UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10 - Q

x S QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~March 31~~September 30, 2011

£ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

~~o TRANSITION~~Commission ~~REPORT~~file ~~PURSUANT~~number ~~TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934~~005-80848

Commission File Number: 000-51543

AuraSound, Inc.

(Exact name of registrant as specified in its charter)

Nevada

20-5573204

(State or other jurisdiction of incorporation or

organization)

(I.R.S. Employer Identification No.)

2850 Red Hill Avenue, Santa Ana, California		92705
(Address of principal executive offices)		(Zip Code)

(949) 829-4000

(Registrant’s telephone number, including area code)

(Former name, address, and fiscal year if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. x S Yes o £ 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). o S Yes o £ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer o£ Accelerated Filer o£ Non-accelerated Filer o£ Smaller Reporting Company xS

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

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

As of ~~May~~November 414, 2011, there were 16,~~644~~978,~~039~~455 shares of ~~Common~~ ~~Stock~~the issuer’s common stock, $0.01 par value per share, issued and outstanding.

AuraSound, Inc.

~~Index~~TABLE OF CONTENTS

PART I—FINANCIAL INFORMATION		1
		Page
	Item 1. Financial Statements (unaudited)	1
PART I—FINANCIAL INFORMATION		3
	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	14
	Item 1. Financial Statements (unaudited)	3
	Item 3. Quantitative and Qualitative Disclosures About Market Risk	17
	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	13
	Item 4. Controls and Procedures	17
	Item 3. Quantitative and Qualitative Disclosures About Market Risk	20
PART II—OTHER INFORMATION		20
	Item 4. Controls and Procedures	21
	Item 1. Legal Proceedings	20
PART II—OTHER INFORMATION		22
	Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	20
	Item 6. Exhibits	22
	Item 3. Defaults Upon Senior Securities	20
	SIGNATURES	23
	Item 4. (Removed and Reserved)	20
	Item 5. Other Infromation	20
	Item 6. Exhibits	20
	SIGNATURES	21

Page 2

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

AURASOUND, INC. ~~AND SUBSIDIARIES~~

CONDENSED CONSOLIDATED BALANCE SHEETS

ASSEPTEMBER ~~OF MARCH 31~~30, 2011 AND JUNE 30, ~~2010~~2011

(UNAUDITED)

		March 31, 2011			June 30, 2010
		September 30, 2011				June 30, 2011*
Assets
ASSETS
Current Assets
CURRENT ASSETS:
Cash and cash equivalents	$	~~498~~1,~~397~~455,241		$	~~129,939~~$	1,824,594
Trade accounts receivable, net of allowance for doubtful accounts of $350,000 at March 31, 2011 and $63,675 at June 30, 2010		9,698,492			3,432,135
Restricted Cash		100,000				100,000
Inventory, net		13,443,803			537,198
Trade accounts receivable, net of allowance for doubtful accounts and sales returns of $204,645 at September 30, 2011 and $578,657 at June 30, 2011		10,011,601				14,031,596
Other assets		255,648			—
Inventory		12,517,762				15,550,960
Total Current Assets		23,896,340			4,099,272
Other current assets		156,733				108,049
Property and Equipment, net		242,638			106,465
TOTAL CURRENT ASSETS		24,241,337				31,615,199
Other Assets
Property and Equipment, net		610,184				482,503
Intangible Assets, net		3,~~954~~545,~~664~~662			—	3,750,163
Goodwill		56,~~972~~424,~~039~~314			—	6,424,314
Other assets		30,939			—
TOTAL ASSETS	$	34,821,497			$	42,272,179
Total Other Assets		9,957,642			—
LIABILITIES AND STOCKHOLDERS' EQUITY
Total Assets	$	34,096,620		$	4,205,737
CURRENT LIABILITIES:
Accounts payable	$	2,420,412			$	2,940,602
Related party payables		23,793,597				28,255,349
Accrued expenses		510,085				469,403
Accrued taxes		622,803				622,803
Due to Sinopac, net		1,550,613				4,036,287
Shares to be issued		—				310,696
TOTAL CURRENT LIABILITIES	$	28,897,510			$	36,635,140
COMMITMENTS AND CONTINGENCIES (NOTE 9)
STOCKHOLDERS' EQUITY
Preferred stock - $0.01 par value, 3,333,333 shares authorized and none outstanding at September 30, 2011 and June 30, 2011		—				—
Common stock - $0.01 par value, 100,000,000 shares authorized at September 30, 2011 and June 30, 2011; 16,978,455 issued and outstanding at September 30, 2011;16,629,654 issued and outstanding on June 30, 2011	$	169,785			$	166,297
Additional paid in capital		42,662,855				42,355,646
Accumulated deficit		(36,908,653	)			(36,884,904	)
Total stockholders' equity		5,923,987				5,637,039
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	34,821,497			$	42,272,179

Liabilities and Stockholder’s Equity (Deficit)
Current Liabilities
Accounts payable	$	25,762,888		$	6,916,004
Accrued expenses		455,348			800,044
Due to officer		—			25,000
Notes payable		—			2,978,282
Due to Bank Sinopac		1,200,754			—
Shares to be issued		310,696			—
Total Current Liabilities	$	27,729,686		$	10,719,330
Commitments and Contingencies
Stockholders Equity (Deficit)
Preferred stock - $0.01 par value, 3,333,333 shares authorized and none outstanding at March 31, 2011 and June 30, 2010.		—			—
Common stock - $0.01 par value, 16,666,667 shares authorized and 16,644,039 and 4,678,662 outstanding at March 31, 2011 and June 30, 2010.	$	166,441		$	46,787
Additional paid in capital		42,425,976			31,278,409
Accumulated Deficit		(36,225,483	)		(37,838,789	)
Total Stockholder’s Equity (Deficit)		6,366,934			(6,513,593	)
Total Liabilities and Stockholder’s Equity (Deficit)	$	34,096,620		$	4,205,737

*Amounts derived from the audited financial statements for the year ended June 30, 2011

The accompanying notes are an integral part of the unaudited consolidated financial statements

1Page 3

AURASOUND, INC. ~~AND SUBSIDIARIES~~

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE THREE -MONTH ~~AND NINE MONTH~~ PERIODS ENDED SEPTEMBER ~~MARCH 31~~30, 2011 AND SEPTEMBER 30, 2010

(UNAUDITED)

	~~For the three months-ended~~	For the three months-ended					~~For the nine months-ended~~
	March 31, 2011			March 31, 2010			March 31, 2011		March 31, 2010
		September 30, 2011			September 30, 2010
Net revenue	$	1615,~~034~~126,~~279~~906		$	110,~~745~~971,~~664~~201		$	~~54,184,648~~	$	~~4,808,880~~
Cost of sales		13,~~906~~517,~~156~~502			19,~~718~~771,~~129~~021			~~48,339,528~~		~~4,667,820~~
Gross profit		2,128,123			27,535			5,845,120		141,060
Gross Profit		1,609,404			1,200,180
Research and development expense		111,639			96,694			504,425		329,062
Research and development expenses		203,448			128,448
Selling, general & administrative expenses		1,240,413			367,400			3,148,893		1,211,930
Selling, general and administrative expenses		1,181,822			899,945
Amortization of intangibles		204,501			—			545,336		—
Amortization		204,501			136,334
Total operating expenses		1,~~556~~589,~~553~~771			~~464~~1,~~094~~164,727			~~4,198,654~~		~~1,540,992~~
Income (loss) from Operations		571,570			(436,559	)		1,646,467		(1,399,932	)
Income (loss) from operations		19,633			35,453
Other (income) expense		—			—			—		—
Interest expenses, net		42,809			—
Interest expense, net		4,579			44,094			21,800		132,283
Other expense		572			—
Other expense		4,030			—			11,359		—
Income (loss) before income tax		(23,748	)		35,453
Income (Loss) before income tax		562,961			(480,653	)		1,613,308		(1,532,215	)
Provision for Income taxes		—			—
Income tax expense		—			—			—		—
Net income (loss)	$	(23,748	)	$	35,453
Net income (loss)		562,961			(480,653	)		1,613,308		(1,532,215	)
Earnings (loss) per share
Income (loss) per common share
Basic	$	(0.00	)	$	0.00
Basic	$	0.03		$	(0.10	)	$	0.12	$	(0.33	)
Diluted	$	(0.00	)	$	0.00
Diluted	$	0.03		$	(0.10	)	$	0.10	$	(0.33	)
Weighted average common shares outstanding
Weighted average shares
Basic		16,876,089			10,781,397
Basic		16,644,039			4,678,662			12,943,764		4,678,662
Diluted		16,876,089			25,967,355
Diluted		20,147,583			4,678,662			16,373,690		4,678,662

The accompanying notes are an integral part of ~~the~~these ~~unaudited~~ consolidated financial statements

2Page 4

AURASOUND, INC. ~~AND SUBSIDIARIES~~

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE ~~NINE~~ THREE-MONTH PERIODS ENDED SEPTEMBER ~~MARCH 31~~30, 2011 AND SEPTEMBER 30, 2010

(UNAUDITED)

		For the nine months-ended
		For the three months-ended
		March 31, 2011				March 31, 2010
		September 30, 2011				September 30, 2010
CASH FLOWS PROVIDED FROM OPERATING ACTIVITIES
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)	$	$(23,748	~~1,613,308~~)		$	$35,453	~~(1,532,215~~	)
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Adjustments to reconcile net income (loss) to net cash provided by operating activities
Reserves on accounts receivable			(70,000	)			—
Provision for bad debts and sales returns		(342,096	)			132,649
Reserves on inventory			(180,000	)			—
Provision for obsolete inventory		—				(275,639	)
Depreciation		29,164	~~24,285~~			5,967	~~13,492~~
Amortization		204,501	~~545,336~~			136,334	—
Changes in operating assets and liabilities:
Changes in operating assets and liabilities, net of effects from acquisition:
Accounts receivable, net			(1,057,543	)			(1,514,277	)
Accounts receivable		4,362,091				(1,365,796	)
Inventory		3,033,198	~~(8,699,714~~	)		(6,147,786	~~2,624~~)
Other assets		(48,684	~~(286,587~~)	)		(27,326	—)
Accounts payable		(4,981,941	~~7,022,683~~)			10,462,317	~~3,567,824~~
Accrued expenses		40,682	~~250,141~~			31,415	~~285,665~~
Due affiliate			(25,000	)			54,373
Other		—				(25,000	)
Other			—				2,291
Net cash provided by operating activities		2,273,167				2,962,588
Net cash provided by/ (used in) operating activities			(863,091	)			879,777
CASH FLOWS FROM INVESTING ACTIVITIES
CASH FLOWS PROVIDED FROM INVESTING ACTIVITIES
Acquisition of property and equipment		(156,845	)			(1,529	)
Acquisition of property and equipment			(124,176	)			(30,691	)
Cash acquired in acquisition of net assets and liabilities of ASI		—				154,970
Cash acquired in acquisition of net assets and liabilities of ASI			154,971				—
Net cash provided by (used in) investing activities		(156,845	)			153,441
Net cash provided by/(used in) investing activities			30,795				(30,691	)
CASH FLOWS FROM FINANCING ACTIVITIES
CASH FLOWS PROVIDED FROM FINANCING ACTIVITIES
Net Line of Credit (payments)/borrowing from Sinopac		(2,485,675	)			—
Repayments of related party debt			—				(265	)
Net cash (used in) financing activities		(2,485,675	)			—
Net borrowings on credit line			1,200,754				—
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		(369,353	)			3,116,029
Net cash provided by/(used in) financing activities			1,200,754				(265	)
CASH AND CASH EQUIVALENTS, BEGINNING BALANCE		1,824,594				129,939
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS			368,458				848,821
CASH AND CASH EQUIVALENTS, ENDING BALANCE	$	1,455,241			$	3,245,968
CASH AND CASH EQUIVALENTS, BEGINNING BALANCE			129,939				321,455
SUPPLEMENTAL DISCLOSURES:
CASH AND CASH EQUIVALENTS, ENDING BALANCE		$	498,397			$	1,170,276
Cash paid during the three months for:
SUPPLEMENTAL DISCLOSURES:
Interest	$	33,657			$	—
Cash paid during the year for:
Income tax	$	12,333			$	—
Interest		$	—			$	—
Conversion of accounts payable and accrued expenses to equity	$	—			$	3,000,000
Income tax		$	—			$	—
Conversion of related party notes payable to equity	$	—			$	1,904,309
Conversion of accounts payable and accrued expenses to equity		$	2,232,861			$	—
Issuance of Common Stock and Warrants for purchase of net assets and liabilities of ASI	$	310,696			$	6,349,205
Conversion of notes payable to equity		$	1,724,724			$	—
Conversion of related party notes payable to equity		$	1,253,558			$	—
Issuance of Common Stock and
Warrants for purchase of net assets and liabilities of ASI		$	6,366,775			$	—

The accompanying notes are an integral part of ~~the~~these ~~unaudited~~ consolidated financial statements

3Page 5

AURASOUND, INC. ~~AND SUBSIDIARIES~~

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 1 – ORGANIZATION AND OPERATIONS

~~GENERAL~~DESCRIPTION OF BUSINESS - AuraSound, Inc. (the “Company,” “AuraSound,” “we,” “us” or “our”) specializes in the design, manufacture and sale of high-fidelity loudspeakers and complete audio solutions. Our headquarters is in Santa Ana, California, our manufacturing is sourced from mainland China, and we have sales and support offices in Hong Kong, Taiwan and mainland China. We have over 20 years of experience delivering industry leading audio solutions to the professional and consumer markets. With our acquisition of ASI in July 2010 we moved from being an audio component supplier to a provider of complete audio solutions which has helped fuel our growth over the past year. Our products have been recognized worldwide via exceptional product reviews, and we differentiate ourselves by offering superior products based on patented technologies. We have an impressive portfolio of customer and technology partners, including many of the leading worldwide brands. We believe our leadership team and internal management processes are among the best in our industry. Our mantra is to deliver the “Ultimate Vision in Sound”.

~~AuraSound~~COMPANY BACKGROUND - Hemcure, Inc. (~~the~~ “~~Company~~Hemcure”,) was ~~“AuraSound”,~~incorporated ~~“we”,~~under ~~“us”~~the orlaws ~~“our”)~~of ~~was~~the ~~originally~~state ~~incorporated~~of Minnesota in ~~1987~~1986. On September 8, ~~and~~2006, ~~specializes~~Hemcure was reincorporated in the ~~design~~state of Nevada pursuant to a merger with Hemcure, ~~manufacture~~Inc., a Nevada corporation, and ~~sale~~the corresponding adoption of ~~high-fidelity~~Nevada ~~loudspeakers~~Articles of Incorporation. On ~~The~~June ~~Company’s~~7, ~~operations~~2007, ~~are~~Hemcure ~~based~~acquired AuraSound, Inc. Aura Sound, a California corporation, was incorporated on July 28, 1999 to engage in the ~~United~~development, ~~States~~commercialization, ~~with~~and ~~offices~~sale inof ~~Hong~~audio ~~Kong~~products, ~~Taiwan~~sound systems, and audio components using electromagnetic technology. On February 12, 2008, the ~~Peoples~~Company ~~Republic~~changed ofits ~~China~~name from Hemcure, Inc. to AuraSound, Inc.

~~UNAUDITED~~On ~~INTERIM~~July ~~FINANCIAL~~10, ~~INFORMATION~~2010, AuraSound, Inc. entered into an Asset Purchase Agreement (the “Asset Purchase Agreement”) with ASI Holdings Limited, a Hong Kong corporation (“ASI Holdings”), and its wholly-owned subsidiary ASI Audio Technologies, LLC, an Arizona limited liability company (“ASI Arizona”), pursuant to which AuraSound agreed to acquire substantially all of the business assets and certain liabilities of ASI Holdings and ASI Arizona (the “ASI Transaction”). This acquisition added the television soundbar product line that is the majority of our current business. See Notes 4 and 8 for additional information.

~~The~~NOTE ~~accompanying~~2 unaudited consolidated financial statements have been prepared by the Company, pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”), and generally accepted accounting principles for interim financial reporting. The information furnished herein reflects all adjustments (consisting of normal recurring accruals and adjustments) which are, in the opinion of management, necessary to fairly present the operating results for the respective periods. Certain information and footnote disclosures normally present in annual consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been omitted pursuant to such rules and regulations. These consolidated financial statements should be read in conjunction with the audited consolidated financial statements and footnotes included in the Company’s Annual Report on Form10-K ~~for~~BASIS ~~the~~OF ~~fiscal year ended June 30, 2010. The results of the nine month period ended March 31, 2011 are not necessarily indicative of the results to be expected for the full year ending June 30, 2011.~~PRESENTATION

~~BASIS~~INTERIM OFFINANCIAL STATEMENTS ~~PRESENTATION~~- The accompanying unaudited consolidated financial statements and related notes have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Results for interim periods should not be considered indicative of results for a full year. These interim consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes contained in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2011, filed with the Securities and Exchange Commission on October 13, 2011. The accounting policies used in preparing these consolidated financial statements are the same as those described in Note 3 to the consolidated financial statements in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2011. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair statement of the results for interim periods have been included.

The ~~accompanying~~preparation of the consolidated financial statements ~~have been prepared~~ in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of ~~America~~assets and liabilities, ~~which~~disclose wecontingent ~~refer~~assets toand ~~throughout~~liabilities at ~~this~~the ~~report~~date of the financial statements and disclose the reported amounts of revenues and expenses during the reporting period. Significant estimates are required as USpart ~~GAAP~~of determining fair value of convertible debt and warrants, allowance for doubtful accounts, estimated lives of property and equipment and intangibles, long-lived asset impairments, valuation allowances on deferred income taxes and the potential outcome of future tax consequences of events recognized in the Company’s financial statements or tax returns. Actual results and outcomes may materially differ from management’s estimates and assumptions. Reclassifications of prior year’s data have been made to conform to 2011 classifications.

~~PRINCIPLES~~Page ~~OF CONSOLIDATION~~6

GOING CONCERN - The ~~consolidated~~accompanying financial statements have ~~include~~been prepared on a going concern basis which contemplates the ~~accounts~~realization of ~~AuraSound~~assets and the satisfaction of liabilities in the normal course of business. During the three months ended September 30, ~~Inc~~2011, the Company incurred losses of $23,748. ~~and~~The ~~its~~Company had ~~wholly-owned~~an accumulated deficit of $36,908,653 as of September 30, 2011. During the fiscal year ended June 30, 2011, the Company realized net income of $953,885. During the year ended June 30, 2010, the Company incurred losses of $2,238,947. Until fiscal year 2011, the Company had never been profitable and ~~majority-owned~~there ~~subsidiaries~~can be no assurances that it will remain profitable or that it will survive as a public company. ~~All~~We ~~significant~~are ~~intercompany~~in ~~accounts~~violation of the covenants of our Line of Credit and ~~transactions~~New ~~have~~Line ~~been~~of ~~eliminated~~Credit (as defined elsewhere herein) as of both June 30, 2011 and September 30, 2011, respectively. These issues raise substantial doubt regarding our ability to continue as a going concern.

~~USE~~The OFCompany ~~ESTIMATES~~is taking many measures to improve its operations and ultimate financial position. As seen by the financial results since the ASI acquisition, our revenue and profit generation opportunities have dramatically improved. Internally, the Company has continued to invest in new product and market development resulting in possible new revenue sources. The Company is developing alternative production capacity to ultimately lower manufacturing costs and improve our ability to respond to changing customer needs. Externally, the Company has recently renegotiated an expanded credit agreement and is investigating other alternatives to access additional financing. However, there are no guarantees that any of these efforts will be successful.

The ~~preparation of~~ financial statements indo ~~conformity~~not ~~with~~include ~~generally~~any adjustments ~~accepted~~relating ~~accounting~~to ~~principles in~~ the ~~United~~recoverability ~~States requires management to make estimates~~ and ~~assumptions~~classification ~~that affect the reported amounts~~ of ~~assets and~~ liabilities ~~and~~that ~~disclosure~~might ofbe ~~contingent~~necessary ~~liabilities~~should atwe ~~the~~be ~~date~~unable ofto ~~the~~continue as ~~consolidated~~a ~~financial~~going ~~statements~~concern. ~~and~~Our ~~the~~continuation ~~reported~~as ~~amounts~~a ofgoing ~~revenues~~concern ~~and~~is ~~expenses.~~dependent ~~Significant~~upon ~~estimates~~our ~~and~~ability ~~assumptions~~to ~~are~~retain ~~used~~our ~~for,~~current ~~but~~short ~~are~~term ~~not~~financing and ~~limited~~ultimately to, ~~revenue~~generate ~~recognition,~~sufficient ~~allowance~~cash ~~for~~flow ~~doubtful~~to ~~accounts,~~meet ~~allowance~~our ~~for~~obligations ~~sales valuation's allowance income~~on ~~tax~~a ~~contingency~~timely ~~accruals~~basis ~~and~~in ~~valuation~~order ~~allowances, asset~~to ~~impairment,~~obtain ~~purchase~~additional ~~price allocation~~ financing, and ~~litigation-related~~ultimately ~~accruals.~~to ~~Actual~~generate ~~results~~consistent ~~could~~positive ~~differ~~net ~~from our estimates~~income.

~~CASH~~NOTE ~~AND~~3 ~~CASH~~– ~~EQUIVALENTS~~SIGNIFICANT ACCOUNTING POLICIES

~~Cash~~PRINCIPLES ~~and~~OF ~~cash~~CONSOLIDATION ~~equivalents~~- ~~include~~The ~~cash~~consolidated infinancial statements ~~hand~~include ~~and~~the ~~cash~~accounts inof ~~time deposits~~AuraSound, ~~certificates~~Inc. ~~of deposit~~ and ~~all~~its ~~highly~~wholly-owned ~~liquid~~subsidiary. ~~debt~~All ~~instruments~~significant ~~with~~intercompany ~~original~~accounts ~~maturities~~and oftransactions have ~~three~~been ~~months or less~~eliminated.

~~TRADE~~ ACCOUNTS RECEIVABLE ALLOWANCE FOR DOUBTFUL ACCOUNTS AND SALES RETURNS - The Company recognizes an allowance for losses on accounts receivable in an amount equal to the estimated probable losses net of recoveries. The allowance is based on an analysis of historical bad debt experience, current receivables aging and expected future write-offs, as well as an assessment of specific identifiable customer accounts considered at risk or uncollectible. The expense associated with the allowance for doubtful accounts is recognized as selling, general and administrative expense.The Company records reductions to revenue for estimated customer sales returns, rebates and certain other customer incentive programs. These reductions to revenue are made based upon reasonable and reliable estimates that are determined by historical experience, contractual terms and current conditions.

~~Trade~~Additional ~~accounts~~allowances ~~receivable~~could ~~are~~be ~~recorded~~required atif the ~~invoiced~~financial ~~amount and do not bear interest. Amounts collected on trade accounts receivable are included in net cash provided by operating activities in the consolidated statements~~ condition of ~~cash~~our ~~flows.~~customers ~~The~~or ~~Company~~distributors ~~maintains~~were anto ~~allowance~~be ~~for~~impaired ~~doubtful~~beyond ~~accounts~~our ~~for estimated losses inherent in its accounts receivable portfolio~~estimates. InAs ~~establishing~~of ~~the~~September ~~required allowance~~30, ~~management~~2011 ~~considers historical losses adjusted to take into account current market conditions~~ and ~~our~~June ~~customers’ financial condition~~30, ~~the amount of receivables in dispute~~2011, ~~and~~ the ~~current receivables aging and current payment patterns. The Company reviews its~~ allowance for doubtful accounts ~~monthly. Past due balances over 90 days~~ and ~~over~~sales a specified amount are reviewed individually for collectability. All other balances are reviewed on a specific item basis. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. The allowance for doubtful accounts and returns ~~was~~amounted to $~~350~~204,~~000~~645 ~~as of March 31, 2011~~ and $63578,~~675 as of June 30~~657, ~~2010~~respectively. ~~The Company does not have any off balance sheet credit exposure related to its customers.~~

4PROPERTY, PLANT & EQUIPMENT - As of September 30, 2011 and June 30, 2011, the Company had net property, plant and equipment in the amount of $610,184 and $482,503, respectively consisting of the following:

INVENTORIES

		September 30, 2011			June 30, 2011
		Unaudited			Audited

Machinery and equipment	$	29,479		$	29,479
Tooling		444,503			353,172
Computer software and equipment		10,369			10,369
Leasehold improvements		56,927			56,927
Furniture and Fixture, office equipment		204,360			138,847
Total property and equipment		745,638			588,794
Accumulated depreciation		(135,454	)		(106,291	)
Net value of property and equipment	$	610,184		$	482,503

~~Inventories~~Maintenance ~~are~~and ~~stated~~minor atreplacements ~~the~~are ~~lower~~charged ofto ~~cost~~expense ~~(first-in,~~as ~~first-out) or market~~incurred. Gains ~~Appropriate~~and ~~consideration~~losses ison ~~given~~disposals, toif ~~deterioration~~any, ~~obsolescence~~are ~~and~~included ~~other factors~~ in ~~evaluating~~the ~~net~~results ~~realizable value. As~~ of ~~March 31, 2011 and June 30, 2010, the allowance for obsolescence amounted to $180,000 and $193,139 respectively~~operations.

~~PROPERTY~~WARRANTY LIABILITY - Certain of our products are sold with a warranty that provides for repairs or replacement of any defective parts for a period(generally one year) after the sale. At the time of the sale, ~~PLANT~~we accrue an estimate of the cost of providing the warranty based on prior experience with such factors such as return rates and repair costs, ~~AND~~which ~~EQUIPMENT~~are reviewed quarterly.

~~Property,~~Page plant, and equipment, including leasehold improvements, are recorded at cost less accumulated depreciation and amortization. Depreciation is provided using the straight-line method over the estimated useful lives of the respective assets as follows:7

	Depreciable Period
Furniture and fixtures	7 years
Machinery and equipment	5 to 10 years
Tooling	5 to 10 years
Computer software and equipment	3 to 5 years

Our warranty accrual is based on historical costs of warranty repairs and expected future identifiable warranty expenses and is included in accrued liabilities in the accompanying consolidated balance sheets. Warranty expenses are included in cost of sales in the accompanying consolidated statements of operations. Changes in estimates to previously established warranty accruals result from current period updates to assumptions regarding repair costs and warranty return rates and are included in current period warranty expense. As of September 30, 2011 and June 30, 2011, the warranty accrual amounted to $232,048 and $220,118, respectively.

~~Improvements~~BASIC toAND ~~leased~~DILUTED ~~property~~NET INCOME ~~are~~(LOSS) ~~amortized~~PER ~~over~~SHARE ~~the~~- ~~lesser~~Basic ofnet income per common share is computed by dividing net income available to common stockholders by the ~~life~~weighted average number of common shares outstanding. Diluted net income per common share is computed similar to basic net income per common share except that the ~~lease~~denominator oris increased to include the ~~life~~number of ~~the~~additional common ~~improvements.~~shares ~~Amortization~~that ~~expense~~would onhave ~~assets~~been ~~acquired~~outstanding ~~under~~if ~~capital~~the ~~leases~~potential iscommon ~~included~~shares ~~with~~had ~~depreciation~~been issued and ~~amortization~~if ~~expense~~the onadditional ~~owned~~common shares ~~assets~~were dilutive. ~~Maintenance~~Under ~~and~~this ~~minor~~method, ~~replacements~~options and warrants are ~~charged~~assumed to ~~expense~~be asexercised ~~incurred.~~at ~~Gains~~the beginning of the period (or at the time of issuance, if later) and ~~losses~~as onif ~~disposals~~funds obtained thereby were used to purchase common stock at the average market price during the period. Potentially dilutive securities are not included in the ~~results~~diluted ofloss per share calculation due to net losses from continuing operations the quarter ended September 30, 2011 so there is no difference to reconcile for the weighted average shares outstanding for basic and diluted net income per share for the quarter ended September 30, 2011.

~~VALUATION~~At OFSeptember ~~LONG-LIVED~~30, ~~ASSETS~~2011 the Company had 13,642,934 potentially dilutive warrant shares outstanding and not included in the diluted loss per share calculation due to net losses from continuing operations.

The ~~Company~~difference ~~tests~~in ~~long-lived~~the ~~assets~~weighted ~~for~~average ~~impairment~~shares ~~whenever~~outstanding ~~events~~used ~~or changes~~ in ~~circumstances indicate that~~ the ~~carrying~~calculation ~~amount~~ of anbasic ~~asset may not be recoverable through the estimated undiscounted cash flows expected to result from the use~~ and ~~eventual~~diluted ~~disposition~~earnings ofper ~~the~~share ~~assets.~~for Inthree ~~that~~months ~~event,~~ended aSeptember loss is recognized based on the amount by which the carrying amount exceeds the fair market value of the long-lived assets. Loss on long-lived assets to be disposed of is determined in a similar manner30, ~~except~~2011 ~~that~~and ~~fair~~2010 ~~market values~~ are ~~reduced~~as ~~for the cost of disposal.~~follows:

INTANGIBLE ASSETS

		September 30,			September 30,
		2011			2010
Net Income (loss)	$	(23,748	)	$	35,453

Basic:
Weighted average common shares outstanding		16,876,089			10,781,397

Shares used in computation of basic net income per share		16,876,089			10,781,397

Net Income (loss) per share - basic	$	(0.00	)	$	0.00

Diluted:
Shares used in computation of basic net income (loss) per share		16,876,089			10,781,397

Net shares assumed issued using the treasury stock method for outstanding common stock warrants		—			15,185,958

Shares used in computation of diluted net income (loss) per share		16,876,089			25,967,355

Net Income (loss) per share - diluted	$	(0.00	)	$	0.00

~~The~~Warrants ~~Company~~having ~~records~~exercise ~~intangible~~prices that ~~assets acquired individually or as part of a group at fair value. Intangible assets with definitive lives~~ are ~~amortized~~greater ~~over~~than the ~~useful~~per ~~life~~share ofmarket ~~the~~price ~~intangible~~for ~~asset,~~our ~~which~~common isstock, ~~the~~if ~~period~~any, ~~over~~have ~~which~~also ~~the~~been ~~asset~~excluded isfrom ~~expected to contribute directly or indirectly to~~ the ~~entity’s~~diluted ~~future~~per share ~~cash~~calculation ~~flows. The Company evaluates intangible assets~~ for ~~impairment~~fiscal atyear ~~least~~2011 ~~annually~~ and ~~more often whenever events or changes in circumstances indicate that~~ the ~~carrying~~three ~~value~~months ~~may~~ended ~~not~~September be30, ~~recoverable~~2011. ~~Whenever~~There ~~any~~were ~~such~~6,000,000 ~~impairment~~shares ~~exists,~~represented by ansuch ~~impairment~~warrants ~~loss~~for ~~will~~fiscal beyear ~~recognized~~2011 ~~for~~and ~~the~~no ~~amount~~shares represented by ~~which~~such ~~the~~warrants ~~carrying~~as ~~value~~of ~~exceeds~~September ~~the~~30, ~~fair value~~2011.

~~GOODWILL~~NEW ACCOUNTING PRONOUNCEMENTS - In August 2011, the Financial Accounting Standards Board (“FASB”) amended guidance relating to Testing Goodwill for Impairment.The amendments in this Accounting Standards Update (“ASU”) are intended to simplify how entities, both public and nonpublic test goodwill for impairment in response to concerns regarding the cost and complexity of performing the first of the two-step goodwill impairment test, especially for private companies. These amendments permit an entity to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test described in Topic 350. The more-likely-than-not threshold is defined as having a likelihood of more than 50 percent. An entity is no longer is permitted to carry forward its detailed calculation of a reporting unit’s FV from a prior year as previously permitted by paragraph 350-20-35-29. An entity can bypass the qualitative assessment for any reporting unit in any period and proceed directly to performing the first step of the two-step goodwill impairment test. An entity may resume performing the qualitative assessment in any subsequent period. These amendments do not change the current guidance for testing other indefinite lived intangible assets for impairment – which is designated for evaluation under a separate FASB project. The new guidance is effective for fiscal years beginning after December 15, 2011 for public and nonpublic entities. The adoption of these amendments is not expected to have a material impact on our condensed consolidated financial statements.

~~Goodwill~~RECLASSIFICATIONS ~~represents~~- ~~the~~Certain ~~excess~~items ~~of purchase price and~~ related ~~costs over the value assigned~~ to ~~the~~fiscal year ~~net~~2011 ~~tangible~~in and identifiable intangible assets of businesses acquired. Goodwill is not amortized but is tested for impairment annually, or more frequently when circumstances indicate a possible impairment may exist. Impairment testing is performed at a reporting unit level. An impairment loss generally would be recognized when the ~~carrying~~accompanying ~~amount~~consolidated offinancial ~~the~~statements ~~reporting~~have ~~unit~~been ~~exceeds~~reclassified ~~the~~from ~~fair value of~~ the ~~reporting~~prior ~~unit,~~year ~~with the fair value of the reporting unit determined using a discounted cash flow (DCF) analysis. A number of significant assumptions and estimates are involved in the application of the DCF analysis~~ to ~~forecast~~conform ~~operating cash flows, including the discount rate, the internal rate of return, and projections of realizations and costs~~ to ~~produce. Management considers historical experience and all available information at~~ the ~~time~~current year ~~the fair values of its reporting units are estimated~~presentation.

~~CONCENTRATION~~Page ~~OF CREDIT RISK~~8

~~Financial~~NOTE ~~instruments~~4 that potentially subject the Company to concentrations of credit risk are cash, accounts receivable and other receivables arising from normal business activities. We place our cash in what we believe to be credit-~~worthy~~ financial institutions. We have a diversified customer base. We control credit risk related to accounts receivable through credit approvals, credit limits and monitoring procedures. The Company routinely assesses the financial strength of its customers and, based upon factors surrounding the credit risk, establishes an allowance, if required, for uncollectible accounts and, as a consequence, believes that its accounts receivable credit risk exposure beyond such allowance is limited.ACQUISITION

On July 10, 2010, the Company entered into an Asset Purchase Agreement (the “Asset Purchase Agreement”) with ASI Holdings Limited (“ASI Holdings”) and ASI Holdings’ wholly-owned subsidiary, ASI Audio Technologies, LLC (“ASI Arizona” and collectively with ASI Holdings, “ASI”). The total purchase price was a fair value of $6,366,775 determined by an outside valuation expert. Pursuant to the Asset Purchase Agreement, the Company agreed to acquire substantially all of the business assets and certain liabilities of ASI, in exchange for the issuance of an aggregate of 5,988,005 shares (the “ASI Transaction Shares”) of unregistered common stock of the Company (“Common Stock”) to the two shareholders of ASI Holdings, including the issuance to Sunny World Associates Limited (“Sunny World”), the owner of 90% of the outstanding shares of ASI Holdings, which is controlled by Harald Weisshaupt, our President and Chief Executive Officer, and a five (5) year warrant to purchase an aggregate of 3,000,000 shares of Common Stock (the “ASI Warrant Shares”) at an exercise price of $1.00 per share (the “ASI Warrant”) with vesting based on certain milestones. These milestones were not met in the fiscal year ended June 30, 2011. If the milestones are not met, the warrants expire with no additional adjustments to paid in capital.

~~REVENUE~~Pursuant ~~RECOGNITION~~to the Asset Purchase Agreement, Sunny World received 90% of the ASI Transaction Shares, and Faithful Aim Limited (“Faithful Aim”), the owner of 10% of the outstanding shares of ASI Holdings, received 10% of the ASI Transaction Shares.

~~Sales~~Certain ~~revenue~~intangible isassets ~~recognized at the date~~ of ~~shipment~~customer torelationships ~~customers~~with ~~when~~ a ~~formal~~value of ~~arrangement exists~~$2, ~~the price is fixed or determinable~~200,000, ~~the~~a ~~delivery~~non-compete isagreement ~~completed,~~with noa ~~other~~value ~~significant obligations~~ of ~~the~~$1,600,000 ~~Company exist~~ and ~~collectability~~a istrade ~~reasonably~~name ~~assured.~~with ~~The~~a ~~Company~~value ~~recognizes revenue net~~ of ~~an allowance for estimated returns~~$700,000 atis ~~the~~included ~~time~~in the ASI ~~merchandise is sold~~purchase.

~~RESEARCH~~The ~~AND~~following ~~DEVELOPMENT~~table summarizes the estimated fair values of the assets acquired and the liabilities assumed in the ASI acquisition:

Research and development costs are expensed as incurred.

	Amount
Purchase price	$	6,366,775

Fair Value of assets acquired
Current assets		8,885,729
Property & equipment		18,957
Intangible Assets		4,500,000
		13,404,686
Fair value of liabilities acquired
Current liabilities		13,462,225
Net liabilities acquired		57,539

Goodwill	$	6,424,314

~~INCOME~~PROFORMA ~~TAXES~~CONDENSED CONSOLIDATED FINANCIAL INFORMATION

The ~~Company~~following ~~accounts~~unaudited ~~for~~pro ~~income~~forma ~~taxes~~condensed ~~using~~combined anfinancial ~~asset~~information presents ~~and liability approach which allows for~~ the ~~recognition~~results ~~and measurement~~ of ~~deferred~~operations ~~tax assets based upon the likelihood~~ of ~~realization of tax benefits in future years. Under~~ the ~~asset~~Company ~~and~~as ~~liability~~they ~~approach,~~may ~~deferred~~have ~~taxes~~appeared ~~are~~if ~~provided for~~ the ~~net~~closing ~~tax effects~~ of ~~temporary differences between~~ the ~~carrying~~ASI ~~amounts~~acquisition, ofpresented ~~assets and liabilities for financial reporting purposes and~~ in the ~~amounts~~aggregate, ~~used~~had ~~for~~been ~~income~~completed ~~tax~~on ~~purposes.~~July ~~A valuation allowance is provided for deferred tax assets if it is more likely than not these items will either expire before the Company is able to realize their benefits~~1, ~~or that future deductibility is uncertain~~2010.

CONTINGENCIES

		For the three months ended
		September 30, 2010

Net sales	$	13,564,464
Income from operations	$	273,188
Net income	$	251,847

~~Certain~~NOTE ~~conditions~~5 ~~may~~- exist as of the date the financial statements are issued, which may result in a loss to the Company but which will only be resolved when one or more future events occur or fail to occur. Our management and legal counsel assess such contingent liabilities, and such assessment inherently involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against the Company or unasserted claims that may result in such proceedings, the Company’s legal counsel evaluates the perceived merits of any legal proceedings or unasserted claims as well as the perceived merits of the amount of relief sought or expected to be sought. If the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated liability would be accrued in the Company’s financial statements. If the assessment indicates that a potential material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, together with an estimate of the range of possible loss if determinable and material would be disclosed. Loss contingencies considered to be remote by management are generally not disclosed unless they involve guarantees, in which case the guarantee would be disclosedINVENTORIES

~~BASIC~~Inventories ~~AND~~consisted ~~DILUTED~~of ~~NET INCOME~~the ~~PER~~following ~~SHARE~~as of September 30, 2011 and June 30, 2011:

The basic loss per common share is computed by dividing net income available to common stockholders by the weighted average number of common shares outstanding. Diluted income per common share is computed similar to basic income per common share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive. Under this method, options and warrants are assumed to be exercised at the beginning of the period (or at the time of issuance, if later), and as if funds obtained thereby were used to purchase common stock at the average market price during the period. At March 31, 2011, the Company has 3,429,925 and 3,503,544 potentially dilutive warrant shares outstanding based respectively on the weighted averages for the nine month and three month periods ending March 31, 2011.

		September 30, 2011		June 30, 2011
Raw materials	$	3,068,998	$	2,153,802
Finished goods		9,448,764		13,397,158
Inventory	$	12,517,762	$	15,550,960

~~NEW~~NOTE ~~ACCOUNTING~~6 ~~PRONOUNCEMENTS~~- ACCRUED EXPENSES

InAccrued ~~January~~expenses ~~2010,~~consisted the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) No. 2010-06, “Improving Disclosures about Fair Value Measurements.” This update provides amendments to Subtopic 820-10 that requires new disclosure as follows: 1) Transfers in and out of ~~Levels 1 and 2. A reporting entity should disclose separately~~ the ~~amounts~~following of significant transfers in and out of Level 1 and Level 2 fair value measurements and describe the reasons for the transfers. 2) Activity in Level 3 fair value measurements. In the reconciliation for fair value measurements using significant unobservable inputs (Level 3), a reporting entity should present separately information about purchases, sales, issuances, and settlements (that is, on a gross basis rather than as ~~one net number). This update provides amendments to Subtopic 820-10 that clarifies existing disclosures as follows: 1) Level~~ of ~~disaggregation.~~September A reporting entity should provide fair value measurement disclosures for each class of assets and liabilities. A class is often a subset of assets or liabilities within a line item in the statement of financial position. A reporting entity needs to use judgment in determining the appropriate classes of assets and liabilities. 2) Disclosures about inputs and valuation techniques. A reporting entity should provide disclosures about the valuation techniques and inputs used to measure fair value for both recurring and nonrecurring fair value measurements. Those disclosures are required for fair value measurements that fall in either Level 2 or Level 3. The new disclosures and clarifications of existing disclosures are effective for interim and annual reporting periods beginning after December 1530, 2011 ~~2009, except for the disclosures about purchases, sales, issuances,~~ and ~~settlements~~June ~~in the roll forward of activity in Level 3 fair value measurements. These disclosures are effective for fiscal years beginning after December 15~~30, 2010, and for interim periods within those fiscal years. The Company is currently evaluating the impact of this ASU, however, the Company does not expect the adoption of this ASU to have a material impact on its consolidated financial statements.2011:

		September 30, 2011		June 30, 2011
Warranty	$	232,048	$	220,118
Deferred Rent		111,608		82,780
Accrued payroll and other		166,429		166,505
Total	$	510,085	$	469,403

InNOTE ~~July~~7 ~~2010,~~– ~~the~~INTANGIBLE FASB issued ASU 2010-20, which amends “Receivables” (Topic 310). ASU 2010-20 is intended to provide additional information to assist financial statement users in assessing an entity’s risk exposures and evaluating the adequacy of its allowance for credit losses. The disclosures as of the end of a reporting period are effective for interim and annual reporting periods ending on or after December 15, 2010. The disclosures about activity that occurs during a reporting period are effective for interim and annual reporting periods beginning on or after December 15, 2010. The amendments in ASU 2010-20 encourage, but do not require, comparative disclosures for earlier reporting periods that ended before initial adoption. However, an entity should provide comparative disclosures for those reporting periods ending after initial adoption. While ASU 2010-20 will not have a material impact on our consolidated financial statements, we expect that it will expand our disclosures related to notes receivables. No other new accounting pronouncements issued or effective during 2010 has had or is expected to have a material impact on the consolidated financial statements.ASSETS

~~RECLASSIFICATIONS~~Intangible assets consisted of the following:

For comparative purposes, the prior year’s consolidated financial statements have been reclassified to conform with reporting classifications of the current year periods.

	Average				9/30/2011
	Useful Life				Accumulated
	(Years)		Gross		Amortization			Net Book Value
Amortizable intangible assets:
Customer relationships	10	$	2,200,000	$	(256,676	)	$	1,943,324
Non-compete agreement	3		1,600,000		(616,000	)		984,000
Trade name	10		700,000		(81,662	)		618,338
		$	4,500,000	$	(954,338	)	$	3,545,662

~~NOTE~~Page ~~3 GOING CONCERN~~9

~~The~~Amortization ~~accompanying~~expense ~~financial~~for ~~statements have been prepared on a going concern basis which contemplates~~ the ~~realization~~quarters ofended September ~~assets and the satisfaction of liabilities in the normal course of business. As of March 31~~30, 2011, ~~the~~and ~~Company~~September ~~has an accumulated deficit of $36~~30,~~225,483~~ ~~and~~2010 ~~negative~~totaled ~~working capital of~~ $3204,~~833,346,~~501 and ~~has reported significant losses over the past several years. During the nine months ended March 31, 2011, the Company recorded net income of~~ $1136,~~613~~334,~~308~~ ~~and had net cash used by operating activities of $863,092~~respectively. The ~~move~~Company toestimates profitability is a direct result of the execution of our new management’s post-acquisition business plan to cut costs on all business lines, to hold and spread overhead costs against a larger revenue base and to continue to move toward sustained profitability. However, there can be no assurance that the ~~Company~~total amortization ~~can~~expense ~~sustain~~for ~~profitability or positive cash flows from operations. As such, if~~ the ~~Company~~next isfive ~~unable~~years towill ~~generate positive~~be ~~net~~as ~~income~~follows: ~~and unable to continue to obtain financing for its working capital requirements, it may have to curtail its business sharply or cease its operations altogether.~~

The financial statements do not include any adjustments relating to the recoverability and classification of liabilities that might be necessary should the Company be unable to continue as a going concern. The Company’s continuation as a going concern is dependent upon its ability to retain its current short term financing and ultimately to generate sufficient cash flow to meet its obligations on a timely basis in order to attain profitability.

2012	$	618,832
2013		823,333
2014		339,333
2015		290,000
2016		290,000
Thereafter		1,184,164
Total	$	3,545,662

OnNOTE ~~July 10, 2010, the Company entered into an Asset Purchase Agreement (the “Asset Purchase Agreement”) with ASI Holdings Limited (“ASI Holdings”) and ASI Holdings’ wholly~~8-~~owned~~ subsidiary, ASI Audio Technologies, LLC (“ASI Arizona” and collectively with ASI Holdings, “ASI”). Pursuant to the Asset Purchase Agreement, the Company agreed to acquire substantially all of the business assets and certain liabilities of ASI, in exchange for the issuance of an aggregate of 5,988,005 shares (the “ASI Transaction Shares”) of unregistered common stock of the Company (“Common Stock”) to the two shareholders of ASI Holdings, and the issuance to Sunny World Associates Limited (“Sunny World”), the owner of 90% of the outstanding shares of ASI Holdings, which is controlled by Harald Weisshaupt, our President and Chief Executive Officer, a five (5) year warrant to purchase an aggregate of 3,000,000 shares of Common Stock (the “ASI Warrant Shares”) at an exercise price of $1.00 per share (the “ASI Warrant”) with vesting based on certain milestones.DEBT

7RELATED PARTY NOTES

~~Pursuant~~Arthur Liu to the Asset Purchase Agreement, Sunny World was to receive 90% of the ASI Transaction Shares, and Faithful Aim Limited (“Faithful Aim”), the owner of 10% of the outstanding shares of ASI Holdings, was to receive 10% of the ASI Transaction Shares, all subject to and in accordance with the APA Amendment (as defined in the paragraph below).Notes

OnNotes ~~July~~payable ~~31,~~to ~~2010~~related ~~(the~~party at ~~“Closing~~June ~~Date”)~~30, ~~the~~2011 ~~Company, ASI Holdings~~ and ~~ASI~~June ~~Arizona~~30, ~~entered~~2010 ~~into~~equaled ~~Amendment~~$0 ~~No.~~and $1 ~~to the Asset Purchase Agreement (the “APA Amendment”)~~, ~~pursuant to which the parties agreed that only 500~~264,~~000~~791, ~~of the ASI Transaction Shares would be released to the shareholders of ASI Holdings on the Closing Date~~respectively, and ~~the~~consisted ~~balance~~ of ~~5,488,005~~notes ~~shares (the “Contingent Shares”) were~~ to beInseat ~~held in escrow by the Company’s outside legal counsel until (i) the Company or its manufacturer~~Solutions, ~~Guoguang Electric Company Limited (“GGEC”)~~LLC, or an entity ~~affiliate~~owned ofby ~~GGEC,~~our ~~including,~~former ~~without~~Chief ~~limitation,~~Executive ~~GGEC America~~Officer, ~~Inc~~Arthur Liu. These ~~(“GGEC~~notes ~~America”),~~were ~~obtains~~of ~~the~~various ~~license~~dates ~~rights needed for the Company to manufacture~~ and ~~sell~~all ~~ASI~~bore ~~Holdings’~~interest at ~~products~~8% toper ~~ASI~~annum, ~~Holdings’~~with ~~customers~~principle ~~after the Closing Date,~~ and ~~(ii) all of the members of the Company’s Board of Directors who have no beneficial ownership~~ interest indue ~~the~~on ~~Contingent Shares approve the release of the Contingent Shares to the shareholders of ASI Holdings~~demand. ~~These~~Interest ~~Contingent~~expense ~~Shares were not immediately issued (~~for ~~escrow placement) as~~ the ~~Company~~year ~~did~~ended ~~not~~June ~~have at the time a sufficient number of authorized shares of Common Stock to issue the Contingent Shares. As of March 31~~30, 2011, ~~the two contingency requirements have been successfully achieved~~ and ~~the~~June ~~Company has issued 5~~30,~~389,204~~ ~~shares~~2010 amounted ~~of Common Stock~~ to ~~Sunny~~$0 ~~World~~ and ~~250~~$101,~~000~~162, ~~shares~~respectively. As of ~~Common~~June ~~Stock to Faithful Aim~~30, ~~leaving~~2011 aand ~~balance~~June of30, ~~348~~2010,~~801~~ ~~shares of Common Stock which shall be issued to Faithful Aim effective upon~~ the ~~Company~~accrued ~~filing~~interest anon ~~amendment to its certificate of incorporation to increase~~ the ~~number~~notes ofpayable ~~authorized shares of Common Stock~~ related to athese ~~number~~notes ~~sufficient~~amounted to ~~permit~~$0 ~~the~~and ~~Company~~$227,814, ~~to issue such shares~~respectively.

~~The~~On ~~following~~July ~~table~~10, ~~summarizes~~2010, AuraSound entered into and consummated an Agreement to Convert Debt (the ~~estimated~~“Debt Conversion Agreement”) with Inseat Solutions, LLC (“Inseat”), a California limited liability company controlled by Arthur Liu, AuraSound’s former Chief Executive Officer and Chief Financial Officer. Pursuant to the Debt Conversion Agreement, AuraSound issued 326,173 shares of unregistered Common Stock and a three (3) year warrant to purchase 2,243,724 shares of Common Stock at an exercise price of $0.50 per share (the “Inseat Warrant”), in consideration of the cancellation of $1,904,305 of indebtedness owed by AuraSound to Inseat. The Inseat Warrant is exercisable for cash only. The aggregate fair ~~values~~value of the ~~assets~~aforementioned ~~acquired~~common stock and ~~the~~common ~~liabilities~~stock ~~assumed~~purchase inwarrant was determined to be $456,402 as determined by a third party valuation. As a result of this transaction the ~~ASI~~company ~~acquisition:~~recognized a gain on debt extinguishment of $1,447,907 which was treated as contributed capital.

	Amount
Purchase price	$	6,349,205
Fair Value of assets acquired
Current assets		9,320,676
Property & equipment		36,285
Intangible Assets		4,500,000
		13,856,961
Fair value of liabilities acquired
Current liabilities		13,479,795
Net assets acquired		377,166
Goodwill	$	5,972,039

GGEC Notes

~~The~~On ~~above~~October ~~estimated~~8, ~~fair~~2008, ~~values~~GGEC ofentered ~~the~~into ~~assets~~a ~~acquired~~non-binding letter ~~and~~of ~~the~~intent ~~liabilities~~directed ~~assumed~~at ~~are~~a ~~preliminary~~possible ~~and~~transaction ~~are~~whereby ~~based~~GGEC onwould ~~the~~acquire ~~information~~a ~~that~~55% ~~was~~interest ~~available~~in asAuraSound, ofInc. During the ~~date~~evaluation period, ofGGEC ~~this report.~~agreed ~~The~~to ~~Company~~fund ~~believes~~up ~~that information available~~ to it$150,000 ~~provides~~per amonth ~~reasonable~~for ~~basis~~current ~~for~~operating ~~estimating~~costs until the ~~fair~~transaction ~~values~~is ofeither ~~the~~consummated ~~assets~~or terminated. ~~acquired~~As ~~and~~of ~~the~~June ~~liabilities~~30, ~~assumed; however~~2010, ~~the~~GGEC ~~Company~~had isadvanced ~~awaiting~~$1,253,558. Under the ~~finalization~~terms of ~~certain~~that ~~third-party~~agreement, ~~valuations~~interest towas ~~finalize~~accrued ~~those~~at ~~fair~~8% ~~values.~~and the ~~Thus,~~notes ~~the~~were ~~preliminary~~collateralized ~~measurements~~by all of ~~fair~~the ~~value~~Company’s ~~set~~present ~~forth~~and ~~above~~future ~~are~~tangible ~~subject~~and tointangible ~~change~~assets. ~~The~~Interest ~~Company~~expense of ~~expects~~$75,213 towas ~~finalize~~related ~~the~~to ~~valuation~~these ~~and~~notes ~~complete~~for the ~~purchase~~year ~~price~~ended ~~allocation~~June as30, ~~soon~~2010. asInterest ~~practicable,~~accrued ~~but~~on nothe ~~later~~notes ~~than~~totaled ~~one~~$116,301 ~~year~~as ~~from~~of ~~the~~June 30, ~~Closing Date~~2010.

8GGEC Notes - Securities Purchase Agreement

~~PROFORMA~~On ~~CONDENSED~~July ~~COMBINED~~10, ~~FINANCIAL~~2010, ~~INFORMATION~~the Company entered into a securities purchase agreement (the “SPA”) with GGEC America and its parent, GGEC, the primary manufacturer of our products. Pursuant to the SPA, the Company issued to GGEC America: (i) 6,000,000 shares of unregistered Common Stock, (ii) a five (5) year warrant to purchase 6,000,000 shares of Common Stock at an exercise price of $1.00 per share, and (iii) a three (3) year warrant to purchase 2,317,265 shares of Common Stock at an exercise price of $0.75 per share, for an aggregate purchase price of $3,000,000 (the “GGEC Transaction”). Concurrently therewith, the Company entered into a debt extinguishment agreement, whereby GGEC America agreed to cancel $3,000,000 of notes payable and other liabilities. The aggregate fair value of the aforementioned common stock and common stock purchase warrant was determined to be $2,900,981 as determined by a third party valuation. As a result of this transaction the company recorded gain on debt extinguishment of $99,019 in fiscal year 2011.

~~The~~Page following unaudited pro forma condensed combined financial information presents the results of operations of the Company as they may have appeared if the closing of the ASI acquisition, presented in the aggregate, had been completed on July 1, 2010 and July 1, 2009.10

	For the nine months ended
	March 31, 2011		March 31, 2010
Net sales	$	56,777,967	$	22,660,201
Income (Loss) from operations		733,703		(1,677,757	)
Net Income (Loss)	$	725,094	$	(1,845,084	)

BANK DEBT

~~PROFORMA~~On ~~CONDENSED~~February ~~COMBINED~~24, ~~FINANCIAL~~2011, ~~INFORMATION~~we opened a Line of Credit with Bank SinoPac with up to $5,000,000 in borrowing availability (the “Line of Credit”). Under the agreement, we assign invoices to SinoPac for a borrowing base and can borrow a percentage of the receivable (60% – 75% of the invoice value depending on historical dilution, which is primarily the dollar value of credits for returns against the original invoice value) to use for working capital purposes. There is a factoring fee of 0.2% for each invoice assigned. Payments from the customer go directly to SinoPac. SinoPac receives and applies the payment for the factored invoice to reduce the loan balance. The remaining funds, if any, are available for our use. The Line of Credit’s terms require monthly interest payments based on borrowed amounts at a floating interest rate, calculated as the prime rate of interest (3.25% at September 30, 2011) plus 1.75%. The credit line matures January 31, 2012.

~~INVENTORIES~~On September 28, 2011, we entered into a new revolving credit line with Bank SinoPac with up to $10,000,000 in borrowing availability (the “New Line of Credit”). This New Line of Credit replaced the Line of Credit signed on February 24, 2011. The New Line of Credit is consistent with the Line of Credit insofar as we assign invoices to SinoPac for a borrowing base and can borrow a percentage of the (60% – 75% depending on historical dilution) receivable to use for working capital purposes. There is a factoring fee of 0.1% for each invoice assigned. Payments go directly to SinoPac. After SinoPac applies the payment to the factored invoice and pays down the loan balance, the remaining funds, if any, are available for our use. The New Line of Credit’s terms require monthly interest payments based on borrowed amounts at a floating interest rate, calculated as the prime rate of interest (3.25% at September 30, 2011) plus 1.75%. The New Line of Credit matures September 30, 2012.

~~Inventories~~As atof ~~March~~September 3130, 2011, ~~and~~there was $1,758,294 outstanding under the Line of Credit, partially offset by a cash deposit of $207,681, resulting in a net balance of $1,550,613. As of June 30, 2011, ~~2010~~there ~~consisted~~was $4,950,000 outstanding under the Line of Credit, partially offset by a cash deposit of $913,713, resulting in a net balance of $4,036,287. The cash deposits are the ~~following:~~result of the timing of the difference when the funds are received and when they are applied to pay down the loan at September 30, 2011 and June 30, 2011 respectively.

	March 31, 2011			June 30, 2010
Raw materials	$	798,000		$	11,230
Finished goods		12,825,803			719,107
Inventory before provision		13,623,803			730,337
Provision for obsolescence		(180,000	)		(193,139	)
Inventory, net	$	13,443,803		$	537,198

As of June 30, 2011 and September 30, 2011, there was $963,713 and $3,449,387, available under the Line of Credit, respectively.

9The credit line is secured by certain of our assets. As of September 30, 2011, we had $3,171,217 pledged as security for the credit line. As of June 30, 2011, we had $8,798,414 pledged as security for the credit line. The credit line contains standard financial covenants that require us to comply with minimum quarterly liquidity and profitability thresholds and standard non-financial covenants that include quarterly and annual reporting requirements and certain operational restrictions.

~~NOTE~~As of June 30, 2011 and September 30, 2011, we were in not in compliance with the financial covenants of the Line of Credit. We have not received a waiver of our covenant violation as of June 30, 2011 or September 30, 2011 but are in the process of obtaining a waiver. As a consequence, our borrowing availability is limited to $5 ~~PROPERTY~~,000,000 ~~PLANT~~under &the ~~EQUIPMENT~~terms of the February 24, 2011 agreement.

AsNOTE of9 ~~March~~- ~~31,~~RELATED ~~2011~~PARTY ~~and June~~TRANSACTIONS ~~30,~~AND ~~2010, property, plant and equipment consisted of the following:~~ COMMITMENT

	March 31, 2011			June 30, 2010
Leasehold improvements	$	44,936		$	—
Furniture and Fixtures		103,437			—
Machinery and equipment		36,281			36,281
Tooling		105,193			105,193
Computer software and equipment		21,897			7,411
Office Equipment		26,679			—
Capital Lease Assets		3,285			—
Total property and equipment		341,708			148,885
Accumulated depreciation		(99,070	)		(42,420	)
Net value of property and equipment	$	242,638		$	106,465

GGEC provides manufacturing services to AuraSound, Inc. In the three-months ending September 30, 2011 we purchased $4,947,214 in goods and services from GGEC, representing approximately 37% of our cost of sales.

~~Depreciation~~NOTE ~~expense~~10 ~~was~~- ~~$24,285~~STOCKHOLDERS' ~~and $13,492 for the nine month periods ending March 31, 2011~~EQUITY ~~and 2010 respectively.~~

~~NOTE~~PREFERRED ~~6 OTHER INTANGIBLE ASSETS~~STOCK

The following table ~~provides~~summarizes the ~~gross~~Company’s ~~carrying~~preferred ~~value~~stock at ~~and~~September ~~accumulated~~30, ~~amortization~~2011 ~~for~~and ~~each~~June ~~major~~30, ~~class of intangible assets~~2011:

	Average Useful Life(Years)		Amount		Accumulated Amortization			Balance, net
Par value $0.01		September 30, 2011		June 30, 2011
Amortizable intangible assets
Authorized		3,333,333		3,333,333
Customer relationships		10	$	2,200,000		(146,672	)	$	2,053,328
Issued		—		—
Non-compete agreement		3		1,600,000		(352,000	)		1,248,000
Outstanding		—		—
Trade name		10		700,000		(46,664	)		653,336
			$	4,500,000	$	(545,336	)		3,954,664

10Page 11

~~Amortization~~COMMON ~~expense for the nine month periods ended March 31, 2011, and March 31, 2010~~STOCK ~~totaled $545,336 and $0, respectively. The Company estimates that the total amortization expense for the next five years will be as follows:~~

30-Jun-11	$	755,166
30-Jun-12		823,333
30-Jun-13		823,333
30-Jun-14		334,000
30-Jun-15		290,000
Thereafter		1,474,167
Total	$	4,500,000

The following table summarizes the Company’s common stock at September 30, 2011 and June 30, 2011:

NOTE 7 ACCRUED EXPENSES

Par value $0.01	September 30, 2011	June 30, 2011
Authorized	100,000,000	100,000,000
Issued	16,978,455	16,629,654
Outstanding	16,978,455	16,629,654

~~Accrued expenses consisted of the following as of March 31, 2011 and~~WARRANTS ~~June 30, 2010:~~

		March 31, 2011		June 30, 2010
Accrued consulting	$	—	$	236,359
Accrued interest		—		344,115
Accrued payroll and other		455,348		219,570
Total	$	455,348	$	800,044

The following is a summary of the status of the warrants outstanding as of September 30, 2011:

~~NOTE~~In ~~8 DEBT~~July 2010, we modified 3,001,945 warrants to waive the anti-dilution provisions in exchange for a two year extension of the warrants. There was no fair value adjustment necessary for the warrant adjustments, as the fair values before and after the adjustment were approximately equal. The warrant fair values were estimated using the Black-Scholes option-pricing model with the following assumptions:pre-modification; expected term of 3 years; volatility of 47%; annual dividend per share of $ 0.00; and risk-free interest of rate 0.6%. Post-modification fair values were estimated using the following assumptions:expected term of 4 years; volatility of 46%; annual dividend per share of $ 0.00; and risk-free interest rate of 1.4%.

EXTINGUISHMENT OF DEBT

	Outstanding		Exercisable
Exercise Price	Shares	Weighted Average Contractual Life (Months)	Shares		Intrinsic value
$0.50	5,445,669	59	5,445,669	$	7,079,369
$0.75	2,197,265	36	2,197,265	$	2,307,128
$1.00	6,000,000	60	6,000,000	$	4,800,000
	13,642,934		13,642,934	$	14,186,497

OnThe July 10, 2010, the Company entered into a securities purchase agreement (the “SPA”) with GGEC America and its parent, GGEC, the primary manufacturer of our products. Pursuant to the SPA, the Company issued to GGEC America: (i) 6,000,000 shares of unregistered Common Stock, which, following ~~the~~table ~~consummation~~summarizes of the ~~offering,~~activity ~~constitutes~~for ~~approximately~~all ~~55%~~stock ~~of the Company’s issued and~~ warrants outstanding ~~shares of Common Stock, (ii) a three (3) year warrant to purchase 6,000,000 shares of Common Stock~~ at anSeptember ~~exercise price of $1.00 per share~~30, and (iii) a three (3) year warrant to purchase 2,317,265 shares of Common Stock at an exercise price of $0.75 per share, for an aggregate purchase price of $3,000,000 (the “GGEC Transaction”). Concurrently therewith, the Company entered into a debt extinguishment agreement, whereby GGEC America agreed to cancel $3,000,000 of notes payable and other liabilities.2011:

On July 31, 2010, the Company entered into a debt conversion agreement (the “DCA”) with InSeat Solutions, LLC (“InSeat”), a California limited liability company controlled by Arthur Liu, the Company’s former Chief Executive Officer and Chief Financial Officer. Pursuant to the DCA, the Company issued to InSeat: (i) 326,173 shares of unregistered Common Stock, and (ii) a five (5) year warrant to purchase 2,243,724 shares of Common Stock at an exercise price of $0.50 per share, in exchange for the cancellation of $1,264,526 of notes payable and accrued interest of $232,317. See the Current Report on Form 8-K which we filed with the SEC on July 10, 2010 for more details regarding the DCA with InSeat.

	Shares			Weighted Average Exercise Price	Average Remaining Contractual Life		Aggregate Intrinsic Value
Outstanding, June 30, 2011	14,142,934		$	0.76	2.9 years	$	3,397,151

Voided September 15, 2011	(2,317,265	)	$	0.75	1.8 years	$	(2,433,128	)
Replaced September 15, 2011	1,817,265		$	0.75	1.8 years	$	1,908,128
Exercised	—			—
Cancelled	—			—
Outstanding September 30, 2011	13,642,934		$	0.76	2.7 years	$	14,186,497
Exercisable, September 30, 2011	13,642,934		$	0.76	2.7 years	$	14,186,497

~~RELATED~~FAIR ~~PARTY~~VALUE ~~NOTES~~OF FINANCIAL INSTRUMENTS - Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability in the principal or most advantageous market in an orderly transaction between market participants at the measurement date.

~~Notes~~Under ~~payable~~the toprovisions ~~related~~of ~~party~~the atAccounting ~~March~~Standards Codification 31(“ASC”) 820, ~~2011~~FairValue Measurements and ~~June~~ 30Disclosures, ~~2010~~there ~~equaled~~are $0three ~~and~~levels ~~$1,264,791,~~of ~~respectively,~~inputs ~~and~~that ~~consisted~~may ofbe ~~notes~~used to measure anfair ~~entity owned by our former Chief Executive Officer, Arthur Liu.~~value:

~~These~~Level ~~notes~~1 ~~were~~Quoted ofprices ~~various~~in ~~dates~~active ~~and~~markets ~~all~~for identical ~~bore~~assets ~~interest~~or atliabilities. 8%The ~~per~~carrying ~~annum,~~value ~~with~~of ~~principle~~cash and ~~interest~~cash ~~due~~equivalents, ontrade receivables ~~demand.~~and ~~Interest~~payables, ~~expense~~prepaid ~~for~~expenses ~~the~~and ~~three~~other ~~month~~current ~~period~~assets, ~~ended~~accounts ~~March 31~~payable, ~~2011~~ and ~~June~~other ~~30,~~payables ~~2010~~and ~~amounted~~liabilities is considered to $0be ~~and~~representative ~~$101,162,~~of ~~respectively.~~their Asfair ofvalues ~~March~~based ~~31,~~on ~~2011~~the ~~and~~short ~~June~~term ~~30,~~nature ~~2010,~~of ~~the~~these ~~accrued~~instruments. ~~interest~~As onsuch, ~~the~~cash ~~notes~~and cash ~~payable~~equivalents ~~related~~are toclassified ~~these~~within ~~notes~~Level ~~amounted~~1 toof $0the ~~and~~valuation ~~$227,814, respectively~~hierarchy.

~~BANK~~Level ~~DEBT~~2 Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in markets within sufficient volume or infrequent transactions (less active markets),or model-derived valuations in which all significant inputs are observable or can be derived principally from or corroborated with observable market data for substantially the full term of the assets or liabilities. The Company had no Level 2 assets or liabilities during any period presented.

OnLevel ~~February~~3 ~~24,~~Unobservable ~~2011,~~inputs weto ~~opened~~the valuation amethodology ~~revolving~~that ~~credit~~are ~~line~~significant ~~with~~to ~~Bank~~the ~~SinoPac~~measurement ~~with~~of upthe tofair ~~$5,000,000~~value inof ~~borrowing~~assets ~~availability~~or liabilities. ~~The~~ ~~revolving~~In ~~credit~~determining ~~line’s~~fair ~~terms~~value ~~require~~of ~~monthly~~the warrants ~~interest~~outside ~~payments~~valuation ~~based~~firms onwere ~~borrowed~~used ~~amounts~~to athelp aassess ~~floating~~the ~~interest~~value ~~rate~~of the warrants under ASC 820. Level 1, ~~calculated~~2 asand 3 inputs to the ~~prime~~approaches ~~rate~~listed below were considered in determining the fair value of ~~interest~~the (3warrants issued.~~25%~~ atDue ~~March~~to ~~31,~~the ~~2011)~~lack ~~plus~~of ~~1.75%. The~~volume in ~~credit~~the ~~line~~trading ~~matures~~of ~~January~~our 31common stock, ~~2012~~the last trading price was not considered representative of fair value. Other valuation factors were considered to determine fair value such as:

11• Discounted Cash Flow Model

~~The~~• ~~credit~~Market ~~line~~Approach isusing ~~secured~~Guideline by certain assets of the Company. The credit line contains financial covenants that require us to comply with minimum quarterly liquidity and profitability thresholds, non-financial covenants that include quarterly and annual reporting requirements and certain operational restrictions.Companies

AsPage ~~of March 31, 2011, there was $1,200,754 outstanding, with $3,799,246 available and $3,225,820 eligible to borrow based on eligible accounts receivable balances.~~12

~~NOTE~~• ~~9 STOCKHOLDERS’~~Cost ~~EQUITY~~Approach

~~PREFERRED~~• ~~STOCK~~AuraSound Market Indication

~~The~~• ~~following~~Option ~~table~~Pricing ~~summarizes~~Models ~~the~~to ~~Company’s~~determine ~~preferred~~marketability ~~stock at March 31, 2011 and June 30, 2010:~~discount.

Par value $0.01	March 31, 2011	June 30, 2010
Authorized	3,333,333	3,333,333
Issued	—	—
Outstanding	—	—

NOTE 11- MAJOR CUSTOMERS AND MAJOR VENDORS

~~COMMON~~We ~~STOCK~~had one major customer during the three months ended September 30, 2011 which accounted for 70% of our sales and another that accounted for 14% of our sales. We had three major customers during the year ended September 30, 2010 which accounted for 85% of our sales. The receivables due from these customers as of September 30, 2011 and 2010 totaled $8,115,707 and $8,357,898 respectively.

~~The~~We ~~following~~had ~~table~~one ~~summarizes~~major vendor during the ~~Company’s~~year ~~common~~ended September ~~stock~~30, ~~at March~~2011 31which accounted for 63% of our purchases. This major vendor was GGEC. The amount due to this vendor as of September 30, 2011 ~~and~~totaled ~~June~~$23,793,597. We had the same major vendor during the three months ended September 30, 2010: which accounted for in excess of 90% of our purchases. The amount due this vendor as of September 30, 2010 totaled $27,399,133.

	March 31, 2011	June 30, 2010
Par value $0.01
Authorized	16,666,667	16,666,667
Issued	16,644,039	4,678,662
Outstanding	16,644,039	4,678,662

NOTE 12. SUBSEQUENT EVENTS

~~WARRANTS~~On October 31, 2011, we issued 1,344,000 options with a strike price of $0.47 after such options and issuance of such options were approved by our Board of Directors.

~~The~~Other ~~following~~than ~~table~~the ~~summarizes~~above ~~the~~paragraph, ~~activity~~we ~~for~~have ~~all~~evaluated ~~stock~~events ~~warrants~~or ~~outstanding~~transactions atthat ~~March~~occurred 31after the balance sheet date of September 30, 2011: through the date of this filing and have identified no such events or transactions which require adjustment to, or disclosure in, these financial statements.

	Warrants		Exercise Price(s)		Average Remaining Contractual Life	Aggregate Intrinsic Value
Balance, June 30, 2010		3,001,945	$	4.80- $9.00	2.0 years	$	—
Granted		14,140,989	$	0.50- $1.00	4.1 years	$	—
Exercised		—
Expired		—
Balance, March 31, 2011		17,142,934	$	0.50- $1.00	3.4 years	$	3,568,580
Exercisable, March 31, 2011		14,142,934	$	0.50- $1.00	3.2 years	$	3,538,580

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

12Cautionary Note Regarding Forward-Looking Statements

~~NOTE~~This Quarterly Report on Form 10 ~~INCOME~~-Q ~~TAXES~~contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. In addition, from time to time, we or our representatives may make forward-looking statements orally or in writing. We base these forward-looking statements on our current expectations, estimates, forecasts and projections about future events, which we derive from the information currently available to us. Such forward-looking statements relate to future events or our future performance. You can identify forward-looking statements because they are not historical in nature. In particular, those statements that use terminology such as “may,” “should,” “expects,” “anticipates,” “contemplates,” “estimates,” “believes,” “intends,” “plans,” “projected,” “predicts,” “potential” or “continue” or the negative of these or similar terms are forward-looking statements. In evaluating these forward-looking statements, you should consider various factors, including those described in this report. These and other factors may cause our actual results to differ materially from any forward-looking statements.

The ~~components~~following is a non-comprehensive list of important ~~income~~risks, ~~tax~~uncertainties ~~expense~~and ~~for~~contingencies ~~the nine~~that ~~month~~could ~~periods~~cause ~~ended~~our ~~March~~actual 31results, ~~2011~~performances ~~and~~or ~~2010~~achievements isto asbe ~~follows~~materially different from the forward-looking statements included in this report:

	March 31, 2011			March 31, 2010
US Federal	$	548,525		$	(520,953	)
US State		96,798			(91,933	)
Change in valuation allowance		(645,323	)		612,886
Total Provision for Income Tax	$	—		$	—

•

Our ability to finance our operations on acceptable terms;

~~The~~• ~~actual~~Our ~~tax~~ability ~~benefit~~to ~~differs~~retain ~~from~~members ~~the expected tax benefit computed by applying the United States corporate tax rate~~ of ~~40%~~our tomanagement ~~loss~~team ~~before income taxes as follows for the periods ended March 31, 2011~~ and ~~2010:~~our employees;

	March 31, 2011			March 31, 2010
Tax expense (Benefit) at statutory rate – federal		34	%		(34	%)
State tax expense net of federal tax		6	%		(6	%)
Changes in valuation allowance		(40	%)		40	%
Tax expense at actual rate		0	%		0	%

•

The success of our research and development activities, the development of viable commercial products, and the speed with which product launches and sales contracts may be achieved;

~~The~~• ~~following~~Our ~~table~~ability ~~summarizes~~to ~~the~~develop ~~significant~~and ~~components~~expand ofour ~~the Company’s deferred tax asset at March 31~~sales, ~~2011,~~marketing and ~~2010~~distribution capabilities;

	March 31, 2011			June 30, 2010
Accumulated net operating loss (NOL)	$	11,369,688		$	12,015,011
Valuation allowance		(11,369,688	)		(12,015,011	)
Net deferred tax asset	$	—		$	—

•

Our ability to adapt to or upgrade our technologies and products as the markets in which we compete evolve;

~~The~~Page ~~Company recorded an allowance of 100% for its net operating loss carry-forward tax asset due to the uncertainty of its realization.~~13

~~The~~• ~~Company~~Our ~~has~~ability ~~significant income tax net operating losses (“NOLs”) carried forward from prior years. Due~~ to ~~the~~offer ~~change~~pricing in ownership of more than fifty percent, the amount of NOL which may be used in any one year will be subject to a restriction under section 382 of the Internal Revenue Code. Due to the uncertainty of our being able to realize the related deferred tax asset, a reserve equal to the amount of deferred income taxes has been established. A provision for ~~income~~products taxes has not been provided in these financial statements due to the net loss. At March 31, 2011, the Company had net operating loss carry-forwards of approximately $26,853,656 for federal tax purposes, which ~~expire~~is ~~through~~acceptable ~~June 30, 2030. NOLs relating~~ to ~~the~~customers; ~~period before June 7, 2007 will be subject to a restriction as to the amount which may be used in any one year under section 382 of the Internal Revenue Code.~~and

~~NOTE~~• ~~11 MAJOR~~Competition ~~CUSTOMERS~~that ~~AND~~exists ~~MAJOR~~presently ~~VENDORS~~or may arise in the future.

~~Three~~For ~~customers~~additional ofinformation ~~the~~regarding ~~Company~~these ~~accounted~~and other ~~for~~risks, inplease ~~excess~~see ~~of 85% of revenue for~~ the ~~nine~~risk ~~month~~factors ~~period~~set ~~ended~~forth ~~March~~in ~~31,~~Part ~~2011. The aggregate receivable due from these customers as of March 31~~I, ~~2011~~Item ~~was~~1A ~~$5,998,291. One vendor (who also is the major shareholder~~ of the Company)’s ~~accounted~~Annual ~~for~~Report inon ~~excess~~Form of10-K ~~90% of purchases of finished products and raw materials~~ for the ~~nine~~fiscal ~~month~~year ~~period~~ ended ~~March~~June 3130, 2011. ~~The aggregate payable due to this vendor for manufactured products was~~ ~~approximately $23,531,599 as of March 31, 2011.~~

13Except to the extent required by applicable laws or rules, we undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.

~~NOTE~~Basis ~~12 COMMITMENTS~~of ~~AND SUBSEQUENT EVENTS~~Presentation

WeThe ~~have~~following ~~evaluated~~discussion ~~events~~and oranalysis ~~transactions~~provides information that ~~occurred~~management ~~after~~believes ~~the~~is ~~balance~~relevant ~~sheet~~to ~~date~~an assessment and understanding of ~~March~~our ~~31,~~results ~~2011~~of operations and ~~have~~financial condition ~~identified~~for noeach ~~such~~of ~~events~~the orthree ~~transactions~~months ~~which~~ended ~~required~~September ~~adjustment~~30, to2011 and 2010, orrespectively. ~~disclosure~~This discussion should be read in ~~these~~conjunction with the Consolidated Financial Statements ~~other~~and ~~than~~the asNotes ~~presented~~thereto included elsewhere in ~~such~~this ~~financial~~report. This report contains certain forward-looking statements and ~~Notes~~information. ~~thereto~~The cautionary statements included below and elsewhere in this report should be read as being applicable to all related forward-looking statements wherever they may appear. Our actual future results could differ materially from those discussed herein.

~~Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations~~Overview

~~Cautionary~~We ~~Note~~specialize ~~Regarding~~in ~~Forward~~the design, manufacture and sale of high-~~Looking~~fidelity ~~Statements~~loudspeakers and complete audio solutions. Our headquarters is in Santa Ana, California, our manufacturing is sourced from mainland China, and we have sales and support offices in Hong Kong, Taiwan and mainland China. We have over 20 years of experience delivering industry leading audio solutions to the professional and consumer markets. With our acquisition of ASI in July 2010, we moved from being an audio component supplier to a provider of complete audio solutions, which has helped fuel our growth over the past year. We have been recognized worldwide via various product reviews, and we differentiate ourselves by offering what we believe to be superior products based on patented technologies. We have an impressive portfolio of customer and technology partners, including many of the leading worldwide brands. Our leadership team and internal management processes are among the best in our industry. Our mantra is to deliver the “Ultimate Vision in Sound”.

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. In addition, from time to time, we or our representatives may make forward-looking statements orally or in writing. We base these forward-looking statements on our current expectations, estimates, forecasts and projections about future events, which we derive from the information currently available to us. Such forward-looking statements relate to future events or our future performance. You can identify forward-looking statements because they are not historical in nature. In particular, those statements that use terminology such as “may,” “should,” “expects,” “anticipates,” “contemplates,” “estimates,” “believes,” “intends,” “plans,” “projected,” “predicts,” “potential” or “continue” or the negative of these or similar terms are forward-looking statements. In evaluating these forward-looking statements, you should consider various factors, including those described in this report. These and other factors may cause our actual results to differ materially from any forward-looking statements.Sales

~~The~~Our ~~following~~sales isare amade ~~listing~~primarily on an OEM basis to manufacturers of ~~important~~consumer ~~risks,~~electronic ~~uncertainties~~products. We market and ~~contingencies~~sell ~~that~~certain ~~could~~of ~~cause~~our OEM products through a network of our ~~actual~~sales representatives ~~results~~located in Taiwan, ~~performances~~China orand ~~achievements~~the toU.S. beWe ~~materially~~supplement ~~different~~this ~~from~~network with a major OEM partner selling in the ~~forward~~U.S., worldwide distribution and on-~~looking~~line ~~statements~~retail ~~included~~partners. inOur ~~this~~strategy ~~report~~is to continue to expand our sales coverage worldwide.

·We ~~Our~~derive ~~ability~~revenue tofrom ~~finance~~three ~~our~~primary ~~operations~~product ~~on acceptable terms;~~categories:

·1. ~~Our~~Consumer ~~ability~~Audio toconsists ~~retain~~primarily ~~members~~ of our ~~management~~TV ~~team~~Soundbar ~~and~~products, ~~our~~which ~~employees;~~are primarily sold as OEM products. This product category was the primary business acquired in the ASI Transaction.

·2. ~~The~~Embedded ~~success~~TV ofSpeakers ~~our~~for ~~research~~both televisions and ~~development~~monitors ~~activities,~~that ~~the~~feature ~~development~~excellent ofacoustics, ~~viable~~compact ~~commercial~~designs ~~products,~~for LCDs and ~~the~~patented ~~speed~~technology. ~~with~~This ~~which~~ product ~~launches~~category ~~and~~was ~~sales~~a ~~contracts~~small ~~may~~revenue begenerator ~~achieved;~~before the ASI Transaction since then, has grown substantially.

·Page ~~Our ability to develop and expand our sales, marketing and distribution capabilities;~~14

·3. ~~Our~~Specialty ~~ability~~Audio, tois ~~adapt~~comprised toof orour ~~upgrade~~Aura ~~our~~branded ~~technologies~~Drivers, Transducers and ~~products~~Audio asSolutions for the ~~markets~~professional inand ~~which~~high weend ~~compete~~audio ~~evolve;~~market. This product category remains from our business prior to the ASI transaction.

~~· Our ability to offer pricing for products which is acceptable to customers; and~~Manufacturing

·We ~~Competition~~outsource ~~that~~a ~~exists~~majority ~~presently~~of orour ~~may~~product ~~arise~~manufacturing and some testing and development functions to GGEC. The manufacturing campus of GGEC is located in Guangzhou, China and consists of 1,200,000 square meters with more than 26 production lines. The plant is also ISO-9001, ISO 14000, TS16949 and QS-9000 certified and contains: extensive research and development facilities; a full range of testing facilities including one of China’s largest anechoic chamber used for loudspeaker design; research labs for magnetics, cone materials, vibrations and speaker systems design; an engineering library; office space; and a show room. The facility also has extensive warehousing and full living accommodations for the ~~future~~staff.

~~These~~For ~~and~~increased ~~other~~manufacturing ~~risks~~capacity, ~~are~~we ~~described~~began to use DMEGC as a second supplier in ~~Part~~July I2010. DMEGC is a major magnetic products company. Located in Dongyang, ~~Item 1A~~China, DMEGC is capable of producing 2 million AV speakers per month, 1.1 million TV speakers per month, and 350,000 auto speakers per month. DMEGC is the ~~Company’s~~single ~~Annual~~largest ~~Report~~magnet onprovider ~~Form~~worldwide, ~~10-K~~commanding ~~for~~70% of the ~~year~~global ~~ended~~market-share, ~~June~~and 30exports 90% of its products to the U.S., ~~2010~~Japan, and Europe.

~~Except~~In toJune ~~the~~2011, ~~extent~~we ~~required~~further increased our manufacturing capacity by ~~applicable~~adding ~~laws~~another orfactory ~~rules~~in Wuhan, weChina ~~undertake~~in nopartnership ~~obligation~~with toProview ~~publicly~~Technology ~~update~~(a orsubsidiary ~~revise~~of ~~any~~Proview ~~forward-looking~~International Holdings, ~~statement~~Ltd) (“Proview”). The facility consists of 54,000 ~~whether~~square asmeters and the capability for up to 32 production lines for speakers, soundbars, NRT, SMT and soldering. Initial shipments from the factory started in July 2011, with a ~~result~~focus on producing AuraSound’s consumer audio solutions, specifically its TV soundbars, and proprietary speaker drivers. This facility delivered 1% of ~~new~~our ~~information~~shipments in the three month period ending September 30, ~~future~~2011 ~~events~~and orcontinues ~~otherwise~~to ramp up to meaningful production levels.

~~Overview~~CRITICAL ACCOUNTING POLICIES

WeThe ~~are~~methods, ~~headquartered~~estimates inand ~~Southern~~judgments ~~California~~we ~~with~~use ~~primary operations~~ in ~~California~~applying our ~~and~~accounting ~~Greater~~policies ~~China.~~have Wea ~~develop,~~significant ~~manufacture~~impact ~~and~~on ~~market~~the ~~premium~~results ~~audio~~we ~~products~~report toin aour ~~worldwide~~financial ~~customer~~statements, ~~base.~~which ~~Our~~we ~~focus~~discuss isunder the toheading ~~deliver~~“Results ~~innovative~~of ~~and~~Operations” ~~revolutionary~~following ~~audio~~this ~~solutions~~section ~~and~~of ~~speaker~~our ~~designs~~management todiscussion ~~the~~and ~~OEM/ODM~~analysis. ~~manufacturer,~~Some ~~consumer,~~of ~~and~~our ~~professional~~accounting policies ~~audio~~require ~~markets.~~us Weto ~~emphasize~~make ~~research~~difficult and ~~development~~subjective ~~which~~judgments, ~~has~~often ~~resulted~~resulting infrom the aneed ~~portfolio~~to ofmake ~~unique~~estimates ~~and~~on ~~proprietary~~matters ~~audio~~that ~~technologies,~~are ~~which~~inherently weuncertain. We believe ~~has~~the ~~led~~following tocritical ~~strong~~accounting ~~brand~~policies ~~recognition~~reflect ~~and~~our anmore ~~appreciation~~significant ~~among~~estimates ~~audiophiles, sound engineers,~~ and ~~OEM/ODM~~assumptions ~~electronics~~used ~~manufacturers.~~in ~~Our~~the ~~products~~preparation of ~~have~~our ~~received~~consolidated ~~numerous~~financial ~~excellent reviews from independent third parties.~~statements:

14REVENUE RECOGNITION - The Company recognizes revenue when it is realized or realizable and earned. Revenue is considered realized and earned when persuasive evidence of an arrangement exists; delivery has occurred; the fee to its customer is fixed and determinable; and collection of the resulting receivable is reasonably assured. Delivery is considered complete when products have been shipped to the customer, title and risk of loss has transferred to the customer, and customer acceptance has been satisfied. The Company records reductions to revenue for estimated customer sales returns, rebates and certain other customer incentive programs. These reductions to revenue are made based upon reasonable and reliable estimates that are determined by historical experience, contractual terms, and current conditions. The primary factors affecting the Company’s accrual for estimated customer returns include estimated return rates, the number of units shipped that have a right of return and those that the customer has an obligation to buy back which has not expired as of the balance sheet date.

~~From~~VENDOR aREBATES ~~product~~-The ~~standpoint~~Company wemay receive ~~provide~~consideration ~~leading~~from ~~audio~~vendors ~~components~~in ~~and total solutions for~~ the TVnormal ~~soundbar,~~course ~~portable~~of ~~devices, TV,~~business ~~monitor,~~in ~~professional,~~form ~~commercial and~~of ~~consumer~~cash ~~audio~~or ~~markets~~product. WeThe ~~are~~Company ~~engaged~~recognizes ~~with~~a ~~several~~reduction of ~~leading~~cost ~~multinational~~of ~~brands~~goods ~~for~~sold ~~both~~when ~~existing and future projects. We believe that~~ the ~~market~~rebate ~~for~~is our products will experience strong growth as end user solutions shipments continue to increase across all of our product segments, along with a growing consumer demand for an improved listening experiencereceived.

AsWARRANTY ofLIABILITY ~~March~~-Certain ~~30,~~of ~~2011,~~ our ~~sales~~products are ~~primarily~~sold towith a ~~manufacturers~~warranty ~~and~~that ~~marketers~~provides for repairs or replacement of ~~consumer~~any ~~and~~defective ~~professional~~parts ~~solutions~~for a period, ~~with~~(generally one year) after the ~~majority~~sale. At the time of ~~sales~~the insale, we accrue an estimate of the ~~United~~cost ~~States.~~of Weproviding ~~believe~~the ~~that~~warranty ~~international~~based ~~sales,~~on ~~both~~prior toexperience ~~manufacturers~~with ~~and~~such ~~retail~~factors ~~channels,~~as return ~~will~~rates ~~increase~~and inrepair ~~the~~costs, ~~years~~which ~~ahead~~are reviewed quarterly.

~~General~~ Page 15

~~Net~~Our ~~sales~~warranty ~~are~~accrual ~~comprised~~is ofbased ~~gross~~on ~~sales~~historical ~~less~~costs of ~~returns~~warranty repairs and ~~cash~~expected ~~discounts.~~future ~~Our~~identifiable ~~operating~~warranty ~~results are seasonal~~expenses, ~~with~~and ais ~~greater~~included ~~percentage~~in ofaccrued ~~sales~~liabilities ~~achieved~~ in the accompanying ~~first~~consolidated ~~and~~balance ~~second~~sheets. ~~quarters~~Warranty ofexpenses ~~our~~are ~~fiscal~~included ~~year~~in ~~(the~~cost ~~third and fourth quarters~~ of ~~the~~sales ~~calendar~~in ~~year) due to~~ the ~~fall~~accompanying ~~and~~consolidated statements ~~winter~~of ~~selling seasons~~operations. ~~Cost~~Changes ofin ~~goods~~estimates ~~sold~~to ~~consists~~previously ~~primarily~~established ofwarranty ~~material~~accruals ~~costs,~~result ~~direct~~from ~~labor,~~current ~~direct~~period ~~overhead,~~updates to ~~inbound freight~~assumptions ~~and~~regarding ~~duty~~repair costs, ~~warranty costs~~ and awarranty ~~reserve~~return ~~for~~rates ~~inventory obsolescence. Research~~ and ~~development~~are ~~costs~~included ~~consist~~in ~~primarily~~current ofperiod ~~costs~~warranty ~~related~~expense. toAs ~~launching~~of September ~~new products including product research~~30, ~~development~~2011 and ~~testing.~~June ~~Our~~30, ~~selling~~2011, ~~general~~the ~~and~~warranty ~~administrative~~accrual ~~expenses~~amounted ~~consist~~to ~~primarily~~$232,048 ~~of non- research~~ and ~~development~~$220,118, ~~payroll and corporate infrastructure costs~~respectively.

~~Research~~INVENTORY ~~and~~RESERVES ~~development~~- ~~costs~~We establish ~~consist~~inventory ~~primarily~~reserves offor ~~costs~~estimated ~~related~~obsolescence, unmarketable, or slow-moving inventory in an amount equal to ~~new~~the ~~product~~difference between ~~commercialization~~the ~~including~~cost ~~product~~of ~~research~~inventory and its estimated realizable value (based upon assumptions about future demand and market conditions). If actual demand and market conditions are less favorable than those projected by management, ~~development~~additional inventory reserves could be required. As of September 30, 2011 and ~~testing~~June 30, 2011, there was no allowance for obsolescence.

~~Our~~BUSINESS ~~selling~~COMBINATIONS AND INTANGIBLE ASSETS INCLUDING GOODWILL - We account for business combinations using the acquisition method of accounting, ~~general~~and accordingly, the assets and liabilities ~~administrative~~of ~~expenses~~the ~~consist~~acquired ~~primarily~~business are recorded at their fair value at the date of ~~non~~acquisition. The excess of the purchase price over the estimated fair values is recorded as goodwill. Any changes in the estimated fair value of the net assets recorded for acquisitions prior to the finalization of more detailed analysis, but not to exceed one year from the date of acquisition, will change the amount of the purchase prices allocable to goodwill. All acquisition costs are expensed as incurred, and in-~~marketing~~process ~~payroll~~research and ~~related~~development costs are recorded at fair value as an indefinite-lived intangible asset and ~~corporate~~assessed ~~infrastructure~~for ~~costs~~impairment thereafter until completion, at which point the asset is amortized over its expected useful life. Any restructuring charges associated with a business combination are expensed subsequent to the acquisition date. The application of business combination and impairment accounting requires the use of significant estimates and assumptions.

~~Critical~~The ~~Accounting~~results ~~Policies~~of ~~and~~operations ~~Estimates~~of acquired businesses are included in our Consolidated Financial Statements from the acquisition date.

~~Our~~Goodwill ~~financial~~and ~~statements~~indefinite-lived intangible assets are ~~prepared~~tested infor ~~accordance~~impairment ~~with~~on ~~accounting~~an ~~principles~~annual ~~generally~~basis ~~accepted~~ in the ~~United~~fourth ~~States~~fiscal quarter or sooner if an indicator of ~~America~~impairment occurs. ~~The~~To ~~reported~~determine ~~financial~~whether ~~results~~goodwill ~~and~~is impaired, ~~disclosures~~we ~~were~~determine ~~determined~~the fair values of our reportable business unit using ~~the~~a ~~significant~~discounted ~~accounting~~cash ~~policies,~~flow ~~practices~~methodology and ~~estimates~~then compare ~~described~~the infair ~~Note~~values 2 to ~~our~~its ~~consolidated~~carrying ~~financial~~value. ~~statements~~We concluded that there was no impairment triggering events during fiscal year 2011 or the three months ended September 30, 2011.

~~Results~~RELATED-PARTY OfTRANSACTIONS ~~Operations~~-We have significant related-party transactions and agreements, which we believe have been accounted for at fair value.We utilized our best estimate of the value of these transactions and agreements. Had alternative assumptions been used, the values obtained may have been different.

~~Three~~IMPAIRMENT ~~Months~~OF LONG-LIVED ~~Ended~~ASSETS ~~March~~-We 31evaluate our long-lived assets for impairment annually or more frequently if we believe indicators of impairment exist. Significant management judgment is required during the evaluation, ~~2011~~which includes forecasts of future operating results. The estimates we have used are consistent with the plans and ~~2010~~estimates that we use to manage our business. It is possible, however, that the plans and estimates used may be incorrect. If our actual results, or the plans and estimates used in future impairment analyses, are lower than the original estimates used to assess the recoverability of these assets, we could incur additional impairment charges.We had no such asset impairments during the three months ended September 30, 2011 or June 30, 2011.

~~Revenue~~INCOME TAXES -We utilize the liability method of accounting for income taxes. Deferred income tax assets and liabilities are calculated as the difference between the financial statements and tax basis of assets and liabilities that will result in taxable or deductible amounts in the future, based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income.

~~Revenue~~We ~~increased~~record a byvaluation ~~$14,288,615,~~allowance ~~or 819%,~~ to ~~$16,034,279~~reduce ~~for~~our ~~the~~deferred ~~quarter~~tax ~~ended~~assets ~~March~~to ~~31, 2011 from $1,745,664 for~~ the ~~same~~amount ~~prior~~that ~~year~~we ~~period.~~believe ~~The~~is ~~increase~~more inlikely ~~sales~~than ~~for~~not ~~the~~to ~~current~~be ~~period~~realized. ~~was~~In assessing the ~~result~~need offor ~~three~~a ~~main~~valuation ~~factors:~~allowance, ~~(1)~~we ~~improved~~consider ~~relationships~~all ~~with~~positive ~~existing~~and ~~customers~~negative ~~that~~evidence, ~~resulted~~including inscheduled areversals ~~significant~~of deferred ~~increase~~tax inliabilities, ~~revenue~~projected ~~per~~future ~~customer~~taxable income, ~~(2)~~tax ~~new~~planning ~~project design wins~~strategies, and ~~(3)~~recent ~~the~~financial ~~acquisition of ASI Holdings Limited, or ASI~~performance.

~~Gross~~Page ~~Profit~~ 16

~~Cost~~The application of ~~sales~~tax laws ~~for~~and ~~the~~regulations ~~three~~is ~~months~~subject ~~ended~~to ~~March~~legal ~~31,~~and ~~2011~~factual ~~was $13~~interpretation,~~906,156~~ asjudgment ~~compared~~and touncertainty. Tax ~~cost~~laws ofthemselves ~~sales~~are ofsubject ~~$1,718,129~~to ~~for~~change ~~the~~as ~~three~~a ~~months~~result ~~ended~~of ~~March~~changes ~~31,~~in ~~2010~~fiscal policy, changes ~~which resulted~~ in alegislation, ~~gross~~evolution ~~profit~~of ~~for~~regulations ~~the~~and ~~current~~court ~~quarter~~rulings. ~~of $2~~Therefore,~~128,123~~ asthe ~~compared~~actual toincome ~~$27,535~~taxes ~~during~~may ~~the~~be ~~prior~~materially different ~~year~~from ~~period~~our estimates. ~~The~~As ~~increase~~a inresult ~~gross~~of ~~profits~~our ~~was~~analysis, ~~due~~we toconcluded ~~several~~that ~~factors~~a full ~~including~~valuation ~~the~~allowance ~~ASI~~against ~~acquisition,~~our ~~improved~~net ~~gross~~deferred ~~profit~~tax ~~margins~~assets ~~due~~is toappropriate ~~lower~~at ~~material~~the ~~costs,~~three ~~higher~~months ~~selling~~ended ~~prices~~September ~~to customers~~30, 2011 and ~~lower~~ ~~freight~~June ~~and~~30, ~~storage expenses~~2011.

15CONTINGENCIES- From time to time, we are involved in disputes, litigation and other legal proceedings. We record a charge equal to at least the minimum estimated liability for a loss contingency when both of the following conditions are met: (i) information available prior to issuance of the financial statements indicates that it is probable that an asset had been impaired or a liability had been incurred at the date of the financial statements: and (ii) the range of loss can be reasonably estimated. However, the actual liability in any such litigation may be materially different from our estimates, which could result in the need to record additional costs. Currently, we have no outstanding legal proceedings or claims that require a loss contingency.

~~Research~~STOCK-BASED COMPENSATION - We use the Black-Scholes option-pricing model to determine the fair value of stock options and ~~Development~~the ~~Expenses~~closing market price of our common stock on the date of the grant to determine the fair value of our restricted stock and restricted stock units. Stock-based compensation expense is recorded for all stock options, restricted stock and warrants that are ultimately expected to vest as the requisite service is rendered. We recognize these compensation costs, net of an estimated forfeiture rate, on a straight-line basis over the requisite service period of the award, which is the vesting term of outstanding stock-based awards. As there has been no historical experience to establish a forfeiture rate specific to our company, we estimate the forfeiture rate based on comparable companies forfeiture experience.

~~Research~~The ~~and~~Company ~~development~~authorized ~~expenses~~no ~~for~~stock ~~the~~options ~~quarter ended March 31, 2011 totaled $111,639, an increase of $14,945,~~ or ~~15%,~~other ~~over~~equity ~~the~~based ~~$96,694 in research and development expenses incurred~~ compensation for ~~the~~any ~~same~~employees ~~prior~~during ~~year period. This increase was~~ the ~~result~~three ofmonth ~~several~~periods ~~key~~ended ~~initiatives~~September to30, ~~launch~~2011 ~~new~~or ~~products~~September ~~and~~30, ~~improve existing product lines~~2010. ~~Development of new and customer specific products is vital to our future growth and as such we expect to continue to increase research and development costs for the foreseeable future.~~

~~General~~Page ~~and Administrative Expenses~~ 17

~~General~~RESULTS ~~and~~OF administrative expenses for the quarter ended March 31, 2011 increased by $873,013, or 238%, to $1,240,413 as compared to general and administrative expenses of $367,400 for the quarter ended March 31, 2010. The increase in expenses was due to an increase in expenses associated with our rapid growth.OPERATIONS

WeThree ~~expect~~Months ~~that~~Ending ~~our~~September ~~general~~30, ~~and~~2011 ~~administrative~~Compared ~~costs will continue~~ to beFiscal Year ~~significant~~Ending ~~due~~September ~~to the costs of regulatory compliance as a public company~~30, as well as the expected incremental costs related to volumetric increases in the manufacturing and sale of audio speakers and other equipment. We expect to hold to current spending levels as a percent of sales.2010

~~Amortization Expense~~ REVENUE

~~Amortization~~Revenue ~~expense totaled $204,501~~ for the ~~quarter~~three months ended ~~March~~September 3130, 2011 asincreased by ~~compared~~$4,155,705,or ~~with~~38%, ~~amortization~~compared ~~expense~~to ofthe $0prior ~~for~~year’s ~~the~~three ~~quarter~~month ~~ended~~period, ~~March~~rising 31from $10,971,201 ~~2010~~to $15,126,906. The ~~amortization~~increase in ~~expense~~sales ~~relates~~for tothe ~~several~~current ~~intangible~~period ~~assets~~was ~~associated~~primarily ~~with~~the result of the acquisition of ASI ~~Holdings~~at the end of July 2010.

~~Income~~GROSS ~~Taxes~~ PROFIT

WeCost ~~have~~of ~~significant~~sales ~~income~~for ~~tax~~the ~~net~~three ~~operating~~months ~~loss~~ended ~~carry~~September 30, ~~forwards;~~2011 ~~however~~was $13,517,502 ~~due~~as compared to ~~the~~cost ~~uncertainty~~ of ~~our~~sales ~~being~~of ~~able~~$9,771,021 tofor ~~realize~~ the ~~deferred~~ ~~tax~~three ~~asset~~months ended September 30, 2010, which resulted in a ~~reserve~~gross ~~equal~~profit tofor the ~~amount~~current period of $1,609,404, compared to a gross profit of $1,200,180 during the ~~deferred~~prior year. ~~tax~~The ~~benefit~~increase ~~has~~in ~~been~~gross ~~established~~profit asfor the current period was primarily the result of ~~March~~the ~~31,~~acquisition ~~2011~~of ~~and~~ASI ~~March~~at ~~31,~~the end of July 2010. ~~Accordingly,~~Gross nomargin ~~income~~for ~~tax~~both ~~benefit~~periods ~~has~~was ~~been~~essentially ~~reflected~~the ~~for~~same ~~either~~at ~~period~~just under 11% of revenue.

~~Net~~RESEARCH ~~Income~~AND ~~(Loss)~~DEVELOPMENT EXPENSES

~~Net~~Research ~~income~~and ~~totaled~~development ~~$562,961~~ expenses for the ~~quarter~~three months ended ~~March 31~~September 30, 2011 astotaled ~~compared~~$203,448, ~~with~~an aincrease ~~net~~of ~~loss~~$75,000, ofor 58%, from the $~~480~~128,~~653~~448 incurred for the ~~quarter~~same ~~ended~~period ~~March~~in 31the prior year. This increase was the result of several initiatives to launch new products and improve existing product lines. Development of new and customer specific products is vital to our future growth, ~~2010~~and as such, we expect to continue to increase research and development costs for the foreseeable future.

~~Nine~~GENERAL ~~Months~~AND ~~Ended~~ADMINISTRATIVE ~~March 31, 2011 and 2010~~EXPENSES

~~Revenue~~General and administrative expenses for the three months ended September 30, 2011 increased by $281,877 or 31% to $1,181,822 as compared to $899,945 for the three months ended September 30, 2010. The increase in expenses was due to an increase in expenses associated with our rapid growth including increased labor and travel costs and certain startup and consults expense. Included in the general and administrative expenses for the period ended September 30, 2011 are certain one-time expenses associated with the start up expenses of the Wuhan Factory, consulting expenses associated with the year-end audit and various one times expenses in the amount of $162,885, resulting in an increase of 13% as opposed to 31% in general and administrative expenses compared to the three months period ended September 30, 2010.

~~Revenue~~We ~~increased~~expect bythat ~~$49,375,768,~~our orgeneral ~~1,027%,~~and toadministrative costs ~~$54,184,648~~will ~~for~~continue ~~the~~to ~~nine~~be ~~months~~significant ~~ended~~due ~~March~~to ~~31, 2011 from $4,808,880 for~~ the ~~same~~costs ~~prior~~of ~~year~~regulatory ~~period. The~~compliance ~~increase~~as ina ~~sales~~public ~~for~~company, ~~the current~~as ~~period~~well ~~was~~as the ~~result~~expected ofincremental costs ~~three~~related ~~main~~to ~~factors:~~volumetric ~~(1)~~increases ~~improved relationships with existing customers that resulted~~ in athe ~~significant increase~~manufacturing inand ~~revenue~~sale ~~per~~of ~~customer,~~audio ~~(2)~~speakers ~~new project design wins,~~ and ~~(3)~~other ~~the acquisition of ASI~~equipment.

~~Gross~~AMORTIZATION ~~Profit (Loss)~~EXPENSES

~~Cost~~Amortization ofexpenses ~~sales~~ for the ~~nine~~three months ended ~~March~~September 3130, 2011 totaled ~~was~~ $48204,~~339~~501,~~528~~ asan ~~compared~~increase tofrom ~~cost of sales of~~ $4136,~~667,820~~334 ~~for~~incurred ~~the nine months ended March 31, 2010, which resulted in a gross profit~~ for the ~~nine~~same ~~month~~ period ofin ~~$5,845,120 as compared to $141,060 during~~ the prior year period. ~~The increase in gross profits was~~ due to ~~several factors that include~~ the ASI acquisition~~, improved gross profit margins due to lower material costs, higher selling prices to customers, and an overall a better pricing environment for cost inputs~~.

~~Research~~INTEREST ~~and Development Expenses~~ EXPENSE

~~Research~~Net ~~and~~interest ~~development~~expense ~~expenses~~totaled $42,809 for the ~~nine~~three month ~~months~~period ended ~~March~~September 3130, 2011 ~~totaled $504~~,~~425,~~ ancompared ~~increase~~with ofnet ~~$175,363,~~interest orexpense ~~53%,~~of ~~over the~~ $~~329,062~~0 ~~in research and development expenses incurred~~ for the ~~same~~three ~~prior~~month ~~year~~ period. ~~This~~ended ~~increase~~September 30, ~~was the result of several key initiatives to launch new products and improve existing product lines~~2010. ~~Development~~ ofInterest ~~new~~charges ~~and~~for ~~customer~~the ~~specific~~2012 ~~products~~fiscal isyear ~~vital~~relate to ~~our~~the ~~future~~revolving ~~growth~~credit ~~and~~line asestablished ~~such~~with weSinoPac ~~expect~~Bank toin February ~~continue to increase research and development costs for the foreseeable future~~2011.

16OTHER EXPENSE

~~General~~Other ~~and~~expense ~~Administrative~~totaled ~~Expenses~~$572 for the three month period ended September 30, 2011, compared with no other income for the three month period ended September 30, 2010.

~~General~~Page and administrative expenses for the nine months ended March 31, 2011 increased by $1,936,963, or 160%, to $3,148,893 as compared to general and administrative expenses of $1,211,930 for the nine months ended March 31, 2010. The increase in expenses was due to an increase in expenses associated with our rapid growth.18

WeINCOME expect our general and administrative costs will continue to be significant due to the costs of regulatory compliance as a public company, in addition to the expected incremental costs related to volumetric increases in the manufacturing and sale of audio speakers and other equipment. We expect to hold to current spending levels as a percent of sales.TAXES

~~Amortization~~For ~~Expense~~the three month period ended September 30, 2011, and the three months ended September 30, 2010. we realized no income tax expense or benefit. We have significant income tax net operating loss carry forwards; however, due to the uncertainty of our being able to realize the deferred tax asset; a reserve equal to the amount of deferred tax benefit has been established as of September 30, 2011 and September 30, 2010.

~~Amortization~~NET expense totaled $545,336 in the nine months ended March 31, 2011 as compared with amortization expense of $0 for the nine months ended March 31, 2010. The amortization expense is associated with several intangible assets associated with the acquisition of ASI.INCOME/(LOSS)

~~Income~~As ~~Taxes~~a result of the above including the startup expenses and one time expenses, there was a net loss for the three month period ended September 30, 2011 of $23,748 compared to a net income of $35,453 for the three month period ended September 30, 2010.

WeLIQUIDITY ~~have~~AND ~~significant~~CAPITAL ~~income tax net operating loss carry forwards; however, due to the uncertainty of~~RESOURCES our being able to realize the deferred tax asset, a reserve equal to the amount of deferred tax benefit has been established as of March 31, 2011 and March 31, 2010. Accordingly, no income tax benefit has been reflected for either period.

~~Net~~As ~~Income~~of ~~(Loss)~~September 30, 2011, our current liabilities exceeded our current assets by $4,656,173 compared to a deficit of $5,019,941 as of June 30, 2011.

~~Net~~Cash ~~income~~from ~~totaled~~operations ~~$1,613,307~~during in the ~~nine~~three months ended September ~~March 31~~30, 2011 was $2,273,167 as compared ~~with~~to net ~~loss~~cash generated of $12,~~532~~962,~~215~~588 ~~for~~during the ~~nine~~same ~~months~~period ~~ended~~in ~~March~~the ~~31,~~prior ~~2010~~year. The cash generation in the prior year was due primarily to turning reductions in accounts receivable and inventory partially offset by decreases in accounts payable.

~~Liquidity~~Cash used in investing activities for the three months ended September 30, 2011 was $156,845, as compared to cash generated of $153,441 during the same period in the prior year. Included in the cash generation for last year is $154,970 in cash acquired in the ASI transaction. Cash used in the prior period was primarily used for the purchase of various tools, jigs and ~~Capital~~dies ~~Resources~~for use in the production of customer products.

AsCash ofused ~~March~~by ~~31,~~financing ~~2011,~~activities ~~our~~for ~~current~~the ~~liabilities~~three months ~~exceeded~~ended ~~our~~September ~~current~~30, ~~assets~~2011 bytotaled $32,~~833~~485,~~346~~675, compared to ano ~~deficit~~cash ofprovided ~~$6,620,058~~or asused ~~of June~~by ~~30,~~financing ~~2010.~~activities ~~During~~in the ~~current~~ prior year. weThe ~~have~~cash ~~worked~~used ~~closely~~during ~~with~~the ~~Guoguang~~current ~~Electric~~year ~~Company~~was ~~Limited,~~the anet ~~Chinese~~amount ~~corporation,~~of orreduction ~~GGEC, to focus our efforts to transition our relationships with existing customers and to establish relationships with new customers~~ in ~~addition~~the toamount ~~insuring~~due aon ~~disciplined quality assurance program, both of which we believe are necessary for us to grow as a company and meet~~ the ~~demands~~SinoPac ~~of our customers~~credit line.

~~Cash~~On ~~provided~~September ~~from~~30, ~~operations~~2011, ~~during~~we ~~the nine~~had ~~months ended March 31~~$1,455,241 ~~2011~~in ~~was~~non-restricted ~~$863~~cash,~~092~~ as compared to ~~net cash provided from operations of~~ $~~879~~1,~~777~~824,594 ~~during the same prior year period. This decrease~~ in non-restricted cash ~~from~~on ~~operations~~June ~~was~~30, ~~due primarily to our positive net income and an increase in accounts payable (mainly to GGEC)~~2011.

~~Cash~~We ~~used~~had innet ~~investing~~operating ~~activities~~loss ~~for~~carry-forwards ~~the nine~~of approximately ~~months~~$13,475,445 ~~ended~~as ~~March~~of 31September 30, 2011 ~~was~~and $3012,~~795~~986,379 as ~~compared~~of toJune ~~cash~~30, ~~used~~2011, inwhich ~~investing~~will ~~activities~~expire ofin ~~$30,691~~various ~~during~~amounts through the ~~same prior~~ year ~~period~~2030. ~~Cash~~Based ~~used~~upon inhistorical ~~investing~~operating ~~activities~~results, inmanagement ~~the~~has ~~prior~~determined ~~year~~that ~~period~~it ~~was~~cannot ~~primarily~~conclude ~~used~~that ~~for~~it is more likely than not that the ~~purchase~~deferred oftax ~~various~~is ~~tools~~realizable. Accordingly, ~~jigs~~a ~~and~~100% ~~dies~~valuation ~~for~~reserve ~~use~~allowance inhas been provided against the ~~production~~deferred oftax ~~customer~~benefit ~~products~~asset.

On February 24, 2011, we opened a revolving credit line with Bank SinoPac with up to $5,000,000 in borrowing availability. The revolving credit line’s terms require monthly interest payments based on borrowed amounts at a floating interest rate, calculated as the prime rate of interest (3.25% at ~~March~~June 3130, 2011) plus 1.75%. The credit line matures January 31, 2012.

17The credit line is secured by certain assets of the Company. The credit line contains financial covenants that require us to comply with minimum quarterly liquidity and profitability thresholds, non-financial covenants that include quarterly and annual reporting requirements and certain operational restrictions.

~~The~~On September 28, 2011, we entered into a new revolving credit line with isBank ~~secured~~SinoPac bywith ~~certain~~up ofto ~~our~~$10,000,000 ~~assets~~in borrowing availability. ~~The~~ This new line of credit replaced the line ~~contains~~of ~~standard~~credit ~~financial~~entered into ~~covenants~~on ~~that~~February 24, 2011. The terms of the new line of credit require usmonthly tointerest ~~comply~~payments ~~with~~based ~~minimum~~on ~~quarterly~~borrowed ~~liquidity~~amounts ~~and~~at ~~profitability~~a floating ~~thresholds~~interest ~~and~~rate, ~~standard~~calculated ~~non-financial~~as ~~covenants~~the ~~that~~prime ~~include~~rate ~~quarterly~~of ~~and~~interest ~~annual~~(3.25% ~~reporting~~at ~~requirements~~September ~~and~~30, ~~certain~~2011) ~~operational~~plus ~~restrictions~~1.75%. The new line of credit matures September 30, 2012.

AsPage ~~of March 31, 2011, there was $1,200,754 outstanding under the revolving credit line, with $3,799,246 available and $3,225,820 eligible to borrow based on eligible accounts receivable balances.~~19

~~Management~~As ~~believes~~of ~~that~~September ~~production~~30, ~~and~~2011, ~~expansion~~there was $1,758,294 outstanding under the Line of ~~product~~Credit, ~~lines~~partially ~~during~~offset ~~the~~by ~~next~~a ~~twelve~~cash ~~months~~deposit ~~will~~of ~~need~~$207,681, toresulting bein ~~funded~~a net balance of $1,550,613. As of June 30, 2011, there was $4,950,000 outstanding under the Line of Credit, partially offset by ~~third~~a ~~party~~cash ~~financing~~deposit of $913,713, ~~including~~resulting ~~debt~~in ora net ~~equity~~balance ~~financings~~of $4,036,287. orThe ~~some~~cash ~~combination~~deposits are the result of ~~both~~the timing of the difference when the funds are received and when they are applied to pay down the loan at September 30, 2011 and June 30, 2011 respectively.

~~Inflation~~The credit line is secured by certain of our assets. The credit line contains standard financial covenants that require us to comply with minimum quarterly liquidity and profitability thresholds and standard non-financial covenants that include quarterly and annual reporting requirements and certain operational restrictions.

~~Management~~As ~~believes~~of ~~that~~June ~~inflation~~30, ~~generally~~2011 ~~causes~~and anSeptember ~~increase~~30, 2011, we were in ~~sales~~not ~~prices~~in compliance with anthe ~~offsetting~~financial ~~unfavorable~~covenants ~~effect~~of on the ~~cost~~Line of ~~products~~Credit. ~~sold~~We ~~and~~have ~~other~~not ~~operating~~received ~~expenses.~~a ~~Accordingly,~~waiver ~~except~~of ~~for~~our acovenant violation ~~possible~~as ~~impact~~of onJune ~~interest~~30, ~~rates~~2011 ~~(thus~~or ~~affecting~~September ~~our~~30, ~~ability~~2011 tobut ~~obtain~~are ~~debt~~in ~~financing~~the onprocess ~~terms~~of ~~favorable~~obtaining toa ~~us,~~waiver. orAs ata ~~all)~~consequence, ~~management~~we ~~believes~~are only ~~that~~able ~~inflation~~to ~~will~~borrow ~~have~~under nothe ~~significant~~terms ~~effect on our results~~ of ~~operations~~the orFebruary ~~financial~~24, ~~condition~~2011 agreement.

~~Off-Balance~~The ~~Sheet~~Company ~~Arrangements~~is taking many measures to improve its operations and ultimate financial position. As seen by the Fiscal year 2011 results, the ASI acquisition improved our revenue and profit generation opportunities. Internally, the Company has continued to invest in new product and market development, resulting in possible new revenue sources. The Company is developing alternative production capacity to ultimately lower manufacturing costs and improve our ability to respond to changing customer needs. Externally, the Company has recently renegotiated an expanded credit agreement and is investigating other alternatives to access additional financing. However, there are no guarantees that any of these efforts will be successful.

~~We currently do not have any off-balance sheet arrangements or financing activities with special purpose entities.~~INFLATION

~~Going~~Management ~~Concern~~believes ~~Status~~that inflation, with its unfavorable effect on the cost of products sold and other operating expenses, is difficult to pass through to the customers as an increase in sales prices. Especially affected are the costs of labor in China and the cost of Neodymium, a rare earth material used in the production of the magnets in some of our speaker products. Accordingly, management believes that inflation may have significant effect on our results of operations or financial condition.

~~The~~OFF-BALANCE ~~accompanying~~SHEET financial statements have been prepared on a going concern basis which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. During the three month period ended March 31, 2011, we recordedARRANGEMENTS net income of $562,961. We had an accumulated deficit of $36,225,483 as of March 31, 2011. Although we recorded net income for the quarter ended March 31, 2011, we may be unable to maintain positive net income in future quarters or to continue to operate as a publicly traded company.

IfWe wedo ~~are~~not ~~unable~~have toany ~~obtain~~off-balance ~~financing~~sheet ~~for~~arrangements ~~our working capital requirements on favorable terms,~~ or atfinancing ~~all,~~activities with wespecial ~~may~~purpose ~~have to curtail our business sharply or cease operations altogether~~entities.

~~The~~GOING ~~financial~~CONCERN statements do not include any adjustments relating to the recoverability and classification of liabilities that might be necessary should we be unable to continue as a going concern. Our continuation as a going concern is dependent upon our ability to retain our current short term financing and ultimately to generate sufficient cash flow to meet our obligations on a timely basis in order to obtain additional financing, and ultimately to generate consistent positive net income.STATUS

~~Item~~The 3accompanying financial statements have been prepared on a going concern basis which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. ~~Quantitative~~During the three months ended September 30, 2011, the Company incurred losses of $23,748. The Company had an accumulated deficit of $36,908,653 as of September 30, 2011. During the fiscal year ended June 30, 2011, the Company realized net income of $953,885. During the year ended June 30, 2010, the Company incurred losses of $2,238,947. Until fiscal year 2011, the Company had never been profitable and ~~Qualitative~~there ~~Disclosures~~can ~~About~~be ~~Market~~no ~~Risk~~assurances that it will remain profitable or that it will survive as a public company. We are in violation of the covenants of our Line of Credit and New Line of Credit (as defined elsewhere herein) as of both June 30, 2011 and September 30, 2011, respectively. These issues raise substantial doubt regarding our ability to continue as a going concern.

~~Not~~The ~~Required~~Company is taking many measures to improve its operations and ultimate financial position. As seen by the financial results since the ASI acquisition, our revenue and profit generation opportunities have dramatically improved. Internally, the Company has continued to invest in new product and market development resulting in possible new revenue sources. The Company is developing alternative production capacity to ultimately lower manufacturing costs and improve our ability to respond to changing customer needs. Externally, the Company has recently renegotiated an expanded credit agreement and is investigating other alternatives to access additional financing. However, there are no guarantees that any of these efforts will be successful.

~~Item~~The 4financial statements do not include any adjustments relating to the recoverability and classification of liabilities that might be necessary should we be unable to continue as a going concern. ~~Controls~~Our continuation as a going concern is dependent upon our ability to retain our current short term financing and ~~Procedures~~ultimately to generate sufficient cash flow to meet our obligations on a timely basis in order to obtain additional financing, and ultimately to generate consistent positive net income.

~~Evaluation~~ITEM of3. ~~Disclosure~~QUANTITATIVE ~~Controls~~AND ~~and~~QUALITATIVE ~~Procedures~~DISCLOSURES ABOUT MARKET RISK

WeAs ~~have~~a ~~established~~smaller ~~disclosure~~reporting ~~controls~~company, ~~and~~we ~~procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) that~~ are ~~designed~~not ~~to ensure that information~~ required to beprovide ~~disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such~~ this information is accumulated and communicated to our management, including our Chief Executive Officer (our principal executive officer) and our Chief Financial Officer (our principal financial officer), as appropriate, to allow for timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, our management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Our disclosure controls and procedures are designed to provide a reasonable level of assurance of reaching our desired disclosure control objectives.

18Page 20

WeITEM carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer, of the effectiveness of our disclosure controls and procedures as of March 31, 2011, the end of the period covered by this quarterly report4. ~~Based~~ onCONTROLS ~~that~~AND evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, because of the material weakness in internal control over financial reporting discussed below, our disclosure controls and procedures were not effective as of March 31, 2011. In light of the material weakness as of March 31, 2011, we performed additional post-closing procedures and analyses in order to prepare the consolidated financial statements included in this report. As a result of these procedures and analyses, we believe our consolidated financial statements included in this report present fairly, in all material respects, our financial condition, results of operations and cash flows for the periods presented.PROCEDURES

~~Changes~~Evaluation inof ~~Internal~~Disclosure ~~Control~~Controls ~~Over~~and ~~Financial Reporting~~Procedures

~~Except~~We have established disclosure controls and procedures (as ~~described~~defined ~~below,~~in ~~there~~Rules ~~were~~13a-15(e) noand ~~changes~~15d-15(e) under the Exchange Act) that are designed to ensure that information required to be disclosed in our ~~internal~~Exchange ~~control~~Act ~~over~~reports ~~financial~~is ~~reporting~~recorded, ~~during~~processed, summarized and reported within the ~~quarter~~time ~~ended~~periods ~~March~~specified 31in the SEC’s rules and forms, ~~2011~~and that ~~have~~such ~~materially~~information ~~affected,~~is oraccumulated ~~are~~and ~~reasonably~~communicated ~~likely~~ to ~~materially~~our ~~affect~~management, including our ~~internal~~Chief Executive ~~control~~Officer ~~over~~(our principal executive officer) and our Chief Financial Officer (our principal financial ~~reporting~~officer), as appropriate, to allow for timely decisions regarding required disclosure.

~~Remediation~~We carried out an evaluation, under the supervision and with the participation of ~~Material~~our ~~Weakness~~management, including our Chief Executive Officer, who is also our Chief Financial Officer, of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Based on that evaluation, our Chief Executive Officer/Chief Financial Officer concluded that, because of the material weakness in internal control over financial reporting discussed in our Annual Report on Form 10-K for the fiscal year ended June 30, 2011, our disclosure controls and procedures are not effective as of the end of the period covered by this report. In light of the material weakness, we performed additional post-closing procedures and analyses in order to prepare the consolidated financial statements included in this report. As a result of these procedures and analyses, we believe our consolidated financial statements included in this report present fairly, in all material respects, our financial condition, results of operations and cash flows for the periods presented.

AChanges ~~material~~to ~~weakness~~Internal isControl ~~a deficiency, or a combination of deficiencies, in internal control~~ over ~~financial~~Financial reporting, such that there is a reasonable possibility that a material misstatement of our consolidated financial statements will not be prevented or detected on a timely basis. Following an evaluation of our internal control over financial reporting during the period ending December 31, 2010, we concluded that our internal control over financial reporting was not effective due to the existence of the following material weakness:Reporting

WeAlthough ~~did~~we ~~not~~previously ~~design~~commenced ~~and~~efforts ~~maintain~~to address ~~adequate~~the material weaknesses in our internal ~~controls~~control over ~~certain~~financial ofreporting, ~~our~~there ~~accounting~~were ~~methods,~~no ~~including~~changes in our ~~purchase~~internal ~~accounting~~control over ~~method~~financial ~~related~~reporting during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our ~~acquisition~~internal ofcontrol ~~ASI~~over financial reporting. We have continued the remediation efforts described below, ~~our~~which ~~method~~began ofin the ~~determining~~final ~~cost~~quarter of ~~sales~~our ~~and~~2011 fiscal year, but our ~~method~~efforts ofhave ~~calculating~~not ~~earnings~~yet ~~per~~proven ~~share~~to fully remediate the material weaknesses.

●Remediation Weof ~~instituted~~Material ~~formal procedures and processes for booking invoices.~~Weakness

● We ~~created~~previously acommenced ~~system~~efforts ofto ~~checks~~address ~~and~~the material ~~balances~~weakness ~~within~~in our ~~accounting~~internal control over financial reporting and ~~finance~~the ~~departments~~ineffectiveness ~~whereby~~of ~~persons~~our ~~holding~~disclosure ~~different~~controls ~~roles~~and ~~within~~procedures and continued such ~~departments~~efforts ~~routinely~~during ~~check~~the ~~information~~period ~~prepared~~covered by ~~others~~this ~~within~~report. ~~such~~Our ~~departments~~remediation toplan ~~confirm~~includes ~~accuracy~~the ~~and~~following ~~completeness.~~actions:

●• We ~~continue~~have toinstituted ~~improve~~more ~~our~~formal ~~daily~~procedures ~~communications with our overseas offices in order to ensure that we receive relevant financial~~ and ~~other~~processes ~~information~~for ~~from~~booking ~~such offices on a timely basis~~invoices.

●• We ~~hired~~have created a ~~Senior~~system ~~Vice~~of ~~President~~checks ofand ~~Finance~~balances ~~with~~within ~~relevant~~our ~~financial~~accounting and ~~accounting~~finance ~~skills~~departments ~~with~~whereby ~~public~~persons ~~company~~holding ~~experience~~different roles within such departments routinely check information prepared by others within such departments to confirm accuracy and completeness.

~~Although~~• ~~our~~We ~~remediation~~have ~~efforts~~improved ~~are~~our ~~continuing,~~daily ~~the~~communications ~~above~~with ~~material~~our ~~weakness~~overseas ~~will~~offices ~~not~~in beorder ~~considered~~to ~~remediated~~ensure ~~until~~that ~~new~~we ~~controls~~receive ~~over~~relevant financial ~~reporting are fully designed~~ and ~~operating~~other ~~effectively~~information ~~for~~from ansuch ~~adequate~~offices ~~period~~on ofa ~~time~~timely basis.

19• We have identified and begun the implementation process for a company-wide ERP system to be completed in fiscal year 2012.

~~PART~~Although ~~II—OTHER~~the ~~INFORMATION~~remediation efforts are continuing, the above material weakness will not be considered remediated until new controls over financial reporting are fully designed and operating effectively for an adequate period of time.

~~Item~~Page ~~1. Legal Proceedings~~21

~~None Item~~PART 2.II—OTHER ~~Unregistered Sales of Equity Securities and Use of Proceeds~~INFORMATION

~~None~~Item 6. Exhibits

Item 3. Defaults Upon Senior Securities

Exhibit Number		Description

31.1		Certification of Chief Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934.

31.2		Certification of Chief Financial Officer pursuant to Rules 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934.

32		Certification Pursuant to Rule 13a-14(b)/15d-14(b) under the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350.

101.INS		XBRL Instance Document

101.SCH		XBRL Taxonomy Extension Schema Document

101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF		XBRL Taxonomy Extension Definition Linkbase Document

101.LAB		XBRL Taxonomy Extension Label Linkbase Document

101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document

~~None~~Page 22

~~Item 4. (Removed and Reserved) Item 5. Other Information~~SIGNATURES

In ~~None~~accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Item 6. Exhibits

	AURASOUND, INC.

Dated: November 14, 2011	By:	/s/ Harald Weisshaupt
		Harald Weisshaupt
		President, Chief Executive Officer and Chief Financial Officer
		(Authorized Signatory)

31.1	Certification of Principal Executive Officer, pursuant to Rule 13a-14(a)/15d-14(a) promulgated under the Securities Exchange Act of 1934.*
31.2	Certification of Principal Financial Officer, pursuant to Rule 13a-14(a)/15d-14(a) promulgated under the Securities Exchange Act of 1934.*
32	Certifications of Principal Executive and Financial Officers pursuant to Rule 13a-14(b)/15(d)-14(b) promulgated under the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350. *

Page 23

* Filed herewith.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	AURASOUND, INC.
Dated: May 5, 2011	By:	/s/ Harald Weisshaupt
		Harald Weisshaupt, President and Chief
		Executive Officer
	By:	/s/ Harald Weisshaupt
		Harald Weisshaupt
		Principal Accounting and
		Chief Financial Officer

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