SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
|x||ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31,
|¨||TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from
Commission File Number: 000-53643
(Exact name of registrant as specified in
|(State or other jurisdiction of incorporation or organization)
||(I.R.S. Employer Identification No.)|
7608 N. Shadow Mountain Rd.
Paradise Valley, AZ 85253
|(Address of principal executive offices)|
|(Registrant’s telephone number, including area code)|
|(Former name, former address and former fiscal year, if changed since last report)|
Securities registered pursuant to Section 12(b) of the
Securities registered pursuant to Section 12(g) of the
|Common Stock, no par value|
|(Title of class)|
Indicate by check mark if the registrant is a well-known seasoned
issuer, as defined in Rule 405 of the Securities Act. Yes ¨ No x
Indicate by check mark if the registrant
is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No x
Indicate by check mark whether the registrant
(1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes x No ¨
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 (§232.405 of this chapter) during the preceding 12 months (or for such
shorter period that the registrant was required to submit and post such files). Yes ¨ No
Indicate by check mark if disclosure of
delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein,
and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated
by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x
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 ¨ (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 Act). Yes ¨ No x
As of June 30, 2011, the aggregate market value of the registrant's
common equity held by non-affiliates computed by reference to the average of closing bid and ask prices ($0.325) of the registrant's
most recently completed second fiscal quarter was: $393,000.
There were 3,678,000 shares of the registrant’s common
stock issued and outstanding as of March 29, 2012.
Documents Incorporated by Reference: None.
DECEMBER 31, 2011
||Unresolved Staff Comments
||Mine Safety Disclosures
||Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
||Selected Financial Data
||Management’s Discussion and Analysis of Financial Condition and Results of Operations
||Quantitative and Qualitative Disclosures About Market Risk
||Financial Statements and Supplementary Data
||Changes In and Disagreements With Accountants on Accounting and Financial Disclosure
||Controls and Procedures
||Directors, Executive Officers and Corporate Governance
||Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
||Certain Relationships and Related Transactions, and Director Independence
||Principal Accounting Fees and Services
||Exhibits, Financial Statement Schedules
Regarding Forward Looking Statements
This Annual Report contains forward-looking
statements as that term is defined in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended. In some cases, you can identify forward-looking statements by terminology such as “may,”
“should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,”
“predicts,” “potential,” “continue,” “intends,” and other variations of these words
or comparable words. In addition, any statements that refer to expectations, projections or other characterizations of events,
circumstances or trends and that do not relate to historical matters are 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. These statements are only predictions and involve known and unknown risks, uncertainties
and other factors, including the risks in the section entitled “Risk Factors” that may cause our or our industry’s
actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity,
performance or achievements expressed or implied by these forward-looking statements.
Although we believe that the expectations
reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance
or achievements. You should not place undue reliance on these forward-looking statements, which speak only as of the date of this
report. Except as required by law, we do not undertake to update or revise any of the forward-looking statements to conform these
statements to actual results, whether as a result of new information, future events or otherwise.
As used in this Annual Report, “Aurios,”
the “Company,” “we,” “us,” or “our” refer to Aurios Inc., unless otherwise
We produce, market and distribute vibration
isolation products to the high-end audio and video markets in the United States and in certain foreign countries. Our products
include three bearings: the Aurios Classic Media Isolation Bearing (the “Classic MIB”), the Aurios Pro Max Media Isolation
Bearing (the “Pro Max MIB”), and the Aurios Isotone Media Isolation Bearing (the “Isotone MIB”); the Series
100 Component Shelf, a shelf product; and Pivot Points, a spike mount product. We sell the last of the foregoing bearings products
to one distributor and it is a variation of the Classic MIB. The manner in which the bearings alter body wave transmissions is
a function of material selection, surface hardness and material volume, to name just a few of the parameters that will impact how
the sound is reproduced.
The Pro Max MIB replaces the Aurios Pro
bearing, and is engineered to offer the same performance and at an attractive wholesale price of between $250 and $349 for a package
of three. The size of the Pro Max MIB is approximately one inch high and two and one-half inches in diameter. The Pro Max MIB:
|•||re-configures the effective mass of the original Pro bearing and adds 2% more mass to the critical wave pathway;|
|•||reduces the critical surface contact areas by 25%, thus enhancing the level of decoupling; and|
|•||reduces costs through its new symmetrical design.|
The Pro Max MIB is the largest bearing
that we offer and is ideal for large speakers. These bearings can be used in a home, in a recording studio and on stage. The weight
capacity per bearing is 500 lbs (227 kgs). The Pro Max MIB can be used under DVD/CD players, amps, preamps, turntables and power
The Classic MIB lacks the girth of the
Pro Max MIB bearings. This slimmed down model is the most popular bearing in the Aurios product line. These bearings are also placed
under amps, preamps, CD/DVD players, turntables, speakers and power conditioners. The price of the Classic MIB is from $99 to $199
on a wholesale basis for a box of three. The size of the Classic MIB is approximately one inch high and one and one-half
inches in diameter.
We also offer a shelf product, the
Series 100 Component Shelf that incorporates our bearings products and a spike mount that is used to support equipment and reduce
the effects of vibrations. The shelf product incorporates four bearings, is placed on the floor and a speaker is placed on the
shelf. The Series 100 Component Shelf provides the same level of isolation as our bearings product. Our spike mounts, Pivot Points,
are used to support equipment and reduce the effects of vibrations. The Pivot Points product is not as effective as our Media Isolation
Bearing products, but it can be sold at a much lower price.
Our vibration isolation products produce
superior sound quality by sharpening, not softening, the sound. Advanced Vibration Technologies Inc., an Arizona corporation (“AVT”),
holds the patents respecting our products in the United States and Taiwan. AVT has granted us a non-exclusive world-wide license
to sell the products under the patents (the “AVT License”). The AVT License automatically renews every year
as long as we are in compliance with its terms. We pay AVT a royalty of 5% of our net sales for the license. On March 26, 2010,
True Gravity Enterprises, Inc. (“TGE”) sold the federally registered trademark respecting the “Aurios”
name to us for nominal consideration. We outsource the manufacture of our products to several qualified machine shops in the Phoenix
Our annual sales have declined from approximately
$255,000 in 2001, on an unaudited basis, to current levels. The initial downward trend in sales was due to a poor working relationship
with our first distributor. Payment from this first distributor was slow and we wrote off approximately $75,000 (unaudited) worth
of returned inventory in 2003. We then attempted to sell the product directly and were not successful. The next distributor we
selected was too small to sell a large quantity of product. By mid-2004, we only had one distributor, located in Chicago, with
whom we continue to work. We have done little to support the product line since 2004 due to a lack of resources.
In the first quarter of 2000, TGE, our
former parent company and the former licensor of our products to us, became aware of the demand for vibration isolation products
in the high-end audio and video market. TGE designed and manufactured vibration isolation devices for use in high-end applications.
These products were sold through Vistek Inc., a wholly-owned subsidiary of TGE. In response to the demand, TGE developed a bearing
called the Media Isolation Bearing Series 1.0 (the “MIB 1.0”). In August 2001, TGE incorporated us as its wholly-owned
subsidiary to promote the sale of Aurios MIB products. We ceased being a wholly-owned subsidiary of TGE in June 2007 and TGE ceased
being our shareholder on December 31, 2007. On February 25, 2010, TGE sold substantially all of its assets, including the
patents we use in our products, to AVT. As of February 25, 2010, AVT licensed us the patents we use in our products.
Since 2001 and the development of the MIB
1.0, we have refined the product design and manufacturing processes. Our experience has led us to select three bearings as our
products: the Classic MIB, the Isotone MIB, and the Pro Max MIB; a shelf product, the Series 100 Component Shelf; and a spike mount
product, Pivot Points, as our products. The Classic MIB and the Pro Max MIB bearings may be augmented with an additional level
of isolation that is placed on top of these bearings.
On May 8, 2009, our registration statement
on Form S-1 was declared effective by the US Securities and Exchange Commission (“SEC”), which registered the resale
of up to 193,000 shares of our issued and outstanding common stock, no par value per share, and 307,000 shares of common stock
issuable upon the conversion of 122,800 outstanding shares of our Series A Convertible Preferred Stock (“Preferred Stock”).
Our common stock is quoted on the OTC Bulletin Board under the symbol “AURZ.”
Effective August 31, 2009,
we adopted a 2.5-for-1 forward split of all of our outstanding common stock. All common stock shares and the conversion rate of
the Preferred Stock, warrants and options reflected within this report have been adjusted to reflect the split. Our corporate offices
are located at 7608 N. Shadow Mtn. Rd., Paradise Valley, Arizona 85253 and our telephone number is (602) 321-1313.
Most vibration isolation products on the
market today deal with the problem of vibration by dampening the vibration energy. In dampening the vibration energy, such energy
is converted to heat and this energy conversion dampens the vibrations and alters the reproduced sound. The effect is a softening
of the sound and is analogous to the effect a filter on a camera would have on the picture quality of a photograph.
Our technology conserves energy and does
not convert the energy to heat. By conserving energy, the vibrations are removed and the sound quality is sharpened, not softened.
To the audiophile, the sharpening effect produces a truer sound than sound reproduced with the sound dampening products on the
We believe that we can increase the sales
of our products through a three-pronged strategy, provided that we have sufficient capital. First, we plan to introduce and promote
new products to keep the Aurios name and products prominent in the audiophile market, which includes the home theater market. Second,
we plan to promote sales of our products on-line with our new web site to capitalize on the popularity of social networks and on-line
sales promotional tools. Finally, we plan to strengthen our distributor network both domestically and internationally.
We believe we can return to profitability
by simplifying our product selection and our approach to the market, again provided that we have sufficient capital. The product
selection had become too large and expensive to maintain and assemble. It became difficult to keep an inventory of products available
to ship. Therefore, in 2012, we plan to re-focus the product line and our sales and marketing efforts.
Product Selection. We will discontinue
the following products: Series 100 Component Shelf; Isotone Bearings; and Accessories. We will continue to offer the ProMax Bearings
and the Classic Bearings. In keeping with a renewed focus on bearings and simplicity, we will introduce the Pivot Points, which
is an inexpensive product to manufacture and requires no assembly. This product was developed in 2010, but never rolled out because
the manufacturers selected were not able to deliver the product in small quantities at low prices and insisted on larger minimum
orders. TGE has agreed to maintain an inventory of the products and sell them to us on a cost basis and as needed.
Sales & Marketing Approach.
Customer loyalty is rare in the internet age when customers routinely shop for the lowest price on line. In the past we have maintained
a few distributors in the hopes that they would aggressively market our products on our behalf. The strategy has not worked for
us. At this juncture, we now believe that we should open up the list of suppliers and simply base pricing on volume. The distributors
that purchase the largest volume of product will pay the lowest price.
In the second quarter of 2012, we plan
to send a sample of the Pivot Points to numerous print and online publications for product reviews, which will mark the launch
of this product line.
On-line Marketing. We also plan
to simplify the website to promote easy purchasing by end users and distributors. The web page employs the latest flash technology
giving the web page a more current look and feel. In addition, our web page contains an on-line store where our customers can purchase
our products from us directly.
Strengthened Distribution. We intend
to identify strong, high-end brick and mortar distributors within the major metropolitan regions in the United States and provide
these distributors with aggressive pricing to give them incentive to carry a small amount of inventory. Through integrating our
on-line sales and marketing approach with that of our distributors, our distributors will continue to market our products without
fear that potential customers can simply by-pass them and purchase directly from us. Recently, we engaged a distributor in the
Netherlands (Music Matters, www.music-matters.org). In 2009, we have added Roksan Trading, located in Taiwan, and ECS Ltd., located
in the UK, to our international sales force. For the year ended December 31, 2010, 56% and 19% of sales were made to distributors
Music Direct and Bernard Koop, respectively. For the year ended December 31, 2011, 46% and 25% of sales were made to distributors
Music Direct and Roksan Trading Co., respectively. Revenues from sales to Music Direct for fiscal year 2010 and 2011 totaled
$10,335 and $10,080, respectively. Revenues from sales to Roksan Trading Co. for fiscal year 2011 and 2010 totaled $5,427 and $2,762,
respectively. We can negotiate distributions agreements telephonically and through the exchange of documents on-line. Thus, we
believe we can manage our relationship with our international distributors without incurring travel costs.
Market and Industry Overview
The market for audio component vibration
isolation products is audiophiles. While audiophiles may be relatively few in number when compared to the general public, they
are typically high income, college educated, professionals who are willing to pay a premium for even the slightest improvement
in sound quality.
The market for audiophile accessories is
limited by the number of audiophiles. These customers tend to want the best and most current product available. After a few years
on the market, a new accessory or product ceases to be “new” and then the product cannot command the same premium.
In this type of market, manufacturers must either transition the product into the broader mass market or continually introduce
new products or variations on previous products to maintain their reputation as being innovative and on the cutting-edge of technology.
The demand for high performance entertainment
electronics is fueled by the consumer’s desire for a more realistic sound experience when watching television, movies or
when listening to music. The higher resolution, range and dynamic power of contemporary consumer’s audio and video systems
reveal critical sound subtleties that were masked by older technologies. We believe that consumers are demanding products capable
of providing a more fulfilling audio experience and are searching for products that can deliver movie theater quality and more
authentic sound to their home theaters. This demand and interest in sound quality has lead to new product development in the industry
aimed at assisting the consumer to secure the desired heightened entertainment experience. We hope to tap the growing home theater
market to increase sales of our products as consumers demand larger, better quality screens and theater-quality sound for their
Isolating entertainment media sources,
such as CD players, turntables, DVD/Laserdisc video players, speakers, amplifiers and high-resolution televisions, from vibrations
improves the quality of sound reproduction. While sound reproduction is enhanced through reducing the transmission of vibrations
from the environment into the audio component, a significant benefit also results from removing the vibration energy created by
these audio components that would otherwise reverberate and distort sound reproduction.
AVT holds the patents respecting our products
in the United States and Taiwan. We have a non-exclusive worldwide license from AVT to produce the Pro Max MIB, the Classic MIB
and the Isotone MIB. We pay a royalty of 5% of our net sales to AVT for the AVT License. This license with AVT automatically renews
every year, unless the agreement is terminated: (i) due to a material breach that is not cured within 60 days of notice of
such breach; (ii) by written statement by one of the parties of such party’s inability or unwillingness to perform pursuant
to the terms and conditions of the license agreement; or (iii) due to a change of control or ownership or control of one party
by or to any third party who is a competitor of the other party.
Sales and Marketing
From the early stages of our product development
from the first quarter 2000 through 2002, we sold our product through a single master distributor. This distributor was responsible
for advertising, delivering samples to influential product reviewers and selling the product downstream. This single distributor
would select regional storefronts through which the product would be re-sold. We supported this distributor with a web site and
a limited number of samples.
The relationship with this distributor
deteriorated as a result of slow payment and non-payment by the distributor’s customers. Beginning in 2003, we sold our product
directly while we searched for a new distributor. Sales were made to resellers within in the United States.
In the second quarter 2003, we selected
a new national distributor. Unfortunately, this distributor was too small and could not purchase a sufficiently large volume of
our product to justify the discounted price we were offering. Therefore, in the second quarter 2004, we terminated our relationship
with this distributor and abandoned our approach of using a single master distributor.
Since the second quarter 2004, we have
sold to a variety of resellers and end users. In every instance, the price charged is a function of the volume purchased. Consequently,
resellers buying in volume will pay a lower price than an end user purchasing product for his needs only. In the second quarter
2004, we only had one distributor, located in Chicago, with whom we continue to work. While we have done little to support the
product line since 2004 due to lack of resources, we have added a few foreign distributors through whom we have received intermittent,
but increasing, sales. The allocation of our sales between sales in the United States and international sales fluctuates. In fiscal
year 2011, our international sales were 46% of our total sales.
Sales and Marketing Strategy
We commenced a private placement of our
common stock in August 2009. As of March 29, 2010, we had sold 288,000 shares, for gross proceeds of $72,000, under the private
placement. We used part of the proceeds from the private placement to help us reinvigorate our approach to marketing. We employed
a strategy of developing an online sales and marketing approach, such as the use of search engine optimization and the purchase
of banner advertisements, to integrate with a strengthened distributor network. We hoped that the introduction of new products
would bring new visibility to us.
As with most markets, the internet has
impacted the audiophile market tremendously. Before the internet, manufacturers typically distributed their products through brick-and-mortar
storefronts that primarily sold high-end, specialty stereo systems. Stores were encouraged to carry an inventory of products so
they could quickly service their customers. A manufacturer could conceivably sell to thousands of specialty stores.
Initially, the internet made it difficult
to bring audio products to the market through storefronts because these stores do not generally carry inventory. The storefronts
would only carry a sample of the product and then place orders as needed. This distribution structure evolved because audiophiles
could purchase audio accessories either directly from the manufacturer online or from internet based companies with little overhead,
and therefore, pay a lower price for the product. Consequently, it was not practical to support a network of storefronts because
the distributors were reluctant to support a product if they feared the manufacturer could easily go around them with online sales
through the company’s web page.
Consequently, in the early stages of the
internet, storefronts were threatened by the internet. The storefronts that survived did so by selling expertise. The internet
brought an explosion of smaller manufacturers to the market. The storefronts became the trusted advisor that an audiophile could
turn to for help in distilling all the information regarding the products offered in the audiophile market. Furthermore, in-home
audio/video systems have become very complicated and support beyond installation is now often required.
The role of the storefront as the trusted
advisor was enhanced by the popularity of blogs and other “social networking” websites that have developed as the internet
has evolved from a static source of information to a dynamic, organic medium for the exchange of information. Over the last several
years, we believe that the internet experienced a paradigm shift. In the internet’s infancy, information online was created,
controlled and pushed from one side of the web to its users. We believe that the internet has evolved into an entirely different
environment coined “Web 2.0.” In the current Web 2.0 world, websites are dynamic, non-static and many are built on
the contributions of participants. This content developed by those who do not own the web site is called user-generated content.
Social networks, blogs and other user-generated
content web sites have provided the most dynamic new aspects of the Web 2.0 world. According to Dow Jones Newswires article “Facebook
Surpasses MySpace To Become Social-Networking King” dated August 13, 2008, “[t]he number of social-network users
grew 9% in North America but leapt 25% globally to 580.5 million people.” In the “social network web” environment,
millions of people now network, browse content and build extensive online contacts.
The “social network web” is
comprised of internet users who want to communicate quickly with large audiences. As a result, social networking has completely
altered the way online information and media is exchanged. Furthermore, small budget merchants that embrace blogging and social
networking can build extremely effective advertising campaigns. These marketing campaigns are referred to as “viral”
We have developed a MySpace page (see www.myspace.com/aurios)
and our web page allows others to post used audio equipment for sale through such Myspace page. Our Myspace page and our used
audio equipment section of our website are both low-cost methods that we are employing to increase our visibility and to advertise
We plan to have our web page host one or
more blogs authored and maintained by individuals who carry influence within the audio/video market. We will receive the benefit
of traffic to our web site and the blogger receives the benefit of traffic to the blog. Hosting a blog is a low-cost method that
we intend to employ to draw traffic to our web site. To date we have not approached any individuals to host a blog on our website.
We are interviewing search engine optimization firms, but have not made a selection yet. Our objective in retaining a search
engine optimization firm is that it will help us identify and attract individuals who carry influence within our industry to author
a blog hosted on our website.
There are numerous other companies, including
Kinetics Systems, Inc., Bright Star, Audioquest, Final Labs and Symposium, that are engaged in manufacturing or selling vibration
isolation products. Many of these companies have substantially greater resources than we do and enjoy established production facilities
and processes, market presence, distribution networks and market share. It is likely that any or all of these other companies are
in the process of, and have allocated substantially more resources in, developing their own products that are or would be competitive
with our products.
The isolation products available include
rubber feet, conical metal feet, constrained layer shelving, air isolation platforms, corkboards, and various roller bearing products.
The companies selling these products range from national manufacturers of air isolation bearings and tables to small proprietorships.
The following summarizes certain of the
principal competitive products available:
|Townshend Audio Seismic Sinks:
||Pneumatic (passive) platform, which is a constrained layer of a composite of steel and Isodamp rubber. It uses air bladders to cut the transmission of vertical vibrations.|
||Manufactured by Kinetics Systems, Inc. and sold by Sounds of Silence, which is in Nashua, New Hampshire.|
||Wood platforms resting on a sand-filled base. The product dampens the energy, but does not convert it.|
||A variety of cone and ball shaped feet manufactured by Sorbethane.|
||Japanese company that manufactures the Daruma roller bearing. It sells in the United States market through an importer in Miami.|
|Symposium Roller Blocks:
||This is a very small United States company with a roller-type bearing product. Applications are limited by weight carrying capacity of bearing and construction.|
Patents and Trademark
AVT owns the following patents on an invention
titled “Mechanical Signal Filter” which protect the Pro Max MIB and Classic MIB.
Under our license agreement with AVT, it
has the right to enforce and defend the patents from infringement and to bear the associated costs. There can be no assurance that
any of AVT’s future patent applications, if any, will be issued with the scope of the claim sought, if at all. There also
can be no assurance that any patents AVT may obtain will not be invalidated, circumvented or challenged. Furthermore, there can
be no assurance that others will not develop technologies that are similar or superior to AVT’s technology or design around
any patents AVT owns. Unauthorized parties may attempt to copy aspects of the Aurios products or to obtain or use information that
we or AVT regard as proprietary. In addition, the laws of some foreign countries do not protect patent rights as fully as do the
laws of the United States. There can be no assurance that AVT’s means of protecting the foregoing proprietary rights in the
United States or abroad will be adequate or that others will not independently develop similar or superior technology.
On March 26, 2010, TGE assigned the federally
registered trademark respecting the “Aurios” name to us in consideration for a payment of $100.
We have no employees. We have outsourced
our principal functions until we achieve a scale that requires us to reconsider this business model. AVT provided administrative
support and personnel to us at $1,500 per month under an administration services/rental agreement that expired on July 31, 2010.
For the balance of fiscal 2010 and in fiscal 2011, our President provided similar services to us, as well as office and warehouse
space in his residence, without charge.
ITEM 1A. Risk Factors.
You should carefully consider the following
risk factors in evaluating our business and us. The factors listed below represent certain important factors that we
believe could cause our business results to differ. These factors are not intended to represent a complete list of the
general or specific risks that may affect us. It should be recognized that other risks may be significant, presently
or in the future, and the risks set forth below may affect us to a greater extent than indicated. If any of the following
risks occur, our business, financial condition or results of operations could be materially and adversely affected. You
should also consider the other information included in this Annual Report and subsequent quarterly reports filed with the SEC.
Risks Related to the Company
We have a history of declining operating results.
We have incurred net
losses from August 7, 2001 (inception) to December 31, 2011. We had an accumulated deficit at December 31, 2011 of $463,390
and have had negative cash flows from our operations. Since 2004 we have generated limited revenues and we have expended minimal
funds to support our products due to lack of funds. We used the proceeds from our private placement of common stock to rejuvenate
the presentation of our products and marketing efforts in order to increase revenues and profits and to provide working capital.
We have not been successful in these regards.
Investors may lose all of their investment.
Investment in us involves a high degree
of risk. Investors may never recoup all or part of their investment or realize any return on their investment. Accordingly, investors
may lose all of their investment and must be prepared to do so.
Our independent registered public accounting firm has
included an explanatory paragraph in its opinion regarding our ability to continue as a going concern, which could negatively impact
our ability to obtain additional funding and the market price of our stock.
We have an accumulated deficit and have
had negative cash flows from our operations. Accordingly, we have received a report from our independent registered public accounting
firm that includes an explanatory paragraph describing its substantial doubt about our ability to continue as a going concern.
This may negatively impact our ability to obtain additional funding or funding on terms attractive to us and may negatively impact
the market price of our stock.
Our cash requirements may vary materially
from those now planned depending on numerous factors, including the results of our marketing efforts, our business development
activities, the results of future research and development, and competition. We believe that the bridge loans from our principal
shareholders in 2010 and 2011 will be sufficient to fund our working capital and other capital requirements for the immediate future
until we are able to improve our operating performance. If, however, our estimates are incorrect and we require additional capital,
there can be no assurance that additional funds will be available on terms attractive to us or at all. If adequate funds are not
available, we may be required to curtail our marketing and new product development activities and/or otherwise materially reduce
Our ability to fully implement our business plan and increase
revenues will depend on our ability to execute our business plan and may require us to raise additional capital through the sale
of debt or equity securities.
We believe that we have sufficient working
capital to pursue the initial stage of our business plan as described in this report. We may incur operating deficits as we implement
our business plan. Our ability to fully implement our business plan and significantly increase our revenues will depend upon our
ability to execute our business plan and may require us to raise additional capital through the sale of debt or equity securities.
If we do not achieve a profitable level of operations from our operations, we will require additional capital. No assurance can
be given that we will be able to obtain additional capital or, if available, that such capital will be available at terms acceptable
to us, or that we will be able to generate profits from operations, or if profits are generated, that they will be sufficient to
carry out our business plan, or that the plan will not be modified.
Our ability to successfully market our
products to the intended range of customers depends on our ability to retain employees or consultants with strong industry contacts
and knowledge of our products. Individuals with specialized industry skills may be in short supply given our size and competition
for qualified sales persons is intense. The failure to attract new qualified personnel could adversely affect our business and
In formulating our business plan, we have
relied on the judgment of our officers and their experience in and research on the industry. There can be no assurance that we
will be able to obtain sufficient financing or implement the business plan that we have devised. Further, even with sufficient
financing, there can be no assurance that we will be able to expand on a national or international basis or operate our business
on a profitable basis. Our plans are based upon the assumptions that present market conditions in the business that we operate
will continue and that the risks described in this report will be dealt with successfully. There can be no assurance that such
plans will be realized or that any of the assumptions will prove to be correct.
We may need additional financing and such financing could
include equity financing, which may be dilutive to stockholders, or debt financing, which would likely restrict our ability to
borrow from other sources.
Our cash requirements may vary materially
from those now planned depending on numerous factors, including the status of our marketing efforts, our business development activities,
the results of future research and development and competition. The net proceeds from our private placement of our equity securities
in the third and fourth quarters of 2009 and first quarter of 2010, our prior capital raising activities, together with our projected
revenue and cash flow from operations, if any, may not be sufficient to fund our working and other capital requirements for the
next twelve months in accordance with the business plan set forth in this report. We therefore would need to raise additional funds
to finance our capital requirements through new financings to achieve the level of operations we anticipate. Such financings could
include equity financing, which may be dilutive to stockholders, or debt financing, which would likely restrict our ability to
borrow from other sources. In addition, such securities may contain rights, preferences or privileges senior to those of the rights
of our current shareholders. We do not have any commitments for additional financing. There can be no assurance that additional
funds will be available on terms attractive to us or at all. If adequate funds are not available, we may be required to curtail
our marketing and new product development activities and/or otherwise materially reduce our operations. Any inability to raise
adequate funds could have a material adverse effect on our business, results of operation and financial condition.
We conducted our own research into the markets for our
products and have uncertainties regarding increasing revenues and market penetration.
We conducted our own research into the
markets for our products. In formulating our business plan, we have relied on the judgment of our officers and their research and
experience. Our plans are based upon the assumptions that present market conditions in the business in which we operate will continue
and that the risks described in this report will be dealt with successfully. There can be no assurance that we will be successful
in our efforts to increase our market penetration or to develop markets in the manner we contemplate.
We will continue to incur the expenses of complying with
public company reporting requirements.
We have an obligation to continue to comply
with the applicable reporting requirements of the Securities Exchange Act of 1934, as amended, even though compliance with such
reporting requirements is economically burdensome.
We may experience difficulties in the future in complying
with certain requirements of Section 404 of the Sarbanes-Oxley Act.
Because we are a public company, we are
required to evaluate our internal controls under Section 404 of the Sarbanes-Oxley Act of 2002. If we fail to maintain the
adequacy of our internal controls, we could be subject to regulatory scrutiny, civil or criminal penalties and/or stockholder litigation.
Any inability to provide reliable financial reports could harm our business. Furthermore, any failure to implement required new
or improved controls, or difficulties encountered in the implementation of adequate controls over our financial processes and reporting
in the future, could harm our operating results or cause us to fail to meet our reporting obligations.
If we fail to maintain proper and effective
internal controls in future periods, it could adversely affect our operating results, financial condition and our ability to run
our business effectively and could cause investors to lose confidence in our financial reporting.
There are economic and general risks relating to our business.
The success of our activities is subject
to risks inherent in business generally, including (i) demand for products and services; (ii) general economic conditions;
(iii) changes in taxes and tax laws; and (iv) changes in governmental regulations and policies.
Our costs of production may exceed those of our competitors
and may adversely impact our profitability.
Our actual costs of production may exceed
those of competitors and, even if our costs of production are lower, our competitors may be able to sell the same or similar products
at a lower price than is economical for us.
We license the intellectual property necessary for our
products from AVT and we are uncertain of AVT’s ability to protect such intellectual property through patents.
We do not own the intellectual property
necessary for our products. We license such intellectual property from AVT. Such license is terminable and non-exclusive, and therefore,
AVT could license the intellectual property underlying our products to our current and future competitors.
We rely on AVT to protect the intellectual
property respecting our products. AVT, and its predecessor TGE, have used a combination of U.S. and foreign patent and trademark
laws, trade secrets, confidentiality procedures and contractual provisions to protect its proprietary rights to our products. There
can, however, be no assurance that any of AVT’s pending or future patent applications, whether or not being currently challenged
by applicable governmental patent examiners, will be issued with the scope of the claims sought, if at all. There also can be no
assurance that any patents AVT has or may obtain will not be invalidated, circumvented or challenged. Furthermore, there can be
no assurance that others will not develop technologies which are similar or superior to AVT’s technology or design around
any patents owned by it. Unauthorized parties may attempt to copy aspects of the products or to obtain and use information they
regard as proprietary. In addition, the laws of some foreign countries do not protect proprietary rights as fully as do the laws
of the United States. There can be no assurance that AVT’s means of protecting its proprietary rights in the United States
will be adequate or that others will not independently develop similar or superior technology.
We rely on third party distributors and representatives
for our marketing capability.
Our distribution strategy is to pursue
sales through multiple channels with an emphasis on independent distributors and representatives. Our inability to recruit
and retain audio equipment distributors and representatives who can successfully sell our products would adversely affect our sales. In
addition, our arrangements with our distributors and representatives are generally short-term. If we do not competitively
price our products, meet the requirements of our distributors and representatives or end-users, provide adequate marketing and
technical support, or comply with the terms of our distribution arrangements, our distributors and representatives may fail to
market our products or may terminate their relationships with us. These developments would likely have a material adverse
effect on our sales. Our reliance on the sales of our products by others also makes it more difficult to predict our
revenues, cash flow and operating results.
We are dependent on key personnel.
We are highly dependent on the services
of Paul Attaway and Timothy Louis. The loss of the services of either of these individuals would harm our business. Our future
success also depends on our ability to attract, train, retain and motivate other highly qualified sales, technical and managerial
personnel. Competition for such personnel is intense and we may not be able to attract, train, retain or motivate such persons
in the future.
There is a limited public market for our common stock
and you may not be able to sell your shares of common stock in the future, even if a more liquid market develops.
There is a limited public market for our
common stock. Our common stock is included on the Over-the-Counter Bulletin Board (“OTC Bulletin Board”) under the
symbol “AURZ,” but few trades have been effected. There can be no assurance that an active market will develop for
our common stock on the OTC Bulletin Board. Additionally, there can be no assurance any broker will be interested in trading our
common stock. Therefore, it may be difficult for holders of our common stock to sell their shares if they desire or need to sell
Our stock price is likely to be highly volatile because
of several factors, including a limited public float.
Once trading of our common stock commences
on the OTC Bulletin Board, the market price of our stock is likely to be highly volatile because there will likely be a relatively
thin trading market for our common stock, which may cause trades of small blocks of stock to have a significant impact on our stock
price. Holders of our common stock may not be able to resell it following periods of volatility because of the market’s adverse
reaction to volatility.
Other factors that could cause such volatility
may include, among other things:
|•||actual or anticipated fluctuations in our operating results;|
|•||the potential absence of securities analysts covering us and distributing research and recommendations about us;|
|•||we may have a low trading volume for a number of reasons, including that a large amount of our stock is closely held;|
|•||overall stock market fluctuations;|
|•||announcements concerning our business or those of our competitors;|
|•||our ability to raise capital when we require it, and to raise such capital on favorable terms;|
|•||changes in financial estimates by securities analysts or our failure to perform as anticipated by the analysts;|
|•||announcements of technological innovations;|
|•||conditions or trends in the industry;|
|•||changes in market valuations of other similar companies;|
|•||future sales of common stock;|
|•||departure of key personnel or failure to hire key personnel; and|
|•||general market conditions.|
Any of these factors could have a significant
and adverse impact on the market price of our common stock. In addition, the stock market in general has at times experienced extreme
volatility and rapid decline that has often been unrelated or disproportionate to the operating performance of particular companies.
These broad market fluctuations may adversely affect the trading price of our common stock, regardless of our actual operating
Coalitions of a few of our larger stockholders have sufficient
voting power to make corporate governance decisions that could have significant effect on us and the other stockholders.
As of March 29, 2012, our largest stockholders,
Paul Attaway, Ira J. Gaines and Christian J. Hoffmann, III hold shares representing approximately 66.8% of the voting power of
our outstanding capital stock, including the conversion of their bridge loans into common stock. These shareholders will, if they
act together, exercise significant influence over all matters requiring shareholder approval, including the election of directors
and the determination of significant corporate actions, as well as control the management, policies and operation of the Company.
This concentration of ownership could depress the stock price or value of the Company or delay or prevent a change in control that
could be otherwise beneficial to our shareholders.
Risks Related to the Industry
Our market is characterized by new products and rapid
Our industry is susceptible to fast-paced
technological advancements and our competitive advantage may be reduced if we fail to keep up with changes in the technological
processes. Our products are subject to technological change and innovation. Technological developments are occurring rapidly and
while the effects of such developments are uncertain, they may have a material adverse effect on the demand for our products. Additionally,
we may not be able to match any technological changes to the needs of our target customers, which will reduce demand for our products.
If we are unable to
compete in our market, you may lose all or part of your investment.
There are numerous other companies, including
Kinetics Systems, Inc., Bright Star, Audioquest, Final Labs and Symposium, that are engaged in the business of manufacturing or
selling vibration isolation products. Some of these companies may have greater resources than we do and enjoy well established
production facilities and processes, market presence, distribution networks and market share. It is likely that any or all of these
other companies are in the process of, and have allocated substantially more resources than we have, in developing their own products
that are or would be competitive with our high purity products. If any of these companies is successful in its efforts to develop
high quality vibration isolation products at lower costs than it now apparently has, such a company would have substantially greater
resources to market its competing products. Their ability to produce economies of scale may put us at a disadvantage. Increased
competition or our failure to compete successfully is likely to result in price reductions, fewer customer orders, reduced gross
margins, increased marketing costs, failure to acquire or retain market share, or any combination of these problems.
Risks Relating to our
Any future sale of a substantial number of shares of our
common stock could depress the trading price of our common stock, lower our value and make it more difficult for us to raise capital.
The sale of a substantial number of shares
of our common stock, or the prospect of such sales, may have the effect of depressing the trading price of our common stock. In
addition, those sales could lower our value and make it more difficult for us to raise capital. Further, the timing of the sale
of the shares of our common stock may occur at a time when we would otherwise be able to obtain additional equity capital on terms
more favorable to us.
The possible issuance of common stock subject to options
and warrants may dilute the interest of stockholders.
The board of directors adopted the 2007
Stock Option and Restricted Stock Plan (the “2007 Plan”) on July 1, 2007 and the shareholders approved the Plan
on July 8, 2007. The Plan authorizes us to issue up to 625,000 shares of our common stock upon exercise of options and grant
of restricted stock awards. To date, we have not issued any options or restricted stock awards under the Plan. To the extent we
issue stock options or warrants under the 2007 Plan and such outstanding stock options and warrants are exercised, dilution to
the interests of our stockholders may occur. Moreover, the terms upon which we will be able to obtain additional equity capital
may be adversely affected since the holders of the outstanding options can be expected to exercise them at a time when we would,
in all likelihood, be able to obtain any needed capital on terms more favorable to us than those provided in such outstanding options.
We have additional securities available for issuance,
which, if issued, could adversely affect the rights of the holders of our common stock.
Our Articles of Incorporation authorize
the issuance of 90,000,000 shares of our common stock and 10,000,000 shares of preferred stock. The common stock and preferred
stock can be issued by our board of directors, without stockholder approval. Any future issuances of our common stock would further
dilute the percentage ownership of the Company held by our stockholders.
We have never paid dividends and have no plans to in the
do not intend to pay dividends on our common stock in the foreseeable future. As an Arizona corporation, we are legally permitted
to declare and pay dividends only out of surplus, or, if there is no surplus, out of net profits for the fiscal year in which the
dividend is declared and for the preceding fiscal year. To the extent no surplus or net profits of the Company are available for
payment of dividends, we cannot pay dividends on our common stock. Any dividends not paid will accrue. No interest will be paid
on any accrued but unpaid dividends. There can no be no assurance that we will declare any dividends or have sufficient surplus
or generate any or sufficient earnings to pay cash or stock dividends on our common stock. We will pay dividends on our common
stock, when and if declared by the board of directors and when and if funds are legally available therefore. If dividends are declared,
all accrued but unpaid dividends on the Preferred Stock must be paid in full before any additional dividends may be declared and
paid on the Common Stock. Dividends shall accrue if they are not paid when due.
Indemnification of officers and directors.
The Articles of Incorporation and Bylaws
of the Company contain broad indemnification and liability limiting provisions regarding its officers, directors and employees,
including the limitation of liability for certain violations of fiduciary duties. Our shareholders therefore will have only limited
recourse against the individuals.
ITEM 1B. Unresolved Staff Comments.
ITEM 2. Description of Property.
Our executive office consists of use of
office space and storage that our President has provided to us in his residence located at 7608 N. Shadow Mountain Road, Paradise
Valley, AZ 85253 without charge. We believe that our current facilities are adequate to meet our operational needs for the upcoming
ITEM 3. Legal Proceedings.
We are not involved
in any pending litigation, legal proceedings or claims.
ITEM 4. Mine Safety Disclosures.
ITEM 5. Market for Registrant’s Common Equity, Related
Stockholder Matters and Issuer Purchases of Equity Securities.
Principal Market and Price Range of Common Stock
Our common stock trades on the OTC Bulletin
Board (OTCBB) under the symbol “AURZ.” The following table sets forth the high and low closing bid prices for our common
stock as reported by the OTCBB. The trading in our common stock has been minimal during the periods shown. The closing price of
the common stock on March 30, 2012 was $0.30 per share. The quotations reflect interdealer bid prices without retail
markup, markdown or commission and may not represent actual transactions.
|Year Ended December 31, 2010||
|| ||0.40|| ||
|| ||0.25|| |
|| ||0.30|| ||
|| ||0.10|| |
|| ||0.30|| ||
|| ||0.30|| |
|| || || ||
|| || || |
|Year Ended December 31, 2011||
|| || High || ||
|| || Low|| |
|| ||0.30|| ||
|| ||0.30|| |
|| ||0.30|| ||
|| ||0.05|| |
|| ||0.06|| ||
|| ||0.06|| |
Holders of Common Stock and Preferred Stock
We had approximately 37 shareholders of
record of our common stock as of March 30, 2012.
We have not declared or paid cash dividends
on our shares of common stock. The holders of the shares of common stock will be entitled to non-cumulative dividends on
the shares of common stock, when and as declared by our board of directors, in its discretion. We intend to retain all future earnings,
if any, for our business and do not anticipate paying cash dividends in the foreseeable future.
Any future determination to pay cash dividends
will be at the discretion of our board of directors and will be dependent upon our financial condition, results of operations,
capital requirements, general business conditions and such other factors as our board of directors may deem relevant.
Securities Authorized for Issuance under Equity Compensation
In July 2007 our stockholders approved
the 2007 Stock Option and Restricted Stock Plan (the “Plan”), under which both incentive and non-statutory stock options
may be granted to employees, officers, non-employee directors and consultants. A total of 625,000 shares of our common stock are
reserved for issuance under the Plan. We have not granted any options under the Plan. Any options that may be granted under the
Plan must be at exercise prices not less than the fair market value of such stock at the date of grant, may be exercisable immediately
or vest over time as directed by our Board of Directors and would have expiration dates not more than ten years after the date
The following table sets forth certain
information regarding the Company’s equity compensation plans as of December 31, 2011.
||Number of securities to
upon exercise of
exercise price of
||Number of securities
for future issuance
compensation plans (excluding securities
reflected in column (a))
|Equity compensation plans approved by stockholders
|Equity compensation plans not approved by stockholders
Recent Issuances of Unregistered Securities
From August 31, 2009 to March 29, 2010,
we conducted a private placement of shares of our common stock to “accredited investors,” as such term is defined in
Regulation D promulgated under the Securities Act of 1933, as amended (“Securities Act”), at a price of $0.25 per share.
We sold 288,000 shares, for gross proceeds of $72,000 in the private placement. Our officers and directors sold the common stock
and we did not pay any commissions to them in connection with such sales. Purchasers included an officer and principal shareholders.
The shares were issued in reliance on the exemptions from registration set forth in Section 4(2) of the Securities Act. See "Item
13. Certain Relationships and Related Transactions, and Director Independence."
In December 2010 we issued $30,000 principal
amount of Series A Convertible Notes in a private placement to three "accredited investors" to raise working capital.
The Notes are due and payable December 15, 2012, bear interest at 6% per annum and are convertible into shares of our common stock
at a price of $0.30 per share. In addition, we issued 33,333 warrants to the purchasers of the Notes, which warrants are exercisable
to purchase shares of our common stock at a price of $0.30 per share through December 14, 2020. We sold these Notes through our
President and we did not pay any commissions in connection with such sales. Our President and two other principal shareholders
purchased the Notes. In August 2011, these persons each advanced $4,000 to us and we repaid these advances in November 2011 with
interest at the rate of 6% per annum. See "Item 13. Certain Relationships and Related Transactions, and Director Independence."
In December 2010 we issued the law firm
of Quarles and Brady, LLP, our legal counsel, a Series B Convertible Note in the principal amount of $44,247 to represent amounts
we owed to such firm under certain outstanding invoices. The Note is due and payable on January 14, 2013, bears interest at 3%
per annum and is convertible into shares of our common stock at a price of $0.30 per share. In addition, we issued warrants in
connection with the Note, which warrants are exercisable to purchase 147,490 shares of our common stock at a price of $0.30 per
share through December 30, 2020. See "Item 13. Certain Relationships and Related Transactions, and Director Independence."
ITEM 6. Selected Financial Data.
ITEM 7. Management’s Discussion and Analysis of Financial
Condition and Results of Operations.
This Report on Form 10-K 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 to differ materially from those discussed herein or for our stock price to be adversely affected include, but
are not limited to: (i) our history of declining operating results and losses and inability to improve our results of operation;
(ii) our independent registered public accounting firm expressed a going concern opinion; (iii) our ability to raise additional
working capital that we may require and, if available, that such working capital will be on terms acceptable to us; (iv) our ability
to implement our business plan; (v) uncertainties regarding our ability to increase revenues and penetrate our market; (vi) economic
and general risks relating to business; (vii) our ability to manage our costs of production; (viii) our ability to protect our
intellectual property through patents and other intellectual property protection; (ix) our dependence on key personnel; (x) increased
competition or our failure to compete successfully; (xi) our ability to keep pace with technological advancements in our industry;
(xii) our ability to comply with Section 404 of the Sarbanes-Oxley Act of 2002, as it may be required; (xiii) our nonpayment of
dividends and lack of plans to pay dividends in the future; (xiv) future sale of a substantial number of shares of our common stock
that could depress the trading price of our common stock, if it trades, lower our value and make it more difficult for us to raise
capital; (xv) our additional securities available for issuance, which, if issued, could adversely affect the rights of the holders
of our common stock; (xvi) the illiquidity of the public market for our common stock; (xvii) the price of our stock is likely to
be highly volatile because of several factors, including a relatively limited public float; and (xviii) indemnification of our
officers and directors.
The following discussion should be read
in conjunction with our Financial Statements and notes thereto. The following discussion contains forward-looking statements, including,
but not limited to, statements concerning our plans, anticipated expenditures, the need for additional capital and other events
and circumstances described in terms of our expectations and intentions. You are urged to review the information set forth under
the captions for factors that may cause actual events or results to differ materially from those discussed below.
We were formed in August 2001 by our former
parent, TGE. Our corporate offices are located at 7608 N. Shadow Mountain Blvd., Paradise Valley, AZ 85253 and our telephone number
is (602) 321-1313.
We produce, market and distribute vibration
isolation products to the high-end audio and video markets in the United States and in certain foreign countries. Our products
are the Classic MIB, the PRO MIB, the Isotone MIB, the Series 100 Component Shelf, a shelf product, and Pivot Points, a spike mount
Our vibration isolation products produce
superior sound quality by sharpening, not softening, the sound. AVT holds the patents respecting our products in the United States
and Taiwan. AVT has granted us a non-exclusive world-wide license to sell the products under the patents (“AVT License”).
The AVT License automatically renews every year as long as we are in compliance with its terms. We pay AVT a royalty of 5% of our
net sales for the license. We outsource the manufacture of our products to several qualified machine shops in the Phoenix metropolitan
area. On March 26, 2010, TGE assigned its federally registered trademark respecting the “Aurios” name to us in consideration
For the Years Ended December 31,
2011 and 2010
Results From Operations
Since our inception, our activities have
focused on product and market development with a nominal level of operations. Revenues for the years ended December 31, 2011 and
2010 were $22,068 and $18,532, respectively. Revenues increased slightly primarily due to sales to new customers.
Most of our sales are made through audio
equipment distributors, with the balance being direct retail sales. For the year ended December 31, 2011, we had 46% and 25% of
sales to Music Direct and Roksan Trading Co., respectively, which are two of our distributors. For the year ended December 31,
2010, we had 56%, 19%, and 15% of sales to Music Direct, Bernard Knoop, and Roksan Trading Co., respectively. No other customer
accounted for more than 10% of sales in either period.
Cost of Sales
The cost of sales on units sold for the
year ended December 31, 2011 totaled $11,380 (51.6% of revenues) compared to $11,343 (61.2% of revenues) for the year ended December
31, 2010. The cost of sales for the year ended December 31, 2011, was slightly lower as a percentage of revenues in 2011 due to
a decrease in cost of materials.
Gross margin for the year ended December
31, 2011 was $10,688 (48.4% of revenues) compared to $7,189 (38.8% of revenues) for the year ended December 31, 2010. The increase
in gross margin is primarily attributed to lower material costs.
General and Administrative Expenses
Prior to February 25, 2010, all selling
and operating expenses, as well as research and development expenses, were incurred through a contractual relationship with TGE,
which performed these services under an administrative services agreement with us. On February 25, 2010, substantially
all the assets of TGE were sold to AVT. We entered into the same agreement with AVT and this agreement with AVT ended
on July 31, 2010. These expenses were $10,500 for the year ended December 31, 2010. In fiscal 2011, our President provided administrative
services to us, and office and warehouse space for us in his residence at no cost to us. In the year ended December 31, 2011, we
had additional expenses consisting of legal expenses of $18,572 and accounting expenses of $39,723, most of which were related
to complying with our reporting obligations under the Securities Exchange Act of 1934, as amended (the “Exchange Act”).
In the year ended December 31, 2010, we had additional expenses consisting of legal expenses of $67,707 and accounting expenses
of $35,977, most of which were related to complying with our reporting obligations under the Exchange Act.
Interest Expense. Interest
expense was $41,854 and 4,649 for the years ended December 31, 2011 and 2010, respectively. The increase was primarily related
to $34,797 of interest expense related to the issuance of common stock warrants in the year ended December 31, 2010.
Income Tax Provision
We had a potential tax provision benefit
of approximately $36,400 and $44,000 for the years ended December 31, 2011 and 2010, respectively, arising from losses generated
during the aforementioned periods. We have fully reserved against these benefits due to the uncertainty of their realization.
For the reasons listed above, for the years
ended December 31, 2011 and 2010, we recorded net loss of $93,294 and $113,386 respectively, a decrease in our net loss $20,092.
Basic and Diluted Loss per Share
The basic and diluted loss per share were
<$0.03> and <$0.03> for the years ended December 31, 2011 and 2010, respectively, for the reasons previously noted.
Liquidity and Capital Resources
Our independent registered public accounting
firm has rendered a going concern opinion. We provided for our cash requirements in the first half of 2010 with the capital we
raised through the sale of Common Stock yielding $72,000 in the fourth quarter of 2009 and first quarter of 2010. In addition,
we raised $30,000 in the fourth quarter of 2010 through the issuance of convertible debt to three principals of the Company. 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 increased sales. We can make no assurances that we will be successful in this regard. If our revenues
do not increase and our cash flow is not positive or not sufficient to meet our working capital needs, we will need to seek to
raise capital through the sale of our equity or debt securities. We have no commitments for obtaining such financing and there
can be no assurance that we could obtain the necessary funds or obtain them on terms favorable to us. Any future financing may
be on terms that substantially dilute the ownership interests of present shareholders. If we are unable to raise sufficient additional
capital as necessary, we may have to suspend or contract operations or cease operations entirely.
We do not anticipate we will have any large
capital requirements over the next twelve months. In addition, we have relationships with third parties who will manufacture small
quantities of our products quickly and charge us the same lower prices as we would be charged for larger orders, particularly in
the current economic environment. Accordingly, we believe we can continue to place smaller orders with a number of such manufacturers
at favorable prices and will not have to allocate our working capital to the cost of surplus inventory. We work with five manufacturers.
As of December 31, 2011, we had a working
capital deficit of ($228,471) and no long-term debt.
We had no material commitments for capital
Off-Balance Sheet Arrangements
There were no off-balance sheet arrangements
as of December 31, 2011 and December 31, 2010.
Critical Accounting Policies and Estimates
Our financial statements are prepared in
accordance with U.S. Generally Accepted Accounting Principles. Preparation of the statements in accordance with these principles
requires that we make estimates, using available data and our judgment, for such things as valuing assets, accruing liabilities
and estimating expenses.
Our significant accounting policies are
summarized in note 1 to our financial statements included in Item 8 “Financial Statements” of this report. While the
selection and application of any accounting policy may involve some level of subjective judgments and estimates, we believe the
recoverability of inventory accounting policies are the most critical to our financial statements, potentially involve the most
subjective judgments in their selection and application, and are the most susceptible to uncertainties and changing conditions.
Recoverability of Inventory.
We assume that our inventory can be sold for at least its carrying cost.
ITEM 7A. Quantitative and Qualitative Disclosures About
ITEM 8. Financial Statements and Supplementary Data.
The financial statements of the Company
are included as an exhibit to this Form 10-K commencing on page F-1.
ITEM 9. Changes In and Disagreements With Accountants
on Accounting and Financial Disclosure.
ITEM 9A. Controls and Procedures.
Conclusion Regarding the Effectiveness of Disclosure Controls
Under the supervision and with the participation
of our President, Chief Executive Officer and Chief Financial Officer, Paul Attaway, 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
Exchange Act. Based on his evaluation as of December 31, 2011, the end of the period covered by this Annual Report on Form 10-K,
he concluded that our disclosure controls and procedures were effective at a reasonable assurance level to ensure that the information
required to be disclosed in reports filed or submitted under the Exchange Act, including this Annual Report, were recorded, processed,
summarized and reported within the time periods specified in the SEC’s rules and forms, and was accumulated and communicated
to management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions
regarding required disclosure.
Management’s Report on Internal Control Over Financial
Our management is responsible for establishing
and maintaining adequate internal control over financial reporting. Our internal control over financial reporting is
designed 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 and includes those policies and procedures that:
|·||Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions
of our assets;|
|·||Provide reasonable assurance that the transactions are recorded as necessary to permit preparation of financial statements
in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance
with authorizations of our management and directors; and|
|·||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.|
All internal control systems, no matter
how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only
reasonable assurance with respect to financial statement preparation and presentation. Because of its inherent limitations,
internal control over financial reporting may not prevent or detect misstatements. 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.
In connection with the filing
of our Annual Report on Form 10-K, our management assessed the effectiveness of our internal control over financial reporting
as of December 31, 2011. In making this assessment, our management used the criteria set forth by Committee of Sponsoring
Organizations of the Treadway Commission in Internal Control—Integrated Framework. Based on our assessment
using those criteria, management believes that, as of December 31, 2011, our internal control over financial reporting is effective
based on those criteria.
This Annual Report does not include an attestation
report of our independent registered public accounting firm regarding internal control over financial reporting. Management’s
report was not subject to attestation by our independent registered public accounting firm pursuant to the rules of the Securities
and Exchange Commission that permit the Company to provide only management’s report in this Annual Report.
Changes in Internal Control Over Financial Reporting
There have been no changes in our internal
controls over financial reporting during the year ended December 31, 2011 that have materially affected, or are reasonably likely
to materially affect, such controls.
ITEM 9B. Other Information.
ITEM 10. Directors, Executive Officers and Corporate Governance.
The following table sets forth the names,
positions and ages of our directors and executive officers. Our directors were elected by the unanimous written consent of our
stockholders in lieu of a meeting. Our directors are typically elected at each annual meeting and serve for one year or until their
successors are elected and qualify. Officers are elected by our board of directors and their terms of office are at the discretion
of our board.
|| Position with Company|
||President, Chief Financial Officer and Director since 2001|
||Secretary, Treasurer and Director since 2004|
Paul Attaway has served as an officer
and director of the Company since its incorporation in August 2001. In 1997, Mr. Attaway founded True Gravity Enterprises,
Inc., a privately held corporation that designed and manufactured vibration control solutions for the semiconductor and life science
industries and he has been its principal shareholder and executive officer since then. TGE sold substantially all of its assets
to AVT in February 2010. He practiced law for two years from 1988 to 1990 in Phoenix, Arizona with Streich Lang Weeks &
Cardon. From 1990 to 1995, he worked for a family business, MM Systems Corporation, which manufactures and sells building materials
worldwide. From 1995 to 1997, Mr. Attaway left the family business and started Tekton Inc., a privately held corporation that
designs and manufactures seismic isolation systems for network server racks. Mr. Attaway sold Tekton, Inc. in 2004. Mr. Attaway
holds a B.S.B.A. with a major in finance from Georgetown University and a J.D. from the University of Georgia School of Law. Mr. Attaway
divides his time between TGE and the Company as the two businesses require in a manner sufficient to discharge his fiduciary duties
to both entities.
Timothy Louis has served as an officer
and director of the Company since July 2004. Since 1995, Mr. Louis has been the principal of Desert Capital Investments, L.L.C.,
a venture capital investment firm. Its venture investments include Frye-Louis Capital Management, Mobility Electronics, The Schirf
Brewing Company, TGE, The rSmart Group, BH USA and PIVOT Cycles, Inc. He has served as a board member of companies such as Johnson
Polymer, Inc (an affiliate company of S.C. Johnson Wax) and non-profit companies such as A.T. Still University, Desert Voices Oral
Learning Center and The Phoenix Art Museum. Since 2001 he has served as the Vice President - Finance at The rSmart Group, a provider
of enterprise open source applications in the global education software and services market. From 1990 to 2002 he was an owner/director
of Frye-Louis Capital Management, Inc., a high net worth family asset management firm based in Chicago. The firm was sold to Credit
Suisse Private Bank in 2002. Mr. Louis has a B.S. in Communication Disorders and a M.A. in Audiology and Hearing Impairment
from Northwestern University, and a M.B.A. in Financial Management and Markets from Arizona State University.
Board of Directors and Committee Meetings
Our Board of Directors held four meetings
during the fiscal year ended December 31, 2011. In addition, our Board of Directors acted by unanimous written consent during fiscal
year ended December 31, 2011. Both of our directors attended at least 75% of the meetings of the Board of Directors in the fiscal
year ended December 31, 2011. We have no Committees of our Board. Our directors are expected, absent exceptional circumstances,
to attend all Board meetings and meetings of any committees on which they serve.
Committees of the Board of Directors
We do not have Audit, Compensation or Nominating
and Governance Committees. Our full Board of Directors discharges the duties that such committees would normally have. We do not
have such committees because of our stage of development and because our Board of Directors consists of only two members.
Our full Board is comprised of two Directors,
one of whom is independent, as defined by the rules and regulations of the Securities and Exchange Commission. The members of our
Board of Directors are Paul Attaway and Timothy Louis. The Board of Directors determined that Mr. Louis qualifies as an “audit
committee financial expert,” as defined under the rules and regulations of the Securities and Exchange Commission, and is
independent as noted above.
Under the Sarbanes-Oxley Act of 2002, all
audit and non-audit services performed by the Company’s independent accountants must be approved in advance by the Board
to assure that such services do not impair the accountants’ independence from the Company. Our full board of directors performs
the equivalent functions of an audit committee, therefore, no policies or procedures other than those required by SEC rules on
auditor independence, have been implemented.
Report of the Board of Directors Serving the Equivalent Functions
of an Audit Committee
Review and Discussion with Management
Our Board has reviewed and discussed with
management our audited financial statements for the fiscal year ended December 31, 2011, the process designed to achieve compliance
with Section 404 of the Sarbanes-Oxley Act of 2002, our assessment of internal control over financial reporting and the report
by our independent registered public accounting firm thereon.
Review and Discussions with Independent
Registered Public Accounting Firm
Our Board has discussed with Semple, Marchal &
Cooper, LLP, our independent registered public accounting firm for fiscal year 2011, the matters the Board, serving the equivalent
functions of an audit committee, is required to discuss pursuant to Statement on Auditing Standards No. 114 (Communications
with Audit Committees), which includes, among other items, matters related to the conduct of the audit of our financial statements.
Our Board also has received the written
disclosures and the letter from Semple, Marchal & Cooper, LLP required by Independence Standards Board Standard No. 1
(Independence Discussions with Audit Committees) and has discussed with Semple, Marchal & Cooper, LLP any relationships
that may impact its independence, and satisfied itself as to the independent registered public accounting firm’s independence.
Based on the review and discussions referred
to above, the Board, serving the equivalent functions of the audit committee, approved our audited financial statements for the
fiscal year ended December 31, 2011 be included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2011
for filing with the Securities and Exchange Commission.
Board of Directors’ Role in the Oversight of Risk Management
We face a variety of risks, including credit,
liquidity and operational risks. In fulfilling its risk oversight role, our Board of Directors focuses on the adequacy of our risk
management process and overall risk management system. Our Board of Directors believes that an effective risk management system
will (i) adequately identify the material risks that we face in a timely manner; (ii) implement appropriate risk management
strategies that are responsive to our risk profile and specific material risk exposures; (iii) integrate consideration of
risk and risk management into our business decision-making; and (iv) include policies and procedures that adequately transmit
necessary information regarding material risks to senior executives and, as appropriate, to the Board or relevant committee.
Our Board of Directors oversees risk management
for us. Accordingly, the Board schedules time for periodic review of risk management, in addition to its other duties. In this
role, the Board receives reports from management, certified public accountants, outside legal counsel, and to the extent necessary,
from other advisors, and strives to generate serious and thoughtful attention to our risk management process and system, the nature
of the material risks we face, and the adequacy of our policies and procedures designed to respond to and mitigate these risks.
Board Leadership Structure
Board of Directors does not have a Chairman of the Board due to its small size. Because we do not have a Chairman of the Board,
our Board of Directors does not have a policy on whether or not the roles of Chief Executive Officer and Chairman of the Board
of Directors should be separate and, if they are to be separate, whether the Chairman of the Board should be selected from the
non-employee directors or be an employee. Our Board of Directors believes that it should be free to make a choice from time to
time in any manner that is in the best interests of us and our shareholders. If our Board determines that a Chairman of the Board
is needed, the Board will appoint a Chairman of the Board whose appointment is in the best interest of the Company and its shareholders.
Our Board has determined that our Board leadership structure is appropriate given the size of our Board and the nature of our business.
Stockholder Communications with the Board of Directors
Stockholders may communicate with the Board
of Directors by writing to us as follows: Aurios Inc., attention: Corporate Secretary, 7608 N. Shadow Mtn. Rd, Paradise Valley,
AZ 85253. Stockholders who would like their submission directed to a particular member of the Board of Directors may so specify
and the communication will be forwarded as appropriate.
Process and Policy for Director Nominations
Our full Board will consider candidates
for Board membership suggested by Board members, management and our stockholders. In evaluating the suitability of potential nominees
for membership on the Board, the Board members will consider the Board's current composition, including expertise, diversity, and
balance of inside, outside and independent directors. The Board considers the general qualifications of the potential nominees,
including integrity and honesty; recognized leadership in business or professional activity; a background and experience that will
complement the talents of the other board members; the willingness and capability to take the time to actively participate in board
and committee meetings and related activities; the extent to which the candidate possesses pertinent technological, political,
business, financial or social/cultural expertise and experience; the absence of realistic possibilities of conflict of interest
or legal prohibition; the ability to work well with the other directors; and the extent of the candidate's familiarity with issues
affecting our business.
While the Board considers diversity and
variety of experiences and viewpoints to be important factors, it does not believe that a director nominee should be chosen solely
or mainly because of race, color, gender, national origin or sexual identity or orientation. Thus, although diversity may be a
consideration in the Board's process, it does not have a formal policy regarding the consideration of diversity in identifying
Stockholder Recommendations for Director
Nominations. Our Board of Directors does not have a formal policy with respect to consideration of any director candidate recommendation
by stockholders. While the Board of Directors may consider candidates recommended by stockholders, it has no requirement to do
so. To date, no stockholder has recommended a candidate for nomination to the Board. Given that we have not received director nominations
from stockholders in the past and that we do not canvass stockholders for such nominations, we believe it is appropriate not to
have a formal policy in that regard. We do not pay a fee to any third party to identify or evaluate or assist in indentifying or
evaluating potential nominees.
Stockholder recommendations for director
nominations may be submitted to the Company at the following address: Aurios Inc., attention: Corporate Secretary, 1741 W. University
Drive, Suite 146, Tempe, AZ 85281. Such recommendations will be forwarded to the Board for consideration, provided that they are
accompanied by sufficient information to permit the Board to evaluate the qualifications and experience of the nominees, and provided
that they are in time for the Board to do an adequate evaluation of the candidate before the annual meeting of stockholders. The
submission must be accomplished by a written consent of the individual to stand for election if nominated by the Board of Directors
and to serve if elected and to cooperate with a background check.
Stockholder Nominations of Directors.
The bylaws of the Company provide that in order for a stockholder to nominate a director at an annual meeting, the stockholder
must give timely, written notice to the Secretary of the Company and such notice must be received at the principal executive offices
of the Company not less than 120 days before the date of its release of the proxy statement to stockholders in connection with
its previous year’s annual meeting of stockholders. Such stockholder’s notice shall include, with respect to each person
whom the stockholder proposes to nominate for election as a director, all information relating to such person, including such person’s
written consent to being named in the proxy statement as a nominee, serving as a director, that is required under the Securities
Exchange Act of 1934, as amended, and cooperating with a background investigation. In addition, the stockholder must include in
such notice his name and address, as they appear on the Company’s records, of the stockholder proposing the nomination of
such person, and the name and address of the beneficial owner, if any, on whose behalf the nomination is made, the class and number
of shares of capital stock of the Company that are owned beneficially and of record by such stockholder of record and by the beneficial
owner, if any, on whose behalf the nomination is made, and any material interest or relationship that such stockholder of record
and/or the beneficial owner, if any, on whose behalf the nomination is made may respectively have in such business or with such
nominee. At the request of the Board of Directors, any person nominated for election as a director shall furnish to the Secretary
of the Company the information required to be set forth in a stockholder’s notice of nomination which pertains to the nominee.
To be timely in the case of a special meeting
or if the date of the annual meeting is changed by more than thirty (30) days from such anniversary date, a stockholder’s
notice must be received at the principal executive offices of the Corporation no later than the close of business on the tenth
day following the earlier of the day on which notice of the meeting date was mailed or public disclosure of the meeting date was
Code of Ethics and Conduct
Our Board of Directors has adopted a Code
of Ethics and Conduct that is applicable to all of our employees, officers and directors. Our Code of Ethics and
Conduct is intended to ensure that our employees act in accordance with the highest ethical standards. A copy of our Code
of Ethics and Conduct may be obtained by sending a written request to us at 1608 N. Shadow Mountain Rd., Paradise
Valley, AZ 85253, Attn: Paul Attaway and the Code of Ethics and Conduct.
Section 16(a) Beneficial Ownership Reporting
Section 16(a) of the Exchange Act, requires
our executive officers and directors, and persons who own more than ten percent (10%) of our common stock, to file with the Securities
and Exchange Commission reports of ownership of, and transactions in, our securities and to provide us with copies of those filings.
To our knowledge, based solely on our review of the copies of such forms received by us, or written representations from certain
reporting persons, we believe that during the year ended December 31, 2011, all filing requirements applicable to our officers,
directors and greater than ten percent beneficial owners were complied with during fiscal year 2011.
ITEM 11. EXECUTIVE COMPENSATION.
The table below sets forth all cash compensation
paid or proposed to be paid by us to the chief executive officer and the most highly compensated executive officers, and key employees
for services rendered in all capacities to us during fiscal years 2011 and 2010.
Summary Compensation Table
President and Chief Financial Officer
|No compensation paid or options issued|
Secretary and Treasurer
|No compensation paid or options issued|
Mr. Attaway and Mr. Louis received
no compensation in 2011 and 2010. Mr. Attaway will receive a salary at the annual rate of $20,000 after our revenues exceed
an annual rate of $75,000.
Compensation Policy. Our
executive compensation plan is based on attracting and retaining qualified professionals who possess the skills and leadership
necessary to enable us to achieve earnings and profitability growth to satisfy our stockholders. We must, therefore, create incentives
for these executives to achieve both company and individual performance objectives through the use of performance-based compensation
No one component is considered by itself,
but all forms of the compensation package are considered in total. Wherever possible, objective measurements will be utilized to
quantify performance, but many subjective factors still come into play when determining performance.
We expect that the main elements of our compensation package will consist of base salary, stock options and bonus.
Base Salary. The base salary
for each executive officer will be reviewed and compared to the prior year, with considerations given for increase. During 2011
and 2010 the executive officers received no compensation. As we grow and if financial conditions improve, we plan to establish
base salaries for all executive officers and to review them periodically for possible adjustments. At the appropriate point, we
will base salary adjustments on both the individuals and our performance and will include both objective and subjective criteria
specific to each executive’s role and responsibility with us.
Stock Options. No stock
options were issued to our officers during fiscal years 2011 and 2010.
Bonuses. To date, we have
not granted bonuses. When considered, our bonuses will be related to meeting certain performance criteria that are directly related
to areas within the executive’s responsibilities with us, such as production of product and sales of product to customers.
If we grow, we will create a more defined bonus program to attract and retain our employees at all levels.
Other. At this time, we have
no profit sharing plan in place for employees. However, this is another area of consideration to add such a plan to provide yet
another level of compensation to our compensation plan.
Stock Options. The board
of directors adopted the 2007 Stock Option and Restricted Stock Plan (the “Plan”) on July 1, 2007 and the shareholders
approved the Plan on July 8, 2007. The Plan authorizes us to issue up to 625,000 shares of our common stock upon exercise
of options and grant of restricted stock awards. We have not issued any options under the Plan.
Employment Contracts; Termination
of Employment and Change-in-Control Arrangements. We have no employment or change-in-control agreements with either Paul
Attaway or Timothy Louis.
Committee Interlocks and Insider participation
Our Board of Directors functions as our
compensation committee. Mr. Louis is not currently and has not ever been an employee of the Company.
Outstanding Equity Awards at Fiscal
||No outstanding equity awards.|
||No outstanding equity awards.|
The table above indicates that no options
were granted under the Plan to directors and officers in fiscal 2011.
Stock Option Plan
The board of directors adopted the Plan
on July 1, 2007 and the shareholders approved the Plan on July 8, 2007. The Plan authorizes us to issue up to 625,000
shares of our common stock upon exercise of options and grant of restricted stock awards. We have not issued any options under
The Plan authorizes us to grant (i) to
the key employees incentive stock options to purchase shares of common stock and non-qualified stock options to purchase shares
of common stock and restricted stock awards, and (ii) to non-employee directors and consultants non-qualified stock options
and restricted stock. Our Board of Directors will administer the Plans by making recommendations to the board or determinations
regarding the persons to whom options or restricted stock should be granted and the amount, terms, conditions and restrictions
of the awards.
The Plan allows for the grant of incentive
stock options, non-qualified stock options and restricted stock awards. Incentive stock options granted under the Plan must have
an exercise price at least equal to 100% of the fair market value of the common stock as of the date of grant. Incentive stock
options granted to any person who owns, immediately after the grant, stock possessing more than 10% of the combined voting power
of all classes of our stock, or of any parent or subsidiary corporation, must have an exercise price at least equal to 110% of
the fair market value of the common stock on the date of grant. Non-statutory stock options may have exercise prices as determined
by our Board of Directors.
The Board of Directors is also authorized
to grant restricted stock awards under the Plan. A restricted stock award is a grant of shares of the common stock that is subject
to restrictions on transferability, risk of forfeiture and other restrictions and that may be forfeited in the event of certain
terminations of employment or service prior to the end of a restricted period specified by the Board of Directors.
Compensation of Directors
Directors who are neither our employees
nor of our affiliates receive no cash compensation for serving on our Board of Directors. We have one independent director. We
reimburse independent directors for any travel or other out-of-pocket expenses related to their service on the Board of Directors.
When we add independent Board members we expect that they will receive compensation of options or shares of common stock of the
Company for each year for their service on the Board of Directors and for serving without directors and officers’ liability
insurance in place.
President, Chief Financial Officer and Director
||No compensation paid or awards made in 2011 and 2010. |
Secretary and Director
||No compensation paid or awards made in 2011 and 2010. |
ITEM 12. Security Ownership of Certain
Beneficial Owners and Management and Related Stockholder Matters.
The following table sets forth, as of March
30, 2012, the number and percentage of outstanding shares of common stock beneficially owned by (a) each person known by us
to beneficially own more than five percent of such stock, (b) each director of the Company, (c) each named officer of
the Company, and (d) all our directors and executive officers as a group.
|Name and Address of Beneficial Owner(1)||
|Paul Attaway(3) (4)||
|| ||1,254,666|| ||
|| ||33.5|| |
|| ||100,000|| ||
|| ||2.7|| |
|Ira J. Gaines(4)||
|| ||606,666|| ||
|| ||16.5|| |
|Christian J. Hoffmann, III(4) (5)||
|| ||606,666|| ||
|| ||16.5|| |
|All officers and directors as a group (two persons)||
|| ||1,354,666|| ||
|| ||36.2|| |
|(1)||The address of these persons is c/o 7608 N. Shadow Mountain Rd., Paradise Valley, Arizona 85281.|
|(2)||The foregoing beneficial owners hold investment and voting power in their shares.|
|(3)||Paul Attaway owns 66% of the capital stock of TGE, which is a former shareholder of the Company
and the Company’s former parent company.|
|(4)||Includes 33,333 shares of common stock issuable to each person upon exercise of a warrant exercisable
within sixty (60) days and includes 33,333 shares for each person issuable upon conversion of Series A Convertible Notes. See “Certain
Relationships and Related Transactions, and Director Independence.”|
|(5)||Mr. Hoffmann is a partner of Quarles & Brady LLP, the legal counsel of the Company.
Such law firm holds a promissory note convertible into 147,490 shares of common stock and a warrant exercisable to purchase 147,490
shares of our common stock. Mr. Hoffmann disclaims ownership of such shares and they are not included in his totals in the table.|
ITEM 13. Certain Relationships and Related Transactions,
and Director Independence.
The Company and TGE, its affiliate and
former parent, entered into a license agreement on July 2, 2007, which is renewable on an automatic basis for additional consecutive
three-year terms on certain conditions. Aurios pays a royalty of five percent (5%) of its gross sales to TGE under the terms of
the license. Also under this license agreement, TGE licensed Aurios the right to produce, distribute and sell the Classic MIB and
PRO MIB products and to use the Aurios trademark in connection with such products. Because Paul Attaway controls both TGE and Aurios
as the principal shareholder of each company, the license agreement was not the result of arm’s length negotiations between
the two companies. While Mr. Attaway believes the terms to be fair to each company, there can be no assurance in this regard. In
the event of a dispute between Aurios and TGE in connection with the license agreement, Mr. Attaway will recuse himself from the
dispute and let the other director(s) of both companies deal with the dispute. This agreement was terminated on February 25, 2010
as a result of the sale of substantially all of TGE’s assets to AVT.
Company had a note payable to a related party, TGE, in the amount of $44,121 as of December 31, 2011 and December 31, 2010, bearing
interest at a rate of 8.25%. All outstanding principal and interest is due and payable on January 15, 2013. As
of December 31, 2011 and 2010, there was accrued interest in the amount of $13,818 and $15,623, respectively.
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 provides it office space as required at $1,500 per month. Aurios has no employees
and contracts 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 2011 and 2010 at no cost.
During 2010 and 2011, the Company paid
$1,918 and $13,066, respectively, 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 March 25, 2010, Paul Attaway, an officer
and director of the Company, purchased 48,000 shares of common stock for $0.25 per share for a total of $12,000 in the Company's
private placement of common stock. On March 26, 2010 and March 29, 2010, Ira J. Gaines and Christian J. Hoffmann, III, respectively,
both of whom are principal shareholders of the Company, each purchased 40,000 shares of common stock for $0.25 per share for a
total of $10,000 each in the Company's private placement of common stock.
On December 15, 2010 the Company sold $10,000
principal amount of a Series A Convertible Note (the Series A Note") to Paul J. Attaway, President, a director and principal
shareholder of the Company. The Series A Note bears interest at 6% per annum, is due and payable on December 14, 2012 and is convertible
into common stock at a price of $0.30 per share. 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 legal counsel, a Series B Convertible Note in the principal amount of $44,247 to represent amounts
we owed to such firm under certain outstanding invoices. Such Note is 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. 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 its 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, legal counsel for the Company.
On August 8, 2011, Messrs. Attaway, Gaines
and Hoffmann each advanced $4,000 to the Company to provide working capital. On November 14, 2011, the Company repaid these advances
to them with interest at the rate of 6% per annum.
Paul Attaway and Timothy Louis are the
sole directors of the Company. Mr. Attaway is not considered “independent” in accordance with rule 5605(a)(2)
of the NASDAQ Marketplace Rules. The Board of Directors has determined that Mr. Louis is independent in accordance with the Nasdaq
and SEC rules. We are currently traded on the OTC Bulletin Board, which does not require that a majority of the board be independent.
If we ever become an issuer whose securities are listed on a national securities exchange or on an automated inter-dealer quotation
system of a national securities association, which has independent director requirements, we intend to comply with all applicable
requirements relating to director independence.
ITEM 14. Principal Accounting Fees and Services.
The following table is a summary of the
fees billed to us by Semple, Marchal & Cooper, LLP for professional services for the fiscal years ended December 31, 2011
and December 31, 2010:
|| ||0|| ||
|| ||0|| |
|| ||1,200|| ||
|| ||1,014|| |
|All Other Fees||
|| ||0|| ||
|| ||0|| |
Audit Fees. Such
amount consists of fees billed for professional services rendered in connection with the audit of our annual financial statements
and review of the interim financial statements included in our quarterly reports. It also includes services that are normally provided
by our independent registered public accounting firm in connection with statutory and regulatory filings or engagements.
Audit-Related Fees. Consists
of fees billed for assurance and related services that are reasonably related to the performance of the audit or review of our
financial statements and are not reported under “Audit Fees.” These services include accounting consultations in connection
with acquisitions, attest services that are not required by statute or regulation, and consultations concerning financial accounting
and reporting standards.
Tax Fees. Tax fees consist
of fees billed for professional services related to tax compliance, tax advice and tax planning. These services include assistance
regarding federal, state and international tax compliance, tax audit defense, customs and duties, mergers and acquisitions, and
international tax planning.
All Other Fees. Consists
of fees for products and services other than the services reported above. In fiscal 2011 and 2010, there were no fees related to
Our Board of Directors’ practice is
to consider and approve in advance all proposed audit and non-audit services to be provided by our independent registered public
accounting firm. All of the fees shown above were approved by the Board of Directors functioning as the audit committee.
The audit report of Semple, Marchal &
Cooper, LLP on the financial statements of the Company for the year ended December 31, 2011 did not contain an adverse opinion
or disclaimer of opinion, and was not qualified or modified as to uncertainty, audit scope or accounting principles except as it
relates to the substantial doubt of the Company’s ability to continue as a going concern. The audit report for the year ended
December 31, 2010 did not contain an adverse opinion or disclaimer of opinion, and was not qualified or modified as to uncertainty,
audit scope or accounting principles except as it relates to the substantial doubt of the Company’s ability to continue as
a going concern.
During our fiscal years ended December
31, 2011 and 2010, there were no disagreements with Semple, Marchal & Cooper, LLP on any matter of accounting principles
or practices, financial statement disclosure, or auditing scope or procedures, which disagreements if not resolved to Semple, Marchal &
Cooper, LLP’s satisfaction would have caused it to make reference to the subject matter of such disagreements in connection
with its reports on the financial statements for such periods.
During our fiscal years ended December
31, 2011 and 2010, there were no reportable events (as described in Item 304(a)(1)(v) of Regulation S-K).
Exhibits, Financial Statement Schedules.
||Incorporated by Reference to:
||Articles of Incorporation of the Company, dated August 9, 2001.
||Exhibit 3.1 of the Company’s Form S-1, filed May 8, 2009, No. 333-150881 (the “S-1”).
||Amendment to the Articles of Incorporation of the Company, dated September 28, 2007.
||Exhibit 3.2 of the S-1.
||Amendment to the Articles of Incorporation of the Company, dated October 10, 2007.
||Exhibit 3.3 of the S-1.
||By-laws of the Company.
||Exhibit 3.4 of the S-1.
||Amended and Restated By-laws of the Company.
||Exhibit 3.5 of the Company’s Form 10-K, filed March 31, 2010, No. 000-53643.
||Form of Common Stock Certificate.
||Exhibit 4.1 of the S-1.
||Form of Series A Convertible Preferred Stock Certificate.
||Exhibit 4.2 of the S-1.
||Opinion of Quarles & Brady LLP as to the legality of securities being registered (includes consent).
||Exhibit 5.1 of the S-1.
||2007 Stock Option and Restricted Stock Plan.
||Exhibit 10.1 of the S-1.
||Form of Stock Option Agreement (ISO and Non-Qualified) 2007 Stock Option Plan.
||Exhibit 10.2 of the S-1.
||License Agreement with True Gravity Enterprises, Inc., dated July 2, 2007.
||Exhibit 10.3 of the S-1.
||Management and Rental Agreement between True Gravity Enterprises, Inc. and the Company dated January 1, 2007.
||Exhibit 10.4 of the S-1.
||Promissory Note between the Company and True Gravity Enterprises, Inc., dated January 1, 2007, in the principal amount of $44,121.35.
||Exhibit 10.5 of the S-1.
||Stock Purchase Agreement between True Gravity Enterprises, Inc. and Paul Attaway, dated December 31, 2007.
||Exhibit 10.6 of the S-1.
||Form of Subscription Agreement related to 2007 private placement of preferred shares.
||Exhibit 10.7 of the S-1.
||Management and Rental Agreement between True Gravity Enterprises, Inc. and the Company dated January 1, 2009.
||Exhibit 10.8 of the S-1.
||License Agreement with Advanced Vibration Technologies Inc.
||Exhibit 10.9 of the Company’s Form 10-K, filed April 15, 2011, No. 000-53643.
||Management and Rental Agreement between Advanced Vibration Technologies Inc. and the Company dated February 25, 2010
||Exhibit 10.10 of the Company’s Form 10-K, filed April 15, 2011, No. 000-53643.
||Code of Ethics and Conduct.
||Exhibit 14.1 of the Company’s Form 10-K, filed April 15, 2011, No. 000-53643.
||Consent of Semple, Marchal & Cooper LLP.
||Exhibit 23.1 of the S-1.
||Consent of Quarles & Brady LLP (Included in 5.1 above).
||Exhibit 5.1 of the S-1.
||Certification of Paul Attaway, Chief Executive Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
||Certification of Paul Attaway, Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
||Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
||Audited Financial Statements of Aurios Inc. as of and for the years ended December 31, 2011 and 2010.
||XBRL Instance Document.
||XBRL Taxonomy Extension Schema Document.
||XBRL Calculation Linkbase Document.
||XBRL Taxonomy Labels Linkbase Document.
||XBRL Taxonomy Presentation Linkbase Document.
XBRL related information in Exhibit 101
to this annual report on Form 10-K shall not be deemed "filed" for purposes of Section 18 of the Securities Exchange
Act of 1934, as amended, or otherwise subject to liability of that section and shall not be incorporated by reference into any
filing or other document pursuant to the Securities Act of 1933, as amended, except as shall be expressly set forth by specific
reference in such filing or document.
Pursuant to the requirements of Section
13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report on Form 10-K to be signed on its
behalf by the undersigned, thereunto duly authorized, this 16th day of April, 2012.
||April 16, 2012|
||/s/ Paul Attaway|
||President, Chief Executive Officer, Chief|
||Financial Officer and Director|
to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by following persons
on behalf of the Registrant and in the capacities and on the dates indicated.
|Signature and Title
|/s/ Paul Attaway
||April 16, 2012|
|Paul Attaway, President, Chief Executive Officer, Chief Financial Officer, Principal Accounting Officer and Director
|/s/ Timothy Louis
|Timothy Louis, Secretary, Treasurer and Director
||April 16, 2012|