feb22010.htm

Index to Consolidated Financial Statements

Report of Independent Registered Public Accounting Firm	F-1

Consolidated Financial Statements of Aura Systems, Inc. and Subsidiary:

Consolidated Balance Sheets - February 28, 2010 and February 28, 2009	F-2
Consolidated Statements of Operations - Years ended February 28, 2010 and February 28, 2009	F-3
Consolidated Statements of Stockholders' Equity/(Deficit) - Years ended February 28, 2010 and February 28, 2009	F-4
Consolidated Statements of Cash Flows - Years ended February 28, 2010 and February 28, 2009	F-5 to F-6
Notes to Consolidated Financial Statements	F-7 to F-20

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders

Aura Systems, Inc. and subsidiary

We have audited the accompanying consolidated balance sheets of Aura Systems, Inc. (a Delaware corporation) and subsidiary (the “Company”) as of February 28, 2010 and 2009, and the related consolidated statements of operations, stockholders' equity (deficit), and cash flows for each of the years in the two year period ended February 28, 2010. The Company’s management is responsible for these financial statements. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Aura Systems, Inc. and subsidiary as of February 28, 2010 and 2009, and the results of its operations and its cash flows for each of the years in the two year period ended February 28, 2010 in conformity with accounting principles generally accepted in the United States of America.

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As more fully described in Note 10 to the financial statements, the Company has historically incurred substantial losses from operations, and the Company may not have sufficient working capital or outside financing available to meet its planned operating activities over the next twelve months. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans regarding these matters are described in Note 10. The consolidated financial statements do not include any adjustments that might result from the outcome of these uncertainties.

/s/ Kabani & Company, Inc.

Certified Public Accountants

Los Angeles, California

June 15, 2010

F-1

AURA SYSTEMS, INC. AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS

	February 28, 2010			February 28, 2009
ASSETS
Current assets:
Cash and cash equivalents	$	45,294		$	317,256
Accounts receivable, net of allowance for doubtful accounts of $50,000 and $60,000 at February 28, 2010 and 2009, respectively		313,671			319,249
Inventory - current		1,500,000			1,500,000
Other current assets		241,749			255,620
Total current assets		2,100,714			2,392,125

Property, plant, and equipment, net		557,838			353,444
Inventory, non-current, net of allowance for obsolete inventory of $2,212,626 and $2,425,994 at February 28, 2010 and 2009, respectively		2,140,194			2,545,978

Total assets	$	4,798,746		$	5,291,547

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable	$	1,130,276		$	1,075,202
Notes payable		547,500			225,000
Notes payable- related party		5,150,000			1,800,000
Accrued expenses		2,221,759			1,037,917
Customer advances		411,616			418,612

Total current liabilities		9,461,151			4,556,731

Convertible note payable		500,000			500,000

Total liabilities		9,961,151			5,056,731


Commitments and contingencies


Stockholders' equity (deficit) :
Common stock, $0.0001par value; 75,000,000 and 50,000,000 shares authorized at February 28, 2010 and 2009; 52,689,061 and 46,344,770 issued and outstanding at February 28, 2010 and 2009		5,268			4,634
Additional paid-in capital		374,890,469			364,222,963
Subscription receivable		-			(27,416	)
Accumulated deficit		(380,058,142	)		(363,965,365	)

Total stockholders' equity (deficit)		(5,162,405	)		234,816

Total liabilities and stockholders' equity(deficit)	$	4,798,746		$	5,291,547

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

F-2

AURA SYSTEMS, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF OPERATIONS

For the Years Ended February 28, 2010 and 2009

	2010			2009

Net revenues	$	3,214,792		$	2,415,529
Cost of goods sold		1,745,107			1,539,985

Gross profit		1,469,685			875,544

Operating expenses:
Engineering, research and development		2,260,962			1,872,683
Selling, general, and administrative		8,386,767			7,827,317
Stock option and warrants compensation expense		6,209,181			377,476

Total operating expenses		16,856,910			10,077,476

Loss from operations		(15,387,225	)		(9,201,932	)

Other income (expense):
Interest expense, net		(683,561	)		(702,650	)
Gain (Loss) on settlement of debt, net		(43,022	)		39,562
Other income (expense), net		21,031			21,058

Total other expense		(705,552	)		(642,030	)

Net Loss	$	(16,092,777	)	$	(9,843,962	)

Basic and diluted loss per share	$	(0.33	)	$	(0.24	)

*Weighted-average shares outstanding		48,294,414			41,716,958

* Basic and diluted weighted average number of shares outstanding are equivalent because the effect of

dilutive securities is anti-dilutive.

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

F-3

AURA SYSTEMS, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY/ (DEFICIT)

	Common Stock Shares		Common Stock Amount		Additional Paid-In Capital			Subscription Receivable			Accumulated Deficit			Total Stockholders' Equity /(Deficit)

Balance, February 28, 2008		37,783,539	$	3,778	$	355,618,690			(704,671	)	$	(354,121,403	)	$	796,394
Common stock issued in private placements, net		2,915,000		292		2,436,766			585,750			-			3,002,807
Warrants exercised		2,397,717		240		2,282,165			-			-			2,282,405
Shares issued in exchange for assets purchased		400,000		40		399,960			-			-			400,000
Warrants exercised for note settlement		430,329		43		430,286			-			-			430,329
Shares issued for services		100,000		10		99,990			-			-			100,000
Shares issued for note conversion		2,069,742		207		2,069,535			-			-			2,069,742
Shares issued for debt settlement		98,442		9		58,871			-			-			58,880
Shares issued as note guarantee fee		150,000		15		62,985			-			-			63,000
Subscription settled with payable		-		-		-			91,505						91,505
Induced conversion charge		-		-		368,900			-			-			368,900
Employee option expense		-		-		394,814			-			-			394,814
Net Loss		-		-		-			-			(9,843,962	)		(9,843,962	)
Balance, February 28, 2009		46,344,770	$	4,634	$	364,222,963		$	(27,416	)	$	(363,965,365	)	$	234,816

Common stock issued in private placements, net		3,305,734		331		2,104,069			-			-			2,104,400
Warrants exercised		94,428		9		94,419			-			-			94,428
Shares issued for note conversions		844,566		84		569,898			-			-			569,982
Shares issued for settlement of accounts payable		161,082		16		113,849			-			-			113,865
Stock issued for inventory purchase		151,814		15		151,799			-			-			151,814
Shares issued for services		1,361,667		136		936,874			-			-			937,010
Adjustment to prior issuance		125,000		13		(13	)		-			-			-
Shares issued for debt settlement		300,000		30		294,557			-			-			294,587
Warrant discount and beneficial conversion feature		-		-		220,289			-			-			220,289
Employee option and warrant expense		-		-		6,209,181			-			-			6,209,181
Subscription receivable write-off		-		-		(27,416	)		27,416			-			-
Net Loss		-		-		-			-			(16,092,777	)		(16,092,777	)

Balance, February 28, 2010		52,689,061	$	5,268	$	374,890,469			-		$	(380,058,142	)	$	(5,162,405	)

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

F-4

AURA SYSTEMS, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Years Ended February 28, 2010 and 2009

	2010			2009

Cash flows from operating activities:
Net loss	$	(16,092,777	)	$	(9,843,962	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		138,448			78,980
Provision for bad debt		25,650			29,184
Provision for inventory obsolescence		(213,367	)		(298,405	)
Stock option compensation expense		6,209,181			394,814
Stock issued for inventory purchase		151,814			400,000
Amortization of debt discount		220,289			-
Operating expense charged for induced conversion		-			368,900
(Gain) Loss on debt settlement		43,022			(39,562	)
Stock issued for loan guarantee fee		-			63,000
Stock issued for services		937,010			100,000
(Increase) decrease in:
Accounts receivable		(20,072	)		438,621
Inventory		619,149			875,246
Other current assets		13,871			10,564
Increase (decrease) in:
Accounts payable and accrued expenses		1,689,329			1,092,038
Customer advances		(6,996	)		418,612

Net cash used in operating activities		(6,285,449	)		(6,311,970	)

Cash flows from investing activities:
Purchase of property, plant, and equipment		(342,841	)		(238,519	)

(Continued)

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

F-5

AURA SYSTEMS, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

For the Years Ended February 28, 2010 and 2009

	2010			2009

Cash flows from financing activities:
Proceeds from notes payable		807,500			350,000
Proceeds from notes payable - related party		3,350,000			1,300,000
Payments on notes payable		-			(125,000	)
Net proceeds from warrants exercised		94,428			2,282,405
Net proceeds from issuance of common stock		2,104,400			3,022,807

Net cash provided by financing activities		6,356,328			6,830,212

Net increase (decrease) in cash and cash equivalents		(271,962	)		279,724
Cash and cash equivalents, beginning of year		317,256			37,532

Cash and cash equivalents, end of year	$	45,294		$	317,256

Supplemental disclosures of cash flow information:
Interest paid	$	34,849		$	578,068

Income taxes paid	$	-		$	-

Supplemental schedule of non-cash financing and investing activities:

During the year ended February 28, 2010, $569,982 of notes payable and accrued interest was converted into 844,566 shares of common stock, $113,865 of accounts payable was converted into 161,082 shares of common stock, 300,000 shares of common stock were issued upon settlement of $294,587 owed to a former employee, subscription receivables of $27,416 were written-off to additional paid-in capital, and 125,000 shares of common stock were issued as a price adjustment to a previous private placement.

During the year ended February 28, 2009, $2,069,743 of notes payable and accrued interest was converted into 2,500,071 shares of common stock, 430,329 shares of common stock were issued upon the exercise of warrants in lieu of payments on notes payable of $430,329, 400,000 shares of common stock were issued in satisfaction of a liability for assets purchased with a value of $400,000, 98,442 shares of common stock were issued in satisfaction of $98,442 of previously recorded liabilities, subscription receivable of $91,505 was settled against previously recorded liability of the same amount.

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

F-6

AURA SYSTEMS, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

February 28, 2010

NOTE 1 - ORGANIZATION AND OPERATIONS

Aura Systems, Inc., ("Aura", “We” or the "Company") a Delaware corporation, was founded to engage in the development, commercialization, and sales of products, systems, and components, using its patented and proprietary electromagnetic and electro-optical technology. Aura develops and sells AuraGen® mobile induction power systems to the industrial, commercial, and defense mobile power generation markets. In addition, we hold patents for other technologies that have not been commercially exploited.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

The consolidated financial statements include the accounts of Aura and our inactive subsidiary, Aura Realty, Inc. Significant inter-company amounts and transactions have been eliminated in consolidation.

Revenue Recognition

The Company’s revenue recognition policies are in compliance with Staff accounting bulletin (SAB) 104. Sales revenue is recognized at the date of shipment to customers when a formal arrangement exists, the price is fixed or determinable, the delivery is completed, no other significant obligations of the Company exist and collect-ability is reasonably assured. Payments received before all of the relevant criteria for revenue recognition are satisfied are recorded as unearned revenue.

We recognize revenue for product sales upon shipment and when title is transferred to the customer. When Aura performs the installation of the product, revenue and cost of sales are recognized when the installation is complete. We have in the past earned a portion of our revenues from license fees and recorded those fees as income when we fulfilled our obligations under the particular agreement.

Terms of our sales generally provide for Shipment from our facilities to customers FOB point of shipment. Title passes to customers at the time the products leave our warehouse.

The Company does not offer a general right of return on any of its sales and considers all sales as final. However, if a customer determines that a different system configuration would better suit their application, we will allow them to exchange the system and bill them the incremental cost, or credit them if there is a decrease in the system cost. While some sales are for evaluative purposes, they are still considered final sales. The customers’ evaluation is for them to determine if there is a benefit to them to outfit additional vehicles in their fleets.

The only potential post delivery obligation the Company might have is for the installation of the unit. However, the unit is typically delivered at the time of installation, and the billing is done when the installation is complete. Any discounts that are offered are done as a reduction of the invoiced amount at the time of billing. The Company does not utilize bill and hold. The Company does provide customers with a warranty; however, due to the low sales volume to date, the amount has not been material and is expensed as incurred.

Cash and Cash Equivalents

Cash and equivalents include cash on hand and cash in time deposits, certificates of deposit and all highly liquid debt instruments with original maturities of three months or less. We maintain cash deposits at a bank located in California. Deposits at this bank are insured by the Federal Deposit Insurance Corporation up to $250,000. We have not experienced any losses in such accounts and believe we are not exposed to any significant risk on cash and cash equivalents.

F-7

Accounts Receivable

The Company grants credit to its customers generally in the form of short-term trade accounts receivable. Accounts receivable are stated at the amount that management expects to collect from outstanding balances. When appropriate, management provides for probable uncollectible amounts through an allowance for doubtful accounts. Management primarily determines the allowance based on the aging of accounts receivable balances, historical write-off experience, customer concentrations, customer creditworthiness and current industry and economic trends. Balances that are still outstanding after management has used reasonable collection efforts are written off through a charge to the allowance for doubtful accounts and a credit to accounts receivable.

Inventories

Inventories are valued at the lower of cost (first-in, first-out) or market, on a standard cost basis. We review the components of inventory on a regular basis for excess or obsolete inventory based on estimated future usage and sales. As further described in Note 3, due to continuing lower than projected sales, we are holding inventories in excess of what we expect to sell in the next fiscal year. As of February 28, 2010 and February 28, 2009, $2,140,194, and $2,545,978, respectively, of inventories have been classified as long-term assets.

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:

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

Improvements to leased property are amortized over the lesser of the life of the lease or the life of the improvements. Maintenance and minor replacements are charged to expense as incurred. Gains and losses on disposals are included in the results of operations.

Patents and Trademarks

We capitalize the cost of obtaining or acquiring patents and trademarks. Amortization of patent and trademark costs is provided for by the straight-line method over the estimated useful lives of the assets.

Valuation of Long-Lived Assets

The Company accounts for the impairment of long-lived assets, such as fixed assets, patents and trademarks, under the provisions of Financial Accounting Standards Board Accounting Standards Codification (“FASB ASC”) 360, “Property, Plant, and Equipment”, which establishes the accounting for impairment of long-lived tangible and intangible assets other than goodwill and for the disposal of a business. Pursuant to FASB ASC 360, we review for impairment when facts or circumstances indicate that the carrying value of long-lived assets to be held and used may not be recoverable. If such facts or circumstances are determined to exist, an estimate of the undiscounted future cash flows produced by the long-lived asset, or the appropriate grouping of assets, is compared to the carrying value to determine whether imp airment exists. If an asset is determined to be impaired, the loss is measured based on various valuation techniques, including a discounted value of estimated future cash flows. We report impairment costs as a charge to operations at the time it is recognized. During the years ended February 28, 2010 and 2009, we determined that there was no impairment of long-lived assets.

F-8

Stock-Based Compensation

The Company accounts for stock-based compensation under the provisions of FASB ASC 718, “Compensation – Stock Compensation”, which requires the measurement of all share-based payments to employees, including grants of employee stock options, using a fair value based method and the recording of such expense in the consolidated statements of operations.

The Company accounts for stock option and warrant grants issued and vesting to non-employees in accordance with FASB ASC 505-50, “Equity Based Payments to Non-Employees”, whereas the fair value of the equity based compensation is based upon the measurement date as determined at the earlier of either (a) the date at which a performance commitment is reached or (b) at the date at which the necessary performance to earn the equity instruments is complete.

For the past several years and in accordance with established public company accounting practice, the Company has consistently utilized the Black-Scholes option-pricing model to calculate the fair value of stock options and warrants issued as compensation, primarily to management, employees, and directors. The Black-Scholes option-pricing model is a widely-accepted method of valuation that public companies typically utilize to calculate the fair value of options and warrants that they issue in such circumstances.

Fair Value of Financial Instruments

We measure our financial assets and liabilities in accordance with the requirements of FASB ASC 825 “Financial Instruments”. The carrying values of accounts receivable, accounts payable, current notes payable, accrued expenses, and other liabilities approximate fair value due to the short-term maturities of these instruments. The carrying amounts of long-term convertible notes payable approximate their respective fair values because of their current interest rates payable and other features of such debt in relation to current market conditions.

Shipping and handling expenses

We record all shipping and handling billings to a customer as revenue earned for the goods provided in accordance with FASB ASC 605-45-45-19, “Shipping and Handling Fees and Costs”. We include shipping and handling expenses in selling, general and administrative expense. Shipping and handling expenses amounted to $139,170 and $121,718 for the years ended February 28, 2010 and 2009, respectively.

Advertising Expense

Advertising costs are charged to expense as incurred and were immaterial for the years ended February 28, 2010 and 2009.

Research and Development

Research and development costs are expensed as incurred. These costs include the expenses incurred in the development of the 200amp ECU, the Tamgen (dual generator), and the eight inch generator.

Income Taxes

We account for income taxes in accordance with FASB ASC 740, "Income Taxes". Under FASB ASC 740, deferred income taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial statement reporting amounts at each period end based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized. The provision for income taxes represents the tax expense for the period, if any, and the change during the period in deferred tax assets and liabilities.

F-9

We have significant income tax net operating losses; however, due to the uncertainty of the realize-ability of the related deferred tax asset and other deferred tax assets, a valuation allowance equal to the amount of deferred tax assets has been established at February 28, 2010 and 2009.

FASB ASC 740 also provides criteria for the recognition, measurement, presentation and disclosure of uncertain tax positions. A tax benefit from an uncertain position may be recognized only if it is “more likely than not” that the position is sustainable based on its technical merit.

Earnings (Loss) per Share

We utilize FASB ASC 260, “Earnings per Share.” Basic earnings (loss) per share is computed by dividing earnings (loss) available to common stockholders by the weighted-average number of common shares outstanding. Diluted earnings (loss) per share is computed similar to basic earnings (loss) per share except that the denominator is increased to include additional common shares available upon exercise of stock options and warrants using the treasury stock method, except for periods of operating loss for which no common share equivalents are included because their effect would be anti-dilutive.

Estimates

The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

Major Customers

During the year ended February 28, 2010, we conducted business with three major customers whose net sales comprised 18.1%, 14.5% and 13.1% of net sales, respectively. As of February 28, 2010, 34.4% of net accounts receivable were due from these customers. During the year ended February 28, 2009, we conducted business with two major customers whose sales comprised 16.2% and 10.2% of net sales, respectively. As of February 28, 2009, three customers accounted for 30% of net accounts receivable.

Recently Issued Accounting Pronouncements

In March 2010, the Financial Accounting Standards Board (“FASB”) issued guidance related to revenue recognition for multiple element deliverables which eliminates the requirement that all undelivered elements must have objective and reliable evidence of fair value before a company can recognize the portion of the consideration that is attributable to items that already have been delivered. Under the new guidance, the relative selling price method is required to be used in allocating consideration between deliverables and the residual value method will no longer be permitted. This guidance is effective prospectively for revenue arrangements entered into or materially modified in 2011 although early adoption is permitted. A company may elect, but will not be required, to adopt the amendments retrospectively for all prior peri ods. The Company is currently evaluating this guidance and has not yet determined the impact, if any, that it will have on the consolidated financial statements.

In January 2010, the FASB issued ASU No. 2010-06 Fair Value Measurements and Disclosures Topic 820 “Improving Disclosures about Fair Value Measurements”. This ASU requires some new disclosures and clarifies some existing disclosure requirements about fair value measurement as set forth in Codification Subtopic 820-10. The FASB’s objective is to improve these disclosures and, thus, increase the transparency in financial reporting. This pronouncement is 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. Those disclosures are effective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years. The adoption of this ASU will not have a material impact on the Company’s consolidated financial statements.

F-10

In June 2009, the FASB issued new guidance which is now part of ASC 105-10, “The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles”. ASC 105-10 (formerly Statement of Financial Accounting Standards No. 168), establishes the FASB Accounting Standards Codification as the source of authoritative accounting principles recognized by the FASB to be applied by nongovernmental entities in the preparation of financial statements in conformity with generally accepted accounting principles. ASC 105-10 is effective for interim and annual periods ending after September 15, 2009. The adoption of ASC 105-10 did not have a material impact on the Company’s consolidated financial statements.

In January 2010, FASB issued ASU No. 2010-01- Accounting for Distributions to Shareholders with Components of Stock and Cash. The amendments in this Update clarify that the stock portion of a distribution to shareholders that allows them to elect to receive cash or stock with a potential limitation on the total amount of cash that all shareholders can elect to receive in the aggregate is considered a share issuance that is reflected in EPS prospectively and is not a stock dividend for purposes of applying Topics 505 and 260 (Equity and Earnings Per Share). The amendments in this update are effective for interim and annual periods ending on or after December 15, 2009, and should be applied on a retrospective basis. The adoption of this ASU did not have a material impact on its consolidated financial statements.

In January 2010, FASB issued ASU No. 2010-02 – Accounting and Reporting for Decreases in Ownership of a Subsidiary – a Scope Clarification. The amendments in this Update affect accounting and reporting by an entity that experiences a decrease in ownership in a subsidiary that is a business or nonprofit activity. The amendments also affect accounting and reporting by an entity that exchanges a group of assets that constitutes a business or nonprofit activity for an equity interest in another entity. The amendments in this update are effective beginning in the period that an entity adopts SFAS No. 160, “Non-controlling Interests in Consolidated Financial Statements – An Amendment of ARB No. 51.” If an entity has previously adopted SFAS No. 160 as of the date the amendments in this update are included in the Accounting Standards Codification, the amendments in this update are effective beginning in the first interim or annual reporting period ending on or after December 15, 2009. The amendments in this update should be applied retrospectively to the first period that an entity adopted SFAS No. 160. The adoption of this ASU did not have a material impact on the Company’s consolidated financial statements.

In January 2010, FASB issued 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 dis-aggregation. 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 yea rs 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 February 2010, FASB issued ASU No. 2010-9 –Amendments to Certain Recognition and Disclosure Requirements. This update addresses certain implementation issues related to an entity’s requirement to perform and disclose subsequent-events procedures, removes the requirement that public companies disclose the date of their financial statements in both issued and revised financial statements. According to the FASB, the revised statements include those that have been changed to correct an error or conform to a retrospective application of U.S. GAAP. The amendment is effective for interim and annual reporting periods in fiscal year ending after June 15, 2010. The Company does not expect the adoption of this ASU to have a material impact on the Company’s consolidated financial statements.

F-11

In June 2009, the FASB issued ASC 855 (previously SFAS No. 165, “Subsequent Events”), which establishes general standards of accounting for and disclosures of events that occur after the balance sheet date but before the financial statements are issued or available to be issued. It is effective for interim and annual periods ending after June 15, 2009. There was no material impact upon the adoption of this standard on the Company’s consolidated financial statements.

In June 2009, the FASB issued ASC 860 (previously SFAS No. 166, “Accounting for Transfers of Financial Assets”) , which requires additional information regarding transfers of financial assets, including securitization transactions, and where companies have continuing exposure to the risks related to transferred financial assets. SFAS 166 eliminates the concept of a “qualifying special-purpose entity,” changes the requirements for de-recognizing financial assets, and requires additional disclosures. SFAS 166 is effective for fiscal years beginning after November 15, 2009. The Company does not believe this pronouncement will impact its financial statements.

In June 2009, the FASB issued ASC 810 (previously SFAS No. 167) for determining whether to consolidate a variable interest entity. These amended standards eliminate a mandatory quantitative approach to determine whether a variable interest gives the entity a controlling financial interest in a variable interest entity in favor of a qualitatively focused analysis, and require an ongoing reassessment of whether an entity is the primary beneficiary. These amended standards are effective for us beginning in the first quarter of fiscal year 2010 and we are currently evaluating the impact that adoption will have on our consolidated financial statements.

In August 2009, the FASB issued Accounting Standards Update (“ASU”) 2009-05, which amends ASC Topic 820, Measuring Liabilities at Fair Value, which provides additional guidance on the measurement of liabilities at fair value. These amended standards clarify that in circumstances in which a quoted price in an active market for the identical liability is not available, we are required to use the quoted price of the identical liability when traded as an asset, quoted prices for similar liabilities, or quoted prices for similar liabilities when traded as assets. If these quoted prices are not available, we are required to use another valuation technique, such as an income approach or a market approach. These amended standards became effective for us beginning in the fourth quarter of fiscal year 2009 and have not had a significant impact on our consolidated financial statements.

Reclassifications

Certain reclassifications have been made to the 2009 financial statements to conform to the 2010 presentation.

NOTE 3 – INVENTORIES

Inventories at February 28, 2010 and 2009 consisted of the following:

	2010			2009

Raw materials	$	2,626,206		$	2,642,833
Finished goods		3,226,614			3,829,139

		5,852,820			6,471,972
Reserve for potential product obsolescence		(2,076,018	)		(2,271,535	)

		3,776,802			4,200,437
Non-current portion		(2,140,194	)		(2,545,978	)
Discount on long term inventory		(136,608	)		(154,459	)

Current portion	$	1,500,000		$	1,500,000

Inventories consist primarily of components and completed units for the Company’s AuraGen® product.

F-12

Early in its AuraGen® program, we determined it was most cost-effective to outsource production of components and subassemblies to volume-oriented manufacturers, rather than produce these parts in house. As a result of this decision, and based on then anticipated sales, we purchased, prior to fiscal 2001, a substantial inventory of components at volume prices, most of which was then assembled into finished AuraGen® units. Since sales did not meet such expectations, we have been selling product from this inventory for several years. Management has analyzed its inventories based on its current business plan, current orders for future delivery, and pending proposals with pro spective customers and has determined we do not expect to realize all of its inventories within the next year. The net inventories as of February 28, 2010 and 2009, which are not expected to be realized within a 12-month period have been reclassified as long term.

We assessed the net realize-ability of these assets, and the potential obsolescence of inventory. In accordance with this assessment, management has recorded a reserve of $2,076,018 and $2,271,535 at February 28, 2010 and 2009, respectively. Management has recorded a discount on long term inventory of $136,608 and $154,459 at February 28, 2010 and 2009, respectively.

NOTE 4 – PROPERTY, PLANT, AND EQUIPMENT

Property, plant, and equipment at February 28, 2010 and February 28, 2009 consists of the following:

	2010		2009

Machinery and equipment	$	1,060,519	$	1,054,423
Furniture and fixtures		1,493,293		1,438,312
Leasehold improvements		481,887		200,124
		3,035,699		2,692,859
Less accumulated depreciation and amortization		2,477,861		2,339,415
Property, plant and equipment, net	$	557,838	$	353,444

Depreciation and amortization expense was $138,448 and $78,980 for the years ended February 28, 2010 and February 28, 2009, respectively.

NOTE 5 – NOTES PAYABLE

Notes payable at February 28, 2010 and February 28, 2009 consisted of the following:

	February 28, 2010		February 28, 2009

Demand notes payable (a)	$	90,000	$	225,000
Convertible notes payable (b)		957,500		500,000
		1,047,500		725,000

Less: Current portion		547,500		225,000

Long-term portion	$	500,000	$	500,000

(a)

Consists of one unsecured demand note payable of $50,000, with interest at an annual rate of 10%, on which $5,229 in interest was accrued during the year ended February 28, 2010, and one unsecured demand note with an original balance of $140,000, an additional $50,000 loaned during July 2009, and a remaining balance of $40,000. During the year ended February 28, 2010, the Company settled $85,000 of the notes plus $15,000 in penalties and interest in 158,333 shares of the common stock of the Company. The Company recorded a loss on settlement of debt of $22,750 on the partial settlement. The Company also converted a note payable of $100,000 and accrued interest of $10,009 into 146,680 shares and recorded a loss on settlement of debt of $5,869 on the settlement.

F-13

(b)

Consists of an unsecured convertible note payable totaling $500,000, bearing interest at a rate of 7%, due in 2013. The note is convertible into our common stock at a price of $3 per share. The Company incurred and paid interest of $34,849 on the note during the year ended February 28, 2010. In April 2009, the Company arranged a debt financing aggregating $192,500 from unrelated parties in exchange for the issuance of 120 day 10% secured convertible promissory notes and 30,800 warrants at an exercise price of $1.25 for the first year. The performance of these notes is secured by inventory of the Company specifically pertaining to the WePower purchase order including all proceeds arising from the sale or lease of all or any part thereof. As of February 28, 2010, there was no inventory pertaining to WePower. The notes are convertible into our common stock at a price of $0.75 per share. The Company accrued interest of $14,369 on these notes during the year ended February 28, 2010. Also consists of six unsecured convertible notes entered into during the second quarter of fiscal 2010 totaling $565,000. The notes carry an interest rate of 10%, are for a term of 180 days, and are convertible into common stock of the company at $0.75 per share. The company accrued interest of $36,996 on the notes during the year ended February 28, 2010. In the year ended February 28, 2010, $300,000 of the notes payable and $16,950 of accrued and unpaid interest was converted into 539,553 shares of common stock of the Company. Except for the $500,000 note due in 2013, these notes are past due and therefore due on demand.

The Company allocated the investment proceeds to the debt and warrants based on their relative fair values. The relative fair value of the warrants using the Black Scholes method assuming a volatility of the stock of 107%, term of five years and a discount of 2.625% was determined to be $18,661 which was recorded as debt discount, a reduction of the carrying amount of the debt. The beneficial conversion feature on the notes was $57,161 which was also recorded as debt discount. The debt discount was amortized over the term of the note and charged to interest expense. During the year ended February 28, 2010, $75,822 was expensed.

Future maturities of notes payable at February 28, 2010 are as follows:

Year Ending February 28,
2011			$ 547,500
2012			-
2013			500,000
Total			$ 1,047,500

NOTE 6 – NOTES PAYABLE – RELATED PARTY

Notes payable – related party consist of unsecured notes payable to a member of our Board of Directors, payable on demand, bearing interest at a rate of 10% per annum. During the years ended February 28, 2010 and 2009, interest amounting to $339,833 and $103,503, respectively, was incurred on these notes. As of February 28, 2010 and 2009, accrued interest on these notes amounted to $453,199 and $113,366 , respectively.

NOTE 7 - ACCRUED EXPENSES

Accrued expenses at February 28, 2010 and 2009 consisted of the following:

	2010		2009

Accrued payroll and related expenses	$	1,716,279	$	904,849
Accrued interest		494,830		128,366
Other		10,650		4,702
Total	$	2,221,759	$	1,037,917

F-14

NOTE 8 - COMMITMENTS AND CONTINGENCIES

Leases

On May 1, 2008, we entered into a lease for a new facility of approximately 25,500 square feet, near our current facility. The lease is for a term of five years, has an option to extend for five years, and carries a base rent of $28,019 per month until November 1, 2010 when the monthly rent increases to $30,120. We have not yet fully moved into this facility and are continuing manufacturing operations at our old facility. We are currently on a month to month lease in that facility. In December 2009, we entered into a lease for a facility in Georgia of approximately 8,000 square feet. The lease is for a term of three years, has an option to extend for three years, and carries an initial base rent of $3,000 per month increasing to $3,090 in December 2010 and $3,183 in December 2011. In accordance with the terms of certai n of the leases, the Company is responsible for common area charges. Rent expense charged to operations amounted to $820,634 and $687,768 for the years ended February 28, 2010 and 2009, respectively.

Rent commitments for the next four years ending on February 28:

2011	$	380,904
2012	$	398,803
2013	$	390,089
2014	$	60,241
Total	$	1,230,037

NOTE 9 - STOCKHOLDERS' EQUITY

Common Stock

At February 28, 2010 and 2009, we had 75,000,000 and 50,000,000 shares of $0.0001 par value common stock authorized for issuance, respectively. During the years ended February 28, 2010 and 2009, we issued 6,344,291 and 8,561,231 shares of common stock, respectively.

In the year ended February 28, 2010, we issued 3,305,734 shares of common stock, with 833,721 five year warrants attached with exercise prices ranging from $0.75-$1.25, for cash proceeds of $2,104,400; 94,428 shares were issued upon the exercise of warrants for total consideration of $94,428; 844,566 shares were issued upon the conversion of $569,982 of notes payable and accrued interest; 161,082 shares were issued in settlement of $113,865 of accounts payable; 1,361,667 shares were issued for services valued at $937,010; 300,000 shares were issued to a former employee for the settlement of $294,587 of amounts owed, 151,814 shares were issued for purchase of inventory; and 125,000 shares were issued as an adjustment to the price of a previous issuance of stock.

In the year ended February 28, 2009, we issued 2,915,000 shares of common stock for cash proceeds of $2,437,057 and collected subscription receivables of $677,255; 2,397,717 shares were issued upon the exercise of warrants for total consideration of $2,282,405; 400,000 shares of common stock were issued for the acquisition of $400,000 worth of inventory and supplies in connection with the acquisition of the refrigeration assets of Emerald Commercial Leasing; 430,329 shares of common stock were issued for the exercise of warrants - the consideration received by the Company was the relief of the note payable the Company owed to the note holder; 100,000 shares of common stock were issued pursuant to an employment agreement we entered into with our Vice President; 2,069,742 shares of common stock were issued upon the conversion of $2,069,7 42 of secured notes payable and associated accrued interest. In conjunction with this transaction, the Company recorded an induced conversion charge in accordance with SFAS 84, in the amount of $368,900, this is included in the interest expense. 98,442 shares of common stock were issued in settlement of $98,442 of accounts payable; and 150,000 shares of common stock were issued as fees to members of our Board of Directors for a loan and associated loan guarantees by the Board members. Shares issued for non cash consideration were valued pursuant to EITF 96-18. The Company recorded a gain on settlement of debt of $32,820 and $6,742, respectively for the stock issued for settlement of accounts payable of $98,442 and for stock issued for interest settlement of notes.

F-15

Employee Stock Options

In September, 2006, our Board of Directors adopted the 2006 Employee Stock Option Plan, subject to shareholder approval, which was obtained at a special shareholders meeting. Under the Plan, the Company may grant options for up to the greater of Three Million (3,000,000) or 10% of the number of shares of the Common Stock of Aura from time to time outstanding. The exercise price of each option shall be at least equal to the fair market value of such shares on the date of grant. The term of the options may not be greater than ten years, and they typically vest over a three year period.

During fiscal 2010, the Board of Directors determined that, in order to provide incentives to its employees, it was in the best interest of the Company to cancel and replace the outstanding employee options that had been granted. With the employees consent, the Company cancelled all 1,941,500 outstanding employee options that previously had exercise prices ranging from $2.00 to $3.00, and issued 6,515,500 new five year options with a 3 year vesting period, and an exercise price of $1.50. Employees were given credit towards the three year vesting period extending from the date of their original hire. In accordance with FASB ASC 718, the Company accounted for this transaction as a modification. Accordingly, the incremental compensation cost resulting from this modification was determined to be $4,487,725 calculated as the difference between the fair value of the modified award and the fair value of the original award immediately before it was modified. The fair values were calculated using the Black-Scholes option pricing. Assumptions used for the modified award were a risk free rate of return of 3.23%, volatility of 141.61%, a dividend yield of 0%, and an expected life of 5 years. Assumptions used for the original awards immediately before they were modified were risk free rates of return of ranging from 1.75% to 2.5%, volatility of 141.61%, a dividend yield of 0%, and expected lives ranging from 2.75 to 4 years.

Also during the year ended February 28, 2010, the Company granted 400,000 options to the President. These options vest over three years, have an exercise price of $1.50, and have a five year life. The grant date fair value of these options amounted to $ 330,187 which was calculated using the Black-Scholes option pricing model with the following assumptions: risk free rate of return of 3.23%, volatility of 141.61%, a dividend yield of 0%, and an expected life of 5 years.

During the year ended February 28, 2009, the Company granted 450,000 options to an employee to purchase our stock at a price of $3.00. These options were modified during the year ended February 28, 2010 as described above.

The Company incurred stock options related expenses of $4,308,448 and $378,184, during the years ended February 28, 2010 and 2009, respectively.

Activity in this plan is as follows:

	2006 Plan

		Weighted-Average Exercise Price		Aggregate Intrinsic Value		Number of Options

Outstanding, February 28, 2008		$	2.00-3.00	$	0.00		1,491,500
Granted		$	3.00				450,000
Cancelled		$	3.00				(28,500	)
Outstanding, February 28, 2009		$	2.00-3.00				1,913,000
Granted		$	1.50				6,915,500
Cancelled		$	1.50-3.00				(2,545,000	)
Outstanding, February 28, 2010		$	1.50	$	0.00		6,283,500

F-16

The exercise prices for the options outstanding at February 28, 2010, and information relating to these options is as follows:

Options Outstanding

Exercisable Options

Range of Exercise

Price

Number

Weighted Average Remaining Life

Weighted Average Exercise Price

Weighted Average Remaining Life

Number

Weighted Average Exercise Price

$1.50

6,283,500

4.3 years

1.50

4.3 years

5,917,583

1.50

The weighted average fair values of the options on the date of grant for the year ended February 28, 2010 and 2009 were $0.83 per share and $1.24 per share, respectively.

A summary of the status of the Company’s non-vested shares as of February 28, 2010, and changes during the year ended February 28, 2010, is presented below:

Non-vested Shares	Shares		Weighted-Average Grant-Date Fair Value
Non-vested at February 28, 2009	514,500		$	1.24
Granted	6,915,500		$	0.83
Vested	(6,233,881	)	$	0.83
Canceled	(830,202	)	$	1.08

Non-vested at February 28, 2010	365,917		$	0.83

As of February 28, 2010, there was $528,834 of total unrecognized compensation cost related to non-vested share-based compensation arrangements granted under the Plan. That cost is expected to be recognized over a weighted-average period of 2.25 years.

Warrants

Activity in issued and outstanding warrants is as follows:

	Number of Shares	Exercise Prices
Outstanding, February 28, 2008	6,980,179	$2.00-4.00
Granted	2,785,606	$1.00-$3.00
Exercised	(2,828,046)	$1.00
Cancelled	(3,332,451)	$3.00
Expired	(152,777)	$2.00-2.50
Outstanding, February 28, 2009	3,452,511	$2.00-3.00
Granted	3,254,710	$0.75-1.25
Exercised	(94,428)	$1.00
Outstanding, February 28, 2010	6,612,793	$0.75-4.00

During the year ended February 28, 2010, 1,900,000 warrants were granted to Board members and 300,000 were granted to an advisor to the Board. The warrants have an exercise price of $1.50. The grant date fair value of the warrants amounted to $1,836,531 which was calculated using the Black-Scholes option pricing model with the following assumptions: risk free rate of return of 3.23%, volatility of 141.61%, a dividend yield of 0%, and an expected life of five years. During the year ended February 28, 2010, the Company also granted 1,054,710 five year warrants attached to private placement of stock, with exercise prices ranging from $0.75-$1.25.

F-17

During the year ended February 28, 2009, 100,000 warrants were granted to a Board member as a fee for entering into a loan agreement with the Company, and 50,000 warrants, 12,500 each, were issued to the other four Board members as a fee for guaranteeing the note. The warrants have an exercise price of $3. The grant date fair value of the warrants amounted to $17,338 which was calculated using the Black-Scholes option pricing model with the following assumptions: risk-free rate of return of 2.25%, volatility of 80.28%, and dividend yield of 0% and expected life of five years. During the year ended February 28, 2009, the Company also re-priced 2,635,606 warrants granted originally with equity issuance in February 2006. The new exercise price was $1 per share.

The exercise prices for the warrants outstanding at February 28, 2010, and information relating to these warrants is as follows:

Range of Exercise Prices	Stock Warrants Outstanding	Stock Warrants Exercisable	Weighted-Average Remaining Contractual Life	Weighted-Average Exercise Price of Warrants Outstanding	Weighted-Average Exercise Price of Warrants Exercisable	Intrinsic Value
$0.75-1.25	1,354,710	1,354,710	53 months	$1.25	$1.25	$0.00
$1.50	1,900,000	1,900,000	52 months	$1.50	$1.50	$0.00
$2.00-$3.00	1,934,991	1,934,991	12 months	$2.44	$2.49	$0.00
$3.50	805,589	805,589	22months	$3.50	$3.50	$0.00
$4.00	617,503	617,503	11 months	$4.00	$4.00	$0.00
	6,612,793	6,612,793

NOTE 10 – GOING CONCERN

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. During the years ended February 28, 2010 and 2009, the Company incurred losses of $16,092,777 and $9,843,962, respectively and had negative cash flows from operating activities of $6,285,449 and $6,311,970, respectively.

During the next twelve months we intend on expanding our AuraGen/Viper business both domestically and internationally. There are four major components necessary to execute a significantly expanding business; (i) augmentation of management and staff, (ii) purchase orders, (iii) facilities and equipment, and (iv) working capital.

We plan to add senior quality assurance and quality control staff as well as a number of mechanical and electrical engineers, a number of technicians, and a number of test engineers.

While no assurances can be given, we developed a business model for fiscal 2011 that projects over $30 million of business. The projections are based on approximately $10 million for wind energy applications under the WePower agreement that was signed in February 2009, approximately $5.0 million for military applications, and estimates of approximately $10.0 million for transport refrigeration application. Additionally, $5.0 million is projected for numerous industrial and OEM applications. The total number of systems corresponding to the above projections is approximately 5,000.

In order to achieve the planned results we will need sufficient working capital for (i) daily operations, (ii) purchase of raw materials and subassemblies, (iii) purchase of the required equipment, and (iv) supporting cash flow. Our cash flow analysis is based on certain assumptions that include 45 days for collection of account receivables after shipment, 30 day terms for accounts payable to vendors and suppliers, and all monthly operational costs paid during the month in which they are incurred. Based on our business model and projections, as well as historical costs for COGS and other expenses, we determined that the Company will need to raise approximately $10.0 million in new capital. We can not guarantee, but we plan to raise the required capital through the private placement of equity or convertible debt.

We are selling systems for all of the applications currently identified in our business model for fiscal 2010. In addition, we are also in the process of enhancing our product line to address an even larger market segment. We currently provide 5 kW, 8.5 kW and 16 kW solutions and we plan to introduce during the next twelve months 4kW, 12 kW, 25 kW and 50 kW solutions. While there can be no assurances given that we will complete all the developments described above and be able to commercialize them in the planned time, our business model for fiscal 2010 does not contemplate sales for any product currently available.

F-18

If the Company is unable to generate profits 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.

Substantial additional capital resources will be required to fund continuing expenditures related to our research, development, manufacturing and business development activities. The Company's continuation as a going concern is dependent upon its ability to generate sufficient cash flow to meet its obligations on a timely basis, to retain its current financing, to obtain additional financing, and ultimately to attain profitability.

Because of our historic net losses and negative working capital position, our independent auditors, in their report on our consolidated financial statements for the year ended February 28, 2010 expressed substantial doubt about our ability to continue as a going concern. The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which contemplate continuation of the Company as a going concern. The consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that could result from the outcome of this uncertainty.

NOTE 11- INCOME TAXES

The Company did not record any income tax expense due to the net loss during the years ended February 28, 2010 and 2009. The actual tax benefit differs from the expected tax benefit computed by applying the combined United States corporate tax rate and the State of California tax rate of 40% to loss before income taxes as follows for the years ended February 28, 2010 and 2009:

		2010	2009
Current:	$		$
Federal		-		-
State		800		800

Total		800		800

Deferred
Federal		-		-
State		-		-

Total		-		-
Total Income Tax Provision
	$	800	$	800

The provision for income tax is included with other expense in the accompanying consolidated financial statements.

	2010	2009

Expected tax benefit	34.0%	34.0%
State income taxes, net of federal benefit	6.0	6.0
Changes in valuation allowance	(40.0)	(40.0)
Total	-%	- %

The following table summarizes the significant components of our deferred tax asset at February 28, 2010 and 2009:

	2010	2009
Deferred tax asset
Primarily relating to net operating loss carry-forwards, but also reserves for inventory and accounts receivable, stock-based compensation and other	$124,000,000	$119,000,000
Valuation allowance	(124,000,000 )	(119,000,000)
Net deferred tax asset	$ -	$ -

F-19

We recorded an allowance of 100% for deferred tax assets due to the uncertainty of its realization.

At February 28, 2010, we had operating loss carry-forwards of approximately $310,000,000 for federal purposes, which expire through 2024, and $56,000,000 for state purposes, which expire through 2016.

We follow FASB ASC 740 related to uncertain tax positions. Under FASB ASC 740, the impact of an uncertain tax position on the income tax return must be recognized at the largest amount that is more-likely-than-not to be sustained upon audit by the relevant taxing authority. An uncertain income tax position will not be recognized if it has less than a 50% likelihood of being sustained. At February 28, 2010 and 2009, we have no unrecognized tax benefits.

Our continuing practice is to recognize interest and/or penalties related to income tax matters in income tax expense. As of February 28, 2010 and 2009, we have no accrued interest and penalties related to uncertain tax positions.

We are subject to taxation in the U.S. and California. Our tax years for 2008 and forward are subject to examination by our tax authorities. We are not currently under examination by any tax authority.

NOTE 12 - EMPLOYEE BENEFIT PLANS

We sponsor two employee benefit plans: The Employee Stock Ownership Plan (the "ESOP") and a 401(k) plan.

The ESOP is a qualified discretionary employee stock ownership plan that covers substantially all employees. We did not make any contributions to the ESOP during the years ended February 28, 2010 and February 28, 2009.

We sponsor a voluntary, defined contribution 401(k) plan. The plan provides for salary reduction contributions by employees and matching contributions by us of 100% of the first 4% of the employees' pre-tax contributions. The matching contributions included in expense were $73,193 and $30,821 for the years ended February 28, 2010 and 2009, respectively.

NOTE 13 - SEGMENT INFORMATION

We are a United States based company providing advanced technology products to various industries. The principal markets for our products are North America, Europe, and Asia. All of our operating long-lived assets are located in the United States. We operate in one segment.

Total net revenues from customer geographical segments are as follows for the years ended February 28, 2010 and February 28, 2009:

	2010		2009

United States	$	2,405,709	$	1,697,089
Canada		280,501		282,736
Europe		51,117		6,139
Asia		477,465		429,565
Total	$	3,214,792	$	2,415,529

NOTE 14 – SUBSEQUENT EVENTS

Subsequent to the end of the year, we have received $1,050,000 from a member of our Board for a 10% demand note payable, and $360,000 from our CEO for a convertible note bearing interest at a rate of 10%. The note is for 120 days and is convertible into shares of our common stock at a price of $0.75 per share. We also issued 757,130 shares of common stock, with 350,642 warrants attached at an exercise price of $1.50, for net proceeds of $471,000.

F-20

STRATEGIC ALLIANCE AGREEMENT

This STRATEGIC ALLIANCE AGREEMENT (the “Agreement”) is entered into as of March 18, 2010 (the “Effective Date”), between AURA SYSTEMS INC., a Delaware Corporation (“Aura”) and ZANOTTI EAST INC., a Massachusetts Corporation (“Zanotti”).

WHEREAS, Aura has invented, manufactures and distributes a unique, integrated electromagnetic mobile power generation system capable of delivering on-demand both AC and DC power for numerous end-uses, including without limitation, all-electric transport refrigeration (the “AuraGen”);

WHEREAS, the AuraGen is the subject of substantial proprietary information, including but not limited to patents, trademarks, trade secrets, know-how, and confidential information owned by Aura;

WHEREAS, Zanotti is a world-wide leading manufacturer and distributor of transport refrigeration systems and is desirous of expanding its market share within the United States, and

WHEREAS, Zanotti and Aura are desirous of incorporating the AuraGen power system with various Zanotti transport refrigeration systems to be sold by Aura to end-users in the United States as an integrated all-electric transport refrigeration solution;

NOW, THEREFORE, in consideration of their mutual covenants and obligations contained herein, and the mutual benefits to be derived herefrom, Aura and Zanotti (collectively the “Parties”), intending to be legally bound, do hereby covenant and agree as follows:

Article 1:

Definitions

1.1 The term “AETRU System” means an integrated all-electric vehicle refrigeration system comprising of Product as the refrigeration mechanism and the AuraGen as the power-supply.

1.2 The term “Confidential Information” means all know-how, formulations, recipes, specifications, catalogs, books, price books, maintenance, parts and service manuals, data sheets, sales, service and technical bulletins, customer lists, sales and marketing programs, price lists, cost data, sales aids, such as filmstrips and recordings, and all other publications and information, whether or not reduced to writing, relating to the formulation, manufacture, use, marketing and sale of the AuraGen and/or the Products, as well as any other information which may be divulged by one party under this Agreement to the other in the course of its performance of this Agreement, which is marked as Confidential or which is disclosed under circumstances that reasonably place the recipient on notice of the confidentiality of the information. Confidential Information does not, however, include any information which the recipient can establish (i) was publicly known and made generally available in the public domain prior to the time of disclosure by the discloser; (ii) becomes publicly known and made generally available after disclosure by the discloser to recipient through no fault or breach of recipient; (iii) is already in the possession of recipient without restriction on use or disclosure at the time of disclosure by discloser as shown by recipient’s files and records prior to the time of the

disclosure; (iv) is obtained by recipient lawfully and without restriction on use or disclosure from a third party without a breach of such third party’s obligations of confidentiality; or (v) is independently developed by recipient without use of or reference to discloser’s Confidential Information, as shown by recipient’s files and records.

1.3 The term “Field of Use” means exclusively transport refrigeration systems for vehicles and trailers.

1.4 The term “Products” means collectively those transport refrigeration systems listed in Exhibit A attached hereto, as well as any future modifications, enhancements or improvements thereto.

1.5 The term “Proprietary Rights” means all Technology, Trademarks, data, inventions, information (including, without limitation, Confidential Information), processes, know-how, trade secrets, sketches, prototypes, notebooks, papers, drawings, formulae (including copies or extracts thereof) and similar intellectual property rights which the respective parties have or may hereafter develop and which are necessary or useful for the development, manufacture, or sale of the AuraGen, the Products, or any components of the Products and/or AuraGen. Further, Proprietary Rights shall include all analyses, specifications, proposals, reports or other information, data or documents (whether in raw, prelimina ry or final form) and all inventions, discoveries, modifications and improvements, whether or not patentable, which: (a) are concerned in some manner with, but not directed to the AuraGen, the Products or any components thereof; or (b) pertain to processes, procedures, methods, and the like manufacturing, assembling or servicing of the AuraGen or Products.

1.6 The term “Technology” means all patent rights concerning each and every patent, whether U.S. or foreign, owned by or licensed to Company and any associated Aura Proprietary Rights appurtenant thereto which are necessary, used or useful to develop, manufacture, or sell the Products or any of the components of the Products. Aura Technology shall further mean any future modifications, enhancements or improvements to the technology embodied in the patents owned or licensed by Company, the Products, or the Aura Proprietary Rights.

1.7 The term “Territory” means exclusively the United States of America and Canada.

1.8 The term “Trademarks” means all those trademarks, service marks, designs, logos, slogans and trade names belonging or licensed to Aura and/or Zanotti, worldwide.

Article 2

Grant of Rights

2.1 Appointment. Pursuant to the terms and conditions set forth in this Agreement, Aura appoints Zanotti as its exclusive supplier of the Products within the Territory and Field of Use and Zanotti hereby accepts such appointment. In order to maintain the exclusivity granted hereunder, Zanotti shall provide Aura with orders for a minimum of (i) one thousand (1,000) AETRU Systems during the first twenty-four (24) months of this Agreement and (ii) seven hundred and fifty (750) AETRU Systems per year thereafter for so long as this Agreement remains in effect (the “Mi nimum Order”). In the event that Zanotti fails to secure purchases

amounting to the Minimum Order for any particular period, the exclusive supplier rights granted pursuant to this Article 2 shall become non-exclusive commencing immediately following such period in which the Minimum Order was not achieved and Aura shall have full discretion to purchase or otherwise obtain Product from sources other than Zanotti. Aura shall serve as seller for all orders for AETRU Systems (whether such orders are provided by Zanotti or otherwise) and shall directly invoice all buyers and collect the purchase price for all AETRU Systems sold.

Article 3

Terms and Conditions

3.1 Ordering of Products. Within thirty (30) days from the Effective Date hereof, Zanotti shall deliver to Aura a minimum total of twelve (12) Products to be delivered to Aura’s facilities McDonough, Georgia, of such type as mutually agreed by the Parties (the “Initial Order”). All purchases and delivery of Products shall be made pursuant to separate individual purchase orders issued by Aura to Zanotti consistent with the terms of this Agreement. If any term of a purchase order is inconsistent with this Agreement, then this Agreement shall govern to the extent of any such inconsistency. Except with respect to the Initial Order, A ura shall place all purchase orders for Products at least forty-five (45) days prior to the requested delivery date.

3.2 Warehousing. Zanotti hereby agrees that Aura may, at any given time, store up to two (2) AuraGen systems in such Zanotti facilities as Aura may designate from time to time. Zanotti shall not charge Aura any fee or cost in connection with such warehousing. Zanotti shall not acquire any interest in or right to any property warehoused pursuant to this Section 3.2 by virtue of such warehousing and such property shall remain the sole and exclusive property of Aura (or its respective owner) at all times. It is expressly understood and agreed by the Parties that Zanotti shall incur no liability for any property stored in its facilities pursuant to this Section 3.2 (including without limitation risk of loss, theft or damage) and that all risk of loss and/or damage with respect to any such warehoused property shall belong solely to Aura. Aura shall have full access to all AuraGen systems and/or other Aura equipment warehoused in any Zanotti facilities during normal business hours and at all other reasonable times.

3.3 Pricing. Throughout the first consecutive twelve (12) months of this Agreement, all Products shall be sold to Aura by Zanotti at those prices as listed in Exhibit B, attached hereto. Prior to each twelfth month anniversary of the Effective Date of this Agreement, the Parties shall jointly reevaluate the Product price list and shall mutually agree as to prices for the upcoming twelve-month period. In accordance with Section 3.6 below, at no time shall any Product price exceed the lowest price for which Zanotti sells such Product (or substantial equivalent thereof) in similar quantities to any third party. Notwithstanding anything to the contrary contained in any applicable provision herein, Zanotti shall be permitted to adjust the price of the Products prior to each twelfth month anniversary of the Effective Date to reflect any actual fluctuation in the Consumer Price Index (CPI) during the prior twelve-month period. In the event that the final price of any Product to be sold to Aura by Zanotti pursuant to this Agreement upto, equal or exceeds 150% of the final price of any substantially-similar third part produc, Aura shall notify Zanotti of this lower price and provide Zanotti with the opportunity to match such price with respect to such Product. If, within five (5) business days of receipt of such notice from Aura, Zanotti does not agree to match such price, the exclusive supplier rights granted pursuant to

Article 2 above shall, upon Aura’s sole election, immediately become non-exclusive with respect to such specific Product to which the lower price applies and Aura shall have full discretion to purchase or otherwise obtain such Product from sources other than Zanotti.

3.4 Payment. Aura shall remit payment to Zanotti for the invoiced price of any given Product within the earlier of: (i) fifteen (15) business days following Aura’s receipt and acceptance of payment from its customer for such AETRU System into which such Product is incorporated; or (ii) forty-five (45) calendar days from the date of Aura’s shipment to a customer of such AETRU System into which such Product is incorporated. Aura shall have no obligation to remit payment for any Product before fifteen (15) days following sale to a third-party of such Product nor shall Aura have any obligation to remit payment for any Product not sold by Aura.

3.5 Shipment, Delivery and Risk of Loss. Unless otherwise specifically agreed by the Parties, all Products delivered to Aura from Zanotti pursuant to this Agreement shall be F.C.A., Aura’s designated facility. From time to time, the parties may enter into other shipping arrangements. However, no shipping arrangements shall affect or alter in any way the provisions of this Section with respect to transfer of title, responsibility of safe carriage and risk of loss.

(a)

Deliveries may be made in partial shipments. With respect to all deliveries (partial or otherwise) Zanotti shall invoice each Product separately.

(b)

Title and risk of loss shall pass to Aura at the time the Products are tendered by Zanotti to the initial carrier and Aura alone shall be responsible for all freight, customs duties, insurance or other shipping costs.

(c)

In the absence of specific instructions from Aura, Zanotti shall select a reasonable carrier but shall not thereby assume any liability in connection with shipment, nor shall the carrier be construed to be the agent of Zanotti.

3.6 Most Favored Nation. During the term of this Agreement, Zanotti agrees that Aura shall be allowed the full benefit of any and all lower prices and/or any more favorable terms and/or conditions (“MFN” Terms) contained in any other agreement entered into by Zanotti for the sale of any product substantially similar to the Product in the same or lesser quantities described in this Agreement to third parties. Zanotti shall notify Aura in writing of any such MFN Terms within fifteen (15) calendar days after agreeing thereto, and shall make the MFN Terms available to Aura as of the effective date of such agreement and thereafter for the g reater of (i) three (3) months or (ii) such time that the MFN Terms remain in effect.

3.7 End-User Warranty. At all times during the Term of this Agreement, Zanotti shall warrant the Products to purchasers of AETRU Systems in accordance with the terms of its standard warranty attached hereto as Exhibit “C” (“End User Warranty”), as such End User Warranty may be modified from time to time by Zanotti, provided however that at no time shall such End User Warranty provide for a warranty coverage period of less than thirty-six (36) months from the time of purchase by the initial end-user. A copy of the End User Warranty shall be included as part of the packaging included with all Product delivered to Aura and Aura shall distribute each Product with all warranty cards, a copy of the End User Warranty and all other

packaging materials intact. Additionally, Zanotti shall offer to end-users the option to purchase extended warranty coverage for an additional twenty-four (24) months – making the total warranty period sixty (60) months.

Article 4

Additional Obligations

4.1 Compliance with Law. Each party shall at all times comply with the provisions of all applicable laws and the rules and regulations thereunder, and refrain from engaging in any illegal, unfair or deceptive trade practices or unethical business practices whatsoever with respect to the promotion and sale or service of Products.

4.2 Recalls. Zanotti shall maintain records of all Products sold by Zanotti and shall immediately alert Aura in the event that Zanotti becomes aware of any defect in or hazard posed by any Product. If Aura, any governmental agency or other proper authority issues a product recall or product advisory of any of the Products, Zanotti agrees to cooperate with Aura (i) in contacting purchasers during the course of any such product advisories, recalls and complaints, (ii) in communicating to such purchasers such information or instructions as Aura may reasonably desire be transmitted to such purchasers, (iii) in obtaining the removal of all such recalled Products from customers and (iv) in disposin g of such recalled Product as Aura so directs. Aura agrees to reimburse Zanotti for all costs and expenses incurred by Zanotti in connection with such Product advisories, recalls and complaints, unless such advisory, recall or complaint is due to the fault or negligence of Zanotti, its representatives or affiliates.

4.3 Press Releases. In the event any party desires to issue any press release or public announcement concerning any provisions of this Agreement or the transactions contemplated hereby, such party shall so advise the other party hereto, and the parties shall thereafter use commercially reasonable efforts to cause a mutually agreeable release or announcement to be issued. Neither party will publicly disclose or divulge any provisions of this Agreement or the transactions contemplated hereby without the other party’s written consent, except as way be required by applicable law, including applicable securities laws or stock exchange regulations, and except for communications to such party’ ;s employees and professional advisors.

4.4 Joint Training. Zanotti and Aura shall jointly schedule periodic training sessions at mutually agreed reasonable intervals with respect to installation and maintenance of the AETRU Systems, which Aura and Zanotti shall make available to AETRU System dealers and service providers. Zanotti and Aura shall each bear all living and travel expenses associated with their respective personnel during such training sessions but shall split equally all other costs associated with such training sessions such as, without limitation, facility or equipment rentals – such costs to be mutually agreed to in advance by the Parties. Upon mutual agreement by the Parties, AETRU System dealers and service providers may b e charged attendance or other fees in connection with training and/or certification, provided however, that in the event that any such fees are assessed, such fees shall be divided equally among the Parties.

4.5 Joint Sales and Marketing Plan. Within thirty (30) days following the Effective Date of this Agreement, Aura and Zanotti shall develop both a joint marketing plan and a joint sales plan for cooperative worldwide marketing and sales of AETRU Systems. Any such agreement

reached between Zanotti and Aura regarding such worldwide sales and marketing shall prohibit competition among Zanotti and Aura with regard to AETRU Systems and shall be memorized in a separate agreement between the Parties.

4.6 Confidentiality. Each party shall hold all Confidential Information in strict confidence and will in no way disclose or provide such Confidential Information to any person or entity, except (i) with the prior written approval of the owner of such Confidential Information or (ii) as expressly permitted under this Agreement. Each party shall take all necessary measures to prevent such disclosure by its present and future employees, officers, agents, subsidiaries, dealers or consultants during the term of this Agreement and thereafter. Each party shall give prompt notice to the other party of any unauthorized disclosure or use of Confident ial Information and must cooperate fully with such other party in remedying each unauthorized use or disclosure. Neither receipt of notice of disclosure under this Section 4.6 nor any action taken by the owner of the improperly disclosed Confidential Information to assist in rectifying an unauthorized disclosure or use of Confidential Information shall constitute a waiver by such party of any breach by the disclosing party of this Article 4. The Parties each expressly acknowledge that all Confidential Information shall remain the sole property of the respective owning party and that all documents and other tangible media that embody any such Confidential Information must be, at such owning party’s option, either promptly returned or destroyed, except as otherwise may be required from time to time by applicable law. Confidential Information in documentary or other tangible form, and all copies of it, must be returned promptly to the owning party upon termination of this Agreement or, as applicable, upon earlier expiration of a party’s rights thereto in accordance with this Agreement. Each party further acknowledges and agrees that because: (i) an award of money damages in inadequate to compensate a party for any breach of this Article 4; and (ii) any breach of this Article 4 will causes irreparable harm, if there is a breach or threatened breach of this Article 4 by either party, the non-breaching party shall be entitled to equitable relief, including injunctive relief and specific performance, without proof of actual damages. The covenants and agreements contained herein with respect to any Confidential Information deemed a trade secret under applicable law shall continue until the information ceases to be a trade secret under applicable law. The obligations with respect to all other Confidential Information shall continue for a period of five (5) years following termination of this Agreement.

Article 5

Representations and Warranties

5.1 Representations and Warranties by Aura:

Aura represents and warrants to Zanotti that, as of the date of this Agreement:

(a)

Power and Authority: Aura has the corporate power and authority to enter into and to carry out the terms and provisions of this Agreement; and this Agreement is the legal, valid and binding obligation of Aura and is enforceable against Aura in accordance with its terms.

(b) No Conflicting Agreement: Aura has not granted to any person other than Zanotti any right, title or interest or entered into any agreement which is in conflict with or inconsistent with any of the terms or conditions of this Agreement.

(c)

Litigation: There are no actions or proceedings pending, or to Aura’s knowledge, threatened, which would prevent or make unlawful the consummation of the transactions contemplated by this Agreement.

(d)

Infringement: Aura has no actual knowledge, that the AuraGen System or, as assembled the AETRU System conflicts with, violate or infringe any rights of any third party.

5.2 Representations and Warranties by Zanotti:

Zanotti represents and warrants to Aura that, as of the date of this Agreement:

(a)

Power and Authority: Zanotti has the corporate power an authority to enter into and to carry the terms and provisions of this Agreement; and this Agreement is the legal, valid and binding obligation of Zanotti and is enforceable against Zanotti in accordance with its terms.

(b)

No Conflicting Agreements: The execution, delivery and performance of this Agreement by Zanotti will not conflict with or violate any agreements or understandings to which Zanotti is a party or by which it may be bound.

(c)

Litigation: There are no actions or proceedings pending, or to Zanotti’s knowledge, threatened, which would prevent or make unlawful the consummation of the transactions contemplated by this Agreement.

(d)

Infringement: Zanotti has no actual knowledge, that any Product conflicts with, violates or infringes any rights of any third party.

Article 6

Intellectual Property

6.1 During the Term of this Agreement and subject to its provisions, Aura grants to Zanotti a limited, non-exclusive license to use Aura’s Trademarks to identify and promote the sale of the AETRU System within the Field of Use in the Territory and Zanotti grants to Aura a limited, non-exclusive license to use Zanotti’s Trademarks to identify and promote the Products used in conjunction with the AETRU System within the Field of Use in the Territory. Zanotti may not use Trademarks belonging or licenses to Aura in connection with the sale or promotion of any goods, services, products, equipment or process other than the Products within the Field of Use in the Territory. Aura may not use Trademarks belonging or licensed to Zanotti in connection with the sale or pr omotion of any goods, services, products, equipment or process other than the Products within the Field of Use in the Territory. Upon termination of this Agreement, Zanotti and Aura shall each promptly cease using any trademarks belonging to the other Party.

6.2 Trademark Markings. The Parties agree that each AETRU System shall prominently bear appropriate Aura and Zanotti Trademarks and shall clearly indicate the respective Parties’ ownership of such Trademarks. The Parties further agree to take all reasonably required action in connection with trademark marking or the giving of such other notices as provided for under United States or applicable foreign trademark laws. Neither Party shall remove or deface any Trademark belonging to the other Party without such Party’s prior written authorization.

6.3 Trademark Ownership. Zanotti acknowledges and agrees that Aura is the sole and exclusive owner of the Aura Trademarks. Aura likewise acknowledges and agrees that Zanotti s.p.a is the sole and exclusive owner of the Zanotti Trademarks. As such, neither Party shall at any time acquire any rights in the other Party’s trademarks by virtue of its use thereof. Further, nothing contained in this Agreement shall be construed as an assignment or grant by either party of any right, title or interest in or to such party’s Trademarks, it being understood that all rights relating thereto (except for the licenses granted hereunder for the right to use and utilize the Parties’ Trademarks as expressly provided herein) are reserved by the respective Parties. Further, the Parties agree that at no time shall either of them use any Trademark, mark or name confusingly similar to a Trademark, mark or name owned by or licensed to the other party, in any manner without the prior written approval of the other party. Each party each agrees that it will not knowingly do anything inconsistent with the other party’s ownership of such party’s intellectual property, including without limitation, questioning the validity of that party’s Trademarks or registering or attempting to register the other party’s Trademarks in its own name or that of any other firm, person or corporation.

6.4 Patent Markings. Each party shall each do everything reasonably required of it by the other party in connection with patent marking or the giving of such other notices as provided for under United States or applicable foreign patent laws.

6.5 Protection of Intellectual Property. Each party agrees to take such actions as the other party may reasonably require for the protection of such other party’s proprietary interest in its Trademarks, Technology, and all other Proprietary Rights. Each Party shall cooperate fully and in good faith with the other party for the purpose of preserving such other party’s rights in and to the its Trademarks, Technology and all other Proprietary Rights. Each party agrees to promptly notify the other party in writing of any uses, which may be infringements of the trademarks, technology or other proprietary rights which come to its attention. In the event of infringement of a party’s Trademarks, Te chnology, and other Proprietary Right, such party alone shall have the sole right to determine whether or not any action shall be taken on account of any such infringement(s).

Article 7

Term and Termiantion

7.1 Term. This Agreement shall be for a period of five (5) years commencing upon the Effective Date hereof unless sooner terminated in accordance with this Agreement (the “Initial Term”). Unless terminated prior to the natural expiration of the Initial Term, upon the expiry of the Initial Term this Agreement shall automatically renew for successive terms of the same duration, unless either party gives written notice to the other of such party’s desire not to renew not less than ninety (90) days prior to the date of the expiration of the Initial Term or any

successive term thereafter. For purposes of this Agreement, “Term” shall mean collectively the Initial Term as well as any successive renewal or extension thereof.

7.2 Termination. Notwithstanding Section 7.1 above, this Agreement may be terminated upon the occurrence of any of the following events:

(a)

At the election of either party, in writing, if: (i) all or substantially all of the assets of the non-terminating party are transferred, sold or liquidated; (ii) the non-terminating party is dissolved; (iii) the non-terminating party is adjudged a bankrupt or becomes insolvent; (iv) the non-terminating party enters into an assignment or other arrangement for the benefit of its creditors; or (v) the ownership or operations of the non-terminating party have materially changed;

(b)

By Aura, in writing in the event that Zanotti fails to meet the minimum purchase requirements as described in Article 3 above, provided, however, that such default has not been remedied by Zanotti within sixty (60) days after receipt of written notice thereof from Aura;

(c)

By either party, if an event of force majeure continues for more than three (3) months as provided in Article 8 below;

(d)

By either party hereto upon sixty (60) days prior written notice to the other party hereto; or

(e)

By the non-defaulting party, (i) upon any default by the other party in the performance of any of its material obligations under this Agreement, if such default has not been remedied within thirty (30) days after receipt of written notice thereof from the non-defaulting party; or (ii) if any representation or warranty of either party herein proves to be incorrect in any material respect.

7.3 Rights and Obligations upon Termination. Upon termination of this Agreement for whatever reason whatsoever, the Parties shall have the following rights and obligations:

(a)

Neither party shall be discharged for any antecedent obligations or liabilities to the other party under this Agreement, unless otherwise agreed in writing;

(b)

Aura shall have the right but not the obligation to purchase any or all Products then in Aura’s possession at the invoiced price(s). In the event that Aura does not elect to purchase said Products, Aura, at its cost, shall return all such non-purchased Products to Zanotti.

(c)

For a period of not less than two (2) years after the date of termination, each party shall maintain, and make available to the other party upon its request, for inspection and copying all books and records that pertain to performance of and compliance with obligations, warranties and representations under this Agreement.

7.4 Effect of Termination. On and after termination of this Agreement, whether pursuant to the provisions of Section 7.3 of otherwise:

(a)

The Parties shall immediately cease all advertising and sale of the AETRU System although Aura may fill any orders received before the date of termination, subject to the provisions hereto;

(b)

NEITHER PARTY SHALL NOT BE LIABLE TO THE OTHER FOR ANY DAMAGES, LOSSES OR EXPENSES RESULTING FROM ANY TERMINATION OR EXPIRATION OF THIS AGREEMENT ARISING FROM ANY CLAIMS ASSERTED WHICH ARE BASED UPON LOSS OF GOODWILL, PROSPECTIVE PROFITS OR ANTICIPATED ORDERS, OR ON ACCOUNT OF ANY EXPENDITURES, INVESTMENTS, LEASES OR COMMITMENTS MADE BY SUCH PARTY;

(c)

All rights granted to either party hereunder shall forthwith and without further act or instrument, be assigned and revert to the original party. In addition, each party will execute any instruments requested by the other which are necessary to accomplish or confirm the foregoing. Any such assignment, transfer or conveyance shall be without consideration other than the mutual agreements contained herein

Article 8

General Provisions

8.1 Entire Agreement. This Agreement, including any Exhibits hereto, represents the entire agreement between the Parties on the subject matter hereof and supersedes all prior discussions, agreements and understandings of every kind and nature between them. This Agreement may be modified, amended, rescinded, cancelled or waived, in whole or in part, only by written instrument signed by all of the Parties hereto.

8.2 Notice. All notices under this Agreement shall be in English and shall be in writing and given by airmail, certified or registered, postage prepaid, return receipt requested, cable, telex or facsimile, promptly confirmed by airmail, addressed to the parties at the addresses immediately below their respective signatures hereto, or to such other address of which either party may advise the other in writing. Any notice given by airmail shall be deemed received by the addressee three (3) business days from the date of mailing. All other forms of notice will be deemed given when sent.

8.3 Force Majeure. Neither party shall be in default hereunder by reason of any failure or delay in the performance (either in whole or in part) of any obligation under this Agreement (other than the payment of money) where such failure or delay arises out of any cause beyond the reasonable control and without the fault or negligence of such party (an “Event of Force Majeure”). Such causes shall include, without limitation, storms, floods, other acts of nature, fires, explosions, riots, war, terrorism or civil disturbance, strikes or other labor unrests, embargoes, shortage or failure in supply of raw materials from the t hen contemplated sources of supply and no other source or supply can be located or obtained with commercially reasonable

diligence and effort, and other governmental actions or regulations which would prohibit either party from ordering or furnishing Products or from performing any other aspects of the obligations hereunder. Within ten (10) days from the date of commencement of an Event of Force Majeure, the party affected by such an event shall advise the other party (the “Other Party”) of the date when such delay in performance commenced, and the reasons therefore as enumerated in this Agreement; likewise, within ten (10) days after the delay ends, the party affected by such an Event of Force Majeure shall advise the Other Party of the date when such delay ended, and shall also specify the redetermined time by which the performance of the obligation hereunder is to be completed. In the event that the Event of Force Mejeure contin ues for a period of sixty (60) days then the Other Party shall have the right to elect to terminate this Agreement upon ten (10) days notice to the party affected by such an event.

8.4 Severability. In the event any one or more of the provisions contained in this Agreement are deemed illegal or unenforceable, in whole or in part, the remaining provisions, and any partially unenforceable provisions to the extent enforceable, shall nevertheless be binding and enforceable. In the event that any act, regulation, directive, or law of a government having jurisdiction and respect of this Agreement, including its departments, agencies or courts, should make it impossible or prohibit, restrain, modify or eliminate any act or obligation of either party under this Agreement, the non-affected party shall have the right, at its option, to suspend this Agreement or the parties may, at their mutual a greement, make such modifications therein as may be necessary.

8.5 Assignment. Except as expressly provided for herein, neither party may assign or otherwise transfer any of its rights or obligations under this Agreement without the other party’s prior written approval and any such assignment or transfer shall be void. This Agreement does not create, and shall not be construed as creating, any rights enforceable by any person not a party to this Agreement.

8.6 Applicable Law. This Agreement is deemed made and entered into in the State of California and shall be construed, enforced and performed in accordance with the laws of the State of California, without reference, to choice of law. THE RIGHTS AND OBLIGATIONS OF THE PARTIES IN CONNECTION WITH THIS AGREEMENT AND ANY PURCHASE OF THE PRODUCTS SHALL NOT BE GOVERNED BY THE PROVISIONS OF THE 1980 U.N. CONVENTION ON CONTRACTS FOR THE INTERNATIONAL SALE OF GOODS.

8.7 Dispute Resolution. Any and all disputes of whatever nature, arising between the Parties of this Agreement or the underlying business relationship, including termination thereof and statutory claims, and which are not resolved between the parties themselves, shall be submitted to binding and final arbitration to be conducted in English, in Los Angeles, California, before a panel of three arbitrators in accordance with the Commercial Arbitration Rules of the American Arbitration Association for Complex Commercial Cases in effect as of the date of this Agreement. Judgment upon the award of the arbitrators may be entered in any court having jurisdiction thereof. In the event of any proceeding in arbitration between the Parties arising in any manner out of this Agreement or the asserted breach thereof, the prevailing party shall recover court costs or costs of arbitration, as appropriate, and reasonable attorneys' fees.

8.8 Waiver. The waiver or excuse by either party hereto as to any breach, default or deficiency and the performance by the other party of any duty or obligation by the other party to be performed hereunder shall not constitute or be deemed a continuing waiver or excuse of the same or any other duty or obligation owed by the other.

8.9 Interpretation. In the event any claim is made by any party relating to any conflict, omission or ambiguity in this Agreement, no presumption or burden of proof or persuasion shall be implied by virtue of the fact that this Agreement was prepared by or at the request of a particular party or that party’s counsel. Reference to “include,” “includes” and “including” shall be deemed to be followed by the phrase “without limitation.”

8.10 Captions. Captions of sections of this Agreement are included for reference only, shall not be construed as part of this Agreement and shall not be used to define, limit, extend or interpret the terms hereof.

8.11 Currency. Unless otherwise agreed by the parties in writing, all payments required to be made under this Agreement shall be made in United States Dollars via cash, check, wire transfer, or other immediately available funds. The remitting party shall pay at its own expense all charges and expenses associated with the other party’s receipt of such payment, including but not limited to credit card transaction fees.

8.12 Remedies Not Exclusive. No remedy conferred by any of the specific provisions of this Agreement is intended to be exclusive of any other remedy and each and every right and remedy hereunder is cumulative with each and every other right and remedy herein or in any other agreement between the parties or under applicable law.

8.13 Counterparts. This Agreement may be executed in any number of counterparts, each of which shall constitute an original and all of which together shall constitute one and the same instrument.

8.14 No Consequential Damages. IN NO EVENT SHALL EITHER PARTY BE LIABLE TO THE OTHER PARTY FOR ANY SPECIAL, CONSEQUENTIAL OR INDIRECT DAMAGES, HOWEVER CAUSED.

8.15 Successors. Except as otherwise provided herein, this Agreement shall be binding upon and inure to the benefit of the parties hereto and their permitted successors and assigns.

8.16 No Joint Venture. Nothing contained herein shall be construed to deem the Parties in the relationship of partners or joint venturers, and no party hereto shall have any power to obligate any other party hereto in any manner whatsoever, except as expressly provided for herein.

8.17 Indemnity. Zanotti agrees to indemnify, defend and hold Aura, including its employees, agents and affiliates, harmless from and against any and all payments, damages, demands, claims, losses, expenses, costs, obligations and liabilities (including reasonable attorney’s fees and costs), which arise out of, result from or are related to: (i) any breach by Zanotti of any provision contained in this Agreement, including without limitation any obligation, representation, warranty or covenant herein; (ii) any occupational injury or illness sustained by any employee or agent of Zanotti to the extent claims are made against, or held to be payable by

Aura; (iii) any applicable sales or other taxes due from or on behalf of Zanotti regardless of whether such taxes must be collected by Aura on behalf of the taxing authority and regardless of whether Zanotti shall challenge the assessment or amount of such taxes (iv) any negligent or willful act or omission or violation of any contractual arrangement of Zanotti or any of Zanotti’s affiliates, officers, directors, agents or employees of each, in connection with its or their performance relating to this Agreement; or (v) Zanotti’s agreements, if any, with any other third parties.

Aura agrees to indemnify, defend and hold Zanotti, including its employees, agents and affiliates, harmless from and against any and all payments, damages, demands, claims, losses, expenses, costs, obligations and liabilities (including reasonable attorney’s fees and costs), which arise out of, result from or are related to the breach by Aura of any representation, warranty or covenant contained in this Agreement.

Either party seeking indemnification under this Agreement (the “Indemnified Party”) shall give notice to the party required to provide indemnification hereunder (the “Indemnifying Party”) promptly after the Indemnified Party has actual knowledge of any claim as to which indemnity may be sought hereunder, and the Indemnified Party shall permit the Indemnifying Party (at the expense of the Indemnifying Party) to assume the defense of any claim or litigation resulting thereform; provided that: (i) counsel for the Indemnifying Party who shall conduct the defense of such claim or litigation shall be reasonably satisfactory to the Indemnified Pa rty; (ii) the Indemnified Party may participate in such defense, but only at the Indemnified Party’s own cost and expense; and (iii) the omission by the Indemnified Party to give notice as provided herein shall not relieve the Indemnifying Party of its indemnification obligations hereunder except to the extent that such omissions results in a failure of actual notice to the Indemnifying Party and the Indemnifying Party is damaged as a result of such failure to give notice. The Indemnifying Party shall not, except with the consent of the Indemnified Party, consent to entry of any judgment or administration order or enter into any settlement that (i) could affect the intellectual property rights or other business interests of the Indemnified Party or (ii) does not include as an unconditional term thereof the giving by the claimant or plaintiff to the Indemnified Party of a release form all liability with respect to such claim or litigation.

In the event that the Indemnified Party shall reasonably and in good faith determine that the conduct of the defense of any claim subject to indemnification hereunder or any proposed settlement of any such claim by these Indemnifying Party might be expected to affect adversely the Indemnified Party’s intellectual property rights or ability to conduct future business, the Indemnified Party shall have the right at all times to take over and assume control over the defense, settlement, negotiations or lawsuit relating to any such claim at the sole cost and expense of the Indemnifying Party.

In the event that the Indemnifying Party does not accept the defense of any matter as provided herein, the Indemnified Party shall have the full right to defend against any such claim or demand, and shall be entitled to settle or agree to pay in full such claim or demand, in its sole discretion.

The provisions of this Section 8.17 shall survive the expiration or sooner termination of this Agreement.

8.18 Insurance. Both Parties will each have and maintain in full force and effect during the Term of this Agreement (including any post-termination period for which indemnification obligations continue), all product liability and other insurance reasonably necessary to cover

such party’s anticipated indemnification obligation and other risk of loss for which it may be liable under this Agreement. All such insurance coverages shall be occurrence based and not claims made. Such policy or policies will (a) have aggregate limits of liability of not less than $1,000,000 with respect to any incident or occurrence and of not less than $2,000,000 in the aggregate; (b) name both Zanotti and Aura as insured parties; and (c) provide that such policy may not be canceled except upon not less than 30 days’ written notice to both Zanotti and Aura. Each party will provide such evidence of the effectiveness of such insurance to the other party as may be reasonably requested.

[signature page to follow]

IN WITNESS WHEREOF, Aura and Zanotti have caused this instrument to be executed by their duly authorized employees, as of the day and year first above written.

AURA SYSTEMS, INC. ZANOTTI USA

A Delaware Corporation A Massachusetts Corporation

By: By:

_____________________________ _____________________________

Melvin Gagerman Zoltan Lemperth

CEO [title]

_____________________________

Greg Demetri

[title]

_____________________________

Scott Demetri

[title]

_____________________________

Michael Driscoll

[title]

Exhibit A

“Products”

V3.03/17/10

AURA/ZANOTTI STRATEGIC ALLIANCE AGREEMENT

Exhibit A

Exhibit B

Product Prices

V3.03/17/10

AURA/ZANOTTI STRATEGIC ALLIANCE AGREEMENT

Exhibit B

Exhibit C

End-User Warranty

V3.03/17/10

AURA/ZANOTTI STRATEGIC ALLIANCE AGREEMENT

Exhibit C

Delaware	95-4106894
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)


PART I
	ITEM 1. BUSINESS
	ITEM 1A. RISK FACTORS
	ITEM 2. PROPERTIES
	ITEM 3. LEGAL PROCEEDINGS
	ITEM 4. (Reserved)
	ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

PART II
	ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
	ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
	ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
	ITEM 9A(T). CONTROLS AND PROCEDURES
	ITEM 9B. OTHER INFORMATION

PART III
	ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE
	ITEM 11. EXECUTIVE COMPENSATION
	ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
	ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
	ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

PART IV
	ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES

	SIGNATURES

Period	High	Low
------	-----	-----
Fiscal 2010
First Quarter ended May 31, 2009	$1.25	$0.85
Second Quarter ended August 31, 2009	$1.05	$0.85
Third Quarter ended November 30, 2009	$0.90	$0.61
Fourth Quarter ended February 28, 2010	$0.95	$0.58

Period	High	Low
------	-----	-----
Fiscal 2009
First Quarter ended May 31, 2008	$1.80	$1.01
Second Quarter ended August 31, 2008	$1.30	$1.03
Third Quarter ended November 30, 2008	$1.30	$0.40
Fourth Quarter ended February 28, 2009	$1.00	$0.36

Name	Age	Title

Directors

Melvin Gagerman	67	Chairman, Director, Chief Executive Officer, Chief Financial Officer and President
Arthur J. Schwartz, PhD	62	Director, Chief Technical Officer
Dr. Maurice Zeitlin	68	Director, Chairman - Nominating Committee; member, Compensation Committee and Audit Committee
Warren Breslow	67	Director, Chairman - Audit Committee; member, Nominating Committee and Compensation Committee
Salvador Diaz-Verson, Jr.	55	Director, Chairman, Compensation Committee; member, Audit Committee and Nominating Committee

Other Executive Officers

Don Macleod	52	President
Yedidia Cohen	54	Vice President of Engineering

Name and Principal Position	Fiscal Year	Salary ($)	Option Awards ($) (2)	Non-Equity Incentive Plan Compensation	All Other Compensation ($)	Total ($)

Melvin Gagerman (1) (6)	2010	360,000	1,047,679	-	26,781(4)	1,434,460
Chief Executive Officer, Chief Financial Officer	2009	360,000	-	-	46,863(4)	406,863
Arthur J. Schwartz(6)	2010	180,000	559,457	-	2,326(5)	741,783
Chief Technical Officer	2009	180,000	-	-	3,420(5)	183,420
Don Macleod President(4)	2010	248,000	64,203	-	-	312,203

	Option Awards
	Number of Securities Underlying Unexercised Options (#)	Number of Securities Underlying Unexercised Options (#)	Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#)	Option Exercise Price ($)	Option Expiration Date
Name	Exercisable	Un-exercisable		Option Exercise Price ($)


Melvin Gagerman	1,400,000	0	--	$1.50	6/18/14
Don Macleod(a)	77,778	322,222	--	$1.50	4/26/14
Arthur J. Schwartz	900,000	0	--	$1.50	6/18/14
Yedidia Cohen	400,000	0	--	$1.50	6/18/14

Name	Fees Earned or Paid in Cash ($)	Stock Awards ($)	Option Awards ($) (1)(2)	Non-Equity Incentive Plan Compensation ($)	All Other Compensation ($)	Total ($)
Maurice Zeitlin (3)	-	-	250,436	-	-	250,436
Warren Breslow (4)	-	-	1,085,223	-	-	1,085,223
Salvador Diaz-Verson, Jr. (5)	-	-	250,436	-	-	250,436

Beneficial Owner	Number of Shares of Common Stock	Percent of Common Stock (1))

ICM Asset Management, Inc. (2)(3)	2,920,915	5.4%
James M. Simmons (2)(4)	2,977,493	5.5%
Koyah Ventures, LLC (2)(5)	2,537,598	4.7%
Melvin Gagerman (6)	1,933,871	3.5%
Arthur Schwartz (7)	1,609,909	2.9%
Maurice Zeitlin (8)	1,428,760	2.7%
Warren Breslow (9)	2,675,878	4.8%
Salvador Diaz-Verson, Jr. (10)	440,934	*
Don Macleod(11)	281,383	*
All current executive officers and Directors as a group (seven)	8,778,698	14.9%


	Year Ended February 28,
	2010		2009
Audit Fees(1)	$	82,500	$	90,000
Audit-related fees(2)		-		-
Tax fees(3)		-		5,000
All other fees		-		-

Total	$	82,500	$	95,000


(1)		Included fees for professional services rendered for the audit of our annual financial statements and review of our annual report on Form 10-K and for reviews of the financial statements included in our quarterly reports on Form 10-Q for the first three quarters of the years ended February 28, 2010 and February 28, 2009.
(2)		Includes fees for professional services rendered in connection with our evaluation of internal controls.
(3)		Includes fees for professional services rendered in connection with the preparation of our income tax returns.

2.1	First Amended Plan of Reorganization of Aura Systems, Inc.(2)
3.1	Amended and Restated Certificate of Incorporation of Aura Systems, Inc. (1)
3.2	Amended and Restated Bylaws of Aura Systems, Inc. as amended to date. (1)
10.1	Form of Unsecured Creditor Warrants issued under First Amended Plan of Reorganization of the Company. (3)
10.2	Form of Management Warrants issued under First Amended Plan of Reorganization of Aura Systems, Inc.(3)
10.3	Form of Director Warrants issued under First Amended Plan of Reorganization of t Aura Systems, Inc. (3)
10.4	Aura Systems, Inc. 2006 Stock Option Plan. (3)
10.5	Form of Aura Systems, Inc. Non-Statutory Stock Option Agreement. (3)
10.6	Employment Agreement dated January 4, 2007, by and between the Company and Melvin Gagerman. (3)
10.7	Full Release dated as of January 31, 2006, by Aura Systems, Inc. for the benefit of Koyah Leverage Partners, L.P., Koyah Partners, L.P. Koyah Ventures LLC, Raven Partners, L.P., Koyah Microcap Partners Master Fund, L.P. and James M. Simmons. (3)
10.8	Consolidated, Amended and Restated Security Agreement dated as of January 31, 2006, by Aura Systems, Inc. for the benefit of Koyah Leverage Partners, L.P., Koyah Partners, L.P. Koyah Ventures LLC, Raven Partners, L.P., and Koyah Microcap Partners Master Fund, L.P. (3)
10.9	Consolidated, Amended and Restated Stock Pledge Agreement dated as of January 31, 2006, by Aura Systems, Inc. for the benefit of Koyah Leverage Partners, L.P., Koyah Partners, L.P. Koyah Ventures LLC, Raven Partners, L.P., and Koyah Microcap Partners Master Fund, L.P. (3)
10.10	Amended and Restated Intercreditor Agreement dated as of January 31, 2006, by and among Aura Systems, Inc., Koyah Leverage Partners, L.P., Koyah Partners, L.P. Koyah Ventures LLC, Raven Partners, L.P., and Koyah Microcap Partners Master Fund, L.P. (3)
10.11	Amended and Restated Promissory Note dated January 31, 2006, by Aura Systems, Inc. in favor of Raven Partners, L.P. (3)
10.12	Amended and Restated Promissory Note dated January 31, 2006, by Aura Systems, Inc. in favor of Koyah Ventures, LLC (3)
10.13	Consolidated, Amended and Restated Promissory Note dated January 31, 2006, by Aura Systems, Inc. in favor of Koyah Partners, L.P. (3)
10.14	Consolidated, Amended and Restated Promissory Note dated January 31, 2006, by Aura Systems, Inc. in favor of Koyah Microcap Partners Master Fund, L.P. (3)
10.15	Consolidated, Amended and Restated Promissory Note dated January 31, 2006, by Aura Systems, Inc. in favor of Koyah Leverage Partners, L.P. (3)
10.16	Lease between Aura Systems Inc., and Alliance Commercial Partners (3)
10.17	Lease between Aura Systems Inc., and Derek Lidow as Trustee for the Lidow Family Trust and Alexander Lidow (3)
10.18	Form of 7% Convertible Subordinated Debenture (4)
10.19	Asset Purchase Agreement by and among Aura Systems, Inc. and Emerald Commercial Leasing, Inc. (4)
10.20	Mutual Agreement Ending AuraGen Distributorship Exclusivity between Emerald Commercial Leasing, Inc. and Aura Systems Inc.(4)
10.21	Employment Agreement Dated May 15, 2008, by and between Joseph Dickman and the Company. (4)
10.22	Conversion Agreement dated as of September 1, 2008, by and among Aura Systems, Inc., Koyah Leverage Partners, L.P., Koyah Partners, L.P. Koyah Ventures LLC, and Raven Partners, L.P. (5)
10.23	Distributorship Agreement dated February 27, 2009, by and between Aura Systems, Inc. and WePower LLC. (6)
10.24	Executive Employment Agreement by and between Don Macleod and Aura Systems, Inc.
10.25	Strategic Alliance Agreement dated March 18, 2010, by and between Aura Systems, Inc. and Zanotti East Inc.
10.26	Amended and Restated Distributorship Agreement dated March 19, 2009, by and between Aura Systems, Inc. and WePower LLC
14.1	Code of Ethics (3)
31.1	CEO Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
31.2	CFO Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.1	Certification pursuant to 18 U.S.C. Section 1350

(1)	Incorporated by reference from the Company’s Report on Form 10-K filed with the SEC on June 15, 2009.
(2)	Incorporated by reference from the Company’s Current Report on Form 8-K filed with the SEC on January 20, 2006.
(3)	Incorporated by reference from the Company’s Report on Form 10-K filed with the SEC for the year ended February 28, 2005.
(4)	Incorporated by reference from the Company’s Report on Form 10-K filed with the SEC for the year ended February 29, 2008.
(5)	Incorporated by reference from the Company’s Current Report on Form 8-K filed with the SEC on October 14, 2008
(6)	Incorporated by reference from the Company’s Report on Form 10-K filed with the SEC for the year ended February 28, 2009.

Dated:	June 15, 2010

By:	/s/ Melvin Gagerman
	Melvin Gagerman
	Chief Executive Officer

Signatures	Title	Date
/s/ Melvin Gagerman	Chief Executive Officer, Acting Chief Financial Officer Director and Chairman of the Board (Principal Executive Officer, Principal Financial Officer, Principal Accounting Officer)	June 15, 2010
Melvin Gagerman		June 15, 2010

/s/ Arthur Schwartz	Director	June 15, 2010
Arthur Schwartz	Director	June 15, 2010

	Director	June 15, 2010
/s/ Maurice Zeitlin	Director	June 15, 2010
Maurice Zeitlin
	Director	June 15 , 2010
/s/ Warren Breslow	Director	June 15 , 2010
Warren Breslow
	Director	June 15, 2010
/s/Salvador Diaz-Verson, Jr.	Director	June 15, 2010
Salvador Diaz-Verson, Jr.
	Director	June 15, 2010
	Director	June 15, 2010

[_____________________________] (“Company”)			WEPOWER LLC (“Distributor”)

Name:			Name:
By:			By:
Title:			Title:
Date:			Date:

	Installation
W-AG001	Buss charge up failure inspection (inspect for and tighten loose screws or internal ECU connectors)	$40.00
W-AG002	Software upgrades; Reprogram ECU and test AuraGen® system under load	$40.00
W-AG003	Remove and Replace RPM Sensor	$40.00
W-AG004	Remove and Replace Electronic Control Unit (ECU) (including re-programming and load testing of system)	$120.00
W-AG005	Remove and Replace Serpentine Belt (if defective within 18 months of AuraGen® operation)	$40.00
W-AG006	Remove and Replace Idler or Tensioner Pulleys	$60.00
W-AG007	Remove and Replace Generator	$120.00
W-AG008	ECU Diagnostics: Troubleshoot bus charge up failure, electrical connections or installation computer / interface box communication issues per AuraGen® Troubleshooting Guide.	$75.00
W-AG009	Generator Diagnostics: Troubleshoot bus charge up failure per AuraGen® Troubleshooting Guide.	$40.00
W-AG010	Remove and Replace Mounting Kit	(requires approval)
W-AG011	Remove and replace Mechanical Idle Control and re-program ECU. (Trucks)	$75.00
W-AG012	Remove and replace Mechanical Idle Control and re-program ECU. (Vans)	$100.00
W-AG-SB-XXXX	Component replacement or system upgrades specified by AuraGen® Service Bulletin's (SB's)	($ noted in SB)


1.	The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2.	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company for the periods indicated.




Date: June 15, 2010	By:	/s/Melvin Gagerman
		[Missing Graphic Reference]
		Melvin Gagerman Chief Executive Officer, Chief Financial Officer, Chief Accounting Officer