,” “anticipate,” “intend,” “estimate,” “may,” “should,” “could,” “will,” “plan,” “future,” “continue” and other expressions that are predictions of or indicate future events and trends and that do not relate to historical matters identify forward-looking statements. These forward-looking statements are based largely on our expectations or forecasts of future events, can be affected by inaccurate assumptions, and are subject to various business risks and known and unknown uncertainties, a number of which are beyond our control. Therefore, actual results could differ materially from the forward-looking statements contained in this document, and readers are cautioned not to place undue reliance on such forward-looking statements. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. A wide variety of factors could cause or contribute to such differences and could adversely impact revenues, profitability, cash flows and capital needs. There can be no assurance that the forward-looking statements contained in this document will, in fact, transpire or prove to be accurate.
Factors that could cause or contribute to our actual results differing materially from those discussed herein or for our stock price to be adversely affected include, but are not limited to: (i) our ability to find a new business opportunity and acquire it on terms favorable to our existing shareholders; (ii) our independent registered public accounting firm expressed an uncertainty about our ability to continue as a going concern; (iii) our ability to raise additional working capital that we may require and, if available, that such working capital will be on terms favorable to us; (iv) our ability to implement a new business plan; (v) our history of declining operating results; (vi) economic and general risks relating to business; (vii) our ability to manage our cost of production; (viii) our dependence on key personnel; (ix) increased competition or our failure to compete successfully; (x) our ability to continue to comply with the Sarbanes-Oxley Act of 2002; (xi) our nonpayment of dividends and lack of plans to pay dividends in the future; (xiii) future sale of a substantial number of shares of our common stock that could depress the trading price of our common stock, lower our value and make it more difficult for us to raise capital; (xiv) our additional securities available for issuance, which, if issued, could adversely affect the rights of the holders of our common stock; (xvi) the price of our stock is likely to be highly volatile because of several factors, including a relatively limited public float; and (xvi) indemnification of our officers and directors.
As used in this Report, the terms “we,” “us,” “our,” and “Aurios” mean Aurios Inc. unless otherwise indicated.
General
The following discussion should be read in conjunction with our Financial Statements and notes thereto. The following discussion contains forward-looking statements, including, but not limited to, statements concerning our plans, anticipated expenditures, the need for additional capital and other events and circumstances described in terms of our expectations and intentions. You are urged to review the information set forth under Item 1A., “Risk Factors,” in our Form 10-K for the year ended December 31, 2013 for factors that may cause actual events or results to differ materially from those discussed below.
Overview
We were formed in August 2001 by our former parent, TGE. Our corporate offices are located at 15941 N. 77th Street, Suite #4, Scottsdale, AZ 85260 and our telephone number is (480) 745-2611.
Until December 31, 2012 we produced, marketed and distributed vibration isolation products to the high-end audio and video markets in the United States and in certain foreign countries. Our products were the Classic MIB, the PRO MIB, the Isotone MIB, the Series 100 Component Shelf, a shelf product, and Pivot Points, a spike mount product.
Advanced Vibration Technologies Inc., an Arizona corporation (“AVT”), held the patents respecting our products in the United States and Taiwan. On February 25, 2010 AVT granted us a non-exclusive world-wide license to produce and sell the Pro Max MIB, the Classic MIB and the Isotone MIB under the patents (the “AVT License”). We paid a royalty of 5% of our net sales to AVT for the AVT License. On March 26, 2010, True Gravity Enterprises, Inc. (“TGE”) sold the federally registered trademark respecting the “Aurios” name to us for nominal consideration. We outsourced the manufacture of our products to several qualified machine shops in the Phoenix metropolitan area.
The AVT License terminated on December 31, 2012 because AVT sold its business to a third party that is a competitor with the products of Aurios. We sold our remaining inventory and other assets relating to our vibration isolation business effective May 31, 2013 to TGE, an affiliate of our President and principal shareholder.
We now have nominal assets and are seeking a new business opportunity. We plan to identify, evaluate, and investigate various companies with the intent to conduct a reverse merger transaction under which we would acquire a target company with an operating business to continue the acquired company’s business as a publicly-held entity. There can be no assurance that we will find a suitable acquisition candidate or, if we do, that the terms will be favorable to our existing shareholders.
On May 2, 2014, we entered into a Debt Payment and Stock Issuance Agreement (the “Agreement”) by and among the Company, Paul Attaway, Ira J. Gaines, Chris Hoffman III, and iPayMobil, Inc. (“iPayMobil”), to issue 919,500 shares of the Company’s common stock (the “Common Stock”) to iPayMobil in exchange for a payment of an aggregate sum of $140,000 to be used solely, exclusively, and directly to settle the Company’s current outstanding debts (the “Debt Settlement Amount”). The Debt Settlement Amount has been distributed to each of the Company’s debt holders in accordance with the Escrow Agreement dated concurrently with the Agreement. The terms of the Agreement and the Escrow Agreement are hereby incorporated by reference to Exhibit 10.1 and 10.2, respectively, filed with the Form 8-K on May 7, 2014.
The Common Stock was issued in a transaction that was exempt from the registration requirements of the Securities Act of 1933, as amended (the “Securities Act”) pursuant to Section 4(a)(2) of the Securities Act, which exempts transactions by an issuer not involving any public offering and where noted pursuant to Regulation D under the Securities Act. The Company relied on the representations made in investor questionnaires, written representations, or other agreements signed by the stock recipients.
For the six months ended June 30, 2014 and 2013
Results of Operations
Revenues
Revenues for the six months ended June 30, 2014 and 2013 were $0. Our lack of revenues in the 2014 and 2013 periods was because we ceased selling vibration isolation products as of December 31, 2012 when our AVT License terminated.
Cost of Sales
Cost of sales for the six months ended June 30, 2014 and June 30, 2013 were $0, because we had no sales in 2014 or 2013.
Other Income
We had other income for the six months ended June 30, 2014 and June 30, 2013 in the amounts of $25,000 and $13,279, respectively. The other income relates to deposits made under various deposit and standstill agreements in anticipation of possible transactions with third parties during 2014 and 2013. We and such parties did not reach definitive agreements on the possible transactions and we recorded income upon expiration of the deposit and standstill agreements. We had no other income for the six months ended June 30, 2014 or 2013.
General and Administrative Expenses
In the six months ended June 30, 2014 and June 30, 2013, our General and Administrative Expenses were $16,781 and $36,013, respectively. During the six months ended June 30, 2014, these expenses consisted chiefly of the administrative expense incurred related to being publicly held and for certain corporate matters.
Interest Expense
Interest expense was $989 and $3,570 for the six months ended June 30, 2014 and 2013, respectively. The decrease was primarily related to extinguishment of the note payable to TGE, during May 2013, resulting in less accrued interest.
Net Income (Loss)
For the reasons listed above, for the six months ended June 30, 2014 and 2013 we recorded net income of $7,230 and we recorded a net loss of ($26,304), respectively, an increase of $33,534.
Basic and Diluted Income (Loss) per Share
The income per share was $0.00 for the six months ended June 30, 2014. The loss per share was ($0.01) for the six months ended June 30, 2013.
For the three months ended June 30, 2014 and 2013
Results of Operations
Revenues
Revenues for the three months ended June 30, 2014 and 2013 were $0. Our lack of revenues in the 2014 and 2013 periods was because we ceased selling vibration isolation products on December 31, 2012 when our AVT License terminated.
Cost of Sales
Cost of sales for the three months ended June 30, 2014 and June 30, 2013 were $0, because we had no sales in 2014 or 2013.
Other Income
We had other income for the three months ended June 30, 2014 and June 30, 2013 in the amounts of zero and $13,279, respectively. The other income relates to standstill agreements in anticipation of possible transactions related to two agreements we entered into with Fast Lane Retail Systems, Inc. providing for exclusivity in negotiations between the parties for a possible transaction. We had no other income for the three months ended June 30, 2014 or 2013.
General and Administrative Expenses
In the three months ended June 30, 2014 and June 30, 2013, our General and Administrative Expenses were $6,115 and $23,293, respectively. These expenses consisted primarily of the administrative expenses related to being publicly held and for certain corporate matters.
Interest Expense
Interest expense was zero and $1,670 for the three months ended June 30, 2014 and 2013, respectively. The decrease was primarily related to extinguishment of the notes payable resulting in less accrued interest.
Net Loss
For the reasons listed above, for the three months ended June 30, 2014 and 2013 we recorded a net loss of $6,115 and $11,684, respectively, a decrease of $5,569.
Basic and Diluted Income (Loss) per Share
The basic and diluted income per share was $0.00 for the three months ended June 30, 2014 and 2013.
Liquidity and Capital Resources
Our independent registered public accounting firm included an emphasis of matter paragraph regarding the substantial doubt about our ability to continue as a going concern in their audit opinion on our consolidated financial statements for the year ended December 31, 2013. We provided for our cash requirements in 2013 and in the first six months of 2014 from loans from our three principal shareholders, sale of our common stock and we received a deposit of $25,000 in January 2014 from a third party with whom we were discussing a possible merger transaction. The deposit was forfeited because no transaction ultimately occurred between the parties.
We believe that we will obtain sufficient capital to operate for the next twelve months through the sale of debt or equity securities, deferral of payment of certain accounts payable, extension of outstanding debt obligations and, if we are able to, by generating operating income through the acquisition of an operating entity that produces positive cash flow. We can make no assurances that we will be successful in this regard. If our revenues do not increase and our cash flow is not positive or not sufficient to meet our working capital needs, we will need to seek to raise capital through the sale of our equity or debt securities. We have no commitments for obtaining such financing and there can be no assurance that we could obtain the necessary funds or obtain them on terms favorable to us. Any future financing may be on terms that substantially dilute the ownership interests of present shareholders. If we are unable to raise sufficient additional capital as necessary, we may have to suspend or contract operations or cease operations entirely. We do not anticipate that we will have any large capital requirements over the next twelve months. At June 30, 2014 we had a working capital deficit of ($5,590).
We do not anticipate that we will have any large capital requirements over the next twelve months. We are no longer manufacturing the products previously manufactured and thus do not have to either manufacture product for inventory or to fill orders. We will look for a new business model and/or business partner at this time. The nature of the new business model and/or business partner will determine what our capital needs going forward will be.
Capital Commitments
We had no material commitments for capital expenditures.
Off-Balance Sheet Arrangements
There were no off-balance sheet arrangements as of June 30, 2014 and December 31, 2013.
Critical Accounting Policies and Estimates
Our financial statements are prepared in accordance with U.S. Generally Accepted Accounting Principles. Preparation of the statements in accordance with these principles requires that we make estimates, using available data and our judgment, for such things as valuing assets, accruing liabilities and estimating expenses. The following is a discussion of what we feel is the most critical estimates that we must make when preparing our financial statements.
Recoverability of Inventory.We recognize and inventory allowance to reduce our inventory to its net realizable value when events or circumstances indicate that the carrying cost is in excess of market value.
Stock Based Compensation.The Company uses the Black-Scholes option pricing model to estimate fair value of warrant grants.
New Accounting Pronouncements
There have been no recent accounting pronouncements issued which are expected to have a material effect on the Company’s financial statements.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
A smaller reporting company is not required to provide the information required by this Item.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e)) of the Securities and Exchange Act of 1934 (the “Exchange Act”) as of June 30, 2014. This evaluation was carried out under the supervision and with the participation of our President and Chief Executive Officer, Andrew Ling and our Chief Financial Officer, Gary Pryor. Based upon that evaluation, they have concluded that, as of June 30, 2014, our disclosure controls and procedures are not effective to provide reasonable assurance that material information required to be disclosed by us in this report was recorded, processed, summarized and communicated to our management as appropriate and within the time periods specified in SEC rules and forms. Nonetheless, management believes that it has taken sufficient additional steps in preparing this Report to ensure that the information contained in it is materially accurate and in accordance with generally accepted accounting principles for interim financial information and the SEC’s instructions to Form 10-Q for smaller reporting companies.
Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act are recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.
Limitations on the Effectiveness of Internal Controls
Our management does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent all fraud and material error. Our disclosure controls and procedures are designed to provide reasonable assurance of achieving our objectives and our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are not effective at that reasonable assurance level. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the internal control. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate.
Changes in Internal Control Over Financial Reporting
There have been no changes in our internal controls over financial reporting, as such term is defined in Rules 13a – 15(f) and 15d – 15(f) under the Exchange Act, during the quarter ended June 30, 2014 that have materially affected or are reasonably likely to materially affect such controls.
PART II – OTHER INFORMATION
Item 1. Legal Proceedings.
We are not a party to any pending legal proceeding. We are not aware of any pending legal proceeding to which any of our officers, directors, or any beneficial holders of five percent or more of our voting securities are adverse to us or have a material interest adverse to us.
Item 1A. Risk Factors.
A smaller reporting company is not required to provide the information required by this Item.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
None.
Item 3. Defaults upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
None.
Item 5. Other Information.
None.
Item 6. Exhibits.
| Exhibit Number | | Description of Exhibit | | Filed Herewith |
| | | | | |
| 31.1 | | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | | X |
| | | | | |
| 31.2 | | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | | X |
| | | | | |
| 32.1 | | Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | | X |
| | | | | |
| 32.2 | | Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | | X |
| | | | | |
| 101.INS | | XBRL Instance Document* | | |
| 101.SCH | | XBRL Taxonomy Extension Schema Document* | | |
| 101.CAL | | XBRL Taxonomy Extension Calculation Linkbase Document* | | |
| 101.DEF | | XBRL Taxonomy Extension Definition Linkbase Document* | | |
| 101.LAB | | XBRL Taxonomy Extension Label Linkbase Document* | | |
| 101.PRE | | XBRL Taxonomy Extension Presentation Linkbase Document* | | |
* In accordance with Regulation S-T, the XBRL-formatted interactive data files that comprise Exhibit 101 in this Quarterly Report on Form 10-Q shall be deemed “furnished” and not “filed”.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| | Aurios Inc. |
| | | |
| Date: August 14, 2014 |
| | | |
| | By: | /s/ Andrew M. Ling |
| | Name: | Andrew M. Ling |
| | Title: | President and Chief Executive Officer |
