SIGNIFICANT ACCOUNTING POLICIES

6 Months Ended

Dec. 31, 2011

Significant Changes in Operations [Abstract]

SIGNIFICANT ACCOUNTING POLICIES

NOTE 3 – SIGNIFICANT ACCOUNTING POLICIES

PRINCIPLES OF CONSOLIDATION - The consolidated financial statements include the accounts of AuraSound, Inc. and its wholly-owned subsidiary. All significant inter-company accounts and transactions have been eliminated.

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

Additional allowances could be required if the financial condition of our customers or distributors were to be impaired beyond our estimates. As of December 31, 2011 and June 30, 2011, the allowance for doubtful accounts and sales returns amounted to $357,622 and $578,657, respectively.

PROPERTY, PLANT & EQUIPMENT - As of December 31, 2011 and June 30, 2011, the Company had net property, plant and equipment in the amount of $744,507 and $482,503, respectively, consisting of the following:

		December 31, 2011			June 30, 2011
		Unaudited			Audited
Machinery and equipment	$	29,479		$	29,479
Tooling		433,755			353,172
Computer software and equipment		133,033			10,369
Leasehold improvements		81,917			56,927
Furniture and Fixture, office equipment		235,324			138,847
Total property and equipment		913,508			588,794
Accumulated depreciation		(169,001	)		(106,291	)
Net value of property and equipment	$	744,507		$	482,503

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

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

Our warranty accrual is based on historical costs of warranty repairs and expected future identifiable warranty expenses and is included in accrued liabilities in the accompanying consolidated balance sheets. Warranty expenses are included in cost of sales in the accompanying consolidated statements of income. Changes in estimates to previously established warranty accruals result from current period updates to assumptions regarding repair costs and warranty return rates and are included in current period warranty expense. As of December 31, 2011 and June 30, 2011, the warranty accrual amounted to $122,764 and $220,118, respectively.

BASIC AND DILUTED NET INCOME (LOSS) PER SHARE - Basic net income per common share is computed by dividing net income available to common stockholders by the weighted average number of common shares outstanding. Diluted net income per common share is computed similar to basic net income per common share except that the 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 December 31, 2011, the Company had 13,642,934 potentially dilutive warrant shares outstanding and 377,507 potentially dilutive vested options, of which both are included in the diluted loss per share calculation.

The difference in the weighted average shares outstanding used in the calculation of basic and diluted earnings per share for six months ended December 31, 2011 and 2010 are as follows:

		December 31,		December 31,
		2011		2010
Net Income	$	98,461	$	1,050,347
Basic:
Weighted average common shares outstanding		16,927,272		11,133,847
Shares used in computation of basic net income per share		16,927,272		11,133,847
Net Income per share - basic	$	0.01	$	0.09
Diluted:
Shares used in computation of basic net income per share		16,927,272		11,133,847
Net shares assumed issued using the treasury stock method for outstanding common stock warrants		6,183,488		9,075,215
Shares used in computation of diluted net income per share		23,110,760		20,209,062
Net Income per share - diluted	$	0.00	$	0.05

Warrants having exercise prices that are greater than the per share market price for our common stock, if any, have also been excluded from the diluted per share calculation for fiscal year 2011 and the six months ended December 31, 2011. There were no shares represented by such warrants for fiscal year 2011 and no shares represented by such warrants as of December 31, 2010.

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

RECLASSIFICATIONS - Certain items related to fiscal year 2011 in the accompanying consolidated financial statements have been reclassified from the prior year to conform to the current year presentation.