aurasound_10q.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q/A

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

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

For the quarterly period ended September 30, 2010

From ___________To __________

Commission File Number: 000-51543

AuraSound, Inc.

(Exact name of registrant as specified in its charter)

Nevada		20-5573204
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

2850 Red Hill Avenue, Suite 100, Santa Ana, California		92705
(Address of principal executive offices)		(Zip Code)

(949) 829-4000

(Registrant’s telephone number, including area code)

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

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). o Yes x No

Large Accelerated Filer	o	Accelerated Filer	o
Non-accelerated Filer	o	Smaller Reporting Company	x

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

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

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan Yes No confirmed by a court. o Yes x No

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

Common Stock, $0.01 Par value per share 11,504,835

Explanatory Note

In this Form 10-Q, we are restating our unaudited, consolidated balance sheet, statements of operations and cash flows as of and for the three-months ended September 30, 2010.

This Form 10-Q also reflects the restatement of “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Item 2 for the three months ended September 30, 2010. The Company determined, that the purchase accounting related to its’ recent acquisition of the net assets and certain liabilities of ASI Holdings and ASI Holding’s wholly-owned subsidiary ASI Audio Technologies, LLC (collectively “ASI) and the ongoing recording of accounts payable was incorrect. In addition, the inventory valuation on the historical, pre-acquisition financial statements of AuraSound, Inc. was overstated due to a valuation error in the affected financial statements.

Management has determined that the principal errors to the purchase accounting are primarily attributable to accounts payable and accrued expenses of ASI that were either unrecorded, recorded in the wrong period, or were not a liability assumed at the time of the acquisition, along with lesser adjustments to reserves on accounts receivable and inventories.

This Form 10-Q also amends the exhibit list andattach certain exhibits which were inadvertently omitted from the original Form 10-Q.

Previously filed versions of the quarterly report on Form 10-Q for the quarter ended September 30, 2010, have not been amended and should not be relied upon.

AuraSound, Inc.

Index

PART I—FINANCIAL INFORMATION		1
	Item 1. Financial Statements	1
	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	16
	Item 3. Quantitative and Qualitative Disclosures About Market Risk	19
	Item 4. Controls and Procedures	19
	Item 4T. Controls and Procedures. (Removed and Reserved)	20
PART II—OTHER INFORMATION		20
	Item 1. Legal Proceedings	20
	Item 1A. Risk Factors	20
	Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	20
	Item 3. Defaults Upon Senior Securities	20
	Item 4. (Removed and Reserved)	20
	Item 5. Other Information	20
	Item 6. Exhibits	22
	SIGNATURES	23

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements

Financial statements are provided as follows:

	Page
	Number
AuraSound, Inc. and Subsidiary Consolidated Financial Statements (Restated, Unaudited)

Consolidated Balance Sheets - (Restated, Unaudited) as of September 30, 2010 and June 30, 2010	2

Consolidated Statements of Operations - (Restated, Unaudited) For the three months ended September 30, 2010 and 2009	3

Consolidated Statements of Cash Flows - (Restated, Unaudited) For the three months ended September 30, 2010 and 2009	4

Notes to Consolidated Financial Statements - (Restated, Unaudited)	5-15

AURASOUND, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

AS OF SEPTEMBER 30, 2010 AND JUNE 30, 2010

(UNAUDITED)


	September 30, 2010 (Restated)			June 30, 2010
Assets
Current Assets
Cash and cash equivalents	$	3,245,967		$	129,939
Trade accounts receivable, net		9,804,096			3,432,135
Inventory, net		10,987,514			537,198
Other assets		27,325			—
Total Current Assets		24,064,902			4,099,272

Property and Equipment, net		138,310			106,465

Intangible Assets, net		4,363,666			—

Goodwill		5,972,039			—
Total Assets	$	34,538,917		$	4,205,737

Liabilities and Stockholder’s Equity (Deficit)

Current Liabilities
Accounts payable	$	29,202,521		$	6,916,004
Accrued expenses		236,622			800,044
Due to officer		—			25,000
Notes payable		—			2,978,282
Shares to be issued		4,888,464			—
Total Current Liabilities	$	34,327,607		$	10,719,330

Commitments and Contingencies

Stockholders Equity (Deficit) Preferred stock - $0.01 par value, 3,333,333 shares Authorized and none outstanding at September 30, 2010 and June 30, 2010.		—			—
Common stock - $0.01 par value, 16,666,667 shares authorized and 11,504,835 and 4,678,662 outstanding at September 30, 2010 and June 30, 2010.	$	115,049		$	46,787
Additional paid in capital		37,899,600			31,278,409
Accumulated Deficit		(37,803,339	)		(37,838,789	)
Total Stockholder’s Equity (Deficit)		211,310			(6,513,593	)
Total Liabilities and Stockholder’s Equity (Deficit)	$	34,538,917		$	4,205,737

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

AURASOUND, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE THREE-MONTH PERIODS ENDED SEPTEMBER 30, 2010 AND 2009

(UNAUDITED)


	For the three months-ended
	September 30, 2010 (Restated)		September 30, 2009
Net revenue	$	10,971,201	$	1,278,900
Cost of sales		9,771,021		1,211,353
Gross profit		1,200,180		67,547

Research and development expense		128,449		125,828
Selling, general & administrative expenses		899,945		429,783
Amortization of intangibles		136,334		—
Total operating expenses		1,164,728		555,611

Income (Loss) from operations		35,452		(488,064	)

Other (income) expense
Interest expense, net		—		44,096
Other expense		—		—

Loss before income tax		35,452		(532,160	)

Income tax expense		—		—

Net income		35,452		(532,160	)

Income (loss) per common share
Basic	$	0.00	$	(0.11	)
Diluted	$	0.00	$	(0.02	)

Weighted average shares
Basic		10,781,397		4,678,662
Diluted		25,967,355		28,071,972

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

AURASOUND, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE THREE-MONTH PERIODS ENDED SEPTEMBER 30, 2010 AND 2009

(UNAUDITED)


	September 30, 2010 Restated			September 30, 2009
CASH FLOWS PROVIDED FROM OPERATING ACTIVITIES
Net income (loss)	$	35,452		$	(532,160	)
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Reserves on accounts receivable		132,649			—
Reserves on inventory		(275,639	)		—
Depreciation		5,967			4,152
Amortization		136,334			—
Changes in operating assets and liabilities:
Accounts receivable, net		(1,365,796	)		(767,070	)
Inventory		(6,147,786	)		(72,424	)
Other assets		(27,325	)		—
Accounts payable		10,462,317			1,087,972
Accrued expenses		31,415			169,943
Due affiliate		(25,000	)		37,514
Other		—			2,027
Net cash provided by/ (used in) provided by operating activities		2,962,588			(70,046	)

CASH FLOWS PROVIDED FROM INVESTING ACTIVITIES
Acquisition of property and equipment		(1,529	)		(1,212	)
Cash acquired in acquisition of net assets and liabilities of ASI		154,970			—
Net cash provided by/(used in) investing activities		153,441			(1,212	)

CASH FLOWS PROVIDED FROM FINANCING ACTIVITIES

		—			—
		—			—

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		3,116,029			(71,258	)

CASH AND CASH EQUIVALENTS, BEGINNING BALANCE		129,939			321,455

CASH AND CASH EQUIVALENTS, ENDING BALANCE	$	3,245,967		$	250,197

SUPPLEMENTAL DISCLOSURES:
Cash paid during the year for:
Interest	$	—		$	—
Income tax	$	—		$	—

Conversion of accounts payable and accrued expenses to equity	$	2,232,861		$	—
Conversion of notes payable to equity	$	1,724,724		$	—
Conversion of related party notes payable to equity	$	1,253,558		$	—
Issuance of Common Stock and
Warrants for purchase of net assets and liabilities of ASI	$	6,366,775		$	—

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

AURASOUND, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Restated, Unaudited)

NOTE 1 ORGANIZATION AND OPERATIONS

GENERAL

AuraSound, Inc. (the “Company”, “AuraSound”, “we”, “us”, or “our”) was originally established in 1987, and specializes in the design, manufacturing and sale of high-fidelity loudspeakers. The Company’s operations are based in the United States with offices in Hong Kong, Taiwan and the Peoples Republic of China.

UNAUDITED INTERIM FINANCIAL INFORMATION

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

NOTE 2 SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION

The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which we refer to throughout this report as US GAAP.

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the accounts of AuraSound, Inc. and its wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated.

USE OF ESTIMATES

The preparation of financial statements in conformity with generally accepted accounting principles in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses. Significant estimates and assumptions are used for, but are not limited to, revenue recognition, allowance for doubtful accounts, allowance for sales valuation's allowance income tax contingency accruals and valuation allowances, asset impairment, purchase price allocation and litigation-related accruals. Actual results could differ from our 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.

TRADE ACCOUNTS RECEIVABLE

Trade accounts receivable are recorded at the invoiced amount and do not bear interest. Amounts collected on trade accounts receivable are included in net cash provided by operating activities in the consolidated statements of cash flows. The Company maintains an allowance for doubtful accounts for estimated losses inherent in its accounts receivable portfolio. In establishing the required allowance, management considers historical losses adjusted to take into account current market conditions and our customers’ financial condition, the amount of receivables in dispute, and the current receivables aging and current payment patterns. The Company reviews its allowance for doubtful accounts monthly. Past due balances over 90 days and over a specified amount are reviewed individually for collectability. All other balances are reviewed on a specific item basis. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. The allowance for doubtful accounts and returns was $523,676 as of September 30, 2010 and $63,690 as of June 30, 2010. The Company does not have any off balance sheet credit exposure related to its customers.

AURASOUND, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

INVENTORIES

Inventories are stated 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 September 30, 2010 and June 30, 2010, the allowance for obsolescence and rework amounted to $171,500 and $193,139, respectively.

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:


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

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. Maintenance and minor replacements are charged to expense as incurred. Gains and losses on disposals are included in the results of operations.

VALUATION OF LONG-LIVED ASSETS

The Company tests long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable through the estimated undiscounted cash flows expected to result from the use and eventual disposition of the assets. 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.

INTANGIBLE ASSETS

The Company records intangible assets acquired individually or as part of a group at fair value. Intangible assets with definitive lives are amortized over the useful life of the intangible asset, which is the period over which the asset is expected to contribute directly or indirectly to the entity’s future cash flows. The Company evaluates intangible assets for impairment at least annually and more often whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Whenever any such impairment exists, an impairment loss will be recognized for the amount by which the carrying value exceeds the fair value.

GOODWILL

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

AURASOUND, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

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 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

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. The Company recognizes revenue net of an allowance for estimated returns, at the time the merchandise is sold.

RESEARCH AND DEVELOPMENT

Research and development costs are expensed as incurred.

INCOME TAXES

The Company accounts for income taxes using an asset and liability approach which allows for the recognition and measurement of deferred tax assets based upon the likelihood of realization of tax benefits in future years. Under the asset and liability approach, deferred taxes are provided for the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. A valuation allowance is provided for deferred tax assets if it is more likely than not these items will either expire before the Company is able to realize their benefits, or that future deductibility is uncertain.

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

AURASOUND, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

BASIC AND DILUTED NET INCOME/(LOSS) PER SHARE

The basic net income (loss) per common share is computed by dividing net income/(loss) available to common stockholders by the weighted average number of common shares outstanding. Diluted net income/(loss) per common share is computed similar to basic net income/(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 September 30, 2010, the Company has potentially dilutive warrant shares outstanding.

NEW ACCOUNTING PRONOUNCEMENTS

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

In July 2010, the FASB issued ASU 2010-20, which amends”Receivables” (Topic310). ASU2010-20 is intended to provide additional information to assist financial statement users in assessing an entity’s risk exposures and evaluating the adequacy of its allowance for credit losses. The disclosures as of the end of a reporting period are effective for interim and annual reporting periods ending on or after December 15, 2010. The disclosures about activity that occurs during a reporting period are effective for interim and annual reporting periods beginning on or after December 15, 2010. The amendments in ASU 2010-20 encourage, but do not require, comparative disclosures for earlier reporting periods that ended before initial adoption. However, an entity should provide comparative disclosures for those reporting periods ending after initial adoption. While ASU 2010-20 will not have a material impact on our consolidated financial statements, we expect that it will expand our disclosures related to notes receivables. No other new accounting pronouncements issued or effective during 2010 has had or is expected to have a material impact on the consolidated financial statements.

RECLASSIFICATIONS

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

AURASOUND, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 3 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 of September 30, 2010 the Company has an accumulated deficit of $37,803,339, negative working capital of $10,262,705 and has reported significant losses over the past several years. During the three month period ended September 30, 2010 the Company recorded a net profit of $35,452 compared to a net loss of $532,160 for the comparable prior year period and generated net cash provided by operating activities of $2,962,588 compared to a negative $70,046 for the comparable prior year period. The move toward profitability and positive cash flow is a directly result of the execution of new management’s post acquisition business plan to cut costs on all business lines, hold and spread overhead costs against a larger revenue base and to continue to move toward sustained profitability. However, there can be no assurance that the Company can become profitable or sustain profitability or positive cash flows from operations. As such, if the Company is unable to generate positive net income and is 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 attain profitability.

NOTE 4 ACQUISITION

On July 10, 2010, the Company entered into an Asset Purchase Agreement (the “Asset Purchase Agreement”) with ASI Holdings, and ASI Holding’s wholly-owned subsidiary ASI Audio Technologies, LLC, an Arizona limited liability company (“ASI Arizona” and collectively with ASI Holdings, “ASI”). Pursuant to the Asset Purchase Agreement, the Company agreed to acquire substantially all of the business assets and certain liabilities of ASI, in consideration of the issuance to the two shareholders of ASI Holdings of an aggregate of 5,988,005 shares (the “ASI Transaction Shares”) of unregistered common stock of the Company (“Common Stock”), and the issuance to Sunny World Associates Limited (“Sunny World”), the owner of 90% of the outstanding shares of ASI Holdings and controlled by the founder and Chief Executive Officer of ASI Holdings, Mr. HaraldWeisshaupt, a five (5) year warrant to purchase an aggregate of 3,000,000 shares of Common Stock of the Company (the “ASI Warrant Shares”) at an exercise price of $1.00 per share (the “ASI Warrant”).

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

On July 31, 2010 (the “Closing Date”), the Company, ASI Holdings and ASI Arizona entered into Amendment No. 1 to the Asset Purchase Agreement (the “APA Amendment”), pursuant to which the parties agreed that only 500,000 of the ASI Transaction Shares would be released to the shareholders of ASI Holdings on the Closing Date, and the balance of 5,488,005 shares (the “Contingent Shares”) were to be held in escrow by the Company’s outside legal counsel until (i) the Company or its manufacturer GGEC, or an affiliate of GGEC, including, without limitation, GGEC America, Inc., a California corporation (“GGEC America”), obtains the license rights needed for the Company to manufacture and sell ASI Holding’s products to ASI Holding’s customers after the Closing Date, and (ii) all of the members of the Company’s Board of Directors who have no beneficial ownership interest in the Contingent Shares approve the release of the Contingent Shares to the shareholders of ASI Holdings. These Contingent Shares were not immediately issued (for escrow placement) as the Company did not have at the time a sufficient number of authorized shares to issue the Contingent Shares. As of December 31, 2010 the two contingencies requirements were successfully achieved and the Company has issued 5,389,204 shares of Common Stock to Sunny World and 250,000 shares of Common Stock have been issued to Faithful Aim, leaving a balance of 348,801shares of Common Stock valued, at $310,696 yet to be issued to Faithful Aim . See note 12.

AURASOUND, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

The following table summarizes the fair values of the assets acquired and liabilities assumed related to the acquisition of ASI.


	Amount
Purchase price	$	6,349,205

Fair Value of assets acquired
Current assets		9,320,676
Property & equipment		36,285
Intangible Assets		4,500,000
		13,856,961
Fair value of liabilities acquired
Current liabilities		13,479,795

Net assets acquired		377,166

Goodwill	$	5,972,039

The above estimated fair values of assets acquired and liabilities assumed are preliminary and are based on the information that was available as of the date of this report. The Company believes that information provides a reasonable basis for estimating the fair values of assets acquired and liabilities assumed, however the Company is awaiting the finalization of certain third-party valuations to finalize those fair values. Thus, the preliminary measurements of fair value set forth above are subject to change. The Company expects to finalize the valuation and complete the purchase price allocation as soon as practicable, but no later than one year from the respective acquisition date.

PROFORMA CONDENSED COMBINED FINANCIAL INFORMATION

The following unaudited pro forma condensed combined financial information presents the results of operations of the Company as they may have appeared if the closing of ASI, presented in aggregate, had been completed on July 1, 2010 and July 1, 2009.

	For the three months-ended
	September 30, 2010		September 30, 2009
Net sales	$	13,564,464	$	6,548,834

Loss from operations		273,188	$	(843,003	)

Net loss	$	251,847	$	(1,034,470	)

AURASOUND, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

INVENTORIES

Inventories at September 30, 2010 and June 30, 2010 consisted of the following:

	September 30, 2010			June 30, 2010
Raw materials	$	—		$	11,230
Finished goods		11,159,014			719,107
Inventory before provision		11,159,014			730,337
Provision for obsolescence		(171,500	)		(193,139	)

Inventory, net	$	10,987,514		$	537,198

NOTE 5 PROPERTY, PLANT & EQUIPMENT

As of September 30, 2010 and June 30, 2010, property, plant and equipment consisted of the following:

	September 30, 2010			June 30, 2010
Leasehold improvements	$	22,108		$	—
Furniture and Fixtures		37,726			—
Machinery and equipment		36,281			36,281
Tooling		105,193			105,193
Computer software and equipment		17,726			7,411
Total property and equipment		219,034			148,885
Accumulated depreciation		(80,724	)		(42,420	)
Net value of property and equipment	$	138,310		$	106,465

Depreciation expense was $5,967 and $4,152 as of September 30, 2010 and 2009, respectively.

NOTE 6 OTHER INTANGIBLE ASSETS

The following table provides the gross carrying value and accumulated amortization for each major class of intangible assets:


	Average Useful Life (Years)	Amount		Accumulated Amortization			Balance, net
Amortizable intangible assets
Customer relationships	10	$	2,200,000		(36,668	)	$	2,163,332
Non-compete agreement	3		1,600,000		(88,000	)		1,512,000
Trade name	10		700,000		(11,666	)		688,334
		$	4,500,000	$	(136,334	)	$	4,363,666

AURASOUND, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Amortization expense for the 3-Month Period-ended September 30, 2010, and September 30, 2009 totaled $136,334 and $0, respectively. The Company estimates that the total amortization expense for the next five years will be as follows:


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

NOTE 7 ACCRUED EXPENSES

Accrued expenses consisted of the following as of September 30, 2010 and June 30, 2010:


	September 30, 2010		June 30, 2010
Accrued consulting	$	172,537	$	236,359
Accrued interest		—		344,115
Accrued payroll and other		64,085		219,570
Total	$	236,622	$	800,044

NOTE 8 NOTES PAYABLE

EXTINGUISHMENT OF DEBT

On July 10, 2010, the Company entered into and consummated a securities purchase agreement with GGEC America, and its parent, GGEC, the primary manufacturer of our speaker drivers and products. Pursuant to the SPA, the Company issued to GGEC America: (i) 6,000,000 shares of unregistered Common Stock, which, following the consummation of the SPA, constitutes approximately 55% of the Company’s issued and outstanding shares of Common Stock, (ii) a three (3) year warrant to purchase 6,000,000 shares of Common Stock at an exercise price of

$1.00 per share, and (iii) a three (3) year warrant to purchase 2,317,265 shares of Common Stock at an exercise price of $0.75 per share, for an aggregate purchase price of US $3,000,000 (the “GGEC Transaction”). Simultaneously, the Company entered into a debt extinguishment agreement, whereby GGEC America agreed to cancel $3,000,000 of notes payable and other liabilities for an aggregate purchase price of $3,000,000.

On July 31, 2010, the Company entered into and consummated a debt conversion agreement with InSeat Solutions, LLC (“InSeat”), a California limited liability company controlled by Arthur Liu, the Company’s former Chief Executive Officer and former Chief Financial Officer.. Pursuant to the Debt Conversion Agreement, AuraSound issued: (i) 326,173 shares of unregistered Common Stock, and (ii) a five (5) year warrant to purchase 2,243,724 shares of Common Stock at an exercise price of $0.50 per share for the consideration of cancellation of $1,264,526 of notes payable and accrued interest of $232,317.

AURASOUND, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

RELATED PARTY NOTES

Notes payable to related party at September 30, 2010 and June 30, 2010 amounting to $-0- and $1,264,791, respectively consist of notes to an entity owned by our former Chief Executive Officer, Arthur Liu. The notes had various dates of maturity, all bear interest at 8% per annum, with principal and interest due on demand. Interest expense for the three month periods ended September 30, 2010 and 2009 amounted to $0 and $25,292, respectively.

NOTE 9 STOCKHOLDERS’ EQUITY

PREFERRED STOCK

The following table summarizes the Company’s preferred stock at September 30, 2010 and June 30, 2010:

Par value $0.01	September 30, 2010	June 30, 2010
Authorized	3,333,333	3,333,333
Issued	—	—
Outstanding	—	—

COMMON STOCK

The following table summarizes the Company’s common stock at September 30, 2010 and June 30, 2010:

Par value $0.01	September 30, 2010	June 30, 2010
Authorized	16,666,667	16,666,667
Issued	11,504,835	4,678,662
Outstanding	11,504,835	4,678,662

WARRANTS

The following table summarizes the activity for all stock warrants outstanding at September 30, 2010:

	Warrants		Exercise Price(s)		Average Remaining Contractual Life		Aggregate Intrinsic Value
Balance, June 30, 2010		3,001,945	$	4.80 - $9.00		2.0 years	$	—
Granted		14,140,989	$	0.50 - $1.00		4.1 years	$
Exercised		—
Expired		—

Balance, September 30, 2010		17,142,934	$	0.50 - $1.00		3.9 years	$	20,540,084
Exercisable, September 30, 2010		14,142,934	$	0.50 - $1.00		3.7 years	$	17,540,084

AURASOUND, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 10 INCOME TAXES

The components of income tax expense for the three month periods ended September 30, 2010 and 2009 is as follows:

	September 30, 2010			September 30, 2009
US Federal	$	12,054		$	(180,934	)
US State		2,127			(31,930	)
Change in valuation allowance		(14,181	)		212,864
Total Provision for Income Tax	$	—		$	—

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 periods ended September 30, 2010 and 2009:

	September 30, 2010			September 30, 2009
Tax expense (credit) at statutory rate – federal		34	%		34	%
State tax expense net of federal tax		6	%		6	%
Changes in valuation allowance		40	%		-40	%
Tax expense at actual rate		0	%		0	%

The following table summarizes the significant components of the Company’s deferred tax asset at September 30, 2010, and 2009:

	September 30, 2010			June 30, 2010
Accumulated net operating loss (NOL)	$	12,000,830		$	12,015,011
Valuation allowance		(12,000,830	)		(12,015,011	)
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.

The Company has significant income tax net operating losses (“NOLs”) 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 September 30, 2010. A provision for income taxes has not been provided in these financial statements due to the net loss. At September 30, 2010, the Company had net operating loss carry-forwards of approximately $28,436,512 for federal tax purposes, which expire through June 30, 2030. NOLs relating to the period before June 7, 2007 will be subject to a restriction as to the amount which may be used in any one year under section 382 of the Internal Revenue Code.

AURASOUND, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 11 MAJOR CUSTOMERS AND MAJOR VENDORS

There were three customers of the Company, which accounted for 85% of revenue for three month period ended September 30, 2010. At September 30, 2010 three customers accounted for aggregate receivables of $8,357,898. There was one vendor (who also is the major shareholder of the Company), which accounted for in excess of 90% of purchases of finished products and raw materials for three month period ended September 30, 2010. The aggregate payable due to this vendor was $27,399,133 as of September 30, 2010.

NOTE 12 RESTATEMENT

In this Form 10-Q, we are restating our unaudited, consolidated balance sheet, statements of operations and cash flows as of and for the three-months ended September 30, 2010.

The Company determined, that the purchase accounting related to its’ recent acquisition of the net assets and certain liabilities of ASI Holdings and ASI Holding’s wholly-owned subsidiary ASI Audio Technologies, LLC (collectively “ASI) and the ongoing recording of accounts payable was incorrect. In addition, the inventory valuation on the historical, pre-acquisition financial statements of AuraSound, Inc. was overstated due to a valuation error in the affected financial statements.

The below table highlights the changes:


	September 30, 2010 As Originally Filed			September 30, 2010 As Restated			Net Change
Cash and cash equivalents	$	3,206,218		$	3,245,967		$	39,749
Trade accounts receivable, net		10,473,580			9,804,096			(669,484	)
Inventory, net		10,877,596			10,987,514			109,918
Other assets		69,029			27,325			(41,704	)
Total Current Assets		24,626,423			24,064,902			(561,521	)
Property and Equipment, net		188,836			138,310			(50,526	)
Intangible Assets, net		4,170,000			4,363,666			193,666
Goodwill		3,931,205			5,972,039			2,040,834
Total Assets		32,916,464			34,538,917			1,622,453
Accounts payable		25,918,354			29,202,521			3,284,167
Accrued expenses		1,014,368			236,622			(777,746	)
Warrantee liability		385,444			—			(385,444	)
Other liabilities		383,540			—			(383,540	)
Total Current Liabilities		35,590,170			34,327,607			(1,262,563	)
Common stock - $0.01 par value,		115,049			115,049			—
Additional paid in capital		37,636,800			37,899,600			262,800
Accumulated Deficit		(37,425,555	)		(37,803,339	)		(377,784	)
Total Stockholder’s Equity (Deficit)		326,294			211,310			(114,984	)
Net Revenue		10,720,594			10,971,201			250,607
Cost of sales		9,034,728			9,771,021			736,293
Gross profit		1,685,866			1,200,180			(485,686	)
Research and development expense		87,468			128,449			40,981
Selling, general & administrative expenses		1,185,148			899,945			(285,203	)
Total operating expenses		1,272,616			1,164,728			(107,888	)
Income from Operations		413,250			35,452			(377,798	)
Net income	$	413,234		$	35,452		$	(377,782	)

NOTE 13 COMMITMENTS AND SUBSEQUENT EVENTS

As of September 30, 2010, the Company had insufficient shares of common stock authorized to settle acquisition commitments as well as warrants outstanding. As of November 11, 2010 the Board of Directors of the Company and the majority stockholder approved an increase in the number of authorized shares of the Company’s common stock, par value $0.01 per share, from 16,666,667 shares to 100,000,000 shares, which fully satisfies these commitments.During December 2010 the Company issued 5,389,204 and 250,000 shares of Common Stock to Sunny World and to Faithful Aim, respectively, leaving a balance of 348,801 shares of Common Stock yet to be issued to Faithful Aim.

AuraSound, Inc.

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

Cautionary Note Regarding Forward-Looking Statements

This report 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 because they are not historical in nature. In particular, those statements that use terminology such as “may,” “should,” “expects,” “anticipates,” “contemplates,” “estimates,” “believes,” “intends,” “plans,” “projected,” “predicts,” “potential” or “continue” or the negative of these or similar terms are forward-looking statements. In evaluating these forward-looking statements, you should consider various factors, including those described in this report. These and other factors may cause our actual results to differ materially from any forward-looking statements.

The 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;

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

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

·	and Competition that exists presently or may arise in the future.

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.

Overview

We are a southern California based developer, manufacturer and marketer of premium audio products, with a worldwide end user customer base. We are focused on the development of innovative and revolutionary audio solutions and speaker 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, OEM and ODM electronics manufacturers and premium audio manufacturers.

From a product development standpoint, we have focused our research and development efforts on leading audio components and total solutions for the TV soundbar, notebook, TV speakers, NRT speakers and professional and consumer audio markets. We are engaged with several leading multinational brands on their 2011 new projects. We believe that the market for our products will experience strong growth as the end user solutions shipments continue to rapidly increase.

Our sales are made primarily on an OEM basis to manufacturers and marketers of consumer and professional solutions. During the three month period ended September 30, 2010, a majority of our sales were made to customers in the United States. We believe that international sales will significantly increase in the future.

AuraSound, Inc.

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 first and second quarters of our fiscal year due to the fall and winter selling seasons. Cost of goods sold consists primarily of material costs, direct overhead, inbound freight and duty, licensee, rework, and a reserve for inventory obsolescence.

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

Our selling, general and administrative expenses consist primarily of payroll and related costs, professional fees, and other corporate overhead 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

For the three months ended September 30, 2010 compared to the three months ended September 30, 2009.

Revenue

Net revenue increased from $1,278,900 to $10,971,201, an increase $9,692,301 or 758% compared to the same prior year period. The increase in net revenue for the current period has primarily been the result of: The acquisition of the net assets and liabilities of ASI Holdings Limited (“ASI Holdings”) along with improved relationships with existing AuraSound customers that resulted in a significant increase in revenue per customer.

Gross Profit

Cost of sales for the three months ended September 30, 2010 was $9,771,021 as compared to cost of sales of $1,211,353 for the three months ended September 30, 2009. Gross profit for the three months ended September 30, 2010 was $1,200,180 compared to $67,547 during the prior year period. The increase in gross profit is primarily due to the acquisition of the net assets and liabilities of ASI Holdings.

Research and Development Expenses

Research and development expenses for the quarter ended September 30, 2010 totaled $128,449, an increase of $2,621 or 2% from the $125,828 incurred for the same prior year period. Although the Company has expanded its customer base significantly through the acquisition of ASI Holdings it was able to hold it research and development costs essentially at historical margins as it realizes the economies of scale anticipated as part of the strategy behind the acquisition.

Selling, General and Administrative Expenses

General and administrative expenses for the quarter ended September 30, 2010 increased by $470,162 or 109% to $899,945 as compared to $429,783 incurred for the same prior year period. The increase is primarily due to one-time legal, accounting, other professional fees, and other direct costs of the acquisition of ASI Holdings along with an expected increase in selling and general administrative expenses as a result of the acquisition creating a larger organization with multiple locations and additional customers to support. We expect our legal and professional fees to be somewhat reduced over the subsequent quarters as the costs of the acquisition and related integration subside.

We expect our ongoing selling, general and administrative costs, exclusive of one-time costs, will continue at current levels in terms total costs, but are expecting a reduction in terms of said costs as a percentage net revenues as revenues continue to increase.

AuraSound, Inc.

Amortization Expense

Amortization expense totaled $136,334 in the quarter ended September 30, 2010 compared with amortization expense of $0 for the quarter ended September 30, 2009. The amortization expense is associated the intangible assets associated with the acquisition of ASI Holdings.

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 September 30, 2010 and September 30, 2009. Accordingly, no income tax benefit has been reflected for either period.

Net Income

Net income totaled $35,452 in the quarter ended September 30, 2010 compared with net loss of $532,160 for the quarter ended September 30, 2009. The improvement is primarily due to the acquisition of ASI Holdings and its impact on the results of operations as discussed above.

Liquidity and Capital Resources

As of September 30, 2010, our current liabilities exceeded our current assets by $10,262,705 compared to a deficit of $6,620,058 as of June 30, 2010. Included in the current periods negative working capital is $4,888,464 of common shares to be issued once sufficient authorized shares of common stock are available for issuance. As of November 11, 2010 the Board of Directors of the Company and the majority stockholder approved an increase in the number of authorized shares of the Company’s common stock, par value $0.01 per share, from 16,666,667 shares to 100,000,000 shares, which fully satisfies these commitments. After subtracting the common shares to be issued, the negative working capital as of September 30, 2010 improves to $5,374,241.

Cash provided by operations during the three months ended September 30, 2010 was $2,962,588 as compared to net cash used in operations of negative $70,046 during the same period in the prior year. The change was primarily a result of the reduction in net loss, and an overall increase in accounts payable in excess of the increase in accounts receivable and inventories.

Cash provided by investing activities for the three months ended September 30, 2010 was $153,441 as compared to cash used in investing activities of negative during the same period in the prior year. The change is attributable to the net cash acquired as part of the net assets and liabilities acquired from ASI Holdings.

In order to fund ongoing operations the Company has reduced operating costs of the newly combined company on a go forward basis, anticipates that operations will improve to and remain at profitable levels in the coming quarters

and actively seeking financing in the form of a line of credit and other alternative measures. If the Company is unable to obtain financing for its working capital requirements, or is able to obtain financing with reasonable terms and conditions, it may have to curtail its operations sharply or cease business altogether.

Management believes that production and expansion of product lines during the next twelve months is critical to the success of the Company and 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 related to borrowing costs, management believes that inflation will have no significant effect on our results of operations or financial condition.

AuraSound, Inc.

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. As of September 30, 2010 the Company has an accumulated deficit of $37,803,339, negative working capital of $10,262,705 and has reported significant losses over the past several years. During the three month period ended September 30, 2010 the Company recorded a net profit of $35,452 compared to a net loss of $532,160 for the comparable prior year period and generated net cash provided by operating activities of $2,962,588 compared to ($70,046) for the comparable prior year period. The move toward profitability and positive cash flow is a directly result of the execution of new management’s post acquisition business plan to cut costs on all business lines, hold and spread overhead costs against a larger revenue base and to continue to move toward sustained profitability. However, there can be no assurance that the Company can become profitable or sustain profitability or positive cash flows from operations. As such, if the Company is unable to generate positive net income and is 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.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Not Required.

Item 4. Controls and Procedures

As of September 30, 2010, the end of the period covered by this periodic report, our management carried out an evaluation, under the supervision and with the participation of our Chief Executive Officer/President, who is also our Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms. In addition, disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that the information required to be disclosed by us in the reports we file or submit under the Exchange Act is accumulated and communicated to management, including our principal executive and principal financial officers or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosures. Management recognizes that a control system, no matter how well conceived and operated, can provide only reasonable assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues within the company have been detected. Therefore, assessing the costs and benefits of such controls and procedures necessarily involves the exercise of judgment by management. Our disclosure controls and procedures are designed to provide reasonable assurance of achieving their objectives.

During the period covered by this report, we made no significant change in our internal controls over financial reporting that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

AuraSound, Inc.

Item 4T. Controls and Procedures. (Removed and Reserved)

PART II—OTHER INFORMATION

Item 1. Legal Proceedings

None

Item 1A. Risk Factors

Not Required.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None

Item 3. Defaults Upon Senior Securities

None

Item 4. (Removed and Reserved).

Item 5. Other Information.

Acquisition of ASI Holdings Limited.

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

AuraSound, Inc.

GGEC America, Inc., obtains the license rights needed for the Company to manufacture and sell ASI Holding’s products to ASI Holding’s customers after the Closing Date, and (ii) all of the members of the Company’s Board of Directors who have no beneficial ownership interest in the Contingent Shares approve the release of the Contingent Shares to the shareholders of ASI Holdings.These Contingent Shares were not issued and placed in escrow, as the Company did not have at the time a sufficient number of authorized shares to issue the Contingent Shares. During November 2010 these two contingencies described above have been met and the Company has issued 5,389,204 shares of Common Stock to Sunny World and 250,000 shares of Common Stock have been issued to Faithful Aim, leaving a balance of 348,801shares of Common Stock valued, at $310,696 yet to be issued to Faithful Aim.

The following table summarizes the fair values of the assets acquired and liabilities assumed related to the acquisition of ASI.


	Amount
Purchase price	$	6,349,205

Fair Value of assets acquired
Current assets		9,320,676
Property & equipment		36,285
Intangible Assets		4,500,000
		13,856,961
Fair value of liabilities acquired
Current liabilities		13,479,795

Net assets acquired		377,166

Goodwill	$	5,972,039

Pro Forma Condensed Combined Financial Information

The following unaudited pro forma condensed combined financial information presents the results of operations of the Company as they may have appeared if the closing of the acquisition of the net assets and liabilities of ASI Holdings, presented in aggregate, had been completed on July 1, 2010 and July 1, 2009.


	For the three months-ended
	September 30, 2010		September 30, 2009
Net sales	$	13,564,464	$	6,548,834

Loss from operations		273,188	$	(843,003	)

Net loss	$	251,847	$	(1,034,470	)

AuraSound, Inc.

Item 6. Exhibits

3.1	Articles of Incorporation (1)
3.2	Bylaws (1)
10.1	Asset Purchase Agreement dated July 10, 2010 between AuraSound, Inc., ASI Holdings Limited and ASI Audio Technologies, Inc.*+
10.2	Amendment No. 1 dated July 31, 2010 to Asset Purchase Agreement dated July 10, 2010 between AuraSound, Inc., ASI Holdings Limited and ASI Audio Technologies, Inc.*
10.3	Warrant issued to Sunny World Associates Limited in conjunction with the completion of the asset purchase on July 31, 2010*
10.4	Securities Purchase Agreement dated July 10, 2010 between AuraSound, Inc., GGEC America, Inc. and Guoguang Electric Company Limited*
10.5	Manufacturing Agreement dated July 30, 2010 between AuraSound, Inc. and Guoguang Electric Company Limited*+
10.6	Warrant issued to GGEC America, Inc. in conjunction with the securities purchase dated July 10, 2010*
10.7	Warrant issued to GGEC America, Inc. in conjunction with the securities purchase dated July 10, 2010*
10.8	Debt Conversion Agreement dated July 10, 2010 between AuraSound, Inc. and InSeat Solutions, LLC*
10.9	Warrant issued to InSeat Solutions, LLC in conjunction with the debt conversion dated July 10, 2010*
10.10	Employment Agreement dated July 31, 2010 between AuraSound, Inc. and HaraldWeisshaupt*
10.11	Non-Competition Agreement dated July 31, 2010 between AuraSound, Inc. and HaraldWeisshaupt*
10.12	Lock-Up Agreement dated July 31, 2010 among AuraSound, Inc., Sunny World Associates Limited and Faithful Aim Limited*
31.1	Certification of Principal Executive Officer Pursuant to Rule 13a-14(a) and 15d-14(a)*
31.2	Certification of Principal Financial Officer Pursuant to Rule 13a-14(a) and 15d-14(a)*
32	Certification of Principal Executive Officer and Principal Financial Officer Pursuant to Section 1350 of Title 18 of the United States*

+	A portion of this document has been redacted in connection with a confidential treatment request.

*	Filed herewith.

(1)	Incorporated by reference to the registrant’s Report on Form 8-K filed with the Securities and Exchange Commission on June 13, 2007.

SIGNATURES

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

	AURASOUND, INC.

Dated: March 7, 2011	By:	/s/ HaraldWeisshaupt
		HaraldWeisshaupt, President and Chief
		Executive Officer

	By:	/s/ HaraldWeisshaupt
		HaraldWeisshaupt
		Principal Accounting and
		Chief Finance Officer

ARTICLE I ASSET PURCHASE		1

1.1	Purchase and Sale of Assets; Assumption of Liabilities	1
1.2	Purchase Price and Related Matters	3
1.3	The Closing	4
1.4	Common Stock Certificate	4
1.5	Consents to Assignment	5
1.6	Further Assurances	5

ARTICLE II REPRESENTATIONS AND WARRANTIES OF SELLERS		6

2.1	Organization, Qualification and Corporate Power	6
2.2	Authority	6
2.3	Noncontravention	6
2.4	Financial Statements	7
2.5	Absence of Certain Changes	7
2.6	Undisclosed Liabilities	7
2.7	Foreign Corrupt Practices	7
2.8	Ownership of Personal Property	7
2.9	Real Property	8
2.10	Intellectual Property	8
2.11	Contracts	9
2.12	Intentionally Omitted	9
2.13	Litigation	9
2.14	Employment Matters	9
2.15	Employee Benefits	11
2.16	Environmental Matters	11
2.17	Legal Compliance	12
2.18	Permits	12
2.19	Business Relationships with Affiliates	12
2.20	Brokers’ Fees	12
2.21	Inventory	12
2.22	Intentionally Omitted	12
2.23	Insurance	12
2.24	Warranty Matters	13
2.25	Customers, Distributors and Suppliers	13
2.26	Investment	13
2.27	Tax Compliance	13
2.28	Disclaimer of Sellers	14
	ARTICLE III REPRESENTATIONS AND WARRANTIES OF BUYER	14
3.1	Organization	14

3.2	Authority	14
3.3	Noncontravention	14
3.4	Litigation	15
3.5	SEC Documents	15
3.6	Capitalization	15
3.7	Financial Statements	16
3.8	Events Subsequent to Financial Statements	16
3.9	No Brokers	17

ARTICLE IV PRE-CLOSING COVENANTS		17

4.1	Closing Efforts	17
4.2	Operation of Business	17
4.3	Access	19
4.4	Exclusivity	19
4.5	Supplement to Disclosure Schedules	19

ARTICLE V CONDITIONS PRECEDENT TO CLOSING		20

5.1	Conditions to Obligations of Buyer	20
5.2	Conditions to Obligations of Sellers	21

ARTICLE VI INDEMNIFICATION		22

6.1	Indemnification by Sellers	22
6.2	Indemnification by Buyer	22
6.3	Claims for Indemnification	23
6.4	Survival	24
6.5	Limitations on Indemnification by Sellers	24
6.6	Limitations on Indemnification by Buyer	25
6.7	Exclusive Remedy	25
6.8	Treatment of Indemnification Payments	25
6.9	Mitigation	25
6.10	Claims Involving Pre-Closing and Post-Closing Liability	26

ARTICLE VII TAX MATTERS		26

7.1	Preparation and Filing of Tax Returns; Payment of Taxes	26
7.2	Allocation of Certain Taxes	26
7.3	Cooperation on Tax Matters; Tax Audits	26
7.4	Termination of Tax Sharing Agreements	27

ARTICLE VIII TERMINATION		27

8.1	Termination of Agreement	27
8.2	Effect of Termination	27

ARTICLE EX EMPLOYEE MATTERS		27

9.1	Offers of Employment	27

ARTICLE X OTHER POST-CLOSING COVENANTS		28

10.1	Access to Information; Record Retention; Cooperation	28
10.2	Non-Solicitation and No Hiring	29
10.3	Non-Competition	30
10.4	Payment of Assumed Liabilities	30
10.5	Insurance	30
10.6	Name Change	30
10.7	Registration Statement	31
10.8	Working Capital	31

ARTICLE XI DEFINITIONS		31

ARTICLE XII MISCELLANEOUS		37

12.1	Press Releases and Announcements	37
12.2	No Third Party Beneficiaries	37
12.3	Intentionally Omitted	37
12.4	Entire Agreement	37
12.5	Succession and Assignment	37
12.6	Notices	38
12.7	Amendments and Waivers	38
12.8	Severability	38
12.9	Expenses	39
12.10	Specific Performance	39
12.11	Governing Law	39
12.12	Submission to Jurisdiction	39
12.13	Construction	39
12.14	WAIVER OF JURY TRIAL	39
12.15	Incorporation of Exhibits and Schedules	39
12.16	Counterparts and Facsimile Signature	39



Schedule 1.1(a)(ii)	—	Personal Property
Schedule 1.1 (b)	—	Excluded Assets
Schedule 1.1 (c)	—	Assumed Liabilities
Schedule 1.2(a)(ii)	—	Personal Property
Schedule 1.2(c)	—	Allocation of Purchase Price
Schedule 5.1(i)	—	Required Third Party Consents
Schedule 5.2(1)	—	Cancelled Debt
Schedule 9.1	—	Employees Offered Employment by Buyer

Exhibits:

Exhibit A	—	Form of Lock-Up Agreement
Exhibit B	—	Form of Warrant
Exhibit C	—	Form of Bill of Sale
Exhibit D	—	Form of Trademark Assignment Agreement
Exhibit E	—	Form of Patent Assignment Agreement
Exhibit F	—	Form of Assignment and Assumption Agreement
Exhibit G	—	Form of Weisshaupt Employment Agreement
Exhibit H	—	Form of Noncompetition Agreement

If to Buyer:	Copies (which shall not constitute notice) to:

AuraSound, Inc.	Richardson & Patel LLP

11839 East Smith Avenue	10900 Wilshire Blvd., Suite 500
Santa Fe Springs, California 90670	Los Angeles, California 90024
Facsimile: (562) 821-0249	Facsimile: (310) 208-1154s
Attention: Chief Executive Officer	Attention: Kevin Friedmann, Esq.

If to Sellers:	Copies (which shall not constitute notice) to:

ASI Holdings Limited	Stradling Yocca Carlson & Rauth
Room B, 10/F, Neich tower,	660 Newport Center Drive
128 Gloucester Road	Suite 1600
Wanchai, Hong Kong	Newport Beach, California 92660
Attention; Harald Weisshaupt	Facsimile: (949) 725-4100
	Attention: Shivbir S. Grewal, Esq.

1.	Sellers are currently engaged in the business of design and distribution of sound speaker systems (the “Business”).

2.	Buyer desires to purchase from each Seller, and each Seller desires to sell to Buyer, the assets of such Seller used in or relating to the Business described herein, subject to the assumption of certain related liabilities and upon the terms and subject to the conditions set forth herein.

3.	Capitalized terms used in this Agreement shall have the meanings ascribed to them in Article XI.

1.	Company owned membership interests in ASI Audio Technologies, L.L.C. (referred to herein as “ASI Audio”).

2.	Company shall retain US$250,000.


1.	In connection with the contracts listed in Section 2.11 of the Schedule entered into in the ordinary course of business, there may be certain obligations arising out of such contracts, including but not limited to payment and performance obligations, such as royalties, fees, indemnification and confidentiality.

2.	Declaration of Controlled Hazardous Substances Confirmation and Compliance dated January 5, 2007 by ASI Holdings Limited certifying to ******.

3.	Deed of Undertaking dated May 11, 2010 by ASI Holdings Limited in favor of ******.

4.	Certification of non-use of AmTRAN controlled substances dated ___ by ASI Holdings Limited in favor of AmTRAN.

5.	Supplier Social and Environmental Responsibility (SER) Declaration dated July 7, 2007 by ASI Holdings Limited in favor of ******.

6.	Environment Protection Warranty dated July 7, 2007 by ASI Holdings Limited in favor of ******.

7.	Guaranty and Authority of Environmental Documentation dated February 26, 2008 by ASI Holdings Limited in favor of ******.

8.	Trade and other payables in Hong Kong dollars:

Company Name	HKD
Kuehne & Nagel Limited	7,593,486.40
Hency Shipping Limited	1,999,478.64
Expeditors HK Limited	988,823.14
******	7,960,214.13
Pacer Distribution Services	1,675,480.18
	20,217,482.49

Balance per Bank Statement		315,717.45
		315,717.45
Less : Outstanding checks :
JV091226 24/12/2009	Federal Express	7,181.58
PV091231 24/12/2009	MPF - Dec/2009	3,500.00
JV091227 28/12/2009	Hecny Shipping Limited	299,571.85
PV091246 31/12/2009	SunnyWorld Associates Ltd	131,568.64
PV911043 27/11/2009	Sunny World Associates Ltd Expense -Ref: ASIPV0911043	99,401.06

Adjusted balance (correct cash balance)		(225,505.68)

Company name	Origination	Nature	Item	HKD Amounts
Expeditors Hong Kong Limited	HK	Freight charges	7	373,276.89
Expeditors Hong Kong Limited	HK	Freight charges	7	111,853.06
Kuehne & Nagel Limited	HK	Freight charges	7	475,428.40
Hecny Shipping Limited	HK	Freight charges	7	2,426,446.52
HK Staff	HK	Salary	10	70,125.00
Hutchison Global Communications Ltd	HK	Telephone bills	8	573.00
Hutchison Global Communications Ltd	HK	Telephone bills	8	356.00
Hutchison Telecommunications (HK) Ltd	HK	Telephone bills	8	16,728.00
Hutchison Telecommunications (HK) Ltd	HK	Telephone bills	8	5,182.00
The Hong Kong Electric Co Ltd	HK	Electricity plus deposit	8	4,856.00
Hang Fat Engineering Co	HK	Office decoration	8	5,000.00
Fuji Xerox (Hong Kong) Ltd	HK	Fixed Charges - Printing	8	1,000.00

Kintetsu World Express (HK) Ltd	HK	Storage Charges	7	2,095.39
Federal Express (HK) Ltd	HK	Courier and Postage	7	34,727.63
Baynard Limited	HK	Rent for Quarter	9	18,800.00
SF Express (HK) Ltd	HK	Courier and Postage	7	236.00
Cheung Ying Furniture Co	HK	Office decoration	8	10,120.00
Sun World’s Interior Design Decoration Gallery Co	HK	Office decoration	8	98,800.00
The Hong Kong and China Towngas Limited	HK	Gas Charges	8	409.00
Water Supplies Department - HKSAR	HK	Water	8	206.70
Sunbase Int’l Properties Management Ltd	HK	Monthly office rent -HK	9	36,897.00
Sunbase Int’l Properties Management Ltd	HK	Monthly Management fee for office - HK	9	8,042.00
HSBC Insurance	HK	Mandatory Provident Fund	10	5,750.00
Alorica Inc	HK	Warranty charges	7	173,719.39
Pacer Distribution Services	HK	Warehouse -storage fee	7	77,304.13
PRC Staff to Fesco	PRC	Monthly Salary	10	92,080.43
T.Y. Lam & Co. Solicitors	HK	Consultancy Fee	8	2,575.80
Petty Cash	HK	Monthly Cleaning Fee	8	500.00
	PRC	Rent in Shen zhen office	9	11,520.00
Petty Cash	PRC	Claim Expenses	10	84,177.00
HK Staff	HK	Claim Expenses	8	12,224.73
Pioneer Courier Co	HK	Courier and Postage	7	180.00
CLP Power HK Limited	HK	Electricity	8	652.00
Taiwanese Staff	HK	Salary	10	24,500.00

Sunny World Associates Limited	HK	Consultancy Fee	11	39,000.00
Max Profit Consulting Ltd	HK	Consultancy Fee	11	58,500.00
Triple-shift Rapid Prototyping Manufacturer	HK	Mock up Fee	8	194,137.00
GuangGuo Electric Limited	HK	Costs of good 2010	6	47,311,708.08
GGEC Technology Limited	HK	Costs of good 2010	6	3,589,483.33
GuangGuo Electric Limited	HK	Costs of good-2009	6	1,100,484.22
GGEC Technology Limited	HK	Costs of good-2009	6	959,412.01
PRC Tax department	PRC	Quarterly tax	8	27,428.00
	PRC	Management fee for PRC office	8	2,000.00
US Staff	US	Salary-2nd half of monthly salary	10	232,830.00
Dolby Laboratory	US	Certification and sign up fee	8	1,014,000.00
				58,715,324.71

1.	**** License Agreement dated May 10, 2010 by and between **** and ASI Holdings Limited.

2.	License for Distribution of Executable Software dated April 16, 2010 by and between Cirrus Logic, Inc. and ASI Holdings Limited.

3.	Technology License Agreement dated November 14, 2008 by and between SRS Labs, Inc. and ASI Holdings Limited.

4.	Consumer Manufacturing License Agreement dated May 27, 2010 by and between ASI Holdings Limited and Guangzhou DTS Digital Theater System Company Limited.

5.	Made for iPod License dated October 23, 2009 by and between ASI Holdings Ltd. and Apple Inc. and all supplements thereto (Collectively, items 3-11 of Section 2.10(f) of this Schedule).

6.	Tenancy Agreement dated June 26, 2009 by and between Gold Harvest Properties Limited and ASI Holdings Limited.

7.	Tenancy Agreement dated August 15th, 2008 by and between Billion Trend Holdings Limited carrying on business in H.K. as Yick Cheong Real Estate Limited and ASI Holdings Limited.

8.	Tenancy Agreement dated January 31, 2009 by and between Baynard Limited and ASI Holdings Limited.

9.	Month to month tenancy at 6125 E. Indian School Road Scottsdale, AZ 85251, by and between FFP, LLC and ASI Audio.

10.	Intentionally omitted.

11.	Made for iPod Manufacturing License dated ____ by and between ASI Holdings Ltd. and Apple Inc.


1.	A copy of the Financial Statements is attached immediately following this page.

1)	The financial statements referred to above are fairly presented in conformity with U.S. generally accepted accounting principles, and include all disclosures necessary for such fair presentation and disclosures required to be included therein by the laws and regulations to which the Company is subject.

2)	We have made available to you financial records and related data -

	a)	Financial records and related data.

	b)	There have been no communications from the SEC or other regulatory agencies concerning noncompliance with, or deficiencies in, financial reporting practices.

3)	There are no material transactions that have not been properly recorded in the accounting records underlying the financial statements.

4)	We believe that the effects of the uncorrected financial statement misstantements summarized in the attached schedule arc immaterial, both individually and in the aggregate, to the financial statements taken as a whole.

5)	We acknowledge our responsibility for the design and implementation of programs and controls to prevent and detect fraud.

6)	We have no knowledge of any fraud or suspected fraud affecting the Company involving:

	a}	Management,

	b)	Employees who have significant roles in internal control, over financial reporting, or

	c)	Others where the fraud could have a material effect on the financial statements.

7)	We have no knowledge of any allegations of fraud or suspected fraud affecting the Company received in communications from employees, former employees, regulators, or others.

8)	The Company has no plans or intentions that may materially affect the carrying value or classification of assets and liabilities.

9)	The following, if material, have been properly recorded or disclosed in the financial statements:

	a)	Related party transactions and related accounts receivable or payable, including sales, purchases, loans, transfers, leasing arrangements, and guarantees,

	b)	Guarantees, whether written Or oral, under which the company is contingently liable.

10)	There are no estimates that may be subject to a material change in the near term that have not been properly disclosed in the financial statements. We understand that near term means the period within one year of the date of the financial statements. In addition, we have no knowledge of concentrations existing at the date of the financial statements that make the company vulnerable to the risk of severe impact that have not been properly disclosed in the financial statements.

11)	There are no:

	a)	Violations or possible violations of laws or regulations whose effect should be considered for disclosure in the financial statements or as a basis for recording a loss contingency.

	b)	Unasserted claims or assessments that our lawyer has advised us are probable of assertion and must be disclosed in accordance with Statement of Financial Accounting Standards No. 5 (ASC 30. 1).

	c)	Other liabilities or gain or loss contingencies that are required to be accrued or disclosed by Statement of Financial Accounting Standards No. 5 (ASC 30.1).

12)	The Company has satisfactory title to all owned assets, and other than as disclosed to you, there are no liens or encumbrances on such assets nor has any asset been pledged as collateral.

13)	Adequate provision has been made in the consolidated financial statements for 2009 and 2008 in respect of income taxes and deferred income taxes.

14)	The Company has complied with all aspects of contractual agreements that would have a material effect on the financial statements in the event of noncompliance.

15)	The Company has appropriately reconciled its general ledger accounts to their related supporting information. All related reconciling items considered to be material were identified and included on the reconciliations and were appropriately adjusted in the financial statements. All intercompany (and intercompany) accounts have been eliminated or appropriately measured and considered for disclosure in the financial statements.

16)	The Company was not part of any litigation or outstanding legal proceedings as of December 31, 2009, except as disclosed in the notes to the consolidated financial statements.

17)	The Company recognizes the revenue properly in accordance with accounting principles generally accepted in the United States of America.

Reports of Independent Registered Public Accounting Firms	2
Consolidated Balance Sheets as of December 31, 2009 and 2008	3
Consolidated Statements of Operations for the Years Ended December 31, 2009 and 2008	4
Consolidated Statements of Stockholders’ Deficit for the Years Ended December 31, 2009 and 2008	5
Consolidated Statements of Cash Flows for the Years Ended December 31, 2009 and 2008	6
Notes to Consolidated Financial Statements	7 to 13


	As of December 31, 2009			As of December 31, 2008
ASSETS
Current Assets :
Cash and cash equivalents	$	90,543		$	32,870
Accounts receivable, net of allowance for bad debts		4,767,736			1,291,158
Inventories, net		1,709,107			68,535
Deposits		24,688			14,327
Prepayments		30,780			16,564
Total current assets		6,622,854			1,423,454

Property and equipment, at cost		39,115			38,217
Less : Accumulated depreciation		(15,466	)		(3,184	)
Property and equipment, net		23,648			35,033

Total assets	$	6,646,503		$	1,458,487

LIABLITIES AND STOCKHOLDERS’ DEFICIT
Current liabilites:
Secured bank overdraft	$	28,923		$	—
Short Term Loan		500,000			—
Accounts payable		7,684,336			3,202,510
Provision for warranty service		276,362			—
Accrued Expenses and other payable		577,825			329,372
Due to bank under factoring agreement		504,368			145,083
Due to Related Parties		—			71,837
Total Liabilities		9,571,814			3,748,801

Commitments and Contingencies

Stockholders’ Deficit :
Common Stock, $0.1282 par value;		6,410			6,410
Other Comprehensive loss		(1,063	)		(448	)
Accumulated deficit		(2,930,658	)		(2,283,990	)
Total		(2,925,311	)		(2,278,028	)
Non controlling interest in subsidiary		—			(12,287	)
Total Stockholder’s deficit		(2,925,311	)		(2,290,315	)

Total liabilities and stockholders’ deficit	$	6,646,503		$	1,458,487

	For the years ended
	December 31, 2009			December 31, 2008
Net revenue	$	20,579,309		$	7,332,017

Cost of revenue		18,253,473			6,891,229

Gross profit		2,325,836			440,788

Operating expenses :
Selling expenses		278,572			59,326
General and administrative		2,602,421			2,772,721
Total operating expenses		2,880,993			2,832,047

Loss from Operations		(555,157	)		(2,391,259	)

Other income (expenses) :
Total other income (expenses)		(113,789	)		(21,354	)

Net Loss from continuing operations		(668,945	)		(2,412,613	)

Discontinued Operations :

Loss from operations of discontinued operations (including noncontrolling interest)		—			(4,939	)
Gain on disposal of subsidiary		22,277			—

Net Loss		(646,668	)		(2,417,552	)

Other Comprehensive Income (loss) :
Foreign currency translation loss		(615	)		(448	)
Net comprehensive loss	$	(647,283	)	$	(2,418,000	)

	Common tock				Other Comprehensive			Non controlling			Accumulated			Total Stockholders’ Equity
	Shares		Amount		Loss			Interest			Deficit			(Deficit)
Balance December 31, 2007		50,000	$	6,410	$	—		$	(9,560	)	$	133,562		$	130,412

Foreign currency translation loss						(448	)								(448	)

Non controlling interest in subsidiary									(2,727	)					(2,727	)

Net loss for the year												(2,417,552	)		(2,417,552	)

Balance December 31, 2008		50,000	$	6,410	$	(448	)	$	(12,287	)	$	(2,283,990	)	$	(2,290,315	)

Foreign currency translation loss						(615	)								(615	)

Disposal of subsidiary with noncontrolling interest									12,287						12,287

Net loss for the year												(646,668	)		(646,668	)

Balance December 31, 2009		50,000	$	6,410	$	(1,063	)	$	—		$	(2,930,658	)	$	(2,925,311	)

	For the years ended
	December 31, 2009			December 31, 2008
Cash flows from operating activities
Net Loss from continuing operations	$	(668,945	)	$	(2,412,613	)
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation		12,282			3,184
Decrease / (Increase) in current assets:
Accounts receivable		(3,476,598	)		(1,291,159	)
Inventories		(1,640,572	)		(68,535	)
Other assets		(25,311	)		(26,618	)
(Decrease) / Increase in current liabilities:
Accounts payable		4,481,827			3,202,509
Warranty service reserve		276,362			—
Tax payables		974			1,699
Bank Payable		28,923			—
Accrued expenses		427,719			—
Other payables		(149,355	)		325,711
Net cash used in operating activities from continuing operations		(732,674	)		(265,821	)
Net cash used in operative activities of entity disposed		(1,228	)		(665	)
Net cash provided by operating activities		(733,902	)		(266,486	)

Cash flows from investing activities
Acquisition of plant, property, and equipment		(897	)		(38,217	)
Net cash used in investing activities from continuing operations		(897	)		(38,217	)
Net cash provided by investing activities of entity disposed		—			19,938
Net cash used in investing activities		(897	)		(18,279	)

Cash flows from financing activities
Proceeds from (repayment of) installment loan		859,285			145,083
Payments to related parties		—			199
Proceeds from (payments to) related parties		(38,509	)		—
Net cash provided by financing activities from continuing operations		820,776			145,282
Net cash provided by (used in) financing activities of entity disposed		(33,328	)		86,710
Net cash provided by financing activities		787,448			231,992

Effect of exchange rate change on cash and cash equivalents		5,024			51,239
Net increase in cash and cash equivalents		57,673			(1,535	)

Cash and cash equivalents, beginning balance		32,870			34,405
Cash and cash equivalents, ending balance	$	90,543		$	32,870

Supplement disclosure of cash flow information
Interest expense paid	$	239,483		$	14,294
Income taxes paid	$	-		$	-

	2009			2008
Office furniture and fixtures	$	2,778		$	2,778

Leasehold Improvements		23,822			23,822
Office Equipment		12,514			11,617
Total		39,114			38,217
Less accumulated depreciation		(15,466	)		(3,184	)
	$	23,648		$	35,033

		2009		2008
Accrued consulting fees	$	13,462	$	-
Accrued interest		12,428		-
Accrued general and administrative expenses		346,058		-
Other		2,755		3,661
Accrued payroll		128		-
Tax payable		2,673		-
Other payable		176,356		325,711
Total	$	577,825	$	329,372

Subsidiary Name	Place of Incorporation	Principal Business Activity
The Digital Experience Limited	Hong Kong, SAR	Agency Service

ASI Auttio Technologies L.L.C.	Arizona, USA	Product Development & Support Services

1.	Item 3 of Schedule 1.1 (c) of this Schedule is herein incorporated by reference.

2.	Item 2 and 5 of Section 2.9(b) of this Schedule is herein incorporated by reference.

3.	Items 1, 2, 7-11 and 13-15 of Section 2.10(f) of this Schedule are herein incorporated by reference.

4.	Items 5,9, 11-15 and 22 of Section 2.11 of this Schedule are herein incorporated by reference.

5.	Items 1, 5, 9, 10, 12, 13, 17 18, 19, 21 of Section 2.15(a) of this Schedule are herein incorporated by reference.

6.	Item 1 and 4of Section 2.23 of this Schedule is herein incorporated by reference.

1.	Tenancy Agreement dated June 26, 2009 by and between Gold Harvest Properties Limited and ASI Holdings Limited.

2.	Tenancy Agreement dated June 17th, 2010 by and between Billion Trend Holdings Limited carrying on business in H.K. as Yick Cheong Real Estate Limited and ASI Holdings Limited.

3.	Tenancy Agreement dated January 31, 2009 by and between Baynard Limited and ASI Holdings Limited.

4.	Chinese document: Shenzen Lease and Amendment thereto.

5.	Month to month tenancy at 6125 E. Indian School Road Scottsdale, AZ 85251, by and between FFP, LLC and ASI Audio.

1.	**** Agreement dated May 10, 2010 by and between **** ASI Holdings Limited.

2.	License for Distribution of Executable Software dated April 16, 2010 by and between Cirrus Logic, Inc. and ASI Holdings, Limited.

3.	Made for iPod License dated October 23, 2009 by and between ASI Holdings Ltd. and Apple Inc.

4.	Made for iPod License: Power Only Product Supplement to Contract dated October 23, 2009 by and between ASI Holdings Ltd. and Apple Inc.

5.	Made for iPod License: Remote Control Supplement to Contract dated October 23, 2009 by and between ASI Holdings Ltd. and Apple Inc.

6.	Made for iPod License: iPhone Supplement to Contract dated October 23, 2009 by and between ASI Holdings Ltd. and Apple Inc.

7.	Made for iPod License: Amendment #1 to the Use License dated January 28, 2010 by and between ASI Holdings Ltd. and Apple Inc.

8.	Made for iPod License: iPhone Supplement to Contract dated January 28, 2010 by and between ASI Holdings Ltd. and Apple Inc.

9.	Made for iPod License: iPhone/iPad Supplement to Contract dated May 6, 2010 by and between Apple Inc. and ASI Holdings Limited.

10.	Made for iPod License: Remote Control Supplement to Contract dated May 6, 2010 by and between Apple Inc. and ASI holdings Limited.

11.	Made for iPod License: Power Only Product Supplement to Contract dated May 6, 2010 by and between Apple Inc. and ASI holdings Limited.

12.	Technology License Agreement dated November 14, 2008 by and between SRS Labs, Inc. and ASI Holdings Limited.

13.	First Amendment to the Technology License Agreement dated April 6, 2010 by and between SRS Labs, Inc. and ASI Holdings Limited.

14.	Consumer Manufacturing License Agreement dated May 27, 2010 by and between ASI Holdings Limited and Guangzhou DTS Digital Theater System Company Limited.

15.	Made for iPod Manufacturing License dated _______ by and between ASI Holdings Ltd. and Apple Inc.

1.	Items set forth in Section 2.9(b) of this Schedule are included herein by reference.

2.	Items set forth in Section 2.10(f) of this Schedule are included herein by reference.

3.	Items set forth in Section 2.15(e) of this Schedule are included herein by reference.

4.	Items set forth in Section 2.23 of this Schedule are included herein by reference.

5.	Intentionally omitted.

6.	Warehouse Services Contract for ****** Managed Inventory Program and other ASI Products dated April 1, 2009 by and between Pacer Distribution Services, Inc. and ASI Holdings Limited.

7.	Supply Agreement (Accessories) dated December 19, 2008 by and ****** and ASI Holdings Ltd.

8.	Partnership Agreement dated January 1, 2008 by and between Guoguang Electric Co., Ltd. and ASI Audio Technologies L.L.C.

9.	Document Solution Agreement dated March 31, 2010 by and between Fuji Xerox (Hong Kong) Ltd. and ASI Holdings Ltd.

10.	Consulting Agreement dated November 23, 2009 by and between Huang Hao and ASI Holdings. Ltd.

11.	Consulting Agreement dated April 1, 2010 by and between ASI Holdings Ltd. and MaxProfit Ltd.

12.	Independent Contractor Agreement dated April 1, 2010 by and between ASI Audio and Thomas R. Farr.

13.	Independent Contractor Agreement dated February 22, 2010 by and between ASI Audio and John Berkheimer.

14.	Independent Contractor Agreement dated ________ by and between ASI Audio and Martin Melmers

15.	Independent Contractor Agreement dated June 1, 2010, by and between ASI Audio and Vanessa Yang

16.	General Terms for the Installation of Buffer Stock in the Wistron (Zhongshan) Hub dated January 15, 2009 by and between ASI Holdings Limited and WZS Procurement representative.

17.	Dedicated Server Hosting Services Sales Agreement dated November 20, 2008 by and between ASI Holdings Limited and Access Solutions Limited.

18.	Chinese Document: Agreement for accounting services in the P.R.C. office.

19.	Chinese Document: Agreement for audit services in the P.R.C. office.

20.	Chinese Document: Sales Agreement dated November 7, 2008 by and between ASI Holdings Limited and ******.

21.	Chinese Document: Sales Agreement dated January 25, 2008 by and between ASI Holdings Limited and ******.

22.	Chinese Document: Quality Agreement dated May 11, 2010 by and between ASI Holdings Limited and ******.

23.	Chinese Document: Authorization of Trademark dated April 1, 2008 from ASI Holdings, Limited to GGEC. (Authorization for use of “axp audio” mark.)


1.	ASI Audio Technologies LLC Group Health Plan dated January 1, 2010 provided by Blue Cross Blue Shield of Arizona.

2.	Health Plan dated November 1, 2009 provided by Blue Cross (Asia-Pacific) Insurance Limited.

3.	Offer of Employment Letter dated December 31, 2007 sent by ASI Audio to Mr. Dennis Barnes.

4.	Offer of Employment Letter dated December 31, 2007 sent by ASI Audio to Ms. Caroline Brunet.

5.	Offer Letter dated January 13, 2010 sent by ASI Audio to Mr. Jenyang Luc Yu

6.	Offer of Employment Letter dared May 22, 2007 sent by ASI Holdings Limited to Mr. Harald Armin Weisshaupt.

7.	Offer letter dated July 28, 2008 sent by the Company to Mr. Cheng Wai Shan Ivy.

8.	Offer letter dated December 15, 2009 sent by the Company to Ms. Ma Tze Ching.

9.	Offer letter dated January 22, 2010 sent by the Company to Miss Penny Ho.

10.	Offer letter dated April 23, 2010 sent by the Company to Miss Carmen Lau.

11.	Offer letter dated January 17, 2009 sent by the Company to Ms. Sheng Hsin Yung.

12.	Offer letter dated June 29, 2010 sent by the Company to Ms. Kong Sau Wai.

13.	Offer letter dated June 29, 2010 sent by the Company to Mr. Chan Hing Lam, Ben.

14.	FESCO Employment agreement, Yan Xiao (Julie) dated July 22nd, 2008

15.	FESCO Employment agreement, Ze Jun Pang (Eric) dated July 20th, 2009

16.	FESCO Employment agreement, Wen Qiang Yang (Alex) dated March 18th, 2008

17.	FESCO Employment agreement, Xing, Wang Yang (Longger) dated April 19th, 2010

18.	FESCO Employment agreement, Qiang Huang dated May 19th, 2010

19.	FESCO Employment agreement, Xin Qu (Quincey) dated January 1st, 2010

20.	FESCO Employment agreement, Qiu Ping Jiang (Vicky) dated August 4th, 2008

21.	FESCO Employment agreement, Wei Yang (Ian) dated January 15th, 2010, executed on January 20th, 2010

22.	FESCO Employment agreement, Yuan Yuan Wang (Selina) dated September 27th, 2009

23.	FESCO Employment agreement, Hai Tao He (Hort) dated February 23th, 2009

Name	Position	Location	Leave Balance
Cheng Wai Shan, Ivy	Logisitics Officer	HK	12.5
Ho Chung Sang, Penny	Assistant Finance Manager	HK	10.0
Lau Ka Man, Carmen	Accounts Clerk	HK	under probation period
Ma Tze Ching, Jenny	Office Manager	HK	13.5
Alex Yang	Mechanical Engineer Manager	SZ	30.0
Eric Pang	Acoustic Engineer Manager	SZ	21.5
Hort He	Electronic Engineer	SZ	21.5
Ian Yang	Project Manager	SZ	9.0
Julie Xiao	Project Manager	SZ	24.0
Kevin Huang	Procurement Manager	SZ	under probation period
Longger Yang	Electronic Engineer	SZ	under probation period
Quincey Qu	Project Manager	SZ	12.5
Selina Wang	Project Manager	SZ	13.5
Vicky Jiang	Project Manager	SZ	25.0
Sheng Hsin Yung, Daphne	Sales Manager	TW	20.0
Caroline Brunet	Project Manager	US	13.0
Dennis Barnes	Electronic Engineer	US	19.0
Tony DeGiovine	Electronic Engineer	US	14.0

1.	Certificate of Good Standing dated June 14, 2010 from the Arizona Corporation Commission for ASI Audio Technologies, L.L.C.

2.	Business Registration Form for ASI Holding Ltd. in Hong Kong.

3.	Registration certificate of Foreign enterprises Permanent Residence in China.

4.	Renewal Certification of Foreign enterprises Permanent Residence in China.

5.	Tax Certification Permit for ASI Shenzhen.

Customer	Product	Quantity
******	******	2,333.00
	******	3,899.00

******	******	3,840.00
	******	960.00

******	078G01206A	1,362.00
	078G0120B06A	3,162.00
	078G0120A06A	2,872.00

******	SP.10600.018 - EMCPU1-1G	2,688.00
	SP.10600.019-GEMPU1	1,920.00

******	SP.10600.019	12,360.00

Good returns	******
	B-stock	1,176.00
	C-stock	109.00

	******
	B-stock	767.00
	C-stock	106.00