NOTE 6 – NOTES PAYABLE

Notes payable consisted of the following:

	November 30, 2011		February 28, 2011

Demand note payable, at 10%	$	-	$	82,500
Convertible note payable, at 7%, convertible into common stock at $3 per share plus accrued interest, due in May 2013. This note was converted into 666,667 shares at face value plus $17,522 of accrued interest on November 30, 2011.		-		500,000
Convertible note payable, at 10%, convertible into common stock at $0.75 per share plus accrued interest, due in September2011. This note was converted into 325,612 shares at face value plus $40,953 of accrued interest as of November 30, 2011.		-		200,000
Convertible note payable, at 10%, convertible into common stock at $0.75 per share plus accrued interest, due in September 2011.		-		90,000
Senior secured convertible note dated September 23, 2011, due March 23, 2013, with 12 monthly payments commencing April 23, 2012 of $306,250 per month. The notes have a stated interest rate of 0%, with prepaid interest of $175,000. Balance net of Beneficial Conversion Feature @ September 30, 2011		571,223		-
		571,223		872,500

Less: Current portion	$	333,213	$	372,500

Long-term portion	$	238,010	$	500,000

CONVERTIBLE DEBT

On September 23, 2011, Aura Systems, Inc. entered into a purchase agreement to sell convertible notes with a total principal value of $3,675,000 and warrants to purchase shares of common stock to investment fund managed by MDB Capital Group. The notes have a 1.5 year maturity date and are convertible into shares of common stock at the initial conversion price of $0.75 per share. The warrants entitle the investors to acquire 4,900,000 & 490,000 shares of common stock and have an initial exercise price of $1 &$0.75 per share, respectively and have a 5 year term. The proceeds of the Convertible note were allocated between the warrants and convertible note per ASC 470-20. The company recorded $175,000 as a discount(prepaid interest), $1,006,482 as capitalized financing cost and a discount of $1,790,482 on shares to be issued upon conversion of the note into equity. This discount(prepaid interest), capitalized finance cost and discount will be amortized over the life of the note.