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

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|     |                                                                                                                                                                                                          |
|----------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| PART I   |                                                                                                                                                                                                          |
|     | ITEM 1. BUSINESS                                                                                                                                                                                              |
|     | ITEM 1A. RISK FACTORS                                                                                                                                                                                         |
|     | ITEM 1B. UNRESOLVED STAFF COMMENTS                                                                                                                                                                            |
|     | 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 OFFINANCIAL 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 BENEFICIALOWNERS 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                                                                                                                                                                                                    |
|     |                                                                                                                                                                                                          |
|     |                                                                                                                                                                                                          |
|     |                                                                                                                                                                                                          |
|     |                                                                                                                                                                                                          |
|     |                                                                                                                                                                                                          |

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| ·   | Our ability to generate positive cash flow from operations; |
|--------------------|-------------------------------------------------------------|

| ·   | Our ability to obtain additional financing to fund our operations; |
|--------------------|--------------------------------------------------------------------|

| ·   | Our business development and operating development; and |
|--------------------|---------------------------------------------------------|

| ·   | Our expectations of growth in demand for our products. |
|--------------------|--------------------------------------------------------|

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| ·   | Gensets (AKA APUs), Gensets are standalone power generation units that are not incorporated into a vehicle and require external fuel, either gasoline or diesel, in order to generate electricity. Gensets (i) are generally noisy and cumbersome to transport because of their weight and size, (ii) typically run at constant speed to generate 50 or 60 Hz of AC power, (iii) must be operated at a significant part of the rated power to avoid wet staking, (iv) are significantly derated in the presence of harmonics in the loads and (v) require significant scheduled maintenance and service.  Genset technology has been utilized since the 1950s. |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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| ·   | Inverters, Inverters are devices that invert battery DC to AC.  Inverters as mobile power generators are traditionally used in low power requirements, typically less than 2,500 watts, and do not have the ability to recharge the batteries used as the source of power.  Thus, typical inverter users require other means to recharge the used batteries such as “shore-power” or gensets.  More recently dynamic inverters became available.  Dynamic inverters use power from the alternator to augment power from the batteries and are able to achieve power levels in excess of 6,000 watts. Dynamic inverters introduce significant stresses on both the batteries and alternators, which causes significant life shortening for both.  Dynamic inverters use power from the alternator.  When the inverter is turned on, the alternator is switched off from the vehicle battery and tied into a transformer that uses electronic controls to change the DC alternator inputs to AC inverter output.  A separate transformer winding provides battery charging so that fully regulated 120 Volt AC and 12 Volt DC power is available as long as the engine is running at high enough RPM to provide power for the load and the battery charging.  All dynamic inverters require a high-output alternator to be able to output significant AC power. As is often the case, the limiting factor is the high-output alternator.  In order to get stable output, a very accurate throttle controller is also needed to maintain steady speed on the engine. |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Permanent-Magnet Alternators.  Recently a number of companies have introduced alternators using exotic permanent magnets.  These alternators tend to have higher power generation capabilities than regular alternators at lower engine RPM.  In order to be practical in an under-the–hood environment (200oF) active cooling must be added, since the magnets are demagnetized at approximately 176oF.  There are other issues that require an active control system that will add and subtract magnetic field strength as the engine RPM increases.  Over 95% of the magnets used for electric machines comes from China and starting in 2011 the price of the magnets has sky rocketed.  In addition China started limiting export of the magnets in order to have sufficient supplies for local consumption. |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Fuel Cells. Fuel cells are solid-state devices that produce electricity by combining a fuel containing hydrogen with oxygen. They have a wide range of applications and can be used in place of the internal combustion engine and traditional lead-acid and lithium-ion batteries.  The most widely deployed fuel cells cost about $3,000 perkilowatt. |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Batteries. Batteries convert stored chemical energy to electrical energy. |
|--------------------|---------------------------------------------------------------------------|

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| Period                                 | High   | Low    |
|----------------------------------------|--------|--------|
| ------                                 | -----  | -----  |
| Fiscal 2011                            |   |   |
| First Quarter ended May 31, 2010       | $1.05  | $0.64  |
| Second Quarter ended August 31, 2010   | $0.88  | $0.60  |
| Third Quarter ended November 30, 2010  | $0.74  | $0.23  |
| Fourth Quarter ended February 28, 2011 | $0.99  | $0.51  |
|                                   |   |   |
| 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  |
|                                   |   |   |

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| Name                                 | Age                  | Title                                                                                                    |
|--------------------------------------|----------------------|----------------------------------------------------------------------------------------------------------|
|                                 |                 |                                                                                                     |
| Directors                            |                 |                                                                                                     |
|                                 |                 |                                                                                                     |
| Melvin Gagerman                      | 68                   | Chairman, Director, Chief Executive Officer, Chief Financial Officer and President                       |
| Arthur J. Schwartz, PhD              | 63                   | Director, Chief Technical Officer                                                                        |
| Dr. Maurice Zeitlin                  | 69                   | Director, Chairman - Nominating Committee; member,  Compensation Committee and Audit Committee |
| Warren Breslow                       | 68                   | Director, Chairman - Audit  Committee; member, Nominating Committee and Compensation Committee |
| Salvador Diaz-Verson,  Jr. | 56                   | Director, Chairman, Compensation Committee; member, Audit Committee and Nominating Committee             |
|                                 |                 |                                                                                                     |
| Other Executive Officers             |                 |                                                                                                     |
|                                 |                 |                                                                                                     |
| Don Macleod                          | 53                   | President                                                                                                |
| Yedidia Cohen                        |    55 | Vice President of Engineering                                                                            |

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| Name and Principal Position                                             |   | Fiscal Year |   | Salary ($) |       OptionAwards($) (2) |       Non-Equity Incentive Plan Compensation |       All OtherCompensation ($) |        Total($) |
|-------------------------------------------------------------------------|--------|-------------|--------|------------|---------------------------------------------------------|----------------------------------------------------------------------------|---------------------------------------------------------------|----------------------------------------------------|
|                                                                    |   |        |   |       |                                                    |                                                                       |                                                          |                                               |
| Melvin Gagerman (1)                                                     |   | 2011        |   | 360,000    | 23,911                                                  | -                                                                          | 27,118(4)                                                     | 411,029                                            |
|   Chief Executive Officer, Chief Financial  Officer |   | 2010        |   | 360,000    | 1,047,679                                               | -                                                                          |    26,781(4)                                   |   1,434,460                              |
| Arthur J. Schwartz                                                      |   | 2011        |   | 180,000    | 23,911                                                  | -                                                                          | 1,108(5)                                                      | 205,019                                            |
|   Chief Technical Officer                                     |   | 2010        |   | 180,000    | 559,457                                                 | -                                                                          | 2,326(5)                                                      | 741,783                                            |
| Don Macleod President(3)                                                |   | 2011        |   | 300,000    | 110,064                                                 | -                                                                          | -                                                             | 410,064                                            |
|                                                                    |   | 2010        |   | 248,000    | 64,203                                                  | -                                                                          | -                                                             | 312,203                                            |

| (1)   | Mr. Gagerman was elected Chairman and Chief Financial Officer effective February 1, 2006 and was elected President and Chief Executive Officer effective May 25, 2006. |
|-----------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (2)   | Reflects the fair market value amount at the date of grant using the assumptions set forth in Note 9 to the financial statements included elsewhere in this Annual Report. |
|-----------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (3)   | Mr. Macleod was appointed president in April 2009, with a base salary of $25,000 per month. |
|-----------------|---------------------------------------------------------------------------------------------|

| (4)   | Represents automobile and country club dues allowances, the cost of life insurance premiums, and medical expense reimbursements. |
|-----------------|----------------------------------------------------------------------------------------------------------------------------------|

| (5)   | Represents Company matching contributions to the 401(k) plan. |
|-----------------|---------------------------------------------------------------|

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|                  | Option Awards                                        |
|-----------------------|----------------------------------------------------------------|
|                  | Number ofSecuritiesUnderlyingUnexercisedOptions(#)   | Number ofSecuritiesUnderlyingUnexercisedOptions(#)   | EquityIncentivePlan Awards:Number ofSecuritiesUnderlyingUnexercisedUnearnedOptions(#)   | OptionExercisePrice($)   |      OptionExpirationDate   |
| Name        | Exercisable                                          | Un-exercisable   |   |   |
|                  |                                                           |   |   |   |   |
|                  |                                                           |   |   |   |   |
| Melvin Gagerman       | 1,400,000                                                      | 0 | -- | $0.75 | 6/18/14 |
| Don Macleod(a)        | 211,111                                                        | 188,889 | -- | $0.75 | 4/26/14 |
| Arthur J. Schwartz    | 900,000                                                        | 0 | -- | $0.75 | 6/18/14 |
| Arthur J. Schwartz(b) | -                                                              | 200,000 | - | $0.75 | 12/15/15 |
| Yedidia Cohen         | 400,000                                                        | 0 | -- | $0.75 | 6/18/14 |
|                  |                                                           |   |   |   |   |

| (a)   | Mr. Macleod’s options vest ratable over a three year period from the date of grant. |
|-----------------|-------------------------------------------------------------------------------------------|

| (b)   | Mr. Schwartz’ options vest six months from date of grant. |
|-----------------|-----------------------------------------------------------------|

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| ·   | Death or Permanent Disability – The agreement automatically terminates upon Mr. Gagerman’s death or disability (as determined under our Long-Term Disability Plan, which provides for a benefit of 50% of his monthly salary to a maximum of $6,000 per month). |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | By the Company For Cause  - We may terminate the agreement for “cause”.  The agreement defines “cause” to include: |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | a breach by Mr. Gagerman of his obligations not to compete with us during the term of his employment; |
|--------------------|-------------------------------------------------------------------------------------------------------|

| ·   | a breach by Mr. Gagerman of his obligation to maintain confidential information |
|--------------------|---------------------------------------------------------------------------------|

| ·   | commission of an act of fraud, embezzlement or dishonesty which is injurious to us; |
|--------------------|-------------------------------------------------------------------------------------|

| ·   | intentional misconduct which is detrimental to our business or reputation |
|--------------------|---------------------------------------------------------------------------|

| ·   | By the Company for Non-Performance – We may terminate the agreement upon 120 days prior notice in the event of “non-performance” by Mr. Gagerman.  The agreement defines “non-performance” to mean a determination by not less than 75% of the members of our Board of Directors that Mr. Gagerman is not performing his duties as CEO and the continuation of the non-performance for 15 days after receiving notice of the Board’s determination. |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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| ·   | By The Company Without Cause or Non-Performance – We may terminate the agreement upon not less than 12 months notice, without regard to Mr. Gagerman’s performance. |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | By Mr. Gagerman For Cause – Mr. Gagerman may terminate the agreement for “cause” upon not less than 45 days notice.  The agreement defines “cause” to include: |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | By Mr. Gagerman Without Cause – Mr. Gagerman may terminate the agreement upon not less than 120 days notice without regard to whether we are meeting our obligation under the agreement. |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | By Mr. Gagerman Upon a Change of Control -  Mr. Gagerman may terminate the agreement upon not less than 30 days notice at any time following a “change in control.”  The agreement defines change of control to mean: |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | The acquisition by a new investor of more than 50% of our common stock, or |
|--------------------|----------------------------------------------------------------------------|

| ·   | The change of a majority of our board members either by an individual or by one or more groups acting together. |
|--------------------|-----------------------------------------------------------------------------------------------------------------|

| ·   | termination is a result of a “change in control”; or |
|--------------------|------------------------------------------------------------------|

| ·   | We terminate the agreement other than for “cause” or “non-performance.” |
|--------------------|-------------------------------------------------------------------------------------------------|

| ·   | termination is a result of a “change in control”; |
|--------------------|---------------------------------------------------------------|

| ·   | Mr. Gagerman terminates the agreement for “cause”; or |
|--------------------|-------------------------------------------------------------------|

| ·   | We terminate the agreement other than for “cause” or “non-performance.” |
|--------------------|-------------------------------------------------------------------------------------------------|

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| Name                | FeesEarnedor Paidin Cash($)   | StockAwards($)   | OptionAwards($) (1)(2)   | Non-EquityIncentive PlanCompensation($)   | All OtherCompensation($)   | Total($)   |
|-------------------------------|----------------------------------------------|----------------------------|------------------------------------|-----------------------------------------------------|--------------------------------------|----------------------|
| Maurice Zeitlin (3)           | -                                            | -                          | 23,911                             | -                                                   | -                                    | 23,911               |
| Warren Breslow (4)            | -                                            | -                          | 23,911                             | -                                                   | -                                    | 23,911               |
| Salvador Diaz-Verson, Jr. (5) | -                                            | -                          | 23,911                             | -                                                   | -                                    | 23,911               |

| (1)   | Reflects the fair market value amount at the date of grant using the assumptions set forth in Note 9 to the financial statements included elsewhere in this Annual Report. |
|-----------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (2)   | In fiscal 2011 Messrs. Zeitlin, Diaz-Verson and Breslow were each granted Director Warrants(options) to acquire 50,000 shares of our common stock at an exercise price of $0.75 per share In fiscal 2010 Messrs. Zeitlin and Diaz-Verson were each granted Director Warrants(options) to acquire 300,000 shares of our common stock at an exercise price of $1.50 per share, and Mr. Breslow was granted 1,300,000 Director Warrants(options) of our common stock at an exercise price of $1.50 per share, being not less than the fair market value on the date of grant, which options vest immediately and expire in June  2014. In fiscal 2008 Messrs. Zeitlin, Breslow and Diaz-Verson were each granted Director Warrants (options) to acquire 25,000 shares, of our common stock at an exercise price of $2.50 per share, respectively, being not less than the fair market value of our common stock on the date of grant, which options vest at a rate of 25% every six months and expire in October 2012. |
|-----------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (3)   | The director had 375,000 options outstanding as of February 28, 2011. |
|-----------------|-----------------------------------------------------------------------|

| (4)   | The director had 1,075,000 options outstanding as of February 28, 2011. |
|-----------------|-------------------------------------------------------------------------|

| (5)   | The director had 375,000 options outstanding as of February 28, 2011. |
|-----------------|-----------------------------------------------------------------------|

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| Beneficial Owner                                                | Number of Shares of Common Stock | Percent ofCommon Stock (1)) |
|-----------------------------------------------------------------|----------------------------------|-----------------------------|
|                                                            |                             |                        |
| Melvin Gagerman (2)                                             | 2,555,885                        | 4.0%                        |
| Arthur Schwartz (3)                                             | 1,859,909                        | 3.0%                        |
| Maurice Zeitlin (4)                                             | 1,478,760                        | 2.4%                        |
| Warren Breslow (5)                                              | 2,725,878                        | 4.3%                        |
| Salvador Diaz-Verson, Jr. (6)                                   | 490,934                          | *                           |
| Don Macleod(7)                                                  | 414,716                          | *                           |
| All current executive officers and Directors as a group (seven) | 9,934,045                        | 14.8%                       |

| (1)   | Beneficial ownership is determined in accordance with rules of the U.S. Securities and Exchange Commission. The calculation of the percentage of beneficial ownership is based upon 61,615,440 shares of common stock outstanding on May 17, 2011. In computing the number of shares beneficially owned by any shareholder and the percentage ownership of such shareholder, shares of common stock which may be acquired by a such shareholder upon exercise or conversion of warrants or options which are currently exercisable or exercisable within 60 days of May 17, 2011,  are deemed to be exercised and outstanding. Such shares, however, are not deemed outstanding for purposes of computing the beneficial ownership percentage of any other person.  Shares issuable upon exercise of warrants and options which are subject to shareholder approval are not deemed outstanding for purposes of determining beneficial ownership. Except as indicated by footnote, to our knowledge, the persons named in the table above have the sole voting and investment power with respect to all shares of common stock shown as beneficially owned by them. |
|-----------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (2)   | Includes 1,580,829 warrants and options exercisable within 60 days of May 17, 2011and a convertible note in the amount of $360,000 convertible into 480,000 shares of common stock within 60 days of May 17, 2011. |
|-----------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (3)   | Includes  1,131,534 warrants and options exercisable within 60 days of May 17, 2011. |
|-----------------|------------------------------------------------------------------------------------------------|

| (4)   | Includes 413,692 warrants and options exercisable within 60 days of May 17, 2011. |
|-----------------|-----------------------------------------------------------------------------------|

| (5)   | Includes 1,361,813 warrants and options exercisable within 60 days of May 17, 2011. |
|-----------------|-------------------------------------------------------------------------------------|

| (6)   | Includes 423,489 warrants and options exercisable within 60 days of May 17, 2011. |
|-----------------|-----------------------------------------------------------------------------------|

| (7)   | Includes 266,666 warrants and options exercisable within 60 days of May 17, 2011. |
|-----------------|-----------------------------------------------------------------------------------|

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|                                                           |   |                    |            |   |                         |    |   | Number of Securities                           |   |
|----------------------------------------------------------------|--------|-------------------------|-----------------|--------|------------------------------|---------|--------|------------------------------------------------|--------|
|                                                           |   |                    |            |   | Weighted-average             |    |   | Remaining Available for                        |   |
|                                                           |   | Number of Securities to |            |   | Exercise Price of            |    |   | Future Issuance Under Equity                   |   |
|                                                           |   | be Issued Upon Exercise |            |   | Outstanding                  |    |   | Compensation Plans                             |   |
|                                                           |   | of Outstanding Options, |            |   | Options, Warrants and Rights |    |   | (Excluding Securities Reflected in Column (a)) |   |
| Plan Category                                                  |   | Warrants and Rights(a)  |            |   | (b)                          |    |   | (c)                                            |   |
|                                                           |   |                    |            |   |                         |    |   |                                           |   |   |   |   |
| Equity compensation plans approved by security holders (1)     |   |                    |  4,904,500 |   |                         | $       | 0.75   |                                           |   |   | - |   |
| Equity compensation plans not approved by security holders (2) |   |                    | 3,625,000       |   |                         |  $ | 0.75   |                                           |   |   | - |   |
| To                                                             |   |                    |            |   |                         |    |   |                                           |   |   |   |   |

| (1)   | Reflects options under the 2006 Stock Option Plan. The 2006 Stock Option Plan authorizes the Company to grant stock options exercisable for up to an aggregate number of shares of common stock equal to the greater of (i) 3,000,000 shares of common stock, or (ii) 10% of the number of shares of common stock outstanding from time to time.  The numbers in this table are as of February 28, 2011.  Reflects warrants issued to Mssrs. Breslow, Zeitlin, and Diaz-Verson, our three outside directors. |
|-----------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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|                  |   |                    |   |   |   |   |   |   |
|-----------------------|--------|-------------------------|--------|--------|--------|--------|--------|--------|
|                  |   | Year Ended February 28, |   |
|                  |   | 2011                    |   |   | 2010   |   |
| Audit Fees(1)         |   | $                       | 82,500 |   |   | $      | 82,500 |   |
| Audit-related fees(2) |   |                    | -      |   |   |   | -      |   |
| Tax fees(3)           |   |                    | -      |   |   |   | -      |   |
| All other fees        |   |                    | -      |   |   |   | -      |   |
|                  |   |                    |   |   |   |   |
| Total                 |   | $                       | 82,500 |   |   | $      | 82,500 |   |
|                  |   |                    |   |   |   |   |

|   |   |                                                                                                                                                                                                                                                                                                                              |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (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, 2011 andFebruary 28, 2010. |
| (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.                                                                                                                                                                                                                    |

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| 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.  (7)                                                                                                                                                                                         |
| 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 (7)                                                                                                                                                              |
| 10.27  | Demand Promissory Note dated December 18, 2007 by and between the Company and Warren Breslow in the original principal amount of $500,000. (8)                                                                                                                                          |
| 10.28  | Demand Promissory Note dated June 18, 2008  by and between the Company and Warren Breslow in the original principal amount of $200,000. (8)                                                                                                                                   |
| 10.29  | Demand Promissory Note dated August 1, 2008  by and between the Company and Warren Breslow in the original principal amount of $200,000. (8)                                                                                                                                  |
| 10.30  | Demand Promissory Note dated October 14, 2008  by and between the Company and Warren Breslow in the original principal amount of $200,000. (8)                                                                                                                                |
| 10.31  | Demand Promissory Note dated October 23, 2008  by and between the Company and Warren Breslow in the original principal amount of $200,000. (8)                                                                                                                                |
| 10.32  | Demand Promissory Note dated December 18, 2008  by and between the Company and Warren Breslow in the original principal amount of $500,000. (8)                                                                                                                               |
| 10.33  | Demand Promissory Note dated March 12, 2009  by and between the Company and Warren Breslow in the original principal amount of $200,000. (8)                                                                                                                                  |
| 10.34  | Demand Promissory Note dated April 24, 2009  by and between the Company and Warren Breslow in the original principal amount of $500,000. (8)                                                                                                                                  |
| 10.35  | Demand Promissory Note dated June 1, 2009  by and between the Company and Warren Breslow in the original principal amount of $20,000. (8)                                                                                                                                     |
| 10.36  | Demand Promissory Note dated June 30, 2009  by and between the Company and Warren Breslow in the original principal amount of $500,000. (8)                                                                                                                                   |
| 10.37  | Demand Promissory Note dated August 13, 2009  by and between the Company and Warren Breslow in the original principal amount of $400,000. (8)                                                                                                                                 |
| 10.38  | Demand Promissory Note dated August 27, 2009  by and between the Company and Warren Breslow in the original principal amount of $500,000. (8)                                                                                                                                 |
| 10.39  | Demand Promissory Note dated October 22, 2009  by and between the Company and Warren Breslow in the original principal amount of $480,000. (8)                                                                                                                                |
| 10.40  | Demand Promissory Note dated December 4, 2009  by and between the Company and Warren Breslow in the original principal amount of $250,000. (8)                                                                                                                                |
| 10.41  | Demand Promissory Note dated January 4, 2010  by and between the Company and Warren Breslow in the original principal amount of $250,000. (8)                                                                                                                                 |
| 10.42  | Demand Promissory Note dated January 29, 2010  by and between the Company and Warren Breslow in the original principal amount of $250,000. (8)                                                                                                                                |
| 10.43  | Demand Promissory Note dated April 7, 2010  by and between the Company and Warren Breslow in the original principal amount of $400,000. (8)                                                                                                                                   |
| 10.44  | Demand Promissory Note dated May 7, 2010  by and between the Company and Warren Breslow in the original principal amount of $100,000. (8)                                                                                                                                     |
| 10.45  | Demand Promissory Note dated May 11, 2010  by and between the Company and Warren Breslow in the original principal amount of $400,000. (8)                                                                                                                                    |
| 10.46  | Demand Promissory Note dated May 28, 2010  by and between the Company and Warren Breslow in the original principal amount of $150,000. (8)                                                                                                                                    |
| 10.47  | Demand Promissory Note dated June 3, 2010  by and between the Company and Warren Breslow in the original principal amount of $350,000. (8)                                                                                                                                    |
| 10.48  | Demand Promissory Note dated June 15, 2010  by and between the Company and Warren Breslow in the original principal amount of $500,000. (8)                                                                                                                                   |
| 10.49  | Demand Promissory Note dated July 2, 2010  by and between the Company and Warren Breslow in the original principal amount of $300,000. (8)                                                                                                                                    |
| 10.50  | Demand Promissory Note dated October 8, 2010  by and between the Company and Warren Breslow in the original principal amount of $200,000. (8)                                                                                                                                 |
| 10.51  | Demand Promissory Note dated November 3, 2010  by and between the Company and Warren Breslow in the original principal amount of $300,000. (8)                                                                                                                                |
| 10.52  | Demand Promissory Note dated November 10, 2010  by and between the Company and Warren Breslow in the original principal amount of $50,000. (8)                                                                                                                                |
| 10.53  | Demand Promissory Note dated December 2, 2010  by and between the Company and Warren Breslow in the original principal amount of $350,000.                                                                                                                                    |
| 10.54  | Demand Promissory Note dated January 20, 2011  by and between the Company and Warren Breslow in the original principal amount of $200,000.                                                                                                                                    |
| 10.55  | Demand Promissory Note dated February 28, 2011  by and between the Company and Warren Breslow in the original principal amount of $250,000.                                                                                                                                   |
| 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.                                                                                                                                                         |
| (7)    | Incorporated by reference from the Company’s Report on Form 10-K filed with the SEC for the year ended February 28, 2010                                                                                                                                                          |
| (8)    | Incorporated by reference from the Company’s Current Report on Form 8-K filed with the SEC on June 1, 2011.                                                                                                                                                                       |

----

| Dated: |  June 14, 2011     |
|--------|-------------------------|
|   |                    |
| 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  14, 2011 |
| Melvin Gagerman              |
|                         |                                                                                                                                                                                |                     |
| /s/ Arthur Schwartz          | Director                                                                                                                                                                            | June  14, 2011 |
| Arthur Schwartz              |
|                         |                                                                                                                                                                                |                     |
|                         | Director                                                                                                                                                                            | June  14, 2011 |
| /s/ Maurice Zeitlin          |
| Maurice Zeitlin              |                                                                                                                                                                                |                     |
|                         | Director                                                                                                                                                                            | June 14 , 2011           |
| /s/ Warren Breslow           |
| Warren Breslow               |                                                                                                                                                                                |                     |
|                         | Director                                                                                                                                                                            | June  14, 2011 |
| /s/Salvador Diaz-Verson, Jr. |
| Salvador Diaz-Verson, Jr.    |                                                                                                                                                                                |                     |
|                         | Director                                                                                                                                                                            | June  14, 2011 |
|                         |

----

| Report of Independent Registered Public Accounting Firm                                                        | F-1         |
|----------------------------------------------------------------------------------------------------------------|-------------|
|                                                                                                           |        |
| Consolidated Financial Statements of Aura Systems, Inc.:                                                       |        |
|                                                                                                           |        |
| Consolidated Balance Sheets as of February 28, 2011 and February 28, 2010                                      | F-2         |
| Consolidated Statements of Operations - Years ended February 28, 2011 and February 28, 2010                    | F-3         |
| Consolidated Statements of Stockholders' Equity/(Deficit) - Years ended February 28, 2011and February 28, 2010 | F-4         |
| Consolidated Statements of Cash Flows - Years ended February 28, 2011 and February 28, 2010                    | F-5 to F-6  |
| Notes to Consolidated Financial Statements                                                                     | F-7 to F-19 |
|                                                                                                           |        |

----

----

|                                                                                                                                                                                      |   | 2011   |         |   |  2010 |   |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|--------------|--------|------------|--------|
| ASSETS                                                                                                                                                                                    |   |   |         |   |       |   |
| Current assets:                                                                                                                                                                           |   |   |         |   |       |   |
| Cash and cash equivalents                                                                                                                                                                 |   | $      | 104,815      |   |       | $      | 45,294 |   |
| Accounts receivable, net of allowance for doubtful accounts of $59,070 and $50,000 at February 28, 2011 and 2010, respectively                                                            |   |   | 296,297      |   |       |   | 313,671 |   |
| Inventory - current                                                                                                                                                                       |   |   | 1,000,000    |   |       |   | 1,500,000 |   |
| Other current assets                                                                                                                                                                      |   |   | 450,843      |   |       |   | 241,749 |   |
| Total current assets                                                                                                                                                                      |   |   | 1,851,955    |   |       |   | 2,100,714 |   |
|                                                                                                                                                                                      |   |   |         |   |       |   |   |   |
| Property, plant, and equipment, net                                                                                                                                                       |   |   | 380,842      |   |       |   | 557,838 |   |
| Inventory, non-current, net of allowance for obsolete inventory of $2,106,391 and $2,212,626 at February 28, 2011 and 2010,  respectively                                       |   |   | 2,274,013    |   |       |   | 2,140,194 |   |
|                                                                                                                                                                                      |   |   |         |   |       |   |   |   |
| Total assets                                                                                                                                                                              |   | $      | 4,506,810    |   |       | $      | 4,798,746 |   |
|                                                                                                                                                                                      |   |   |         |   |       |   |   |   |
| LIABILITIES AND STOCKHOLDERS' DEFICIT                                                                                                                                                     |   |   |         |   |       |
| Current liabilities:                                                                                                                                                                      |   |   |         |   |       |   |   |   |
| Accounts payable                                                                                                                                                                          |   | $      | 1,945,372    |   |       | $      | 1,130,276 |   |
|     Accrued expenses                                                                                                                                                       |   |   | 2,632,856    |   |       |   | 1,736,811 |   |
|     Customer advances                                                                                                                                       |   |   | 336,308      |   |       |   | 411,616 |   |
| Notes payable                                                                                                                                                                             |   |   | 82,500       |   |       |   | 90,000 |   |
| Convertible notes payable                                                                                                                                                                 |   |   | 290,000      |   |       |   | 407,500 |   |
| Notes payable and accrued interest- related party                                                                                                                                         |   |   | 10,148,352   |   |       |   | 5,684,948 |   |
|                                                                                                                                                                                      |   |   |         |   |       |   |   |   |
|                                                                                                                                                                                      |   |   |         |   |       |   |   |   |
|                                                                                                                                                                                      |   |   |         |   |       |   |   |   |
| Total current liabilities                                                                                                                                                                 |   |   | 15,435,388   |   |       |   | 9,461,151 |   |
|                                                                                                                                                                                      |   |   |         |   |       |   |   |   |
| Convertible note payable                                                                                                                                                                  |   |   | 500,000      |   |       |   | 500,000 |   |
|                                                                                                                                                                                      |   |   |         |   |       |   |   |   |
| Total liabilities                                                                                                                                                                         |   |   | 15,935,388   |   |       |   | 9,961,151 |   |
|                                                                                                                                                                                      |   |   |         |   |       |   |   |   |
|                                                                                                                                                                                      |   |   |         |   |       |   |   |   |
| Commitments and contingencies                                                                                                                                                             |   |   |         |   |       |   |   |   |
|                                                                                                                                                                                      |   |   |         |   |       |   |   |   |
|                                                                                                                                                                                      |   |   |         |   |       |   |   |   |
| Stockholders' deficit :                                                                                                                                                                   |   |   |         |   |       |   |   |   |
| Common stock, $0.0001par value; 75,000,000 and 75,000,000 shares authorized at February 28, 2011 and 2010; 60,720,956 and 52,689,061 issued and outstanding at February 28, 2011 and 2010 |   |   | 6,072        |   |       |   | 5,268 |   |
| Additional paid-in capital                                                                                                                                                                |   |   | 379,819,510  |   |       |   | 374,890,469 |   |
| Accumulated deficit                                                                                                                                                                       |   |   | (391,254,160 | )      |       |   | (380,058,142 | ) |
|                                                                                                                                                                                      |   |   |         |   |       |   |   |   |
| Total stockholders' deficit                                                                                                                                                               |   |   | (11,428,578  | )      |       |   | (5,162,405 | ) |
|                                                                                                                                                                                      |   |   |         |   |       |   |   |   |
| Total liabilities and stockholders' deficit                                                                                                                                               |   | $      | 4,506,810    |   |       | $      | 4,798,746 |   |
|                                                                                                                                                                                      |   |   |         |   |       |   |   |   |

----

|                                   |   | 2011   |        |   | 2010   |   |
|----------------------------------------|--------|--------|-------------|--------|--------|--------|
|                                   |   |   |        |   |   |   |
| Net revenues                           |   | $      | 3,439,959   |   |   | $      | 3,214,792 |   |
| Cost of goods sold                     |   |   | 2,097,463   |   |   |   | 1,745,107 |   |
|                                   |   |   |        |   |   |   |   |   |
| Gross profit                           |   |   | 1,342,496   |   |   |   | 1,469,685 |   |
|                                   |   |   |        |   |   |   |   |   |
| Operating expenses:                    |   |   |        |   |   |   |   |   |
| Engineering, research and development  |   |   | 1,661,319   |   |   |   | 2,260,962 |   |
| Selling, general, and administrative   |   |   | 9,824,524   |   |   |   | 14,595,948 |   |
| Total operating expenses               |   |   | 11,485,843  |   |   |   | 16,856,910 |   |
|                                   |   |   |        |   |   |   |   |   |
| Loss from operations                   |   |   | (10,143,347 | )      |   |   | (15,387,225 | ) |
|                                   |   |   |        |   |   |   |   |   |
| Other income (expense):                |   |   |        |   |   |   |   |   |
| Interest expense, net                  |   |   | (918,301    | )      |   |   | (683,561 | ) |
| Gain (Loss) on settlement of debt, net |   |   | (129,032    | )      |   |   | (43,022 | ) |
| Other income (expense), net            |   |   | (5,338      | )      |   |   | 21,031 |   |
|                                   |   |   |        |   |   |   |   |   |
| Total other expense                    |   |   | (1,052,671  | )      |   |   | (705,552 | ) |
|                                   |   |   |        |   |   |   |   |   |
| Net Loss                               |   | $      | (11,196,018 | )      |   | $      | (16,092,777 | ) |
|                                   |   |   |        |   |   |   |   |   |
| Basic and diluted loss per share       |   | $      | (0.20       | )      |   | $      | (0.33 | ) |
|                                   |   |   |        |   |   |   |   |   |
| *Weighted-average shares outstanding   |   |   | 55,591,847  |   |   |   | 48,294,414 |   |
|                                   |   |   |        |   |   |   |   |   |
|                                   |   |   |        |   |   |   |   |   |

----

|                                                 |   | Common Stock Shares |       |   | Common Stock Amount |   |   | Additional Paid-In Capital |   |   |        | Subscription Receivable |   |   | AccumulatedDeficit |    |   | Total Stockholders' Equity /(Deficit) |   |
|------------------------------------------------------|--------|--------------------------|------------|--------|--------------------------|--------|--------|----------------------------|--------|--------|-------------|-------------------------|--------|--------|--------------------|---------|--------|---------------------------------------|--------|
|                                                 |   |                     |       |   |                     |   |   |                       |   |   |        |                    |   |   |               |    |   |                                  |   |
| 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 | ) |
|                                                 |   |                     |       |   |                     |   |   |                       |   |   |        |                    |   |   |               |    |   |                                  |   |   |   |   |   |   |   |
| Common stock issued in private placements, net       |   |                     | 4,647,292  |   |                     |   | 465    |                       |   |   | 2,479,022   |                    |   |   |               |    |   |                                  |   |   |   |   |   | 2,479,487 |   |
| Shares issued for note conversions                   |   |                     | 338,408    |   |                     |   | 34     |                       |   |   | 238,850     |                    |   |   |               |    |   |                                  |   |   |   |   |   | 238,884 |   |
| Shares issued for settlement of accounts payable     |   |                     | 367,619    |   |                     |   | 37     |                       |   |   | 269,992     |                    |   |   |               |    |   |                                  |   |   |   |   |   | 270,029 |   |
| Shares issued for services                           |   |                     | 1,641,434  |   |                     |   | 164    |                       |   |   | 1,208,450   |                    |   |   |               |    |   |                                  |   |   |   |   |   | 1,208,614 |   |
| Adjustment to prior issuance                         |   |                     | 150,000    |   |                     |   | 15     |                       |   |   | (15         | )                       |   |   |               |    |   |                                  |   |   |   |   |   | - |   |
| Shares issued in lieu of salary                      |   |                     | 887,142    |   |                     |   | 89     |                       |   |   | 487,839     |                    |   |   |               |    |   |                                  |   |   |   |   |   | 487,928 |   |
| Beneficial conversion feature                        |   |                     |       |   |                     |   |   |                       |   |   | 72,000      |                    |   |   |               |    |   |                                  |   |   |   |   |   | 72,000 |   |
| Employee  option expense                   |   |                     |       |   |                     |   |   |                       |   |   | 172,903     |                    |   |   |               |    |   |                                  |   |   |   |   |   | 172,903 |   |
| Net Loss                                             |   |                     |       |   |                     |   |   |                       |   |   |        |                    |   |   |               |    |   |                                  |   | (11,196,018 | ) |   |   | (11,196,018 | )) |
|                                                 |   |                     |       |   |                     |   |   |                       |   |   |        |                    |   |   |               |    |   |                                  |   |   |   |   |   |   |   |
| Balance, February 28, 2011                           |   |                     | 60,720,956 |   |                     | $      | 6,072  |                       |   | $      | 379,819,510 |                    |   |   |  $            | -       |   |                                  | $      | (391,254,160 | ) |   | $ | (11,428,578 | ) |
|                                                 |   |                     |       |   |                     |   |   |                       |   |   |        |                    |   |   |               |    |   |                                  |   |   |   |   |   |   |   |
|                                                 |   |                     |       |   |                     |   |   |                       |   |   |        |                    |   |   |               |    |   |                                  |   |   |   |   |   |   |   |
|                                                 |   |                     |       |   |                     |   |   |                       |   |   |        |                    |   |   |               |    |   |                                  |   |   |   |   |   |   |   |

----

|                                                                        |   | 2011   |        |   | 2010   |   |
|-----------------------------------------------------------------------------|--------|--------|-------------|--------|--------|--------|
|                                                                        |   |   |        |   |   |   |
| Cash flows from operating activities:                                       |   |   |        |   |   |   |
| Net loss                                                                    |   | $      | (11,196,018 | )      |   | $      | (16,092,777 | ) |
| Adjustments to reconcile net loss to net cash used in operating activities: |   |   |        |   |   |   |   |   |
| Depreciation and amortization                                               |   |   | 186,594     |   |   |   | 138,448 |   |
| Provision for bad debt                                                      |   |   | 61,831      |   |   |   | 25,650 |   |
| Provision for inventory obsolescence                                        |   |   | (106,235    | )      |   |   | (213,367 | ) |
| Stock option compensation expense                                           |   |   | 172,903     |   |   |   | 6,209,181 |   |
| Stock issued for inventory purchase                                         |   |   | -           |   |   |   | 151,814 |   |
| Amortization of debt discount                                               |   |   | 72,000      |   |   |   | 220,289 |   |
| (Gain) Loss on debt settlement                                              |   |   | 129,032     |   |   |   | 43,022 |   |
| Stock issued for services                                                   |   |   | 803,255     |   |   |   | 937,010 |   |
| (Increase) decrease in:                                                     |   |   |        |   |   |   |   |   |
| Accounts receivable                                                         |   |   | (44,457     | )      |   |   | (20,072 | ) |
| Inventory                                                                   |   |   | 472,416     |   |   |   | 619,149 |   |
| Other current assets                                                        |   |   | 171,656     |   |   |   | 13,871 |   |
| Increase (decrease) in:                                                     |   |   |        |   |   |   |   |   |
| Accounts payable and accrued expenses                                       |   |   | 3,048,847   |   |   |   | 1,689,329 |   |
| Customer advances                                                           |   |   | 75,308      |   |   |   | (6,996 | ) |
|                                                                        |   |   |        |   |   |   |   |   |
| Net cash used in operating activities                                       |   |   | (6,152,868  | )      |   |   | (6,285,449 | ) |
|                                                                        |   |   |        |   |   |   |   |   |
| Cash flows from investing activities:                                       |   |   |        |   |   |   |   |   |
| Purchase of property, plant, and equipment                                  |   |   | (9,598      | )      |   |   | (342,841 | ) |
|                                                                        |   |   |        |   |   |   |   |   |
|                                                                        |   |   |        |   |   |   |   |   |
|                                                                        |   |   |        |   |   |   |   |   |

----

|                                                 |   | 2011   |      |   | 2010   |   |
|------------------------------------------------------|--------|--------|-----------|--------|--------|--------|
|                                                 |   |   |      |   |   |   |
| Cash flows from financing activities:                |   |   |      |   |   |   |
| Proceeds from notes payable                          |   |   | 310,000   |   |   |   | 807,500 |   |
| Proceeds from notes payable - related party, net     |   |   | 3,710,000 |   |   |   | 3,350,000 |   |
| Payments on notes payable                            |   |   | (277,500  | )      |   |   | - |   |
| Net proceeds from warrants exercised                 |   |   | -         |   |   |   | 94,428 |   |
| Net proceeds from issuance of common stock           |   |   | 2,479,487 |   |   |   | 2,104,400 |   |
|                                                 |   |   |      |   |   |   |   |   |
| Net cash provided by financing activities            |   |   | 6,221,987 |   |   |   | 6,356,328 |   |
|                                                 |   |   |      |   |   |   |   |   |
| Net increase (decrease) in cash and cash equivalents |   |   | 59,521    |   |   |   | (271,962 | ) |
| Cash and cash equivalents, beginning of year         |   |   | 45,294    |   |   |   | 317,256 |   |
|                                                 |   |   |      |   |   |   |   |   |
| Cash and cash equivalents, end of year               |   | $      | 104,815   |   |   | $      | 45,294 |   |
|                                                 |   |   |      |   |   |   |   |   |
| Supplemental disclosures of cash flow information:   |   |   |      |   |   |   |   |   |
| Interest paid                                        |   | $      | 27,327    |   |   | $      | 34,849 |   |
|                                                 |   |   |      |   |   |   |   |   |
| Income taxes paid                                    |   | $      | -         |   |   | $      | - |   |
|                                                 |   |   |      |   |   |   |   |   |

----

----

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

----

----

----

|                                       |   | 2011   |       |   | 2010   |   |
|--------------------------------------------|--------|--------|------------|--------|--------|--------|
|                                       |   |   |       |   |   |   |
| Raw materials                              |   | $      | 2,394,502  |   |   | $      | 2,626,206 |   |
| Finished goods                             |   |   | 2,985,902  |   |   |   | 3,226,614 |   |
|                                       |   |   |       |   |   |   |   |   |
|                                       |   |   | 5,380,404  |   |   |   | 5,852,820 |   |
| Reserve for potential product obsolescence |   |   | (1,991,241 | )      |   |   | (2,076,018 | ) |
|                                       |   |   |       |   |   |   |   |   |
|                                       |   |   | 3,389,163  |   |   |   | 3,776,802 |   |
| Non-current portion                        |   |   | (2,274,013 | )      |   |   | (2,140,194 | ) |
| Discount on long term inventory            |   |   | (115,150   | )      |   |   | (136,608 | ) |
|                                       |   |   |       |   |   |   |   |   |
| Current portion                            |   | $      | 1,000,000  |   |   | $      | 1,500,000 |   |
|                                       |   |   |       |   |   |   |   |   |

----

|                                           |   | 2011   |      |   | 2010   |   |
|------------------------------------------------|--------|--------|-----------|--------|--------|--------|
|                                           |   |   |      |   |   |   |
| Machinery and equipment                        |   | $      | 964,111   |   |   | $      | 1,060,519 |   |
| Furniture and fixtures                         |   |   | 163,302   |   |   |   | 1,493,293 |   |
| Leasehold improvements                         |   |   | 485,080   |   |   |   | 481,887 |   |
|                                           |   |   | 1,612,493 |   |   |   | 3,035,699 |   |
| Less accumulated depreciation and amortization |   |   | 1,231,651 |   |   |   | 2,477,861 |   |
| Property, plant and equipment, net             |   | $      | 380,842   |   |   | $      | 557,838 |   |
|                                           |   |   |      |   |   |   |   |   |

----

|                                |   | February 28, 2011 |    |   | February 28, 2010 |   |
|-------------------------------------|--------|-------------------|---------|--------|-------------------|--------|
|                                |   |              |    |   |              |   |
| Demand notes payable  (a) |   | $                 | 82,500  |   |              | $      | 90,000 |   |
| Convertible notes payable (b)       |   |              | 790,000 |   |              |   | 907,500 |   |
|                                |   |              | 872,500 |   |              |   | 997,500 |   |
|                                |   |              |    |   |              |   |   |   |
| Less: Current portion               |   |              | 372,500 |   |              |   | 497,500 |   |
|                                |   |              |    |   |              |   |   |   |
| 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, 2011, and an unsecured demand note payable with a balance of $32,500, with interest at an annual rate of 10%, on which $4,932 in interest was accrued during the year ended February 28, 2011. |
|--------|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (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 accrued  interest of $34,986 on the note during the year ended February 28, 2011, of which $26,226 was paid. Also consists of two unsecured convertible notes entered into during the second quarter of fiscal 2010 totaling $290,000. 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 $30,331 on the notes during the year ended February 28, 2011.  Except for the $500,000 note due in 2013, these notes are past due and therefore due on demand. |
|--------|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| Year Ending February 28, |   |   |    |
|--------------------------|--------|--------|---------|
| 2012                     |   | $      | 372,500 |   |
| 2013                     |   |   | 500,000 |   |
| Total                    |   | $      | 872,500 |   |

----

|                                 |   | 2011   |      |   | 2010   |   |
|--------------------------------------|--------|--------|-----------|--------|--------|--------|
|                                 |   |   |      |   |   |   |
| Accrued payroll and related expenses |   | $      | 2,520,107 |   |   | $      | 1,716,279 |   |
| Accrued interest                     |   |   | 112,749   |   |   |   | 9,882 |   |
| Other                                |   |   | -         |   |   |   | 10,650 |   |
| Total                                |   | $      | 2,632,856 |   |   | $      | 1,736,811 |   |
|                                 |   |   |      |   |   |   |   |   |

|   | 2014 | $60,241 |
|--------|------|---------|

----

|                           | 2006 Plan |                            |
|--------------------------------|-----------|---------------------------------|
|                           |      |                            |
|                           |      | Weighted-Average Exercise Price |   |   | Aggregate Intrinsic Value |   |   | Number of Options |   |
|                           |      |                            |   |   |   |   |   |   |   |
| 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 |   |
| Granted                        |      | $                               | 0.75 |   |   |   |   |   |   |   | 424,000 |   |
|  Re-characterization      |      |                            | 1.50 |   |   |   |   |   |   |   | (1,400,000 | )  |
| Cancelled                      |      | $                               | 1.50 |   |   |   |   |   |   |   | (3,000 | ) |
| Outstanding, February 28, 2011 |      | $                               | 0.75 |   |   | $ | 0.00 |   |   |   | 5,304,500 |   |

----

| Options Outstanding    |   | Exercisable Options |      |
|------------------------|--------|---------------------|-----------|
| Range of ExercisePrice |   | Number              |      | Weighted Average Remaining Life |   | Weighted Average Exercise Price |   | Weighted Average Remaining Life |   | Number |   | Weighted Average Exercise Price |   |
|   $0.75           |   |                | 5,304,500 |   |   | 3.6 years |   | $ | 0.75 |   |   | 3.6 years |   |   | 4,795,584 |   | $ | 0.75 |   |

|  Non-vested Shares    |   | Shares |     |    | Weighted-AverageGrant-DateFair Value |   |
|---------------------------------|--------|--------|----------|---------|--------------------------------------|--------|
| Non-vested at February 28, 2010 |   |   | 330,962  |    |                                 | $      | 0.83 |   |
| Granted                         |   |   | 424,000  |    |                                 | $      | 0.48 |   |
| Vested                          |   |   | (244,005 | )  |                                 | $      | 0.83 |   |
| Cancelled                       |   |   | (2,041   | )  |                                 | $      | 0.83 |   |
|                            |   |   |     |    |                                 |   |   |   |
| Non-vested at February 28, 2011 |   |   | 508,916  |    |                                 | $      | 0.48 |   |
|                            |   |   |     |    |                                 |   |   |   |

|                            | Number of Shares | Exercise Prices |
|---------------------------------|------------------|-----------------|
| Outstanding, February 28, 2010  | 6,612,793        | $0.75-4.00      |
| Granted                         | 2,319,840        | $0.75-1.50      |
|  Re-characterization  | 1,400,000        | $0.75           |
| Expired                         | (1,644,057)      | $4.00           |
| Outstanding, February 28, 2011  | 8,688,576        | $0.75-4.00      |
|                            |             |            |

----

| 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 |
|--------------------------|--------|----------------------------|--------|----------------------------|--------|---------------------------------------------|--------|---------------------------------------------------------|--------|---------------------------------------------------------|--------|-----------------------|
| $0.75-1.50               |   | 2,693,286                  |   | 2,693,286                  |   | 47 months                                   |   | $0.90                                                   |   | $0.90                                                   |   | $0.00                 |
| $0.75-1.25               |   | 1,354,710                  |   | 1,354,710                  |   | 41 months                                   |   | $1.25                                                   |   | $1.25                                                   |   | $0.00                 |
| $1.50                    |   | 1,900,000                  |   | 1,900,000                  |   | 40 months                                   |   | $1.50                                                   |   | $1.50                                                   |   | $0.00                 |
| $1.00-$4.00              |   | 1,934,991                  |   | 1,934,991                  |   | 14 months                                   |   | $3.90                                                   |   | $3.90                                                   |   | $0.00                 |
| $4.00                    |   | 805,589                    |   | 805,589                    |   | 11months                                    |   | $4.00                                                   |   | $4.00                                                   |   | $0.00                 |
|                     |   | 8,688,576                  |   | 8,688,576                  |   |                                        |   |                                                    |   |                                                    |   |                  |

----

|                                |   |   |   |              2011                                                    |                  2010 |                                                                                                                                  |
|-------------------------------------|--------|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------|------------------------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------------------------|
| Current:                            |   |   | $      |                                                                                                                                  | $                                                                                                          |                                                                                                                                  |   |
|   Federal                 |   |   |   |                       - |                                                                                                       |                       - |   |
|   State                   |   |   |   |                    800                 |                                                                                                       |                    800                 |   |
|                                |   |   |   |                                                                                                                                  |                                                                                                       |                                                                                                                                  |
|      Total |   |   |   |                    800                 |                                                                                                       |                    800                 |   |
|                                |   |   |   |                                                                                                                                  |                                                                                                       |                                                                                                                                  |   |
| Deferred                            |   |   |   |                                                                                                                                  |                                                                                                       |                                                                                                                                  |   |
|   Federal                 |   |   |   |                       - |                                                                                                       |                       - |   |
|   State                   |   |   |   |                       - |                                                                                                       |                       - |   |
|                                |   |   |   |                                                                                                                                  |                                                                                                       |                                                                                                                                  |
|  Total                         |   |   |   |                       - |                                                                                                       |                       - |   |
|  Total Income Tax Provision    |   |   |   |                                                                                                                                  |                                                                                                       |
|                                |   |   | $      |                    800                 | $                                                                                                          |                    800                 |   |

|                                       | 2011   |   | 2010   |   |
|--------------------------------------------|--------|--------|--------|--------|
|                                       |   |   |   |   |
| 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                                      | -%     |   | - %    |   |

|                                                                                                                                                 |   | 2011   |         |   | 2010   |   |
|------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|--------------|--------|--------|--------|
| Deferred tax asset                                                                                                                                   |   |   |         |   |   |   |
| Primarily relating to net operating loss carry-forwards, but also reserves for inventory and accounts receivable, stock-based compensation and other |   | $      | 110,000,000  |   |   | $      | 108,000,000 |   |
| Valuation allowance                                                                                                                                  |   |   | (110,000,000 | )      |   |   | (108,000,000 | ) |
| Net deferred tax asset                                                                                                                               |   | $      | -            |   |   | $      | - |   |

----

|          |   | 2011   |      |   | 2010   |   |
|---------------|--------|--------|-----------|--------|--------|--------|
|          |   |   |      |   |   |   |
| United States |   | $      | 1,866,723 |   |   | $      | 2,405,709 |   |
| Canada        |   |   | 842,780   |   |   |   | 280,501 |   |
| Europe        |   |   | 76,876    |   |   |   | 51,117 |   |
| Asia          |   |   | 653,580   |   |   |   | 477,465 |   |
| Total         |   | $      | 3,439,959 |   |   | $      | 3,214,792 |   |
|          |   |   |      |   |   |   |   |   |

----