10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10 - K

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

For the fiscal year ended June 30, 2009

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

For the transition period from ________________________ to _______________________

Commission file number 005-80848

AuraSound, Inc.

(Name of small business issuer in its charter)

Nevada	20-5573204
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
11839 East Smith Avenue Santa Fe Springs, California	90670
(Address of principal executive offices)	(Zip Code)

               Issuer's telephone number: (562) 447-1780

Securities registered under Section 12(b) of the Exchange Act: None

Securities registered under Section 12(g) of the Exchange Act:

Common Stock, $.001 Par Value

(Title of Class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. ¨ Yes  x  No

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. ¨ Yes  x  No

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the 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 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).

¨ Yes ¨ No

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  x

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated file or a smaller reporting company.

Large accelerated filer ¨	Accelerated filer ¨
Non-accelerated filer ¨ (Do not check if a smaller reporting company)	Smaller reporting company x

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

State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter. As of December 31, 2008, the aggregate market value of the registrant’s voting and non-voting common equity held by non-affiliates was approximately $37,250.

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date.  As of  September 9, 2009, the issuer had 28,071,972  shares of its common stock, $0.01 par value issued and outstanding.

Documents incorporated by reference. List hereunder the following documents if incorporated by reference and the Part of the Form 10-K (e.g., Part I, Part II, etc.) into which the document is incorporated:  (1) Any annual report to security holders; (2) Any proxy or information statement; and (3) Any prospectus filed pursuant to Rule 424(g) or (c) under the Securities Act of 1933.  The listed documents should be clearly described for identification purposes.   None

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-K contains forward-looking statements. 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 expectations 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 by those that are not historical in nature, particularly those 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. In evaluating these forward-looking statements, you should consider various factors, including those described in this report under the heading “Risk Factors” beginning on page 10. These and other factors may cause our actual results to differ materially from any forward-looking statements. Forward-looking statements are only predictions. The forward-looking events discussed in this report and other statements made from time to time by us or our representatives may not occur, and actual events and results may differ materially and are subject to risks, uncertainties and assumptions about us.

We cannot give any guarantee that these plans, intentions or expectations will be achieved. The following is a listing of important risks, uncertainties and contingencies that could cause our actual results, performances or achievements to be materially different from the forward-looking statements included in this report.

· our ability to finance our operations on acceptable terms, either through the raising of capital, the incurrence of convertible or other indebtedness or through strategic financing partnerships;

· our ability to retain members of our management team and our employees;

· 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;

· our ability to develop and expand our sales, marketing and distribution capabilities;

· our ability to upgrade our technologies and products and to adapt to evolving markets;

· our ability to offer pricing for products which is acceptable to customers; and

· competition that exists presently or may arise in the future.

The foregoing does not represent an exhaustive list of risks. Please see the section titled “Risk Factors” for additional risks which could adversely impact our business and financial performance. Moreover, new risks emerge from time to time and it is not possible for our management to predict all risks, nor can we assess the impact of all risks on our business or the extent to which any risk, or combination of risks, may cause actual results to differ from those contained in any forward-looking statements. All forward-looking statements included in this report are based on information available to us on the date of this report. Except 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. All subsequent written and oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the cautionary statements contained throughout this report.

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PART I

ITEM 1. BUSINESS.

Overview

Our business operations are conducted through our wholly-owned subsidiary, AuraSound, Inc., a California corporation (referred to in this report as “AuraSound”), which we acquired on June 7, 2007. We completed this acquisition by issuing to the former sole shareholder of AuraSound, Arthur Liu, our Chairman and Chief Executive Officer, one share of our $0.01 par value common stock for every share of AuraSound common stock that we acquired. We acquired a total of 11,505,305 shares of AuraSound common stock from Arthur Liu, which represented 100% of AuraSound’s issued and outstanding common stock.  Founded in 1987, AuraSound develops, manufactures and markets premium audio products. AuraSound specializes in the production of high sound pressure level (“SPL”), bass-rich, low distortion sound from compact acoustic transducers (speakers). AuraSound has invested in the development of innovative audio technologies for use in ultra high end home and professional audio products. AuraSound has also  expanded its product line to include the micro-audio market. Specifically, AuraSound has developed and is currently marketing undersized speakers that will deliver sound quality to devices such as laptops, flat-panel televisions, displays and hand held devices such as smart phones and mobile phones that we believe to be superior to the sound quality currently found in these devices.  Our operations in China are conducted through Well-Tech International Co., a Hong Kong company owned by Susanne Lee who is our office administrator in Hong Kong.  Our operations in Taiwan are conducted by AuraSound as a foreign corporation doing business in Taiwan.  Our home offices are located in Santa Fe Springs, California.

Historically, AuraSound has provided its products to the ultra high end home and professional audio markets. Products for this market start at $100 and reach upwards of $1,000. Until recently, the extremely low annual unit sales volumes that characterize the high end home and professional audio markets limited our ability to accelerate our growth. However, successful development and customer acceptance of  our micro-audio product line has provided an opportunity for accelerated growth  with major electronics manufacturers. We are currently delivering our micro-audio products to various OEM manufacturers through Quanta , a leading private lable manufacturer of laptop computers.  Our micro speakers can now be found in products manufactured for HP, NEC and Acer and are being evaluated by Dell, Hitachi, Foxlink and Arima. Quanta has become a strong advocate for our  micro-speaker technology  in order to reduce weight and improve sound quality in laptop computers. Because of the manufacturing problems experienced by the Company, Quanta deferred certain referrals until the Company could provide specific assurance that quality control measures had been instituted to insure acceptable quality and timely delivery of our products.  The Company has provided such assurance and is currently working with various  Quanta customers to obtain product approval.  Please see the discussion titled “Liquidity and Capital Resources” in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

Following the decisions of NEC and Quanta, we began aggressively targeting other large electronics manufacturers. As a result of these efforts, several leading electronics manufacturers including HP, Dell, Hitachi, Acer, FoxLink and Arima are currently testing our products in order to make a final determination on incorporating our technology into their products. Our current backlog of orders totals approximately $750,000.

Our goal is to rapidly expand our sales pipeline by: expanding our customer base to include additional OEM electronics manufacturers in existing product categories; expanding our product line to include micro-audio products designed for additional applications such as mobile phones and PDAs; and incorporating our micro-technology into a larger number of models and products with existing OEM customers.

Technology

Neo-Radial Technology (NRT)

We have developed an unconventional audio technology that we believe creates unsurpassed efficiency and performance. We believe our neo-radial technology provides us with a significant competitive advantage over those in our industry who use traditional speaker designs.

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In a traditional speaker design, a speaker’s voice coil moves up and down in a piston like manner as a result of motion generated by opposing magnetic fields created when positive and negative electric charges are administered to the magnets in a speaker. The up and down motion of the voice coil vibrates the diaphragm, which then creates sound waves by vibrating the surrounding air.

The voice coil length, magnet design and the quality of the material in the speaker influence the quality of the sound that is produced. Speaker quality is generally assessed based on four criteria:

1. Sound pressure level (SPL) - measure of pressure of a noise (volume)

2. Excursion - the linear movement range of a speaker

3. Frequency range - the range from the lowest note to the highest note that a speaker can reproduce

4. Distortion - the presence of unwanted noise that was not present in the original sound signal

As a result of the inherent limitations of conventional speaker design, the performance of a conventional speaker in one performance category often must be compromised in order to generate the desired level of performance in another category. For example, when SPL is maximized, a conventional speaker will create significant distortion and will be unable to create adequate amounts of bass. Likewise, when a conventional speaker is designed to minimize distortion and increase bass performance, SPL and high frequency performance will suffer. Our NRT overcomes such limitations through the use of our propriety magnetic technology and design.

As illustrated below, the NRT design utilizes an “underhung” voice coil configuration in which the voice coil is always located within the magnetic field. This creates less distortion, less power compression, superior bass performance and greater acoustical output. Additionally, the NRT system utilizes a neodymium magnet, as opposed to a ceramic magnet typically used in conventional speakers. The neodymium magnet is much more powerful than ceramic magnets, allowing for a significantly smaller and lighter magnet to be utilized, which contributes to the compact design of the NRT system. In addition to significantly improved audio performance, the NRT design eliminates stray magnetic flux that can create significant interference issues in a variety of electronics applications and has improved cooling and venting characteristics, greatly improving product integration abilities.

Conventional Speaker Design

Voice coil and magnetic design compromise performance and create stray flux

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AuraSound NRT Speaker Design

Light weight magnet, smaller voice coil and “underhung” design increase quality and performance while preventing stray flux

Whisper Technology

AuraSound’s Whisper technology is a specialized application of the NRT transducer design to small, high power drivers. The technology is fully scaleable from speakers smaller than 1” to larger 3”, 200W drivers and was designed to specifically address the severe performance limitations of conventional micro-audio products.

Similar to larger speakers that are made using standard designs, conventionally designed small speakers are subject to an innate set of performance limitations. For example, as a speaker’s size decreases it becomes increasingly difficult to allow the necessary amounts of speaker excursion to provide adequate low frequency response. Likewise, when conventional designs incorporate adequate excursion capabilities to allow for increased low frequency response, high frequency response will decrease significantly. In addition to these issues, conventionally designed small speakers typically have very limited power handling capability, thereby limiting the volume of sound they are able to reproduce. The result of these limitations is a quiet speaker that reproduces sound in a limited frequency range.

Conventionally designed small speakers also suffer from severe integration issues as a result of poor venting abilities. As a speaker moves in and out in a piston-like motion air is pushed forward, creating sound, and subsequently pushed backward as the speaker retracts. Traditional designs have the magnets located behind the voice coil, trapping the air under the diaphragm and thus requiring the air to be vented or pushed out of the sides of the driver. In small speakers and extremely compact integration scenarios (e.g. a laptop or cell phone) this air becomes trapped and inadvertently vibrates the speaker cone, causing significant distortion and requiring that the area around the speaker be left open, thus limiting the compactness of the design.

AuraSound’s patented Whisper driver addresses the issues that plague traditional small speaker designs by utilizing an NRT-like design with the following features:

Extended Low Frequency Response - Whisper drivers create more bass by utilizing a high excursion design due to a short voice coil in a long magnetic gap (underhung magnet structure) and large suspension elements to allow movement.

Extended High Frequency Response - Whisper drivers provide extended high frequency response by minimizing moving mass and driver inductance by utilizing a short voice coil.

Higher Power Handling and SPL - Whisper drivers maximize power handling and SPL by utilizing a long excursion, larger diameter, underhung voice coil, providing a maximum level of excursion and good thermal dissipation to eliminate heat and allow more power input.

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Easy Product Integration and Low Resonance Frequency - Whisper drivers utilize an innovative rear venting design which eliminates trapped air and allows for increased SPL with minimal distortion and does not require the area around the driver to be kept open.

AuraSound Whisper Speaker Design

Products

Whisper Micro-Audio Products

We provide standardized and custom developed micro-audio speakers ranging in size from less than 1” to 3”. Our Whisper speakers can be easily integrated into various products that require compact and light, high performance speakers. We believe that our Whisper products have a significant competitive advantage over other micro speakers that are based upon conventional design parameters. We believe that our micro OEM speakers are not only lighter and more compact than any other loudspeaker currently available in their class, but that they are also more powerful and provide significantly improved frequency response at the same price point as competitive technologies. In addition, we believe that our Whisper products provide significant advantages for integration in electronics products relative to competing products as a result of their favorable venting characteristics and natural ability to minimize electronic interference that results from stray magnetic flux.    

Speaker Component Products

  We provide standardized and custom design drivers based upon NRT technology to leading ultra-high end home audio manufacturers including such notable names as McIntosh and MDesign. We believe that our component loudspeaker transducers are considered by many audio enthusiasts and specialty loudspeaker manufacturers to be the best available. We produce components ranging from less than 1” to 18” and 800 Watts. From the miniature NSW1Cougar to the enormous NS18 woofer to the low profile NSFB woofer, all feature our patented NRT magnet structure for maximum fidelity with life-like dynamics and minimal distortion.  

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Home and Pro Audio Products   We believe that our home audio systems are elegantly designed and provide a dynamic acoustic experience. The home audio line features three series, the Whisper Ensemble, the Baby Grand and the Concert Series, all of which utilize the NRT and/or Whisper platforms. The Whisper Ensemble is an ultra compact home theater system that maintains the quality and performance of a larger speaker system. The Baby Grand is the mid sized system and has excellent bandwidth, powerful dynamics and precise stereo imaging. The Concert Series is the largest system, providing the greatest range, lowest distortion and most bass while maintaining the same accurate spatial sound field and focused coverage of the other systems. All three of the systems have a sophisticated style with the cabinets having a beautiful black or white high-gloss lacquer finish. Additionally, the grills are held in place magnetically allowing the consumer the choice of displaying the system with or without the grill.    

Our Pro Audio products are an extension of our component business and consist primarily of the NRT 18-8 Subwoofer. The NRT 18-8 18" is an 800-Watt high-output subwoofer with a high-temperature neodymium ring magnet, unique magnet geometry with underhung 4" edgewound aluminum voice coil, dual over-size spiders and tough epoxy cone. With a 20 - 200 Hz frequency response the 18-8 delivers deeper bass, enhances overall performance and is designed to move using a minimal amount of power, thereby maximizing motor efficiency. The NRT 18-8 has appeared on-stage and on-tour with artists such as Rod Stewart and features AuraSound's patented NRT technology.

  Automotive Products   We produce automotive competition-grade speaker and component systems. Our automotive division designs and manufactures amplifiers, loudspeakers and subwoofers. The subwoofer line features the NRT platform and is designed for extremely low throw and high output, yielding unsurpassed linearity and exceptionally low distortion. Our automotive loudspeakers, built with coaxial high quality components, are available in a full range of products from easy-to-install budget systems to top of the line competition grade systems. The line is competitively priced and was designed with a new industrial styling, a high level of performance and other unique features. Our line of competition-grade amplifiers are built with performance enhancing features that include gold-plated speaker and power connections, modular internal design for improved separation and a high efficiency dual heat sink which eliminates the need for noisy, power consuming fans.  

Bass Shaker Products   Our Bass Shaker products are transducers that can be mounted to a fixed surface to transmit vibration creating the “sensation of sound” or very low bass, providing impact for music, sounds and special effects. The Bass Shaker Plus and Bass Shaker add the impact of bass sub woofers without excessive volume or the space required by traditional subwoofers. Our technologically advanced design enhances the sound pressure levels so there's no distortion while amplifying the bass energy delivered from the stereo.   

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Research and Development and Product Manufacturing

We employ a skilled research and development team which is lead by the Vice President of Engineering who is based in Santa Fe Springs, California and is responsible for identifying and creating new products and applications along with improving and enhancing existing products.  Our research engineers and facilities are located in both Santa Fe Springs, California and Taiwan. We recently added the research and development team in Taiwan in order to be closer to our customer base.  During the twelve month period ended June 30, 2008, we had three major vendors and experienced quality and delivery problems with two of them, namely Grandford Holdings Ltd and ZYLUX Acoustic Corporation,before entering into a three-year non-exclusive Manufacturing Agreement (the "Agreement") with Guoguang Electronic Co., Ltd. ("GGEC") in December 2007.  GGEC is currently the sole manufacturer of AuraSound's proprietary audio products. Under the terms of our agreement, GGEC will be compensated for units manufactured and shipped in an amount equal to the manufacturing cost (consisting of material cost, direct labor and overhead equal to 100% of direct labor cost) plus forty percent of the profit margin. The Agreement is governed by California law and any disputes under the agreement will be settled by arbitration in accordance with the United States Federal Arbitration Act. GGEC is located in Guangzhou, China. Shipments to customers from this facility began during March 2008.

We currently outsource all product 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 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 staff.

Market Overview

A major component of the consumer electronics market is the personal and professional audio manufacturing industry, which is mature, fragmented and highly competitive. Cutting edge technologies are noted to have a short life in an industry that is defined by research and development. The audio industry is dominated by large domestic and international manufacturers that include Harman International, Bose Corporation, Polk Audio, Alpine Electronics, Sony Corporation, Boston Acoustics, Altec Lansing Technologies, Kenwood Corp., LOUD Technologies, JBL Incorporated, Panasonic Corporation, Pioneer, Rockford Corp. and Yamaha Corp. Additionally, there are numerous small, niche companies that attract consumers based upon specialty product offerings. Industry participants compete based on acoustic quality, technology, price, reliability, brand recognition and reputation.

Although the audio industry as a whole is relatively mature and is dominated by large players, the micro-audio segment remains a relatively new niche market. With the continued release of innovative new products, the consumer electronics industry has experienced steady growth for several years. There are many manufacturers, large and small, domestic and international, which offer products that vary widely in price and quality and are distributed through a variety of channels. The primary industry growth drivers have been increased portability and miniaturization, sophisticated technological innovations and a dramatic reduction in market prices.

The rapid consumer acceptance of flat-panel televisions and displays, laptop computers, portable devices (such as portable DVD players, MP3 and portable music devices) and mobile phones demonstrates the overwhelming consumer demand for sleeker and increasingly more compact electronics. The slenderness and compactness of these products requires ultra compact speakers and we believe that consumers are increasingly expecting the audio performance of these products to be comparable to their visual quality. Despite significant technological innovations in laptops, portable music players and mobile phones, the auditory capabilities of these devices has stagnated or been significantly reduced as a result of efforts to minimize size to achieve increased portability. This reduction in audio quality has occurred despite a massive increase in media usage, particularly audio, on these devices. We believe that the micro-audio market currently lacks a true leader with an economical, easy to integrate audio product capable of delivering high quality acoustics in an ultra-compact format.

We believe that the integration of high-level audio capabilities provides device makers with an additional product differentiator, and that the expanding market for miniature electronic devices will ultimately drive rapid growth in high quality ultra compact speaker sales.

Competition

We compete in the traditional audio and micro-audio market segments.

In the traditional audio market we provide component speakers to ultra high-end manufacturers and sell our own line of home and mobile audio products. Several well established companies participate in the mid to high-end of the traditional home and pro audio markets. Among these companies are Bose Corporation, Boston Acoustics, Inc., Harman International Industries, Inc., Polk Audio, Inc., Alpine Electronics, Inc., Bang & Olufsen Holding A/S and Clarion Co. Ltd.

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In the micro-audio market we provide component speakers incorporating our Whisper technology to OEM manufacturers of electronics such as laptop computers and televisions and displays. Companies that have developed micro-audio products include NXT, Plc, AAC Acoustic Technologies Holdings, Inc., Tymphany Corporation, SLS International, Inc. and American Technology Corporation. However, not all of these companies target the laptop computer or mobile device markets.

The markets for traditional audio and micro-audio speakers are competitive and subject to continuous technological innovation. Our competitiveness depends on our ability to offer high-quality products that meet our customers’ needs on a timely basis. The principal competitive factors of our products are time to market, quality, price and breadth of product line. Many of our competitors have significant advantages over us such as far greater name recognition and financial resources than we have. At this time we do not represent a significant competitive presence in our industry.

Sales and Marketing

We market and sell our products through a network of our sales representatives located in Taiwan, Japan, China and California, our primary target markets. Our sales representatives are compensated on a draw plus commission basis. Arthur Liu, our CEO, is also actively involved in developing new sales contacts, as well as obtaining customer orders.

Customers

During our fiscal year ended June 30, 2009, approximately 83% of our sales were made to customers outside the United States. We are currently delivering our micro-audio products to Quanta and have been approved or are being evaluated for new product lines by Quanta,  Arima,  HP, Sharp and Acer. We believe that international sales will expand with the current focus on micro devices and will represent an increasingly significant portion of our revenues in the future. A significant portion of our revenues has historically been attributed to a small number of customers and we expect that this may continue. None of our customers have continuing obligations to purchase products from us.

Intellectual Property and Proprietary Rights

We try to protect our intellectual property through existing laws and regulations and by contractual restrictions. We rely upon trademark, patent and copyright law, trade secret protection and confidentiality or license agreements with our employees, customers, partners and others to help us protect our intellectual property.

We currently have twenty one active US patents covering the design and technical innovations found in our audio products and three patents pending which relate to our innovative micro speaker design. The granting of any patent involves complex legal and factual questions. The scope of allowable claims is often uncertain. As a result, we cannot be sure that any patent application filed by us will result in a patent being issued, nor that any patents issued will afford adequate protection against competitors with similar technology, nor can we provide assurance that patents issued to us will not be infringed upon or designed around by others.

We also own one trademark and have made application for three other trademarks. We believe that these trademarks significantly strengthen consumer awareness of the AuraSound brand.

Government Regulation

In the United States, our products must comply with various regulations and standards defined by the Federal Communications Commission and the Consumer Products Safety Commission. Internationally, our products may be required to comply with regulations or standards established by authorities in the countries into which we sell our products, as well as various multinational or extranational bodies. The European Union, or EU, has issued a directive on the restriction of certain hazardous substances in electronic and electrical equipment, known as RoHs, and has enacted the Waste Electrical and Electronic Equipment directive, or WEEE, applicable to persons who import electrical or electronic equipment into Europe. Although neither of these directives is currently applicable to our products, both are expected to become effective and at that time they will apply to our products. We are currently implementing measures to comply with each of these directives as individual EU nations adopt their implementation guidelines. Although we believe our products are currently in compliance with domestic and international standards and regulations in countries to which we export, we can offer no assurances that our existing and future product offerings will remain compliant with evolving standards and regulations.

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ITEM 1A.               RISK FACTORS.

Investing in our common stock involves a high degree of risk.  You should carefully consider the risks and uncertainties described below before you purchase any of our common stock.  These risks and uncertainties are not the only ones we face.  Unknown additional risks and uncertainties, or ones that we currently consider immaterial, may also impair our business operations.  If any of these risks or uncertainties actually occur, our business, financial condition or results of operations could be materially adversely affected.  In this event you could lose all or part of your investment.

We had a net loss of $$2,570,802 for the fiscal year ended June 30, 2009.  We have never been profitable and we may not be profitable in the future.  If we do not become profitable, the value of your investment could be adversely affected or you could lose your investment.

Our independent auditor has noted in its report concerning our financial statements as of June 30, 2009 that we have incurred substantial losses and had negative cash flow in operating activities for the last two fiscal years, which, along with our accumulated deficit of $35,599,842, raises substantial doubt about our ability to continue as a going concern.

We sustained a net loss of $2,570,802 for the fiscal year ended June 30, 2009.  We cannot assure you that we will generate sufficient cash flow to meet our obligations or achieve operating profits in the future.  If we do not become profitable, the value of your investment could be adversely affected or you could lose your investment.

We experience variability in quarterly operating results because our sales are seasonal.  Because of this, our quarterly operating results will not provide you with a reliable indicator of our future operating results.

Our operating results tend to vary from quarter to quarter because our sales are seasonal.  Revenue in each quarter is substantially dependent on orders received within that quarter.  Conversely, our expenditures are based on investment plans and estimates of future revenues.  We may, therefore, be unable to quickly reduce spending if revenues decline in a given quarter.  As a result, operating results for such quarters would be adversely impaired.  Results of operations for any one quarter are not necessarily indicative of results for any future period.  Other factors which may cause quarterly results to fluctuate or to be adversely impacted include:

· increased competition in niche markets;

· new product announcements by our competitors;

· product releases and pricing changes by us or our competitors;

· market acceptance or delays in the introduction of new products;

· production constraints;

· the timing of significant orders;

· customers’ budgets; and

· foreign currency exchange rates.

Because our quarterly operating results are unpredictable, they will not provide you with a reliable indicator of our future operating results.

We will need to raise additional capital in order to implement our long-term business plan.  We have no assurance that money will be available to us when we need it.  If money is not available to us when we need it, we may be required to curtail or alter our long term business strategy or delay capital expenditures.

Our ability to implement our long-term strategy, which is to expand our operations in order to meet expected demand for micro speakers, largely depends on our access to capital.  To implement our long-term strategy, we plan to make ongoing expenditures for the expansion and improvement of our micro speaker product lines and the promotion of our products with manufacturers of computers, cell phones, home entertainment systems and iPods.  We may also wish to make expenditures to acquire other businesses which provide similar products or products which can be marketed to our existing customer base. To date, we have financed our operations primarily through sales of equity and loans.  If we were to attempt to expand our business at a faster pace than currently contemplated, or if we were to identify an acquisition target, we would need to raise additional capital through the sale of our equity securities or debt instruments.  However, additional capital may not be available on terms acceptable to us.  Our failure to obtain sufficient additional capital could curtail or alter our long-term growth strategy or delay needed capital expenditures.

If we are unable to effectively manage our growth as planned, our business, results of operation and financial condition may be adversely affected.

Our strategy envisions growing our business, which will require us to hire, train and supervise additional employees and to continue to develop and adjust our technology to meet the evolving needs of manufacturers who use micro speakers in their products.  Our expected sales growth and the related expansion of our manufacturing sources are likely to place a strain on our management and administrative resources, infrastructure and systems and require us to make significant outlays of capital.  These measures are time consuming and expensive, will increase management’s responsibilities and will divert management’s attention from our day-to-day operations.  We cannot assure you that we will be able to:

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· expand our business effectively or efficiently or in a timely manner;

· allocate our human resources optimally;

· meet our capital needs;

· identify and hire qualified employees or retain valued employees; or

· incorporate effectively the components of any business or product line that we may acquire in our effort to achieve growth.

Our inability or failure to manage our growth effectively could harm our business and materially and adversely affect our operating results and financial condition.

If we fail to manage our inventory effectively, our results of operations could be adversely affected.

Our customers have many brands to choose from when they decide to order products. If we cannot deliver products quickly and reliably, customers will order from a competitor.  We must stock enough inventory to fill orders promptly, which increases our financing requirements and the risk of inventory obsolescence.  Competition may force us to shorten our product life cycles and more rapidly introduce new and enhanced products.  This, too, could leave us with obsolete designs and inventory.  If we do not manage our inventory successfully, it could have a material adverse effect on our results of operations.

If the U.S. were to revoke NTR status for China, our results of operations could be adversely affected.

Our ability to import products from China at current tariff levels could be materially and adversely affected if the “normal trade relations” (“NTR”, formerly “most favored nation”) status the United States government has granted to China for trade and tariff purposes is terminated. As a result of its NTR status, China receives the same favorable tariff treatment that the United States extends to its other “normal” trading partners. China’s NTR status, coupled with its membership in the World Trade Organization, could eventually reduce barriers to manufacturing products in and exporting products from China. However, we cannot provide any assurance that China’s WTO membership or NTR status will not change. If China were to lose its NTR status, the increase in tariffs could adversely affect our results of operations.

Defects in our products could reduce demand for our products and result in a loss of sales, delay in market acceptance and injury to our reputation.

Complex components and assemblies used in our products may contain undetected defects that are subsequently discovered at any point in the life of the product.  Defects in our products may result in a loss of sales, delay in market acceptance, injury or other loss to customers, and injury to our reputation and increased warranty or service costs.

Our products could subject us to liability.  Liability claims could have a material adverse effect on our results of operations.

Some of our products, such as amplifiers, speakers and our Bass Shaker devices are electronically powered and carry a risk of electrical shock or fire. If our products caused electrical shock or fire, the damaged party could bring claims for property damage, physical injury or death. While the Company carries insurance for these types of contingencies, these types of legal actions, if threatened or brought, may be very costly to defend, may distract management’s attention from operating our business and may result in large damage awards which may exceed our coverage limits and could have a material adverse effect on our results of operations.

Over  two-thirds of our net sales are made to customers that are located outside the United States.  Any one of several factors that affect overseas sales could adversely affect our results of operations.

Historically, about 83% of our net sales are made to customers outside the United States.  We believe that international sales will continue to represent a significant portion of our revenues.  Our revenues from international sales may fluctuate due to various factors, including:

· changes in regulatory requirements;

· changes to tariffs and taxes;

· increases in freight costs, or damage or loss in shipment;

· difficulties in hiring and managing foreign sales personnel;

· longer average payment cycles and difficulty in collecting accounts receivable;

· fluctuations in foreign currency exchange rates;

· product safety and other certification requirements; and

· political and economic instability, wars and terrorist activity.

If international sales declined significantly or if any of the above factors adversely impacted the revenues we earn from international sales, there may be a material adverse effect on our results of operations.

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We depend on key customers, a small number of which account for a significant portion of our revenue.  The loss of one or more of these customers could have a material adverse impact on our results of operations, liquidity and financial condition.

In the past, a significant portion of our revenue was attributed to a small number of customers and this may continue. We had two major customers during the year ended June 30, 2009 which accounted for  65% of our sales.  We had two major customers during the year ended June 30, 2008 which accounted for 26% of our sales.  The receivables due from these customers as of June 30, 2009 and 2008 totaled $718,582 and $100,681 respectively.  Furthermore, none of our customers have continuing obligations to purchase products from us. If our relationships with our largest customers deteriorated for any reason, we could lose a substantial portion of our net sales revenues, which would have a material adverse impact on our results of operations, liquidity and financial condition.

We own 21 active issued patents with three patents pending and one trademark with three additional trademarks applied for, which we believe are important to our business.  While we try to protect our intellectual property, if we are unable to do so our business could be harmed.

We try to protect our intellectual property in a number of different ways. We rely in part on patent, trade secret, unfair competition and trademark law to protect our rights to certain aspects of our products, including product designs, proprietary manufacturing processes and technologies, product research and concepts and recognized trademarks, all of which we believe are important to the success of our products and our competitive position. There can be no assurance that any of our pending patent or trademark applications will result in the issuance of a registered patent or trademark, or that any patent or trademark granted will be effective in thwarting competition or be held valid if subsequently challenged. In addition, there can be no assurance that the actions taken by us to protect our proprietary rights will be adequate to prevent imitation of our products, that our proprietary information will not become known to competitors, that we can meaningfully protect our rights to unpatented proprietary information or that others will not independently develop substantially equivalent or better products that do not infringe on our intellectual property rights. We could be required to devote substantial resources to enforce our patents and protect our intellectual property, which could divert our resources and result in increased expenses. In addition, an adverse determination in litigation could subject us to the loss of our rights to a particular patent or other intellectual property, could require us to obtain from or grant licenses to third parties, could prevent us from manufacturing, selling or using certain aspects of our products or could subject us to substantial liability, any of which could harm our business.

We may become subject to litigation for infringing the intellectual property rights of others.  Such actions could result in a decrease in our operating income and cash flow and would harm our business.

Others may initiate claims against us for infringing on their intellectual property rights. We may be subject to costly litigation relating to such infringement claims and we may be required to pay compensatory and punitive damages or license fees if we settle or are found culpable in such litigation. In addition, we may be precluded from offering products that rely on intellectual property that is found to have been infringed by us. We also may be required to cease offering the affected products while a determination as to infringement is considered. These developments could cause a decrease in our operating income and reduce our available cash flow, which could harm our business.

The loss of the services of our key employees, particularly the services rendered by Arthur Liu, our Chief Executive Officer and Principal Accounting and Finance Officer, could harm our business

Our success depends to a significant degree on the services rendered to us by our key employees.  If we fail to attract, train and retain sufficient numbers of these qualified people, our prospects, business, financial condition and results of operations will be materially and adversely affected. In particular, we are heavily dependent on the continued services of Arthur Liu, our Chief Executive Officer and Chief Financial Officer, and the other members of our senior management team. We do not have long-term employment agreements with any of the members of our senior management team, each of whom may voluntarily terminate his employment with us at any time. Following any termination of employment, these employees would not be subject to any non-competition covenants. The loss of any key employee, including members of our senior management team, and our inability to attract highly skilled personnel with sufficient experience in our industry could harm our business.

We have historically utilized a single source to manufacture our products and during the twelve months ended June 30, 2008 we experienced significant negative issues with two successive suppliers.  Any negative issues with our current sole supplier could have a material adverse effect on our business and operating results and would jeopardize our ability to timely meet customer requirements or transition to a new vendor of become a multi-source company.

Because we have historically utilized a single third party manufacturer to manufacture our products, we are currently totally dependent on that supplier to meet the quality and volume requirements of our customers. The experiences of the last twelve months and our current dependency makes us vulnerable to relationship issues as well as performance issues with regard to the single source manufacturer which could lead to customer dissatisfaction and a loss of current and future business.  This could have a material adverse affect our business and operating results.

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We utilize third-party manufacturing sources to manufacture our products and may not be able to control quality.  Too many defective products could lead to customer dissatisfaction and a loss of business which would materially adversely affect our business and operating results.

Because we utilize third party manufacturers to manufacture our products, we may have an inability to control quality issues resulting in a high defect rate.  This could lead to customer dissatisfaction and a loss of future business and have a material adverse affect on our business and operating results.

Our products may become obsolete due to rapid technological change within the industry.  If this were to happen, it would have a material adverse effect on our business and financial condition.

Product technology evolves rapidly, making timely product innovation essential to success in the marketplace. The introduction of products with improved technologies or features may render our existing products obsolete and unmarketable. If we cannot develop products in a timely manner in response to industry changes, or if our products do not perform well, our business and financial condition will be adversely affected.

Our Whisper driver technology may not gain market acceptance.  If our Whisper driver technology is not accepted by the market, we may not achieve anticipated revenue or profits.

Our future financial performance as it relates to supplying micro devices will depend on market acceptance of our Whisper driver technology and the resulting sound quality of our products. To date, we have had limited sales of products containing our new Whisper drivers.  If our Whisper driver technology and product line do not gain sufficient positive market acceptance, we may not achieve profitability.

We are a small company and we do not represent a significant presence in the sound enhancement products market.  We are subject to intense competition.  We cannot assure you that we can compete successfully.

The market for sound enhancement products in general is intensely competitive and sensitive to new product introductions or enhancements and marketing efforts by our competitors. The market is affected by ongoing technological developments, frequent new product announcements and introductions, evolving industry standards and changing customer requirements. We face competition from a number of well-known brands including Bose, NXT, and Bang & Olufsen. Many of our competitors are substantially better capitalized and have substantially stronger market presence than we have. Although we have attempted to design our home audio systems to compete favorably with other products in the market, we may not be able to establish and maintain our competitive position against current or potential competitors. Competition may have the effect of reducing the prices we can charge for our products, increasing marketing costs associated with developing and maintaining our market niche, or reducing the demand for our products. If we fail to compete successfully, either now or in the future, our profitability and financial performance will likely be materially adversely affected. We do not currently represent a significant presence in the sound enhancement products market.

We are susceptible to general economic conditions, and a downturn in our industry or a reduction in spending by consumers could adversely affect our operating results.

The electronics industry in general has historically been characterized by a high degree of volatility and is subject to substantial and unpredictable variations resulting from changing business cycles. Our operating results will be subject to fluctuations based on general economic conditions, in particular conditions that impact discretionary consumer spending. As a result of the current downturn in the U.S. economy, the audio products sector of the electronics industry may experience a slowdown in sales, which would adversely impact our ability to generate revenues and impact the results of our future operations.

Our management owns or controls a significant number of the outstanding shares of our common stock, which may be detrimental to our minority stockholders.

As of the date of this report, Mr. Arthur Liu, our President, Chief Executive Officer, Chief Financial Officer and the Chairman of our board of directors, owns or controls approximately 49.9% of our issued and outstanding capital stock.  See Item 12 titled “Security Ownership of Certain Beneficial Owners and Management.”  As a result of his significant ownership of our common stock, Mr. Liu may be able to effectively control our affairs and business, including the election of directors and subject to certain limitations, approval or preclusion of fundamental corporate transactions.  This concentration of ownership may be detrimental to the interests of our minority stockholders in that it may:

· limit our shareholders’ ability to elect or remove directors;

· delay or prevent a change in control;

· impede a merger, consolidation, take over or other transaction involving our company; or

· discourage a potential acquirer from making a tender offer or otherwise attempting to obtain control of our company.

There is only a limited market for our common stock, which could cause our investors to incur trading losses or prevent them from reselling their shares at or above the price they paid for them, or from selling them at all.

Our common stock is quoted on the Over-the-Counter Bulletin Board (OTCBB) under the symbol “ARAU.”  On July 31, 2009, our common stock traded 500 shares at a price of $.46.  Since then, our shares have traded at an average price of $.07 and there can be no assurance that an active trading market will be developed or maintained.  See Item 5, “Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.”

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The OTCBB is an unorganized, inter-dealer, over-the-counter market which provides significantly less liquidity than NASDAQ or other national or regional exchanges.  Securities traded on the OTCBB are usually thinly traded, highly volatile, have fewer market makers and are not followed by analysts.  The Securities and Exchange Commission’s order handling rules, which apply to NASDAQ-listed securities, do not apply to securities quoted on the OTCBB.  Quotes for stocks included on the OTCBB are not listed in newspapers.  Consequently, prices for securities traded solely on the OTCBB may be difficult to obtain and are frequent targets of fraud or market manipulation.  Dealers may dominate the market and set prices that are not based on competitive forces.  Individuals or groups may create fraudulent markets and control the sudden, sharp increase of price and trading volume and the equally sudden collapse of the market price for shares of our common stock.  Moreover, the dealer's spread (the difference between the bid and ask prices) may be large and may result in substantial losses to the seller of shares of our common stock on the OTCBB if the stock must be sold immediately and may incur an immediate “paper” loss from the price spread.

Due to the foregoing, demand for shares of our common stock on the OTCBB may be decreased or eliminated and holders of our common stock may be unable to resell their securities at or near their original acquisition price, or at any price.

Investors must contact a broker-dealer to trade OTCBB securities.  As a result, you may not be able to buy or sell our securities at the times you wish.

Even though our securities are quoted on the OTCBB, the OTCBB may not permit our investors to sell securities when and in the manner that they wish.  Because there are no automated systems for negotiating trades on the OTCBB, trades are conducted via telephone.  In times of heavy market volume, the limitations of this process may result in a significant increase in the time it takes to execute investor orders.  Therefore, when investors place an order to buy or sell a specific number of shares at the current market price it is possible for the price of a stock to go up or down significantly during the lapse of time between placing a market order and its execution.

Sales of a substantial number of shares of our common stock may cause the price of our common stock to decline.

If our stockholders sell substantial amounts of our common stock in the public market, including shares issued upon exercise of outstanding warrants, the market price of our common stock could fall.  These sales also may make it more difficult for us to sell equity or equity-related securities in the future at a time and price that we deem reasonable or appropriate.

Authorized additional shares of our common stock available for issuance may dilute current stockholders.

We are authorized to issue 100,000,000 shares of our common stock and 20,000,000 shares of our preferred stock.  As of the date of this report, there are 28,071,972 shares of common stock issued and outstanding and no shares of preferred stock issued or outstanding.  However, the total number of shares of our common stock outstanding does not include shares of our common stock reserved in anticipation of the exercise of warrants described herein.  Further, in the event that any additional financing should be in the form of, be convertible into or exchanged for equity securities, investors may experience additional dilution.

The “penny stock” rules could make selling our common stock more difficult.

Our common stock has a market price of less than $5.00 per share, therefore, transactions in our common stock are subject to the “penny stock” rules promulgated under the Securities Exchange Act of 1934, as amended.  Under these rules, broker-dealers who recommend such securities to persons other than institutional accredited investors must: (i) make a special written suitability determination for the purchaser; (ii) receive the purchaser’s written agreement to a transaction prior to sale; (iii) provide the purchaser with risk disclosure documents that identify certain risks associated with investing in “penny stocks” and that describe the market for these “penny stocks,” as well as a purchaser’s legal remedies; and (iv) obtain a signed and dated acknowledgment from the purchaser demonstrating that the purchaser has actually received the required risk disclosure document before a transaction in “penny stock” can be completed.  As a result, broker-dealers may find it difficult to effect customer transactions, related transaction costs will rise and trading activity in our securities may be greatly reduced.  As a result, the market price of our securities may be depressed, and you may find it more difficult to sell our securities.

You should be aware that, according to the Securities and Exchange Commission, the market for penny stocks has suffered in recent years from patterns of fraud and abuse.  Such patterns include:

· Control of the market for the security by one or a few broker-dealers that are often related to the promoter or issuer;

· Manipulation of prices through prearranged matching of purchases and sales and false and misleading press releases;

· “Boiler room” practices involving high pressure sales tactics and unrealistic price projections by inexperienced sales persons;

· Excessive and undisclosed bid-ask differentials and markups by selling broker-dealers; and

· The wholesale dumping of the same securities by promoters and broker-dealers after prices have been manipulated to a desired level, along with the inevitable collapse of those prices with consequent investor losses.

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We do not intend to pay dividends in the foreseeable future.  If you require dividend income, you should not rely on an investment in our company.

We have never paid cash dividends and do not anticipate paying cash dividends in the foreseeable future.  Instead, we intend to retain future earnings, if any, for reinvestment in our business and/or to fund future acquisitions.  If you require dividend income, you should not expect to receive any cash dividends as a stockholder of our company.

ITEM 1B                UNRESOLVED STAFF COMMENTS.

As a smaller reporting company, we are not required to provide this information.

ITEM 2. PROPERTIES.

InSeat Solutions, LLC, an entity under the control of our Chairman and Chief Executive Officer, Mr. Arthur Liu, currently leases approximately 21,355 square feet of office, warehouse and technical research and development space which is located at 11839 East Smith Avenue, Santa Fe Springs, California. The current lease will expire on July 31, 2013.  We share this space with InSeat Solutions, LLC and we pay 40% of the rent commitment.  We do not have a written lease or rental agreement with InSeat Solutions, LLC and we have no obligation in connection with our use of the premises other than the payment of rent.  For the fiscal year ended June 30, 2008, this amount totaled $71,179 and we expect to pay at least this amount during the next fiscal year.    Our operations in Taiwan are conducted by AuraSound as a foreign corporation doing business in Taiwan.  We rent office space in Taiwan on a month to month basis at a rental rate of $1,750 per month.

Employees

As of September 1, 2009, we employed 27 full-time employees and consultants. Of these, six employees and one consultant were located in Taiwan, 16 employees were located in Hong Kong and four employees (including our President and CEO, Vice President Engineering, and our controller) were located in Santa Fe Springs, California. We also employ various engineering design and financial consultants from time-to-time on an as needed basis. None of our employees are covered by a collective bargaining agreement. We consider our relationship with our employees to be good. 

ITEM 3.                  LEGAL PROCEEDINGS.

On May 20, 2008, a complaint was filed in the Los Angeles Superior Court, number BC 391141, by Melvin Gagerman, Arthur Schwartz, Zvi Kurtzman, Cipora LaVut, Neal Kaufman and Steve Veen against Arthur Liu, AuraSound, Inc., a California corporation, Algo Technology, Inc., Algo Sound Inc., Gemini Partners and JP Group LLC. The plaintiffs allege breach of a verbal agreement by Arthur Liu and other causes of action. The complaint alleges that the plaintiffs were entitled to become shareholders of AuraSound, Inc. and/or Algo Sound Inc. as compensation for services rendered in connection with a proposed private placement.  The complaint alleges that the shares were issued and then placed in escrow pending the successful closing of such private placement.  The complaint further alleges that an agreement was reached whereby plaintiffs agreed to accept the amount of $2,243,815.97 in lieu of stock, but that such amount was never paid. The complaint prays for general damages in that amount plus punitive and exemplary damages and interest.  During August, 2009, an out- of- court settlement was reached with the plaintiff’s whereby  the complaint against the Company and certain other defendants was dismissed with prejudice.  The Company has no obligations under the settlement and will have no residual obligations relating to the complaint. Other than this action, we are not currently a party to any legal proceedings, the adverse outcome of which, in management’s opinion, individually or in the aggregate, would have a material adverse effect on our results of operations or financial position.

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

Not Applicable.

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PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.

Market information

Our common stock is currently quoted on the OTCBB under the symbol “ARAU”.

The following table sets forth, for the periods indicated, the high and low bid information per share of our common stock as reported by the OTCBB.  These quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not represent actual transactions

2009	Low Bid		High Bid
First quarter ended September 30, 2008	$	.300	$	1.100
Second quarter to ended December 31, 2008		.001		.510
Third quarter ended March 31, 2009		.020		.080
Fourth quarter ended June 30, 2009		.010		.490

2008	Low Bid		High Bid
First quarter ended September 30, 2007	$	1.100	$	2.700
Second quarter to ended December 31, 2007		.350		1.250
Third quarter ended March 31, 2008		.420		1.090
Fourth quarter ended June 30, 2008		.510		1.100

Shareholders

As of September 9, 2009, there were 144 record holders of our common stock. This does not include an indeterminate number of stockholders whose shares are held by brokers in street name.

Dividends

We have never declared any cash dividends on our common stock and we do not anticipate declaring a cash dividend in the foreseeable future. We intend to retain any earnings which we may realize in the foreseeable future to finance our operations. Future dividends, if any, will depend on earnings, financing requirements and other factors.

Sales of Unregistered Securities

Not Applicable

Securities Authorized for Issuance under Equity Compensation Plans

The following table illustrates, as of June 30, 2009, information relating to all of our equity compensation plans.

Equity Compensation Plan Information

Plan Category	Number of securities to be issued upon exercise of outstanding options, warrants and rights (a)		Weighted average exercise price of outstanding options warrants and rights (b)		Number of securities remaining available for future issuance under the equity compensation plan (excluding securities reflected in column (a) (c)
Shareholder Approved Equity Incentive Plan		0		N/A		8,421,591

(1) The AuraSound, Inc. 2007 Equity Incentive Plan was adopted by our board of directors on November 29, 2007 and approved by our stockholders on February 12, 2008.  Pursuant to the terms of the plan, awards may be granted for options (both incentive stock options and non-qualified stock options) and for stock.

ITEM 6.                  SELECTED FINANCIAL DATA.

As a smaller reporting company we are not required to provide this information.

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

Basis of Presentation

Prior to June 7, 2007, we were a shell company and did not engage in any business operations and were dedicated to locating and consummating an acquisition. On June 7, 2007, we completed a $12.9 million private placement and acquired AuraSound in a stock acquisition. The 11,505,305 shares of common stock issued for the acquisition have been valued at $1.00 per share, the same as the per share price of the private placement. The acquisition was accounted for as a purchase in accordance with FAS 141. The operating results for the periods ended June 30, 2008 and 2009 include the full twelve month periods then ended.

Overview

We are a southern California based developer, manufacturer and marketer of premium audio products. Since our business began in 1987, we have focused on the development of innovative and revolutionary magnetic speaker motor designs to deliver high-end audio products to the OEM, home and professional audio markets. We have developed a proprietary portfolio of unique audio speaker technologies as a result of this emphasis on research and development, which we believe has led to strong brand recognition among audiophiles, sound engineers, electronics manufacturers and premium audio manufacturers.

During the last two years, our company has focused its research and development efforts on the development of new product lines for the micro-audio market. Specifically, we have developed miniaturized speakers that our tests indicate will deliver sound quality to devices such as laptop computers, flat-panel TVs, display screens, and mobile phones which we believe to be superior to the speakers currently utilized by such devices. Our micro-audio products have been tested and approved by Quanta, Hewlett Packard and Acer.   Quanta has included our  speakers into certain of their new product design specifications. We believe that the market for micro-audio products is significant and we expect continued rapid growth as devices such as mobile telephones, computers, televisions and personal digital assistants continue growing. As of the date of this report, we had a backlog of approximately $750,000 in orders.

Our sales are made primarily on an OEM basis to manufacturers of high end speakers and sound systems. Historically, approximately 51% of our net sales were made to customers outside the United States. We believe that international sales will continue to represent a significant portion of our revenues.

Problems with our Suppliers

We originally utilized Grandford Holdings Ltd. (“Grandford”) as the primary manufacturer of our audio products.  This relationship was established over 5 years ago.  It was based upon the ability of the general manager of Grandford, David Liu, who is the son of Arthur Liu, our Chief Executive Officer, a director and a major shareholder, to provide quality products and timely deliveries to our customers.  Historically, Grandford successfully supplied approximately 96% of our finished products without significant problems.  As part of our plan for significant expansion and the introduction of microaudio products, we decided to continue using Grandford as our supplier.

Our OEM business is based upon verbal commitments which are subject to our ability to continue to meet customer/product specifications, quality standards and delivery schedules. The customers initiate periodic (usually monthly) purchase orders in increments designed to meet their production schedules.  Prior to June 2007, the annual sales volumes of products manufactured by Grandford ranged between $2 million to $3 million. However, we had obtained verbal commitments from major OEM customers such as Amtran ($5.8 million), Softbank ($9.6 million), NEC ($4.5 million) and Quanta ($12.5 million) among others, which far exceeded Grandford’s historical monthly production volumes.  In June 2007 we obtained the financing necessary to begin initial production of our microaudio products and to expand production of our other products.   Grandford assured us that it could ramp-up operations to meet our requirements.

In order to ramp-up production at Grandford’s manufacturing facility, we established a temporary prepayment practice which was intended to transition to thirty day terms over a six month period.  We made significant advance payments totaling $4,228,038 to Grandford for tools, jigs, molds and raw materials that were needed to produce our  products.  However, by September 2007 we had received significant complaints regarding late deliveries and it became apparent to us that Grandford did not have the infrastructure to support the required level of production.  We attempted to resolve these issues, but we were ultimately unsuccessful and terminated that entity as our primary supplier.  During this period, we also established alternative vendors, one of which was Zylux Acoustic Corporation (“Zylux”).  Zylux began producing our microaudio products during October 2007.

Zylux made significant commitments to our Chief Executive Officer regarding its manufacturing processes and quality control procedures and had sufficient capacity to meet our customer demands. Accordingly, with appropriate controls and procedures in place, we began directing all of our production to Zylux.  However, after only two months we alerted Zylux to the following problems: 

· Delivery schedules were not being met, with some models being months late.  In one case, only 15,000 pieces of a 40,000 piece order were delivered.  In another case, the customer prepaid for 10,500 pieces and received 2,000 pieces.  These delivery problems caused a material disruption in the production schedules of our customers.  In an attempt to bridge these delays and pacify our customers, we paid to air freight shipments from the manufacturing facility.

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· Commercially acceptable quality was never achieved and Zylux was unable to timely correct the deficiencies in the manufacturing process.  Reject rates as high as 40% were experienced by our customers with an overall reject rate of about 30%.

The adverse impact on our reputation was significant.  Furthermore, at least one of our customers had to add employees to sort through delivered products and perform quality checks on each piece.  This caused an additional disruption in the production schedules which had already been disrupted by the late deliveries.  As a result of the delivery and quality issues:

· One customer excluded us from bidding on a newly designed speaker with expected volumes in excess of 50 million pieces

· Another customer billed us $18,000 for additional employee costs incurred and put our company on probation whereby any future quality problems would result in termination of our supplier status.

Most of the customers who experienced quality problems requested that the defective product be replaced with quality products which met their inspection criteria.  Accordingly, we replaced about $640,000 of product at no-charge, the accounting for which resulted in no change to revenue but an additional cost for the replacement product.  Only about $14,000 of product was returned for credit.  This amount was low because customers need the speakers which are designed into their finished product.

In order to save the company, we were required to search out another manufacturer, again pay the cost of certification, again delay deliveries and walk through starting up new production lines at a new facility.

Our Chief Executive Officer contacted Guoguang Electric Co. Ltd (“GGEC”), a company that was already producing speakers for Bose and Harmin Kardin among others, in an effort to place future production with a supplier with an established record of producing quality speakers for major OEM customers and on December 21, 2007, we entered into a three-year manufacturing agreement with GGEC.  GGEC has been able to satisfactorily meet the requirements of our customers and we are attempting to rebuild the relationships we lost.

General

Net sales are comprised of gross sales less returns and cash discounts. Our operating results are seasonal, with a greater percentage of net sales being earned in the third and fourth quarters of our fiscal year due to the fall and winter selling seasons.

Cost of goods sold consists primarily of material costs, direct labor, direct overhead, inbound freight and duty costs, warranty costs, sales commission and a reserve for inventory obsolescence.

Research and development costs consist primarily of costs related to new product commercialization including product research, development and testing.

Our selling, general and administrative expenses consist primarily of non-marketing payroll and related costs and corporate infrastructure costs.

Critical Accounting Policies and Estimates

Our financial statements are prepared in accordance with accounting principles generally accepted in the United States of America. The reported financial results and disclosures were determined using the significant accounting policies, practices and estimates described in Note 2 to our consolidated financial statements.

RESULTS OF OPERATIONS

Fiscal Year Ending June 30, 2009 Compared to Fiscal Year Ending June 30, 2008

REVENUE

Revenue decreased by $336,729 or 18% compared to the prior year, from $1,888,692 to $1,551,963. The decrease in sales for the current year was the result of the problems incurred by the Company with two previous suppliers, Grandford Holdings and Zylux, which resulted in significant cancellations of orders and some loss of customers.  Please see our discussion above titled “Problems with our Suppliers”.  We have established GGEC as our new supplier, but the issues with the prior suppliers resulted in our missing the approval window for the current year models. We believe that we have been successful in re-establishing relationships and beginning to obtain approvals and orders for late 2009 and 2010 model releases.

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GROSS PROFIT (LOSS)

Cost of sales for the year ended June 30, 2009 was $1,670,804 as compared to cost of sales of $2,057,878 for the year ended June 30, 2008, which resulted in a net loss for the current period of $118,841, compared to a net loss of $169,186 during the prior year . Since our performance problems with prior vendors, we have worked closely with GGEC to reduce reject rates, improve quality controls and re-establish customer acceptance.  The result has been a significant reduction in the reject rate and improved vendor pricing which resulted in the improved profitability.  While progress in gaining re-acceptance has been slow, we have begun to see results as our backlog has grown to approximately $750,000from approximately $350,000 at June 30, 2008.   

RESEARCH AND DEVELOPMENT EXPENSES

Research and development expenses for the year ended June 30, 2009 totaled $788,310 as compared to research and development expenses of $1,217,994 for the year ended June 30, 2008, a reduction of $429,684 or 35%. This reduction is the result of a cost reduction program which has resulted in a reduction of salaries and related expenses. Research and development costs consist primarily of salaries and related expenses associated with designing and testing new speaker designs for new applications and redesigning old speaker designs for new customers and applications. While a short-term cost reduction program was deemed appropriate under the circumstances, development of new and customer specific products is the life line of the Company and as such the Company expects to continue to incur research and development costs for the foreseeable future.

GENERAL AND ADMINISTRATIVE EXPENSES

General and administrative expenses for the year ended June 30, 2009 decreased by $2,731.593 or 64% to $1,519,566 as compared to $4,251,159 in general and administrative expenses for the year ended June 30, 2008. This decrease was mainly attributable to the elimination of the amortization related to the intangible assets deemed impaired at June 30, 2008. Also affecting the current year period was a reduction in legal expenses and the cost reduction program implemented during the period which resulted in the reduction of about 40% of the work force in the US and a reduction of about 20% in the workforce in Taiwan and China. We expect our costs of administration 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.

IMPAIRMENT OF INTANGIBLE ASSETS

In accordance with SFAS 142 and SFAS 144, an evaluation of the Company’s intangible assets was performed as of June 30, 2008 and it was determined that such assets were impaired due to insufficient undiscounted future cash flows to assure recovery of the carrying value of such assets. Accordingly, an impairment of intangible assets charge was recorded which amounted to $20,395,215.  No such charge was recorded for the year ended June 30, 2009.

PREPAID EXPENSES WRITTEN OFF

During the year ended June 30, 2008, the Company wrote off $341,406 relating to advances made to Grandford Holdings Ltd. due to the previously disclosed performance issues with that vendor. Please see our discussion above titled “Problems with our Suppliers”.  During the current year, the Company was working with GGEC and had made no such advances and had incurred no such performance issues.

INTEREST EXPENSE (Net)

Net interest expense totaled $144,085 for the year ended June 30, 2009 compared with $83,971 in the same prior year period. The net interest expense for the prior year was partially offset by interest income on the restricted cash deposit.  Current period interest charges relate primarily to the loans from GGEC which totaled $1,253,558 as of June 30, 2009 and to notes payable to InSeat Solutions LLC, a company owned by our Chief Executive Officer, which amounted to $1,264,791 as of  June 30, 2009.

INCOME TAXES

We have significant income tax net operating loss carry forwards; however, due to the uncertainty of the realizability of the deferred tax asset, a reserve equal to the amount of deferred tax benefit has been established as of June 30, 2009 and June 30, 2008. Accordingly, no income tax benefit has been reflected for either period.

NET LOSS

As a result of the above, there was a net loss for the year ended June 30, 2009 totaling $2,570,802 compared to a net loss of $26,458,932 during the same period in the prior year.

LIQUIDITY AND CAPITAL RESOURCES

As of June 30, 2009, our current liabilities exceeded our current assets by $4,364,480 compared to a deficit of $1,804,676 as of June 30, 2008.  As previously discussed, during the current year we have worked closely with GGEC in focusing our efforts on transitioning relationships with existing customers and establishing relationships with new customers in addition to insuring a disciplined quality assurance program both of which we believe are necessary for us to grow as a company and meet the demands of our customers.  While progress in gaining re-acceptance has been slow, we are beginning to see progress reflected in our backlog which totaled approximately $750,000 as of June 30, 2009.

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Net cash used in operating activities during the year ended June 30, 2009 was $1,284,300 as compared to net cash used of $3,258,289 during the prior year. This was due primarily to an increase in accounts payable (mainly to GGEC), an increase in accrued expenses (mainly interest), an increase in the amounts due to an affiliate, and a reduction in both accounts receivable and inventory.

Cash used in investing activities for the year ended June 30, 2009 was $4,808 as compared to $108,688 of cash used during the same prior year period.  Cash used in both periods was primarily used for the purchase of various tools, jigs and dies for use in the production of customer products.

Cash provided by financing activities for the year ended June 30, 2009 totaled $1,538,004 compared to cash provided by financing activities of $1,828,584 in the prior year. The cash provided  resulted primarily from the removal of the restriction on a $2,000,000 cash deposit and the proceeds from loans received from GGEC which totaled $1,253,558, mostly offset by the repayment of the credit facility and repayment of certain notes payable.

We had net operating loss carry-forwards of approximately $26,445,717 as of June 30, 2009, which will expire in various amounts through the year 2029. Based upon historical operating results, management has determined that it cannot conclude that it is more likely than not that the deferred tax is realizable. Accordingly, a 100% valuation reserve allowance has been provided against the deferred tax benefit asset.

In September 2007, we executed a $10.0 million one-year accounts receivable credit facility and a one year $2.0 million fixed deposit credit facility with Bank SinoPac in order to insure resource availability. On September 25, 2008, we repaid our credit facility in full. On October 8, 2008, GGEC entered into a non-binding letter of intent directed at a possible transaction whereby GGEC would acquire a 55% interest in AuraSound, Inc. During the evaluation period, GGEC agreed to fund up to $150,000 per month for current operating costs until the transaction is either consummated or terminated. As of June 30, 2009, GGEC had advanced $1,253,558 under the terms of that agreement. While we believe that our long-term prognosis with GGEC as a financial partner is very positive, there can be no guarantees that the transaction with GGEC will be consummated or that the Company will be able to attract another financial partner or arrange for alternative financing in the absence of a transaction with GGEC. If the Company is unable to obtain financing for its working capital requirements, it may have to curtail its business sharply or cease business altogether.

Management believes that  production and expansion of product lines during the next twelve months will need to be funded by third party financing, such as through loans,  the sale of our securities or some combination of both.

INFLATION

Management believes that inflation generally causes an increase in sales prices with an offsetting unfavorable effect on the cost of products sold and other operating expenses. Accordingly, with the possible impact on interest rates, management believes that inflation will have no significant effect on our results of operations or financial condition.

OFF-BALANCE SHEET ARRANGEMENTS

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

GOING CONCERN STATUS

The accompanying 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 year ended June 30, 2009, the Company incurred losses of $2,570,802. The Company had an accumulated deficit of $35,599,842 as of June 30, 2009. The Company has never been profitable and there can be no assurances that it will ever be profitable or that it will survive as a public company.

If the Company is unable to generate profits and unable to continue to obtain financing for its working capital requirements, it may have to curtail its business sharply or cease business 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 obtain additional financing, and ultimately to attain profitability.

On October 8, 2008, GGEC entered into a non-binding letter of intent pursuant to which GGEC may acquire a 55% interest in AuraSound, Inc. During the evaluation period, GGEC agreed to fund up to $150,000 per month for current operating costs until the transaction is either consummated or terminated. The process of obtaining regulatory approval from the government of China was completed and approval has been received. The transaction is expected to close within thirty days, however, if for any reason GGEC determines not to proceed with the contemplated transaction, the Company would not have sufficient funding to continue in business and would be forced to curtail or cease operations or find alternative funding.

ITEM7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As a smaller reporting company we are not required to provide this information.

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

The information called for by this Item 8 is hereby incorporated by reference from the Company's Financial Statements beginning at page F-1 of this report.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.

Not applicable

ITEM 9A(T). CONTROLS AND PROCEDURES.

Evaluation of Disclosure Controls and Procedures

We carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer, who is also our Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report.  The evaluation was undertaken in consultation with our accounting personnel.  Based on that evaluation, the Chief Executive Officer/Chief Financial Officer concluded that our disclosure controls and procedures are effective to ensure that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms.

Report on Internal Control over Financial Reporting

Our Chief Executive Officer, who is also our Chief Financial Officer, is responsible for establishing and maintaining adequate internal control over financial reporting.  Internal control over financial reporting is defined in Rule 13a-15(f) and 15d-15(f) promulgated under the Securities Exchange Act of 1934 as a process designed by, or under the supervision of, our principal executive and principal financial officers and effected by our board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:

· pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets;

· provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of management and our directors; and

· provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.

Because of its inherent limitations, our internal control over financial reporting may not prevent or detect misstatements.  Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.  Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Our Chief Executive Officer/Chief Financial Officer assessed the effectiveness of our internal control over financial reporting as of June 30, 2009.  In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control—Integrated Framework

Based on our assessment, our Chief Executive Officer/Chief Financial Officer believes that, as of June 30, 2009, our internal control over financial reporting is effective based on those criteria.

This annual report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting.  Management's report was not subject to attestation by our registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit us to provide only management’s report in this report.

Changes to Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting during the fourth quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

ITEM 9B. OTHER INFORMATION.

Not applicable

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PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.

Directors and Executive Officers

The following table sets forth certain information with respect to our directors and executive officers.

Name	Age	Year Became an Executive Officer or Director	Position(s)
Arthur Liu	69	2007	Chairman of the Board, Chief Executive Officer and Chief Financial Officer
Amy Liu	33	2007	Director
Robert Pearson	73	2008	Director
Judie Rothenberger	62	2008	Director
Donald North	35	2007	Vice President of Engineering

None of our directors received any additional compensation for his or her services as a director.  The following brief biographies contain information about our directors and our executive officers.  The information includes each person’s principal occupation and business experience for at least the past five years.  This information has been furnished to us by the individuals named.  There are no family relationships known to us between the directors and executive officers other than as indicated below.

Arthur Liu, Chairman of the Board, Chief Executive Officer and Chief Financial Officer - - Mr. Liu became our Chairman of the Board on July 4, 2007 and our Chief Executive Officer and Chief Financial Officer on June 7, 2007 in connection with our acquisition of AuraSound. Mr. Liu has served as the Chairman of AuraSound’s board of directors and as its Chief Executive Officer since 1999. Mr. Liu moved to the U.S. in 1991 and subsequently purchased and developed three companies: AuraSound, Alaris, a company engaged in developing computer video technologies, and InSeat Solutions, a company that develops and manufactures massage and heat components for chairs and sofas. Mr. Liu is currently operating AuraSound and InSeat and has since sold Alaris. Prior to moving to the U.S., Mr. Liu jointly purchased Universal Appliance Limited, a Hong Kong-based company where he served as the owner and general manager. Mr. Liu took the company public in 1987 and sold his shares in 1990. Prior to his purchase of Universal Appliance Limited, Mr. Liu served as the director of engineering at an electronics company in Hong Kong. Mr. Liu began his career as a mechanical engineer at an automotive and electronics company in Taiwan. Mr. Liu is a graduate of the Navy Academy in Taiwan where he majored in mechanical engineering. Mr. Liu is Amy Liu’s father. See “Certain Relationships and Related Party Transactions.”

Amy Liu, Director - - Ms. Liu became a member of our board of directors on July 4, 2007 in connection with our acquisition of AuraSound. Ms. Liu is a Senior Art Director at BLT & Associates in Los Angeles, California, a creative design agency where she oversees marketing projects for clients such as Paramount, Sony Pictures, Warner Bros and Universal. Ms. Liu graduated from the Art Center College of Design in Pasadena, California in 2000. Ms. Liu is the daughter of Arthur Liu.

Robert C. Pearson, Director – Mr. Pearson became a director in January 2008.  He joined RENN Capital Group in April 1997 and is currently its Senior Vice President-Investments.  From May 1994 to May 1997, Mr. Pearson was an independent financial management consultant primarily engaged by RENN Capital Group.  From May 1990 to May 1994, he served as Chief Financial Officer and Executive Vice President of Thomas Group, Inc., a management consulting firm, where he was instrumental in moving a small privately held company from a start-up to a public company with over $40 million in revenues.  Prior to 1990, Mr. Pearson spent 25 years at Texas Instruments where he served in several positions including Vice President-Controller and later as Vice President-Finance.  Mr. Pearson holds a BS in Business from the University of Maryland and was a W.A. Paton Scholar with an MBA from the University of Michigan.  He is currently a director of CaminoSoft Corporation, Riptide Worldwide, Vertical Branding and Simtek Corporation, all of which are publicly held.  He is also a director of eOriginal, Inc., a privately held company.

Judie Rothenberger, Director and Secretary - Ms. Rothenberger became a member of our board of directors and our Secretary in January 2008.  Ms Rothenberger is the President and Chief Executive Officer of Inseat Solutions, LLC (“Inseat”). Inseat is a privately held research and development company controlled by our Chief Executive Officer, Arthur Liu, which specializes in components for massage and heating systems. Inseat supplies systems and components to several industries including residential furniture, mattresses, office furniture, airlines and the automotive industry. From January 2003 through December 2006, Ms. Rothenberger served as the Administration & Operations Executive/Director of Airline Programs for Inseat. From May 2000 until January 2003, Ms. Rothenberger served as Inseat’s Business Manager/Administration Executive.

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Donald North, Vice President of Engineering - Mr. North became our Vice President of Engineering on June 7, 2007 in connection with our acquisition of AuraSound. Mr. North has served as AuraSound’s Engineering Director since 2005. Prior to his current position at AuraSound, Mr. North was a Loudspeaker Design Engineer at Harman International from 1999 to 2000 and served as a Transducer Engineer at AuraSound from 1995 to 1999. Mr. North began his career as an engineer for Boston Acoustics in 1995. Mr. North is the inventor of the Whisper transducer and has served as the lead project engineer and project manager for the R&D teams responsible for the creation of several AuraSound product lines including the Mobile Reference series of woofers and Monster Cable’s M Design series of home theater loudspeakers. Mr. North graduated from California Institute of Technology in 1994 with a B.S. in Engineering and Applied Science.

Term of Office

Our directors are appointed for a one-year term to hold office until the next annual general meeting of our stockholders or until removed from office in accordance with our bylaws.  Our officers are appointed by our board of directors and hold office until removed by the board.

Board Committees/Audit Committee Financial Expert

We do not currently have a compensation committee, audit committee, or nominating and corporate governance committee.  The functions customarily delegated to these committees have been performed by the board of directors.  Our board of directors has not made a determination as to whether any of our directors would qualify as an audit committee financial expert.Until we have the financial resources to pay an audit committee financial expert, we do not expect to be able to attract or retain the services of an individual with such knowledge and experience.

Section 16(a) Compliance

Section 16(a) of the Securities Exchange Act requires our directors, executive officers and persons who own more than 10% of our common stock to file reports of ownership and changes in ownership of our common stock with the Securities and Exchange Commission.  Directors, executive officers and persons who own more than 10% of our common stock are required by Securities and Exchange Commission regulations to furnish to us copies of all Section 16(a) forms they file.

To our knowledge, based solely upon review of the copies of such reports received or written representations from the reporting persons, we believe that during our fiscal year ended June 30, 2009, none of our officers, directors or owners of 10% of our common stock failed to file on a timely basis reports required by section 16(a) of the Exchange Act during the most recent fiscal year.

Code of Ethics

We have adopted a code of ethics that applies to our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions.  Our code of ethics will be provided to any person without charge, upon request.  Requests should be in writing and addressed to Mr. Arthur Liu, c/o AuraSound, Inc., 11839 East Smith Avenue, Santa Fe Springs, California 90670.

Nomination of Directors

We do not have procedures in place whereby security holders may recommend nominees to our board of directors and there has been no change to this during the last fiscal year.

ITEM 11. EXECUTIVE COMPENSATION.

The following table sets forth certain summary information with respect to the total compensation paid to the named executive officers  during our fiscal years ended June 30, 2008 and 2009.

SUMMARY COMPENSATION TABLE

Name and principal position	Year	Salary ($)		Bonus ($)		Stock Awards ($)		Option Awards ($)		Non-Equity Incentive Plan  Compensation ($)		Nonqualified Deferred Compen- sation Earnings ($)		Other Comp ($)		Total ($)
Arthur Liu, Chief Executive Officer	2008	$	360,000		0		0		0		0		0		0	$	360,000
and President	2009	$	155,385		0		0		0		0		0		0	$	155,385
Donald North, Vice President	2008	$	102,600													$	102,600
Of Engineering	2009	$	107,651		0		0		0		0		0		0	$	107,651

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We do not have any annuity, retirement, pension or deferred compensation plan or other arrangements under which any executive officers are entitled to participate without similar participation by other employees.

Employment Agreements

We have no employment agreements with any of our executive officers. In addition, there have been no options granted to any executive officer.

Discussion of Compensation

In setting the compensation for our executive officers, our board of directors looked at their responsibilities, at salaries paid to others in businesses comparable to ours, at their experience and at our ability to replace them.  We expect the salaries of our executive officers to remain relatively constant unless their responsibilities are materially changed.

Bonuses may used to reward exceptional performance, either by the individual or by the company.  Bonuses are discretionary.  No bonuses were granted to our executive officers during the last fiscal year.

Board Compensation

Our directors do not currently receive compensation for their services as directors, but are reimbursed for expenses incurred in attending board meetings.  In addition, there have been no options granted to any director.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.

The following table sets forth information as to our shares of common stock beneficially owned as of September 9, 2009 by: (i) each person known by us to be the beneficial owner of more than five percent of our outstanding common stock, (ii) each of our directors, (iii) each of our executive officers and (iv) all of our directors and executive officers as a group.

Beneficial ownership has been determined in accordance with the rules and regulations of the Securities and Exchange Commission and includes voting or investment power with respect to the shares.  Under the rules of the Securities and Exchange Commission, a person (or group of persons) is deemed to be a “beneficial owner” of a security if he or she, directly or indirectly, has or shares the power to vote or to direct the voting of such security, or the power to dispose of or to direct the disposition of such security.  Accordingly, more than one person may be deemed to be a beneficial owner of the same security.  Unless otherwise indicated, to our knowledge, the persons named in the table below have sole voting and investment power with respect to the number of shares indicated as beneficially owned by them.  A person is also deemed to be a beneficial owner of any security, which that person has the right to acquire within 60 days, such as options or warrants to purchase our common stock.  Common stock beneficially owned and percentage ownership are based on 28,071,972 shares outstanding.

Name and Address of Beneficial Owner(1)(2)	Amount of Common Stock Beneficially Owned(1)			Percentage of Common Stock Beneficially Owned(1)
Arthur Liu (3)		14,838,639			49.9	%
Amy Liu		0			0	%
Robert Pearson		0			0	%
Judie Rothenberger		0			0	%
Donald North		0			0	%
Robert J. Eide		3,035,500			10.8	%
Aegis Capital Corporation		3,327,368			11.9	%
Vision Opportunity Master Fund, LTD 20 W. 55 th Street, 5 th Floor New York, NY 10019		9,380,582	(4)		26.4	%
Renaissance US Growth Investment Trust PLC8080 N. Central Expressway, Suite 210, LB 59 Dallas, TX 75206		4,000,000	(5)		13.3	%
Funds to which RENN Capital Group serves as investment advisor (which includes Renaissance US Growth Investment Trust PLC)		9,000,000	(6)		27.6	%
All Directors and Officers as a group (5 persons)		14,838,639			49.9	%

(1) Information in this table regarding directors and executive officers is based on information provided by them. Unless otherwise indicated in the footnotes and subject to community property laws where applicable, each of the directors and executive officers has sole voting and/or investment power with respect to such shares.

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(2) The address for our officers and directors is c/o AuraSound, Inc., 11839 East Smith Avenue, Santa Fe Springs, CA 90670, unless otherwise indicated.

(3) All of the securities owned by Arthur Liu were subject to a two-year lock-up commencing on August 1, 2007, except with respect to charitable gifts or for estate planning purposes.  This agreement was entered into in conjunction with the private offering that initially closed on June 7, 2007.  This provision was reduced to one year in January 2008.  Includes 1,666,667 common shares and 1,666,667 warrants issued on October 15, 2007 to Inseat Solutions LLC, an entity controlled by Mr. Liu.

(4) Vision Opportunity Master Fund, LTD acquired these securities pursuant to our private placement on June 7, 2007. Includes 1,880,582 shares of our common stock directly owned and also includes 7,500,000 shares of our common stock issuable upon exercise of a five-year warrant at an exercise price of $1.50 per share.

(5) Includes 2,000,000 shares of our common stock directly owned and also includes 2,000,000 shares of our common stock issuable upon exercise of five-year warrants, at an exercise price of $1.50 per share.  Russell Cleveland, Director of Renaissance US Growth Investment Trust PLC, is deemed to have sole voting and disposition power over these securities.  RENN Capital Group serves as investment advisor to Renaissance US Growth Investment Trust PLC.  These securities are also included in the information included in this table relating to the security ownership of funds to which RENN Capital Group is an investment advisor.

(6) Funds to which RENN Capital Group is an investment advisor acquired these securities pursuant to our private placement on June 7, 2007.  The acquisitions were made as follows: (i) each of Renaissance Capital Growth & Income Fund III Inc. and BFS US Special Opportunities Trust PLC each own 1,000,000 shares of our common stock and a warrant to purchase 1,000,000 shares of our common stock at an exercise price of $1.50 per share and (ii) Renaissance US Growth Investment Trust PLC owns 2,000,000 shares of our common stock and a warrant to purchase 2,000,000 shares of our common stock at an exercise price of $1.50 per share. (iii) Premier RENN US Emerging Growth Fund owns 500,000 shares of our common stock and a warrant to purchase 500,000 shares of our common stock at an exercise price of $1.50 per share.  In all cases the warrant to purchase shares of our common stock expires on June 7, 2012, the right to purchase shares of our common stock expired on June 7, 2008.  RENN Capital Group disclaims ownership of these securities.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE.

Board Independence

Our board of directors presently consists of Mr. Arthur Liu, an executive officer, Ms. Amy Liu, his daughter, Ms Judie Rothenberger and Mr. Robert Pearson.  While our common stock is not traded on any exchange, we have used Section 803(A)(2) of the Rules of NYSE Amex to determine if our directors are “independent.”  Using the definition of “independent” as set forth in Section 803(A)(2), we have determined that we have no independent directors.

Related Party Transactions

Long term notes payable at June 30, 2008 consist of notes payable to InSeat Solutions LLC, an entity controlled by Arthur Liu.  These notes were issued on various dates and all bear interest at 8% per annum, with principal and interest due on March 31, 2009. Interest expense for the period ended June 30, 2008 and 2007 amounted to $115,122 and $16,964 respectively. In conjunction with the private placement it undertook on June 7, 2007, the Company agreed that it would not repay more than $900,000 of the June 6, 2007 balance without shareholder consent. On June 6, 2007, the Company repaid $700,000 and on July 6, 2007, the Company repaid $200,000 of such notes. The Company also repaid $300,000 of a management fee accrual to the related party.  The balance due to InSeat Solutions LLC as of June 30, 2009 amounted to $1,677,084.  As of June 30, 2009, the accrued interest on the notes payable to this related party amounted to $126,980 and is reflected in accrued expenses on the accompanying financials.

On October 15, 2007, the Company exchanged $2,500,000 of related party debt owing to InSeat Solutions LLC, including accrued interest thereon, into 1,666,667 units. Each unit consisted of one share of the Company’s $0.01 par value common stock and a five-year warrant to purchase one share of the Company’s common stock at an exercise price of $1.50 per share.  On the exchange date, the fair market value of the stock was $0.51 per share for a total amount of $850,000. The fair market value of the warrants was $126,758 calculated using the Black-Scholes model using the following assumptions: discount rate of 4.40%, volatility of 15% and expected term of one year.

We have a management contract with InSeat Solutions, LLC.  We have accrued a total management fee of $240,000, for the year ended June 30, 2009 for services provided to us by this entity, all of which remains unpaid as of June 30, 2009.

We share office space with InSeat Solutions, LLC and have agreed to pay 40% of the rent commitment.  For the period ended June 30, 2009 this amount totaled $79,892, all of which remains unpaid as of June 30, 2009.

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

AUDIT FEES

The aggregate fees estimated to be billed for the fiscal year ended June 30, 2009 for professional services rendered by our principal accountants for the audit of our annual financial statements is $45,000, of which $20,000 had already been paid as of the date of filing this report. The aggregate fees billed for the fiscal year ended June 30, 2008 were $45,000.

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AUDIT RELATED FEES

The aggregate fees billed for the fiscal year ended June 30, 2009 for professional services rendered by our principal accountants for the review of the financial statements included in our quarterly reports on Form 10-QSB and other services provided by the accountants in connection with statutory and regulatory filings were $75,000.  The aggregate fees billed for the fiscal year ended June 30, 2008 were $80,000.

TAX FEES

The aggregate fees billed for the fiscal year ended June 30, 2009 for professional services rendered by our principal accountants for tax advice was $5,000.  The aggregate fees  paid for tax advice for the fiscal year ended June 30, 2008 was $7,000.

ALL OTHER ACCOUNTANT FEES

No fees were billed or paid for other professional services rendered by our principal accountants for the fiscal years ended June 30, 2009 and June 30, 2008.

ITEM 15. EXHIBITS.

Exhibit Number	Description
2.1	Amended and Restated Agreement and Plan of Share Exchange dated June 7, 2007 among AuraSound, Inc. and the shareholders of AuraSound, Inc. on the one hand, and Hemcure, Inc., Bartly J. Loethen and Synergy Business Consulting LLC, on the other hand (1)
3.1	Articles of Incorporation (2)
3.2	By-Laws (1)
4.1	Specimen Certificate of Common Stock (3)
4.2	Form of Warrant issued to GP Group, LLC(4)
4.3	Form of Warrant issued to former warrant holders of AuraSound(4)
4.4	Form of Warrant issued to investors in our Unit Offering closed on June 7, 2007 (1)
4.5	AuraSound, Inc. 12% Promissory Note , dated December 29, 2006 , in the amount of $750,000 issued to Mapleridge Insurance Services(4)
4.6	AuraSound, Inc. 10% Promissory Note , dated January 29, 2007 , in the amount of $500,000 issued to Westrec Properties, Inc. & Affiliated Companies 401(k) Plan(4)
4.7	AuraSound, Inc. 12% Promissory Note , dated February 5, 2007 , in the amount of $500,000 issued to Apex Investment Fund, Ltd.(4)
4.8	AuraSound, Inc. 12% Promissory Note , dated April 2, 2007 , in the amount of $500,000 issued to Clearview Partners, LLC,(4)
4.9	AuraSound, Inc. 12% Promissory Note , dated February 14, 2007 , in the amount of $200,000 issued to YKA Partners, Ltd.(4)
10.1	$10.0 Accounts Receivable credit facility with Bank SinoPac(4)
10.2	$2.0 million Letter of Credit facility with Bank SinoPac(4)
10.3	Agreement to Convert Debt dated October 15, 2007 between the registrant and Arthur Liu(5)
10.4	Manufacturing Agreement entered into between AuraSound, Inc. and Guoguang Electronic Co., Ltd. on December 12, 2007(6)
10.5	Promissory Note dated March 3, 2008 in the amount of $461,080 in favor of InSeat Solutions, Inc.(7)
10.6	Nonbinding letter of intent dated October 7, 2008 between AuraSound, Inc. and GGEC America(8)
21	Subsidiaries of registrant(9)
31	Certification of President/Chief Executive Officer and Principal Accounting and Finance Officer pursuant to Rules 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934(9)

26

32 Certification Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002(9)   (1) Incorporated by reference to the registrant’s Report on Form 8-K filed with the Securities and Exchange Commission on June 13, 2007. (2) Incorporated by reference to the registrant’s Annual Report on Form 10-KSB for the period ended June 30, 2006 filed with the Securities and Exchange Commission on September 28, 2006. (3) Incorporated by reference to Exhibit 3.1 to the registrant’s Form 10-SB12G/A filed with the Securities and Exchange Commission on October 17, 2005. (4) Incorporated by reference to the registrant’s registration statement on Form SB-2, SEC file no. 333-144861, filed with the Securities and Exchange Commission on July 25, 2007. (5) Incorporated by reference to the registrant’s Report on Form 8-K filed with the Securities and Exchange Commission on November 20, 2007. (6) Incorporated by reference to the registrant’s Report on Form 8-K filed with the Securities and Exchange Commission on December 18, 2007. (7) Incorporated by reference to the registrant’s Report on Form 8-K filed with the Securities and Exchange Commission on March 26, 2008. (8) Incorporated by reference to the registrant’s Report on Form 8-K filed with the Securities and Exchange Commission on October 9, 2008. (9) Filed herewith.

27

AURASOUND, INC.

CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2009

Index to Consolidated Financial Statements

Reports of Independent Registered Public Accounting Firms	F-1
Consolidated Financial Statements:
Consolidated Balance Sheets as of June 30, 2009 and June 30, 2008	F-2
Consolidated Statements of Operations for the Years Ended June 30, 2009 and 2008	F-3
Consolidated Statements of Stockholders’ Equity/Deficit for the Years Ended June 30, 2009 and 2008	F-4
Consolidated Statements of Cash Flows for the Years Ended June 30, 2009 and 2008	F-5
Notes to Consolidated Financial Statements	F-6 to F-14

28

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders

AuraSound, Inc.

We have audited the accompanying consolidated balance sheets of AuraSound, Inc. (a Nevada corporation) as of June 30, 2009 and June 30, 2008 and the related consolidated statements of operations, stockholder’s (deficit) and cash flows for the years ended June 30, 2009 and 2008.  These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of AuraSound, Inc. as of June 30, 2009 and June 30, 2008 and the related consolidated statements of operations, stockholder’s (deficit) and cash flows for the years ended June 30, 2009 and 2008 in conformity with accounting principles generally accepted in the United States of America.

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. During the year ended June 30, 2009, the Company incurred net losses of $2,570,802. In addition, the Company had negative cash flow from operating activities amounting to $1,284,300 for the year ended June 30, 2009. These factors, among others, as discussed in Note 10 to the consolidated financial statements, raise substantial doubt about the Company's ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 10. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

/s/ Kabani & Company, Inc.

Certified Public Accountants

Los Angeles, California

September 9, 2009

F-1

AURASOUND, INC.

(FORMERLY HEMCURE, INC.)

CONSOLIDATED BALANCE SHEET

	June 30, 2009			June 30, 2008
Assets
Current Assets
Cash and cash equivalents	$	321,455		$	72,559
Restricted cash		-			2,000,000
Trade accounts receivable, net		928,471			301,562
Inventories - net		164,994			365,444
Other assets		2,291			99,672
Total current assets		1,417,211			2,839,237
Property and equipment, net		89,834			100,832
Total Assets	$	1,507,045		$	2,940,069
Liabilities and Stockholders' Deficit
Current Liabilites:
Accounts payable	$	2,374,747		$	924,612
Accrued expenses		451,302			301,663
Line of credit		-			2,000,000
Factoring payable		-			145,477
Due officer		25,000			-
Due affiliate		412,293			99,132
Notes payable		1,253,558			-
Note payable-related party		1,264,791			1,173,029
Total Liabilities		5,781,691			4,643,913
Commitments and Contingencies		-			-
Stockholder's Deficit
Preferred Stock, $.01 par value, 20,000,000 shares authorized and none issued and outstanding		-			-
Common Stock, $.01 par value, 100,000,000 shares authorized, 28,071,972 issued and outstanding		280,720			280,720
Additional paid-in-capital		31,044,476			31,044,476
Accumulated deficit		(35,599,842	)		(33,029,040	)
Total Stockholder's Deficit		(4,274,646	)		(1,703,844	)
Total Liabilities and Stockholders' Deficit	$	1,507,045		$	2,940,069

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

F-2

AURASOUND, INC.

(FORMERLY HEMCURE, INC.)

CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE YEARS ENDED JUNE 30, 2009 AND 2008

	2009			2008
Net Revenue	$	1,551,963		$	1,888,692
Cost of sales		1,670,804			2,057,878
Gross Loss		(118,841	)		(169,186	)
Operating expenses
Research & development		788,310			1,217,994
Selling, general and administrative expenses		1,519,566			4,251,159
Impairment of intangible assets		-			20,395,215
Advance to vendors written off		-			341,406
Total operating expenses		2,307,876			26,205,775
Loss from operations		(2,426,717	)		(26,374,961	)
Other Expense
Interest expense (net)		144,085			83,971
Net Loss	$	(2,570,802	)	$	(26,458,932	)
Basic & diluted net income (loss) per share	$	(.09	)	$	(1.18	)
Weighted average shares of share capital outstanding - basic & diluted		28,071,972			22,478,758

Weighted average number of shares used to compute basic and diluted loss per share is the same since the effect of dilutive securities is anti-dilutive

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

F-3

AURASOUND, INC.

(FORMERLY, HEMCURE, INC.)

CONSOLIDATED STATEMENT OF STOCKHOLDER'S EQUITY(DEFICIT)

FOR THE YEARS ENDED JUNE 30, 2009 AND 2008

	Capital Stock				Paid In		Shares to be			Accumulated			Total Stockholder's
	Shares		Amount		Capital		issued			Deficit			Equity(Deficit)
Balance June 30, 2007		2,000,000	$	20,000	$	5,718,572	$	23,180,046		$	(6,570,108	)	$	22,348,510
Issuance of shares committed in prior year		11,505,305		115,053		11,390,252		(11,505,305	)		-			-
Private Placement shares-cash
received in prior year		12,900,000		129,000		11,452,319		(11,674,741	)		-			(93,422	)
Issuance for exchange of debt		1,666,667		16,667		2,483,333								2,500,000
Net loss for the year ended
June 30, 2008											(26,458,932	)		(26,458,932	)
Balance June 30, 2008		28,071,972	$	280,720	$	31,044,476	$	-		$	(33,029,040	)	$	(1,703,844	)
Net loss for the year ended June 30, 2009		-		-		-		-			(2,570,802	)		(2,570,802	)
Balance June 30, 2009		28,071,972	$	280,720	$	31,044,476	$	-		$	(35,599,842	)	$	(4,274,646	)

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

F-4

 AURASOUND, INC

(FORMERLY, HEMCURE, INC.)

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED JUNE 30, 2009 AND 2008

	2009			2008
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss	$	(2,570,802	)	$	(26,458,932	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		15,806			2,181,314
Provision for bad debt		-			96,170
Provision for obsolete inventory		208,901			78,645
Impairment of intangible assets		-			20,395,215
(Increase) / decrease in assets:
Accounts receivable		(626,909	)		135,165
Inventories		(8,451	)		(295,666	)
Other current assets		97,381			(99,672	)
Increase / (decrease) in liabilities:
Accounts payable and accrued expenses		1,599,774			709,473
Total adjustments		1,286,502			23,200,643
Net cash used in operations		(1,284,300	)		(3,258,289	)
CASH FLOWS FROM INVESTING ACTIVITIES
Investment in fixed assets		(4,808	)		(108,688	)
Net cash used in investing activities		(4,808	)		(108,688	)
CASH FLOWS FROM FINANCING ACTIVITIES
(Repayments) advances on credit facility		(2,145,477	)		2,145,477
Restriction on cash removed		2,000,000			-
(Repayments) proceeds of related party notes payable		91,762			365,397
Payment on loans payable		-			(688,000	)
Proceeds from affiliate		313,161			99,132
Due to officer		25,000			-
Proceeds from loans payable		1,253,558			-
Private placement fee		-			(93,422	)
Net cash provided by (used in) financing activities		1,538,004			1,828,584
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		248,896			(1,538,393	)
CASH AND CASH EQUIVALENTS, BEGINNING BALANCE		72,559			1,610,952
CASH AND CASH EQUIVALENTS, ENDING BALANCE	$	321,455		$	72,559
SUPPLEMENTAL DISCLOSURES:
Cash paid during the year for:
Interest payments	$	7,508		$	78,074
Income tax payments	$	-		$	-
Non-cash transactions
Supplemental disclosure of non-cash and investing activities:
Shares issued for related party payables	$	-		$	2,500,000
Deemed dividend for warrants issued	$	-		$	1,058,090

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

F-5

AURASOUND, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - ORGANIZATION AND OPERATIONS

General  

Hemcure, Inc. (the Company or we/us/our) was incorporated under the laws of the state of Minnesota in 1986. On September 8, 2006, our Company was reorganized by re-domiciling to the state of Nevada pursuant to a merger with Hemcure, Inc., a Nevada corporation and the adoption of Nevada Articles of Incorporation and By-laws. On June 7, 2007, we acquired AuraSound, Inc. ("AuraSound"). Aura Sound, a California corporation, was incorporated on July 28, 1999 to engage in the development, commercialization, and sales of audio products, sound systems, and audio components using electromagnetic technology. The Company, through it’s acquisition of Aura Sound, became an operating entity and is no longer a development stage entity. On February 12, 2008 the Company changed its name from Hemcure, Inc. to AuraSound, Inc.

Basis of Presentation

Prior to June 7, 2007, the Company did not engage in any operations and was dedicated to locating and consummating an acquisition, including the requisite fund raising efforts. On June 7, 2007, the Company completed a $12.9 million private placement and acquired AuraSound, Inc. in a stock acquisition. The 11,405,305 shares of common stock issued for the acquisition have been valued at $1.00 per share, the same as the per share price of the private placement. The acquisition was accounted for as a purchase in accordance with FAS 141. The operating results for the periods ended June 30, 2009 and June 30, 2008 include the operating results of AuraSound, Inc. for the full twelve month periods.

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation:

The accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiary, AuraSound, Inc. All material inter-company accounts have been eliminated in consolidation.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the combined financial statements and disclosures made in the accompanying notes. Actual results could differ from those estimates.

Cash and Cash Equivalents

Cash and cash equivalents include cash in hand and cash in time deposits, certificates of deposit and all highly liquid debt instruments with original maturities of three months or less.

Accounts Receivable 

The Company maintains an allowance for uncollectible accounts receivable to estimate the risk of extending credit to customers and distributors. The allowance is estimated based on the customer or distributor's compliance with our credit terms, the financial condition of the customer or distributor and collection history where applicable. Additional allowances could be required if the financial condition of our customers or distributors were to be impaired beyond our estimates. As of June 30, 2009 and 2008, the allowance for doubtful accounts amounted to $59,040 and $255,864 respectively.

Inventories 

Inventories are valued at the lower of cost (first-in, first-out) or market. Appropriate consideration is given to deterioration, obsolescence and other factors in evaluating net realizable value. As of June 30, 2009 and 2008, the allowance for obsolescence amounted to $286,853 and $78,645 respectively.

F-6

AURASOUND, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Property, Plant, and Equipment 

Property, 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: 

Buildings	40 years
Machinery and equipment	5 to 10 years
Furniture and fixtures	7 years

Improvements to leased property are amortized over the lesser of the life of the lease or the life of the improvements. Amortization expense on assets acquired under capital leases is included with depreciation and amortization expense on owned assets. As of June 30, 2009 and June 30, 2008, the Company had net property, plant and equipment in the amount of $89,834 and $100,832 respectively consisting of the following:

	2009			2008
Machinery & Equipment	$	6,802		$	2,850
Tooling		105,193			105,193
Computer equipment		1,501			645
Accumulated depreciation		(23,662	)		(7,856)
Total	$	89,834		$	100,832

The Company utilizes a facility leased from a related party.  Maintenance and minor replacements are charged to expense as incurred. Gains and losses on disposals are included in the results of operations.

Goodwill 

Goodwill represents the excess of the purchase price over the fair value of the identifiable assets and liabilities acquired as a result of the Company’s acquisitions of interests in its subsidiaries. Under Statement of Financial Accounting Standards (“SFAS”) No. 142, “Goodwill and Other Intangible Assets (“SFAS 142”),” goodwill is no longer amortized, but tested for impairment upon first adoption and annually, thereafter, or more frequently if events or changes in circumstances indicate that it might be impaired. The Company assesses goodwill for impairment periodically in accordance with SFAS 142. As a result of such assessment at June 30, 2008, Management determined that goodwill had been impaired due to insufficient undiscounted future cash flows to assure recovery of the carrying value of such assets (see note 13).

Intangible Assets 

The Company applies the criteria specified in SFAS No. 141, “Business Combinations” to determine whether an intangible asset should be recognized separately from goodwill. Intangible assets acquired through business acquisitions are recognized as assets separate from goodwill if they satisfy either the “contractual-legal” or “separability” criterion. Per SFAS 142, intangible assets with definite lives are amortized over their estimated useful life and reviewed for impairment in accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-lived Assets.” Intangible assets, such as purchased technology, trademark, customer list, user base and non-compete agreements, arising from the acquisitions of subsidiaries and variable interest entities are recognized and measured at fair value upon acquisition. Intangible assets are amortized over their estimated useful lives from one to ten years. In accordance with SFAS 144, an evalution was made of the Company’s intangible assets at June 30, 2008 and it was determined the such assets had been impaired due to insufficient undiscounted future cash flows to assure recovery of the carrying value of such assets. At June 30, 2008, the Company impaired the following:

Proprietary Technology	$	9,034,886
Customer relationships		3,791,198
Trade name assets		568,680
Total	$	13,394,765

Valuation of Long-Lived Assets 

Effective January 1, 2002, the Company adopted Statement of Financial Accounting Standards No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” (“SFAS 144”), which addresses financial accounting and reporting for the impairment or disposal of long-lived assets and supersedes SFAS No. 121, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of,” and the accounting and reporting provisions of APB Opinion No. 30, “Reporting the Results of Operations for a Disposal of

F-7

AURASOUND, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Valuation of Long-Lived Assets (continued)

a Segment of a Business.” The Company periodically evaluates the carrying value of long-lived assets to be held and used in accordance with SFAS 144. SFAS 144 requires impairment losses to be recorded on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets’ carrying amounts. In that event, a 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 manner, except that fair market values are reduced for the cost of disposal.

Concentration of Credit Risk 

Financial instruments that potentially subject the Company to concentrations of credit risk are cash, accounts receivable and other receivables arising from our 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.

Revenue Recognition 

The Company’s revenue recognition policies are in compliance with Staff Accounting Bulletin (SAB) 104. Sales revenue is recognized at the date of shipment to customers when a formal arrangement exists, the price is fixed or determinable, the delivery is completed, no other significant obligations of the Company exist and collectability is reasonably assured.

Advertising Expense 

Advertising costs are charged to expense as incurred and were immaterial for the years ended June 30, 2009 and 2008.

Research and Development 

Research and development costs are expensed as incurred.

Income Taxes 

The Company utilizes SFAS No. 109, "Accounting for Income Taxes," which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred income taxes are recognized for the tax consequences in future years of differences between the tax basis of assets and liabilities and their financial reporting amounts at each period end based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized.

AuraSound has significant income tax net operating losses carried forward from prior years. Due to the change 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 the realizability of the related deferred tax asset, a reserve equal to the amount of deferred income taxes has been established at June 30, 2009 and June 30, 2008.

Fair Value of Financial Instruments 

Statement of Financial Accounting Standard No. 107, “Disclosures about Fair Value of Financial Instruments”, requires that the Company disclose estimated fair values of financial instruments. The carrying amounts reported in the statements of financial position for assets and liabilities qualifying as financial instruments are a reasonable estimate of fair value.

Segment Reporting 

Statement of Financial Accounting Standards No. 131 (“SFAS 131”), “Disclosure about Segments of an Enterprise and Related Information” requires use of the “management approach” model for segment reporting. The management approach model is based on the way a company’s management organizes segments within the company for making operating decisions and assessing performance. Reportable segments are based on products and services, geography, legal structure, management structure, or any other manner in which management disaggregates a company. SFAS 131 has no effect on the Company’s financial statements as the Company consists of one reportable business segment as of June 30, 2009 and 2008.

F-8

AURASOUND, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Risks and Uncertainties

The Company is subject to substantial risks from, among other things, intense competition associated with the industry in general, other risks associated with financing, liquidity requirements, rapidly changing customer requirements, limited operating history and the volatility of public markets.

Contingencies

Certain conditions 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 disclosed

Basic and diluted net loss per share

In accordance with SFAS No. 128, “Earnings Per Share,” the basic loss per common share is computed by dividing net loss available to common stockholders by the weighted average number of common shares outstanding. Diluted loss per common share is computed similar to basic loss 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 June 30, 2009, the Company had no potentially dilutive warrant shares outstanding.  At June 30, 2008, the Company had 245,000 potentially dilutive warrant shares outstanding.

Stock-based compensation

The Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 123, “Accounting for Stock-Based Compensation”, which applies the fair-value method of accounting for stock-based compensation plans. In accordance with this standard, the Company accounts for stock-based compensation in accordance with Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees”.

In March 2000, the Financial Accounting Standards Board (FASB) issued FASB Interpretation No. 44 (Interpretation 44), “Accounting for Certain Transactions Involving Stock Compensation.” Interpretation 44 provides criteria for the recognition of compensation expense in certain stock-based compensation arrangements that are accounted for under APB Opinion No. 25, “Accounting for Stock-Based Compensation”. Interpretation 44 became effective July 1, 2000, with certain provisions that were effective retroactively to December 15, 1998 and January 12, 2000. Interpretation 44 did not have any material impact on the Company’s financial statements.

In December 2004, the FASB issued FASB Statement No. 123R, "Share-Based Payment, an Amendment of FASB Statement No. 123" ("FAS No. 123R"). FAS No. 123R requires companies to recognize in the statement of operations the grant-date fair value of stock options and other equity-based compensation issued to employees. FAS No. 123R is effective beginning in the Company's first quarter of the fiscal year ended June 30, 2007.

F-9

AURASOUND, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

New Accounting Pronouncements

In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements”. This Statement amends ARB 51 to establish accounting and reporting standards for the noncontrolling (minority) interest in a subsidiary and for the deconsolidation of a subsidiary. It clarifies that a noncontrolling interest in a subsidiary is an ownership interest in the consolidated entity that should be reported as equity in the consolidated financial statements. SFAS No. 160 is effective for the Company’s fiscal year beginning October 1, 2009. Management is currently evaluating the effect of this pronouncement on financial statements.

In March 2008, the FASB issued FASB Statement No. 161, Disclosures about Derivative Instruments and Hedging Activities. The new standard is intended to improve financial reporting about derivative instruments and hedging activities by requiring enhanced disclosures to enable investors to better understand their effects on an entity’s financial position, financial performance, and cash flows. It is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with early application encouraged. The new standard also improves transparency about the location and amounts of derivative instruments in an entity’s financial statements; how derivative instruments and related hedged items are accounted for under Statement 133; and how derivative instruments and related hedged items affect its financial position, financial performance, and cash flows. Management is currently evaluating the effect of this pronouncement on financial statements.

In December 2007, the FASB issued SFAS No. 141(R), “Business Combinations”. This Statement replaces SFAS No. 141, Business Combinations. This Statement retains the fundamental requirements in Statement 141 that the acquisition method of accounting (which Statement 141 called the purchase method) be used for all business combinations and for an acquirer to be identified for each business combination. This Statement also establishes principles and requirements for how the acquirer: a) recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any non-controlling interest in the acquiree; b) recognizes and measures the goodwill acquired in the business combination or a gain from a bargain purchase and c) determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. SFAS No. 141(R) will apply prospectively to business combinations for which the acquisition date is on or after Company’s fiscal year beginning October 1, 2009. While the Company has not yet evaluated this statement for the impact, if any, that SFAS No. 141(R) will have on its consolidated financial statements, the Company will be required to expense costs related to any acquisitions after September 30, 2009.

In May of 2008, FASB issued SFASB No.162, “The Hierarchy of Generally Accepted Accounting Principles”. The pronouncement mandates the GAAP hierarchy reside in the accounting literature as opposed to the audit literature. This has the practical impact of elevating FASB Statements of Financial Accounting Concepts in the GAAP hierarchy. This pronouncement will become effective 60 days following SEC approval. The Company does not believe this pronouncement will impact its financial statements.  In June, 2009, this pronouncement was replaced by SFAS 168.  The Company is currently evaluating the impact of SFAS 168.

In May of 2008, FASB issued SFASB No. 163, “Accounting for Financial Guarantee Insurance Contracts-an interpretation of FASB Statement No. 60”. The scope of the statement is limited to financial guarantee insurance (and reinsurance) contracts. The pronouncement is effective for fiscal years beginning after December 31, 2008. The Company does not believe this pronouncement will impact its financial statements.

Reclassifications:

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

NOTE 3 - INVENTORIES

Inventories at June 30, 2009 and 2008 consisted of the following:

	2009			2008
Raw materials	$	13,568		$	10,050
Finished goods		438,279			434,039
Provision for obsolescence		(286,853	)		(78,645)
Total	$	164,994		$	365,444

NOTE 4 -ACCRUED EXPENSES

Accrued expenses consisted of the following as of June 30, 2009 and 2008:

		2009		2008
Accrued consulting fees	$	236,359	$	236,359
Accrued interest		167,738		37,138
Accrued payroll and others		47,205		28,166
Total	$	451,302	$	301,663

F-10

AURASOUND, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 5- DEBT AGREEMENTS & RESTRICTED CASH

Credit facility

Effective June 7, 2007, the Company entered into a one-year $12 million credit facility with Bank SinoPac pursuant to which a $10.0 million revolving accounts receivable facility and a $2 million fixed deposit credit facility were made available to the Company. Obligations under the agreement are secured by substantially all the assets of the Company. The accounts receivable facility, which may be used for working capital and other general corporate purposes bears interest at the rate of prime minus .5%. The letter of credit facility bears interest at the rate of TCD plus 1%. The credit facility is also subject to certain covenants and conditions and contains standard representations, covenants and events of default for facilities of this type. Occurrence of an event of default allows the lenders to accelerate the payment of the loans and/or terminate the commitments to lend, in addition to the exercise of other legal remedies, including foreclosing on collateral. The Company was not in compliance of certain covenants as of June 30, 2008. As of June 30, 2008, $2,000,000 had been drawn from this facility.

Pursuant to the credit facility, the Company has also pledged and assigned a time certificate of deposit account for one year having an initial deposit balance of $2,000,000 to be held and maintained at all times with the bank. On June 30, 2008, this balance was recorded as a restricted cash balance in the accompanying financials.  As of September 25, 2008, the Company had repaid all amounts due under the accounts receivable credit facility with Bank SinoPac and had repaid the $2.0 million in loans plus accrued interest thereon which had been made to the Company by Bank SinoPac under the deposit credit facility by collecting the restricted cash deposit totaling $2.0 million plus accrued interest thereon and applying the amount received to repay the debt. The restricted cash deposit was the primary security for the deposit credit facility.

Factoring payable

At June 30, 2008, the factoring charge amounted to one half of one percent (.50%) of the gross amount of accounts receivable assigned to the factor (Bank SinoPac) on a non-recourse basis. In addition, for all accounts factored on a recourse basis, the Company pays the factor fifteen hundreths of one percent (.15%) of the gross amount of accounts receivable assigned. The Company’s obligations to the bank were collateralized by all of the Company’s present and future tangible and intangible assets including documents, instruments, chattel paper, returned or repossessed goods and all books and records and proceeds of the foregoing. The advances for the factored receivables are made pursuant to the revolving credit and security agreement, which expires on the first anniversary date unless terminated earlier by the factor upon the occurrence of an event of default. This agreement shall be automatically renewed each year on the anniversary date for an additional one year term unless the Company or the factor provides the other with written notice of non-renewal of the agreement. There are no specific covenants attached to the credit line except a $20.00 wire fee per transaction. As of June 30, 2008 the factor payable amounted to $145,477.  As of September 25, 2008, the Company had repaid all amounts due under the accounts receivable credit facility with Bank SinoPac.

Notes payable

During the year ended June 30, 2007, the Company issued promissory notes in the principal amount of $688,000 to certain investors. The notes were secured against the assets of the Company pursuant to a security agreement. All the notes accrued interest at the rate of 9% per annum with the principal and interest due on demand. The Company accrued interest of $64,108 on these notes through June 30, 2007. On August 1, 2007 the principal and all interest accrued thereon was paid in full.

NOTE 6 - RELATED PARTY TRANSACTIONS AND COMMITMENT

The Company pays $20,000 per month as a management fee to an entity owned by our Chairman of the board of directors, Mr. Arthur Liu, for the services provided such as accounting, shipping and receiving, and general administrative. The Company paid an average of $6,237 per month to the same entity for rent as it shares the offices, test laboratories and warehouse facilities with the related entity. The rent allocation is 40% of the rent payable by the related entity to the landlord.  The annual rent commitment to the landlord is as follows:

Year ended	Amount
June 30, 2009	$	80,038
June 30, 2010	$	82,205
June 30, 2011	$	84,431

The lease will expire on July 31, 2013.  The Company is not a party to the lease.

As of June 30, 2009, the total amount of $412,293 was due to the affiliate for various costs and expenses.

Notes payable to related party as of June 30, 2009 and June 30, 2008 amounting to $1,264,791 and 1,173,029 respectively consist of notes payable to an entity controlled by our Chief Executive Officer and Chairman. These notes were issued on various dates and all bear interest at 8% per annum, with principal and interest due on March 31, 2009 or on demand. Interest expense for the periods ended June 30, 2009 and 2008 amounted to $102,997 and $115,122 respectively.

F-11

AURASOUND, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

As of June 30, 2009 and 2008, the accrued interest on the notes payable to this related party amounted to $131,050 and $23,880 respectively and is reflected in accrued expenses on the accompanying financials. The total amount due to this related party including notes and accrued costs and expenses  as of June 30, 2009 amounted to $1,677,084.

On October 15, 2007, the Company exchanged $2,500,000 of related party debt including accrued interest thereon into 1,666,667 units. Each unit consisted of one share of the Company’s $0.01 par value common stock and a five-year warrant to purchase one share of the Company’s common stock at an exercise price of $1.50 per share.  On the exchange date, fair value of the stock was $.51 per share for a total amount of $850,000. The fair market value of the warrants was $126,758 calculated using the Black-Scholes model using the following assumptions: discount rate of 4.40%, volatility of 15% and expected term of one year.  As the transaction was accounted for a related party controlling both the entities, the gain on exchange has been credited to paid in capital.

NOTE 7 - STOCKHOLDERS' EQUITY

Common Stock

At June 30, 2008 and June 30, 2009, the Company was authorized to issue 20,000,000 shares of $0.01 par value preferred stock and 100,000,000 shares of $0.01 par value common stock. As of June 30, 2008 and 2009 there were no preferred shares issued and outstanding. There were 28,071,972 common shares issued and outstanding as of June 30, 2008 and June 30, 2009.

On October 15, 2007, the Company exchanged $2,500,000 of related party debt including accrued interest thereon into 1,666,667 units (Note 6)

NOTE 8 -  WARRANTS

Following is a summary of the status of warrants outstanding at June 30, 2009:

	Outstanding					Exercisable
Price	Shares		Life (Months)	Exercise Price		Shares	Intrinsic Value
$0.80		245,000	60	$	0.80	245,000	$	-
$1.00		3,200,000	60	$	1.00	3,200,000	$	-
$1.50		14,566,667	60	$	1.50	14,566,667		-
		18,011,667				18,011,667	$	-

The following table summarizes the activity for all stock warrants outstanding at June 30, 2009:

	Shares	Exercise Price		Remaining Life	Aggregate Intrinsic Value
Outstanding June 30, 2007	16,346,000	$	1.39	3.94 years	$	393,500
Granted	1,666,667		1.50	4.30 years		-
Exercised	-		-
Cancelled	-		-
Outstanding June 30, 2008	18,011,667	$	1.40	3.97 years	$	393,500
Granted	-		-
Exercised	-		-
Cancelled	-		-
Outstanding June 30, 2009	18,011,667	$	1.40	3.01 years	$	-

The value of the warrants was calculated using the Black-Scholes model using the following assumptions: Discount rate of 4.40%, volatility of 25% and expected term of five years.

F-12

AURASOUND, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 9 - INCOME TAXES

The Company did not record any income tax expense due to net loss during the years ended June 30, 2009 and 2008. The actual tax benefit differs from the expected tax benefit computed by applying the United States corporate tax rate of 40% to loss before income taxes as follows for the years ended June 30, 2009 and 2008:

	2009			2008
Expected tax benefit		34	%	34	%
State income taxes, net of federal benefit		6		6
Changes in valuation allowance		(40	)	(40	)
Total		—	%	—	%

The following table summarizes the significant components of the Company's deferred tax asset at June 30, 2009, and 2008:

	2009			2008
Deferred tax asset due to net operating loss:	$	11,159,946		$	276,992
Valuation allowance		(11,159,946	)		(276,992	)
Net deferred tax asset	$	—		$	—

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

A provision for income taxes has not been provided in these financial statements due to the net loss. At June 30, 2009, the Company had net operating loss carry-forwards of approximately $26,445,717, which expire through June 30, 2029.  Certain of the NOL is subject to a restriction under section 382 of the Internal Revenue Code, whereby the amount which may be reflected in any one year is limited.

NOTE 10- GOING CONCERN

The accompanying 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. As shown in the financial statements, during the years ended June 30, 2009 and 2008, the Company incurred losses of $2,570,802 and $26,458,932, respectively. The Company had an accumulated deficit of $35,599,842 as of June 30, 2009.

If the Company is unable to generate profits and unable to continue to obtain financing for its working capital requirements, it may have to curtail its business sharply or cease business 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 generate sufficient cash flow to meet its obligations on a timely basis, to retain its current financing, to obtain additional financing, and ultimately to attain profitability.

In June 2007, the Company completed a $12.9 million private placement aimed at providing sufficient funds to establish AuraSound as a significant source for speakers designed for notebook computers and cell phones in addition to its already established home entertainment line of speakers.  Immediately following the closing, approximately $1.8 million was used to pay the expenses related to the offering, approximately $4.4 million was used to pay-off certain bridge loans, including interest, and $2 million was deposited into an account with our primary bank, in accordance with the terms of a lending agreement.  In addition, in order to ramp-up production at the manufacturer in China, we established a prepayment policy with Grandford Holdings, Ltd., then the company’s long-term supplier, and sent $4.2 million to Grandford Holdings, Ltd. during June and July 2007 for the purchase of inventory, engineering services, tools, jigs, dies and special equipment.  The remaining $.5 million, $2.0 million drawn on the deposit credit facility and an additional $635,000 loaned to us by Arthur Liu, our Chief Executive Officer, Chairman of the board of directors, and our largest stockholder, has been used to fund the establishment of offices in Hong Kong, Taiwan, Shanghai and Japan and to cover overhead at the corporate offices in Santa Fe Springs, California through July 2008. As of June 30, 2008, the Company had exhausted the cash provided by the private placement and was dependant upon advances from  its President and CEO in order to continue operating. On October 8, 2008, GGEC entered into a non-binding letter of intent pursuant to which GGEC may acquire a 55% interest in AuraSound, Inc. During the evaluation period, GGEC agreed to fund up to $150,000 per month for current operating costs until the transaction is either consummated or terminated. The process of obtaining regulatory approval from the government of China was completed and approval has been received. The transaction is expected to close within thirty days, however, if for any reason GGEC determines not to proceed with the contemplated transaction, the Company would not have sufficient funding to continue in business and would be forced to curtail or cease operations or find alternative funding.

F-13

AURASOUND, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 11- MAJOR CUSTOMERS AND MAJOR VENDORS

The Company had two major customers during the year ended June 30, 2009 which accounted for 65% of its sales.  The Company had two major customers during the year ended June 30, 2008 which accounted for 26% of its sales. The receivables due from these customers as of June 30, 2009 and 2008 totaled $718,582 and $100,681 respectively.

The Company had one major vendor during the year ended June 30, 2009 which accounted for 100% of the Company’s purchases. During the year ended June 30, 2008 one major vendor accounted for 97% of the Company’s purchases.  See “Problems with our Suppliers” on page 18.

The amount due this vendor as of June 30, 2009 and 2008 totaled $2,191,739 and $778,882 respectively.

NOTE 12   IMPAIRMENT OF GOODWILL

The Company evaluates intangible assets and other long-lived assets for impairment, at a minimum, on an annual basis and whenever events or changes in circumstances indicate that the carrying value may not be recoverable from its estimated future cash flows. Recoverability of intangible assets, other long-lived assets and goodwill is measured by comparing their net book value to the related projected undiscounted cash flows from these assets, considering a number of factors including past operating results, budgets, economic projections, market trends and product development cycles. If the net book value of the asset exceeds the related undiscounted cash flows, the asset is considered impaired, and a second test is performed to measure the amount of impairment loss. The Company assessed the carrying value of goodwill in accordance with the requirements of SFAS No. 142 "Goodwill and Other Intangible Assets".  Based on its assessment, the Company determined that goodwill resulting from the acquisition of AuraSound, Inc. which amounted to US$7,000,451 was fully impaired as of June 30, 2008.

F-14

SIGNATURES

In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	AURASOUND, INC.
Dated: September 14, 2009	By:	/s/ Arthur Liu
		Arthur Liu, President and Chief
		Executive Officer
	By:	/s/ Arthur Liu
		Arthur Liu
		Principal Accounting and
		Finance Officer

In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Signatures	Title	Date
/s/ Arthur Liu	Director	September 14, 2009
Arthur Liu	Chief Executive Officer, President, Principal Accounting and Finance Officer and Chairman of the Board
/s/ Amy Liu	Director	September 14, 2009
Amy Liu
/s/ Robert Pearson	Director	September 14, 2009
Robert Pearson
/s/ Judie Rothenberger	Director	September 14, 2009
Judie Rothenberger

EX-31.1

Exhibit 31.1

CERTIFICATION OF PRESIDENT/CHIEF EXECUTIVE OFFICER

PURSUANT TO RULES 13a-14(a) AND 15d-14(a)

OF THE SECURITIES EXCHANGE ACT OF 1934

I, Arthur Liu, certify that:

1.           I have reviewed this Annual Report on Form 10-K of AuraSound, Inc.;

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

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

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

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

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

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

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

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

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

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

Date: September 14, 2009

By:	/s/ Arthur Liu
	Arthur Liu
	President and Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER

PURSUANT TO RULES 13a-14(a) AND 15d-14(a)

OF THE SECURITIES EXCHANGE ACT OF 1934

I, Arthur Liu, certify that:

1           I have reviewed this Annual Report on Form 10-K of AuraSound, Inc.;

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

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

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

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

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

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

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

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

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

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

Date: September 14, 2009

By:	/s/ Arthur Liu
	Arthur Liu
	Principal Accounting and Finance Officer

EX-32

Exhibit 32

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report on Form 10-K of AuraSound, Inc. (the “Company”) for the year ended June 30, 2009 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Arthur Liu, President, Chief Executive Officer and Principal Accounting Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:

(1)   The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, and

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

Dated: September 14, 2009

/s/ Arthur Liu  

Arthur Liu

Chief Executive Officer, President and

Principal Accounting and Finance Officer