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    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong>UNITED
      STATES</strong></font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong>SECURITIES
      AND EXCHANGE COMMISSION</strong></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">&#160;</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong>Washington,
      D.C. 20549</strong></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">&#160;</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center">&#160;</div>
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    </div>
    <div>&#160;</div>
    <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="center"><strong><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">FORM
      8-K</font></strong></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center">
      <div>
        <hr style="COLOR: black" align="center" noshade size="1" width="10%">
      </div><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">&#160;</font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong>Current
      Report </strong></font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong>Pursuant
      to Section 13 or 15(d) </strong></font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong>of
      the Securities Exchange Act of 1934 </strong></font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong>Date
      of Report (Date of earliest event reported): January 18,
      2006</strong></font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong>AURA
      SYSTEMS, INC.</strong></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">&#160;</font><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center">
      <div>
        <hr style="COLOR: black" align="center" noshade size="1" width="100%">
      </div><strong><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">(Exact
      name of registrant as specified in charter)</font></strong></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center">&#160;</div>
    <div>
      <table cellpadding="0" cellspacing="0" width="100%">

          <tr>
            <td valign="top" width="21%">
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            </td>
            <td align="left" valign="bottom" width="4%">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left">&#160;</div>
            </td>
            <td valign="top" width="21%">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong>0-17249</strong></font></div>
            </td>
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              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left">&#160;</div>
            </td>
            <td valign="top" width="21%">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong>95-4106894</strong></font></div>
            </td>
          </tr>
          <tr>
            <td valign="top" width="21%">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong>(State
                or other</strong></font></div>
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong>jurisdiction
                of</strong></font></div>
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong>incorporation)</strong></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">&#160;</font></div>
            </td>
            <td align="left" valign="bottom" width="4%">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left">&#160;</div>
            </td>
            <td valign="top" width="21%">
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                File</strong></font></div>
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong>Number)</strong></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">&#160;</font></div>
            </td>
            <td align="left" valign="bottom" width="4%">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left">&#160;</div>
            </td>
            <td valign="top" width="21%">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong>(IRS
                Employer</strong></font></div>
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong>Identification
                No.)</strong></font></div>
            </td>
          </tr>

      </table>
    </div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong>2335
      Alaska Avenue, El Segundo, California 90245</strong></font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong>(Address
      of principal executive offices) (Zip Code)</strong></font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong>Registrant&#8217;s
      telephone number, including area code: (310) 643-5300</strong></font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong>Not
      Applicable</strong></font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong>(Former
      name or former address, if changed since last report)</strong></font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left">
      <div>&#160;</div>
      <div>
        <hr style="COLOR: black" align="center" noshade size="1" width="10%">
      </div>
      <div>&#160;</div>
    </div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Check
      the
      appropriate box below if the Form 8-K filing is intended to simultaneously
      satisfy the filing obligation of the registrant under any of the following
      provisions (see General Instruction A.2. below): </font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left">&#160;</div>
    <div>
      <table cellpadding="0" cellspacing="0" width="100%">

          <tr>
            <td align="left" valign="top" width="3%">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Wingdings">&#168;</font></div>
            </td>
            <td align="left" valign="top" width="69%">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Written
                communications pursuant to Rule 425 under the Securities Act (17
                CFR
                230.425) </font></div>
            </td>
          </tr>

      </table>
    </div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left">&#160;</div>
    <div>
      <table cellpadding="0" cellspacing="0" width="100%">

          <tr>
            <td align="left" valign="top" width="3%">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Wingdings">&#168;</font></div>
            </td>
            <td align="left" valign="top" width="69%">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Soliciting
                material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
                240.14a-12) </font></div>
            </td>
          </tr>

      </table>
    </div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left">&#160;</div>
    <div>
      <table cellpadding="0" cellspacing="0" width="100%">

          <tr>
            <td align="left" valign="top" width="3%">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Wingdings">&#168;</font></div>
            </td>
            <td align="left" valign="top" width="69%">
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                communications pursuant to Rule 14d-2(b) under the Exchange Act (17
                CFR
                240.14d-2(b)) </font></div>
            </td>
          </tr>

      </table>
    </div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left">&#160;</div>
    <div>
      <table cellpadding="0" cellspacing="0" width="100%">

          <tr>
            <td align="left" valign="top" width="3%">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Wingdings">&#168;</font></div>
            </td>
            <td align="left" valign="top" width="69%">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Pre-commencement
                communications pursuant to Rule 13e-4(c) under the Exchange Act (17
                CFR
                240.13e-4(c)) </font></div>
            </td>
          </tr>

      </table>
    </div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left">&#160;</div>
    <div id="PGBRK" style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt">
      <div id="FTR">
        <div id="GLFTR" style="WIDTH: 100%" align="left">
        </div>
      </div>
      <div id="PN" style="PAGE-BREAK-AFTER: always">
        <div style="WIDTH: 100%; TEXT-ALIGN: center">
        </div>
        <div style="WIDTH: 100%; TEXT-ALIGN: center">
          <hr style="COLOR: black" noshade size="2">
        </div>
      </div>
      <div id="HDR">
        <div id="GLHDR" style="WIDTH: 100%" align="right">
        </div>
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    </div>
    <div>&#160;</div>
    <div>
      <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong>Item
        1.03.</strong></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">&#160;</font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong>Bankruptcy
        or Receivership</strong></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">.</font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">&#160;</font></div>
      <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left">&#160;</div>
      <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><font id="TAB1" style="MARGIN-LEFT: 36pt"></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">On
        January 18, 2006, the United States Bankruptcy Court, Central District of
        California, Los Angeles Division (the &#8220;Court&#8221;), entered an order (the
&#8220;Confirmation Order&#8221;) confirming Aura Systems, Inc. (the &#8220;Debtor&#8221;) First Amended
        Plan of Reorganization (the &#8220;Plan&#8221;), as modified</font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">,</font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">
        under
        Chapter 11 of the United States Bankruptcy Code (the &#8220;Bankruptcy Code&#8221;). The
        Debtor filed a voluntary petition for relief with the Court under Chapter
        11 of
        the Bankruptcy Code on June 24, 2005. The effective date of the Plan (the
        &#8220;Effective Date&#8221;) will be January 31, </font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">2006
        unless the Debtor and certain other parties stipulate to make the Effective
        Date
        earlier than January 31,</font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">&#160;</font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">2006.
        </font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">A
        copy of
        the Plan</font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">,
        the
        Confirmation Order </font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">and
        the
        press release announcing the confirmation of the Plan </font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">are
        attached and incorporated by reference hereto as Exhibits </font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">2.1,
        2.2
        and 99.1</font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">,
        respectively.</font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">&#160;</font></div>
      <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 36pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left">&#160;</div>
      <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 36pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><em>Summary
        of the Plan</em></font></div>
      <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 36pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><br></div>
      <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 36pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Set
        forth
        below is a summary of certain material provisions of the Plan that is qualified
        in its entirety by reference to the Plan </font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">and
        the
        Confirmation Order</font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">.
        On the
        Effective Date, the Debtor</font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong>&#160;</strong></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">as
        reorganized </font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">(the
        &#8220;Reorganized </font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Debtor&#8221;)
        will continue to be a publicly traded corporation, with no more than 23,000,000
        shares of common stock (&#8220;Reorganized Debtor Common Stock&#8221;) issued and
        outstanding and no more than 5,230,000 warrants reserved for issuance.
</font></div>
      <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 36pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
      <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 36pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">The
        only
        outstanding debt of the Reorganized Debtor existing on the Effective Date
        will
        be any allowed </font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">and
        still
        outstanding </font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">priority
        tax claims, the $2,525,000 Koyah Entities Promissory Note (defined below),
        and
        any other allowed secured claims which the Reorganized Debtor elects to pay
        over
        time. The Debtor does not believe that there </font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">will
        be
</font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">any
        allowed priority tax claims</font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">
        to be
        paid over time </font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">or
        any
        allowed secured claims </font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">to
        be
        paid over time </font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">(other
        than the secured claims of Koyah Leverage Partners, L.P., Koyah Partners,
        L.P.,
        Koyah Ventures, LLC, Raven Partners, L.P., Koyah Microcap Partners Master
        Fund,
        L.P. (collectively, the &#8220;Koyah Entities&#8221;)</font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">.</font></div>
      <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 36pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><br></div>
      <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><font id="TAB1" style="MARGIN-LEFT: 36pt"></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">A
        group
        of people and/or entities (collectively referred to as the "New Money
        Investors"</font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strike>,</strike></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong>)</strong></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">
        will
        contribute a total of $3,045,000 of new money (the "New Money Contribution")
        to
        the Reorganized Debtor on the Effective Date</font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">
        (except
        as set forth below)</font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">.
        This
        New Money Contribution will be in addition to the debtor-in-possession (&#8220;DIP&#8221;)
        financing provided by Blue Collar Films, Inc. (&#8220;Blue Collar&#8221;), AGP Lender LLC
        ("AGP") and the Berg Group (collectively, the &#8220;DIP Lenders&#8221;) to the Debtor. In
        exchange for the New Money Contribution, (i) the New Money Investors will
        receive approximately 3,349,500 shares of Reorganized Debtor Common Stock,
        which
        will comprise approximately 14.8% of the Reorganized Debtor Common Stock
        issued
        and outstanding on the Effective Date, plus approximately 669,900 Warrants
        (defined below), and (ii) for major contributions to the Plan, Disclosure
        Statement which describes the Plan, business analysis and modeling, feasibility
        study, assistance in settlement disputes between the Debtor and certain
        creditors, and providing valuation analysis for pricing of the New Money
        Contribution, as well as the conversion rates for the DIP Lender, the Aries
        Group will receive 2,541,500 shares of Reorganized Debtor Common Stock, which
        will comprise approximately 11.2% of the Reorganized Debtor Common Stock
        issued
        and outstanding on the Effective Date, plus 508,300 Warrants. Of the 2,541,500
        shares of Reorganized Debtor Common Stock and 508,300 Warrants that will
        be
        received by the Aries Group, 900,000 shares of Reorganized Debtor Common
        Stock
        and 179,800 Warrants will be delivered to Harry Kurtzman.</font></div>
      <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><br></div>
      <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><font id="TAB1" style="MARGIN-LEFT: 36pt"></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">The
        DIP
        Lenders, whom the Debtor estimates will be owed a total of approximately
        $4,064,018 of secured debt on the Effective Date, will, with their consent,
        collectively receive (on a pro rata basis based upon the amount of their
        respective secured debt) in full settlement and satisfaction of their debt
        owing
        by the Debtor, 6,065,699 shares of Reorganized Debtor Common Stock, which
        will
        comprise approximately 26.8% of the Reorganized Debtor Common Stock issued
        and
        outstanding on the Effective Date, plus 606,570 Warrants. The DIP Lenders
        may
        elect, at their option and discretion, to have their members or participants
        receive their shares of Reorganized Debtor Common Stock and Warrants in their
        individual names.</font></div>
      <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><br></div>
      <div id="PGBRK" style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt">
        <div id="FTR">
          <div id="GLFTR" style="WIDTH: 100%" align="left">
          </div>
        </div>
        <div id="PN" style="PAGE-BREAK-AFTER: always">
          <div style="WIDTH: 100%; TEXT-ALIGN: center">
          </div>
          <div style="WIDTH: 100%; TEXT-ALIGN: center">
            <hr style="COLOR: black" noshade size="2">
          </div>
        </div>
        <div id="HDR">
          <div id="GLHDR" style="WIDTH: 100%" align="right">
          </div>
        </div>
      </div>
      <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><font id="TAB1" style="MARGIN-LEFT: 36pt"></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">The
        Koyah
        Entities, whom the Debtor estimates will be owed approximately $5,500,000
        of
        secured debt on the Effective Date, will, with their consent, receive in
        full
        settlement and satisfaction of all of their claims against the Debtor, (i)
        1,134,000 shares of Reorganized Debtor Common Stock, which will comprise
        5% of
        the Reorganized Debtor Common Stock issued and outstanding on the Effective
        Date, plus (ii) 259,900 Koyah Entities Warrants (defined below) (or such
        lesser
        amount as the Koyah Entities designate), plus (iii) a restated promissory
        note
        from the Reorganized Debtor (the "Koyah Entities Promissory Note"), which
        will
        have, among others, the following terms: </font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">(a)
        a
        principal balance of $2,600,000, (b) a term of five years, (c) an annual
        interest rate of 7%, (d) provide for the Reorganized Debtor to make an initial
        payment of $75,000 to the Koyah Entities on the Effective Date (which will
        reduce the principal amount owing under the Koyah Entities Promissory Note
        on
        the Effective Date to $2,525,000), (e) beginning with the twelfth full calendar
        month following the Effective Date, provide for the Reorganized Debtor to
        repay
        the balance of the Koyah Entities Promissory Note over the following forty-eight
        months by making equal monthly payments to the Koyah Entities, (f) provide
        for
        the Reorganized Debtor to pay to the Koyah Entities by the date which is
        five
        years following the Effective Date all outstanding principal and interest
        which
        remain outstanding on that date, and (g) provide for the Reorganized Debtor
        to
        have the right to prepay all or any portion of the outstanding obligations
        owing
        under the Koyah Entities Promissory Note at any time with no prepayment penalty.
        The obligations of the Reorganized Debtor to the Koyah Entities on account
        of
        the Koyah Entities Promissory Note will be secured by a lien against the
        same
        assets which secured the pre-bankruptcy claim of the Koyah Entities. The
        lien
        will have the same priority as the pre-bankruptcy lien of the Koyah Entities.
        The Reorganized Debtor will execute any and all documents reasonably requested
        by the Koyah Entities and delivered by the Koyah Entities to the Reorganized
        Debtor to evidence the debt owing by the Reorganized Debtor to the Koyah
        Entities, including, but not limited to, the restated Koyah Entities Promissory
        Note, a restated security agreement, and a restated financing statement.
        In
        addition to the foregoing, the Koyah Entities will receive, on account of
        their
        Series B Preferred Stock (the &#8220;Series B Stock&#8221;), Series A Preferred Stock (the
        "Series A Stock") and issued and outstanding Common Stock (the &#8220;Current Common
        Stock&#8221;) the same pro rata treatment as received by all other holders of Series
        B
        Stock, Series A Stock and Current Common Stock (or such lesser amounts of
        such
        interests as the Koyah Entities designate).</font></div>
      <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><br></div>
      <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><font id="TAB1" style="MARGIN-LEFT: 36pt"></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Ezra
        Meyer, whom the Debtor estimates will be owed approximately $105,000 of secured
        debt on the Effective Date, will, with his consent, receive in full settlement
        and satisfaction of all of his claims against the Debtor </font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">cash
        on
        the Effective Date of $105,000. Mr. Meyer has agreed to contribute $100,000
        of
        the cash that he will receive from the Reorganized Debtor on account of his
        allowed secured claims towards the $3,045,000 New Money
        Contribution.</font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong>&#160;</strong></font></div>
      <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><br></div>
      <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><font id="TAB1" style="MARGIN-LEFT: 36pt"></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">All
        other
        allowed secured claims, which the Debtor estimates are in the total amount
        of
        $0, will, at the election of the Reorganized Debtor, either be (i) paid in
        cash
        in full on the Effective Date from the New Money Contribution, or (ii) be
        paid
        over a period of five years on a fully amortized basis with a rate of interest
        equal to the Federal Funds Rate (which is the interest rate at which banks
        and
        other depository institutions lend money to each other, usually on an overnight
        basis, and which is currently at approximately 4% per annum) existing on
        the
        date of January 10, 2006, plus 2%, or such other rate of interest agreed
        to
        between the Debtor and the holder of such allowed secured claim, or determined
        by the Court. The Reorganized Debtor will issue a promissory note and a related
        security agreement and financing statement to the holder of any such allowed
        secured claim that the Reorganized Debtor does not pay in cash in full on
        the
        Effective Date from the New Money Contribution.</font></div>
      <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 36pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><br></div>
      <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 36pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">The
        holders of all allowed unsecured claims, which the Debtor estimates is in
        the
        total amount of approximately $8.3 million, will collectively receive (on
        a pro
        rata basis based upon the amount of their respective allowed unsecured claims)
        in full settlement and satisfaction of their allowed unsecured claims 4,729,499
        shares of Reorganized Debtor Common Stock, which will comprise approximately
        20.9% of the Reorganized Debtor Common Stock issued and outstanding on the
        Effective Date, plus up to 945,900 Warrants. The holders of allowed unsecured
        claims also have the right to elect to receive a cash distribution equal
        to 5%
        of the amount of their allowed unsecured claims, in lieu of receiving any
        Reorganized Debtor Common Stock. </font></div>
      <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 36pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><br></div>
      <div id="PGBRK" style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt">
        <div id="FTR">
          <div id="GLFTR" style="WIDTH: 100%" align="left">
          </div>
        </div>
        <div id="PN" style="PAGE-BREAK-AFTER: always">
          <div style="WIDTH: 100%; TEXT-ALIGN: center">
          </div>
          <div style="WIDTH: 100%; TEXT-ALIGN: center">
            <hr style="COLOR: black" noshade size="2">
          </div>
        </div>
        <div id="HDR">
          <div id="GLHDR" style="WIDTH: 100%" align="right">
          </div>
        </div>
      </div>
      <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 36pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">The
        holders of $9,979,838 issued and outstanding Series B Stock which has been
        fully
        and properly paid for will receive under the Plan in full settlement and
        satisfaction of their Series B interests (on a pro rata basis based upon
        the
        amount of their respective Series B Stock) 2,961,585 shares of Reorganized
        Debtor Common Stock, which will comprise approximately 13.1% of the Reorganized
        Debtor Common Stock issued and outstanding on the Effective Date, plus up
        to
        987,195 Warrants. In addition, the holders of $9,979,838 issued and outstanding
        Series B Stock will receive one Warrant for each three shares of Reorganized
        Debtor Common Stock that they receive under the Plan, rounded downward for
        those
        Series B interest holders who receive an amount of Reorganized Debtor Common
        Stock which is not wholly divisible by three. </font></div>
      <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 36pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><br></div>
      <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 36pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">The
        holders of all issued and outstanding Series A Stock, comprised of approximately
        591,110 shares of Series A Stock, will collectively receive (on a pro rata
        basis
        based upon the amount of their respective Series A Stock) in full settlement
        and
        satisfaction of their Series A Stock 357,818 shares of Reorganized Debtor
        Common
        Stock, which will comprise approximately 1.6% of the Reorganized Debtor Common
        Stock issued and outstanding on the Effective Date, plus up to 89,455
        Warrants.</font></div>
      <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 36pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><br></div>
      <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 36pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">The
        holders of all issued and outstanding Current Common Stock, which the Debtor
        estimates is comprised of approximately 439,458,082 shares of Current Common
        Stock, will collectively receive (on a pro rata basis based upon the amount
        of
        their respective Current Common Stock) in full settlement and satisfaction
        of
        their Current Common Stock, 1,300,000 shares of Reorganized Debtor Common
        Stock,
        which will comprise approximately 5.7% of the Reorganized Debtor Common Stock
        issued and outstanding on the Effective Date. This equates to an exchange
        of
        approximately 338 shares of Current Common Stock for each share of Reorganized
        Debtor Common Stock. </font></div>
      <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 36pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><br></div>
      <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 36pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">All
        allowed claims which are less than $2,500 in amount, which the Debtor estimates
        are in the total amount of approximately $50,000, will be paid in cash in
        full
        on the Effective Date from the New Money Contribution. Holders of allowed
        unsecured claims which are greater than $2,500, but not greater than $10,000,
        will have the right to reduce their claim to $2,500 and elect to be paid
        in cash
        in full on the Effective Date from the New Money Contribution.</font></div>
      <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 36pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><br></div>
      <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 36pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">On
        the
        Effective Date, a total of up to approximately 3,807,319 of warrants (the
        "Warrants") will be issued to the New Money Investors, the Aries Group, the
        DIP
        Lenders, the holder of general unsecured claims, Series B interests, and
        Series
        A interests as follows:</font></div>
      <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 36pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><br></div>
      <div>
        <table align="center" border="0" cellpadding="0" cellspacing="0" id="hangingindent" width="100%">

            <tr valign="top" style="line-height: 1.25;">
              <td style="width: 36pt;">&#160;</td>
              <td style="width: 18pt;">
                <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">1.</font></div>
              </td>
              <td>
                <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">To
                  the New Money Investors (who will receive one Warrant for each
                  five shares
                  of Reorganized Debtor Common
                  Stock).</font></div>
              </td>
            </tr>

        </table>
      </div>
      <div style="DISPLAY: block; MARGIN-LEFT: 54pt; TEXT-INDENT: -18pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><br></div>
      <div>
        <table align="center" border="0" cellpadding="0" cellspacing="0" id="hangingindent" width="100%">

            <tr valign="top" style="line-height: 1.25;">
              <td style="width: 36pt;">&#160;</td>
              <td style="width: 18pt;">
                <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">2.</font></div>
              </td>
              <td>
                <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">To
                  the Aries Group (who will receive one Warrant for each five shares
                  of
                  Reorganized Debtor Common Stock).</font></div>
              </td>
            </tr>

        </table>
      </div>
      <div style="DISPLAY: block; MARGIN-LEFT: 54pt; TEXT-INDENT: -18pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><br></div>
      <div>
        <table align="center" border="0" cellpadding="0" cellspacing="0" id="hangingindent" width="100%">

            <tr valign="top" style="line-height: 1.25;">
              <td style="width: 36pt;">&#160;</td>
              <td style="width: 18pt;">
                <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">3.</font></div>
              </td>
              <td>
                <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">To
                  the DIP Lenders (who will receive one Warrant for each ten shares
                  of
                  Reorganized Debtor Common Stock). </font></div>
              </td>
            </tr>

        </table>
      </div>
      <div style="DISPLAY: block; MARGIN-LEFT: 54pt; TEXT-INDENT: -18pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><br></div>
      <div>
        <table align="center" border="0" cellpadding="0" cellspacing="0" id="hangingindent" width="100%">

            <tr valign="top" style="line-height: 1.25;">
              <td style="width: 36pt;">&#160;</td>
              <td style="width: 18pt;">
                <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">4.</font></div>
              </td>
              <td>
                <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">To
                  holders of allowed unsecured claims (who will receive one Warrant
                  for each
                  five shares of Reorganized Debtor Common Stock).
                  </font></div>
              </td>
            </tr>

        </table>
      </div>
      <div style="DISPLAY: block; MARGIN-LEFT: 54pt; TEXT-INDENT: -18pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><br></div>
      <div>
        <table align="center" border="0" cellpadding="0" cellspacing="0" id="hangingindent" width="100%">

            <tr valign="top" style="line-height: 1.25;">
              <td style="width: 36pt;">&#160;</td>
              <td style="width: 18pt;">
                <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">5.</font></div>
              </td>
              <td>
                <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">To
                  holders of issued and outstanding Series B Stock (who will receive
                  one
                  Warrant for each three shares of Reorganized Debtor Common
                  Stock).</font></div>
              </td>
            </tr>

        </table>
      </div>
      <div style="DISPLAY: block; MARGIN-LEFT: 54pt; TEXT-INDENT: -18pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><br></div>
      <div>
        <table align="center" border="0" cellpadding="0" cellspacing="0" id="hangingindent" width="100%">

            <tr valign="top" style="line-height: 1.25;">
              <td style="width: 36pt;">&#160;</td>
              <td style="width: 18pt;">
                <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">6.</font></div>
              </td>
              <td>
                <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">To
                  holders of issued and outstanding Series A Stock (who will receive
                  one
                  Warrant for each four shares of Reorganized Debtor Common
                  Stock).</font></div>
              </td>
            </tr>

        </table>
      </div>
      <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 36pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><br></div>
      <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 36pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Each
        Warrant will entitle the holder of the Warrant to purchase one share of
        Reorganized Debtor Common Stock at a price of $3.00 during the first twelve
        months following the Effective Date, $3.50 during the second twelve months
        following the Effective Date, and $4.00 during the third twelve months following
        the Effective Date. </font></div>
      <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 36pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><br></div>
      <div id="PGBRK" style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt">
        <div id="FTR">
          <div id="GLFTR" style="WIDTH: 100%" align="left">
          </div>
        </div>
        <div id="PN" style="PAGE-BREAK-AFTER: always">
          <div style="WIDTH: 100%; TEXT-ALIGN: center">
          </div>
          <div style="WIDTH: 100%; TEXT-ALIGN: center">
            <hr style="COLOR: black" noshade size="2">
          </div>
        </div>
        <div id="HDR">
          <div id="GLHDR" style="WIDTH: 100%" align="right">
          </div>
        </div>
      </div>
      <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 36pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">In
        addition, a total of 500,000 warrants will be reserved for the management
        of the
        Reorganized Debtor (the "Management Warrants"), and a total of 500,000 warrants
        will be reserved for the members of the Reorganized Debtor's Board of Directors
        (the "Board Warrants"). Management will have a vesting period for the Management
        Warrants of thirty-six months with prorated vesting to occur on a monthly
        basis.
        Each Management Warrant will entitle the holder of the Management Warrant
        to
        purchase one share of Reorganized Debtor Common Stock at a price of $2.00
        during
        the first twelve months after issuance, $2.50 during the second twelve months
        after issuance, and $3.00 during the third twelve months after issuance.
        Board
        members will have a vesting period for the Board Warrants, with 25% of the
        Warrants vesting every six months of service on the Board. Each vested Board
        Warrant will entitle the holder of the Board Warrant to purchase one share
        of
        Reorganized Debtor Common Stock at a price of $2.50. All unvested Warrants
        will
        remain as an asset of the Reorganized Debtor to be distributed in the manner
        the
        Reorganized Debtor deems appropriate.</font></div>
      <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 36pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
      <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 36pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">As
        described above, on the Effective Date, a total of 259,900 warrants will
        be
        issued to the Koyah Entities (the "Koyah Entities Warrants"). The Koyah Entities
        Warrants will entitle the Koyah Entities to purchase one share of Reorganized
        Debtor Common Stock at a price of $2.00 during the first twelve months following
        the Effective Date, $2.50 during the second twelve months following the
        Effective Date, and $3.00 during the third twelve months following the Effective
        Date. </font></div>
      <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 36pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
      <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 36pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">All
        allowed administrative claims (excluding those held by the DIP Lenders) and
        all
        allowed priority claims, which the Debtor estimates are in the total amount
        of
        approximately $1,141,081.46 (comprised of an estimated $1,086,600 of
        administrative claims plus $54,481.46 of priority claims), to the extent
        not
        otherwise paid prior to the Effective Date, will be paid in cash in full
        on the
        Effective Date from the New Money Contribution.</font></div>
      <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 36pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><br></div>
      <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 36pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Incorporated
        into the Plan was a Settlement and Mutual Release Agreement (the "Settlement
        Agreement") entered into on January 11, 2006 between the Debtor, the Debtor's
        affiliate Aura Realty, Inc. ("ARI"), Yair Ben Moshe ("Moshe"), David Maimon
        ("Maimon"), Adi Harari, Izar Fernbach, Fred Balitzer, and ZD Products, Inc.
        ("ZD"). The Court approved the Settlement Agreement at the same hearing that
        the
        Court confirmed the Plan. The Settlement Agreement, among other things, resolved
        the objection to Plan confirmation filed by Moshe and Maimon. The following
        sets
        forth some of the key terms of the Settlement Agreement:</font></div>
      <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 36pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><br></div>
      <div>
        <table align="center" border="0" cellpadding="0" cellspacing="0" id="hangingindent" width="100%">

            <tr valign="top" style="line-height: 1.25;">
              <td style="width: 36pt;">&#160;</td>
              <td style="width: 36pt;">
                <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">1.</font></div>
              </td>
              <td>
                <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">On
                  account of the $244,000 general unsecured claim filed by Harari
                  against
                  the Debtor, the $956,041 general unsecured claim filed by Maimon
                  against
                  the Debtor, and the $1,426,915 general unsecured claim filed by
                  Moshe
                  against the Debtor, and any other claims of Maimon and Moshe against
                  the
                  Debtor, Maimon and Moshe shall collectively receive one allowed
                  general
                  unsecured claim against the Debtor in the collective, aggregate
                  amount of
                  $590,000 (the "Allowed ASI Claim").
</font></div>
              </td>
            </tr>

        </table>
      </div>
      <div style="DISPLAY: block; MARGIN-LEFT: 72pt; TEXT-INDENT: -36pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><br></div>
      <div>
        <table align="center" border="0" cellpadding="0" cellspacing="0" id="hangingindent" width="100%">

            <tr valign="top" style="line-height: 1.25;">
              <td style="width: 36pt;">&#160;</td>
              <td style="width: 36pt;">
                <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">2.</font></div>
              </td>
              <td>
                <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">ZD
                  agreed to purchase the Allowed ASI Claim from Maimon and Moshe,
                  and Maimon
                  and Moshe hereby agree to sell to ZD, the Allowed ASI Claim for
                  the cash
                  purchase price of $225,000. Of this $225,000 paid by ZD for the
                  Allowed
                  ASI Claim, $150,000 shall be paid directly to Maimon and Moshe,
                  and
                  $75,000 shall be contributed towards the $3,045,000 New Money
                  Contribution.</font></div>
              </td>
            </tr>

        </table>
      </div>
      <div style="DISPLAY: block; MARGIN-LEFT: 72pt; TEXT-INDENT: -36pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><br></div>
      <div>
        <table align="center" border="0" cellpadding="0" cellspacing="0" id="hangingindent" width="100%">

            <tr valign="top" style="line-height: 1.25;">
              <td style="width: 36pt;">&#160;</td>
              <td style="width: 36pt;">
                <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">3.</font></div>
              </td>
              <td>
                <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">The
                  Debtor has assigned to Maimon and Moshe, jointly, the first $225,000
                  that
                  the Debtor receives from the sale proceeds from ARI's previous
                  sale of its
                  real property interests. Maimon and Moshe, in turn, have agreed
                  to
                  contribute this $225,000 towards the $3,045,000 New Money Contribution
                  concurrently the distribution of those funds by ARI. The Debtor
                  believes
                  that this $225,000 will be distributed by ARI's bankruptcy estate
                  and
                  added to the New Money Contribution after the Effective Date but
                  before
                  June 30, 2006. </font></div>
              </td>
            </tr>

        </table>
      </div>
      <div style="DISPLAY: block; MARGIN-LEFT: 72pt; TEXT-INDENT: -36pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
      <div id="PGBRK" style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt">
        <div id="FTR">
          <div id="GLFTR" style="WIDTH: 100%" align="left">
          </div>
        </div>
        <div id="PN" style="PAGE-BREAK-AFTER: always">
          <div style="WIDTH: 100%; TEXT-ALIGN: center">
          </div>
          <div style="WIDTH: 100%; TEXT-ALIGN: center">
            <hr style="COLOR: black" noshade size="2">
          </div>
        </div>
        <div id="HDR">
          <div id="GLHDR" style="WIDTH: 100%" align="right">
          </div>
        </div>
      </div>
      <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
      <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify">
        <table align="center" border="0" cellpadding="0" cellspacing="0" id="hangingindent" width="100%">

            <tr valign="top" style="line-height: 1.25;">
              <td style="width: 36pt;">
              </td>
              <td style="width: 36pt;">
                <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">4.</font></div>
              </td>
              <td>
                <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Maimon
                  and Moshe have agreed to a release of the $3,738,000 unsecured
                  claim that
                  they filed against ARI in ARI's Chapter 11 bankruptcy case. In
                  the event
                  that the $225,000 from ARI's bankruptcy estate is not distributed
                  for the
                  benefit of Maimon and Moshe (and then assigned to the Reorganized
                  Debtor
                  as part of the New Money Contribution as set forth above) by September
                  30,
                  2006 (or such later date as agreed to in a signed writing by Maimon
                  and
                  Moshe), then (a) Maimon's and Moshe's release of their $3,738,000
                  claim in
                  ARI shall not be effective, and (b) Maimon and Moshe reserve all
                  of their
                  rights to assert their claim against ARI; provided, however, that
                  under no
                  circumstance may Maimon and Moshe receive more than $225,000 from
                  ARI on
                  account of their currently filed or any other claim asserted against
                  ARI,
                  and provided further that ARI and any other party in interest reserve
                  all
                  of their rights to object to any claim asserted by Maimon and Moshe
                  against ARI. Maimon and Moshe shall have no obligation to fund
                  this
                  $225,000 portion toward the New Money Contribution unless and until
                  such
                  proceeds are received from ARI.</font></div>
              </td>
            </tr>

        </table>
      </div>
      <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
      <div>
        <table align="center" border="0" cellpadding="0" cellspacing="0" id="hangingindent" width="100%">

            <tr valign="top" style="line-height: 1.25;">
              <td style="width: 36pt;">&#160;</td>
              <td style="width: 36pt;">
                <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">5.</font></div>
              </td>
              <td>
                <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Maimon
                  and Moshe agreed that all of the stock interests that they never
                  paid for,
                  as well as the 200,000 shares of Series B Stock which were previously
                  issued to Moshe and/or Maimon in connection with their former agreement
                  to
                  purchase the ARI property, shall be cancelled and/or be deemed
                  null and
                  void upon the Effective Date.</font></div>
              </td>
            </tr>

        </table>
      </div>
      <div style="DISPLAY: block; MARGIN-LEFT: 72pt; TEXT-INDENT: -36pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><br></div>
      <div>
        <table align="center" border="0" cellpadding="0" cellspacing="0" id="hangingindent" width="100%">

            <tr valign="top" style="line-height: 1.25;">
              <td style="width: 36pt;">&#160;</td>
              <td valign="top" style="width: 36pt;">
                <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">6.</font></div>
              </td>
              <td>
                <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">The
                  Debtor has agreed to dismiss its pending lawsuit against Maimon
                  and Moshe
                  with prejudice.</font></div>
              </td>
            </tr>

        </table>
      </div>
      <div style="DISPLAY: block; MARGIN-LEFT: 72pt; TEXT-INDENT: -36pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><br></div>
      <div>
        <table align="center" border="0" cellpadding="0" cellspacing="0" id="hangingindent" width="100%">

            <tr valign="top" style="line-height: 1.25;">
              <td style="width: 36pt;">&#160;</td>
              <td valign="top" style="width: 36pt;">
                <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">7.</font></div>
              </td>
              <td>
                <div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">All
                  of the parties entered into mutual
                  releases.</font></div>
              </td>
            </tr>

        </table>
      </div>
      <div style="DISPLAY: block; MARGIN-LEFT: 72pt; TEXT-INDENT: -36pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><br></div>
      <div>
        <table align="center" border="0" cellpadding="0" cellspacing="0" id="hangingindent" width="100%" style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt">

            <tr valign="top" style="line-height: 1.25;">
              <td style="width: 36pt;">
              </td>
              <td align="left" valign="top" style="width: 36pt;"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">8.</font></td>
              <td align="left" valign="top">
                <div align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Maimon
                  and Moshe withdrew their objection to Plan confirmation, and, with
                  the
                  approval of the Court, changed their dissenting votes on the Plan
                  to
                  consenting votes.</font><font id="TAB2" style="COLOR: black; LETTER-SPACING: 27pt">&#160;</font></div>
              </td>
            </tr>

        </table>
      </div>
      <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><br></div>
      <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><font id="TAB1" style="MARGIN-LEFT: 36pt"></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">The
        Reorganized Debtor will use its best efforts to file a SB-2 registration
        statement with the Securities and Exchange Commission (the &#8220;SEC&#8221;) within ninety
        days following the Effective Date to register the Reorganized Debtor Common
        Stock and Warrants issued to the New Money Investors</font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">,
        </font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">the
        Aries
        Group,</font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">
        the
        Koyah Entities or any of their owners or members. No assurances can be made
        as
        to when such a registration will be declared effective by the SEC. In the
        event
        that the Reorganized Debtor fails to file an SB-2 registration statement
        with
        the SEC within ninety days following the Effective Date, the New Money Investors
        Entities will receive additional shares of Reorganized Debtor Common Stock
        at
        the rate of 5% per month, up to a maximum of 25%. The Debtor contemplates
        that
        the Reorganized Debtor will seek to become current with all filing requirements
        with the SEC as soon after the Effective Date as possible. </font></div>
      <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><br></div>
      <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><font id="TAB1" style="MARGIN-LEFT: 36pt"></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">The
        Reorganized Debtor will adopt a new certificate of incorporation (the
&#8220;Reorganized Debtor Certificate of Incorporation&#8221;) and new bylaws (the
        "Reorganized Debtor Bylaws"), which will replace the Debtor's current
        certificate of incorporation (including all certificates of designations
        adopted
        thereunder) and bylaws in their entirety. The Reorganized Certificate of
        Incorporation will authorize 50,000,000 shares of Reorganized Debtor Common
        Stock and will not provide for the authorization of any preferred stock.
        The
        Reorganized Debtor Bylaws will provide for the Reorganized Debtor to have
        an
        initial five members on its Board of Directors. The Board of Directors will
        be
        independent in accordance with all applicable rules of the SEC. In addition,
        the
        Board of Directors will not be subject to any appointment rights by any person
        or entity. </font></div>
      <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><br></div>
      <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><font id="TAB1" style="MARGIN-LEFT: 36pt"></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">The
        initial Board members of the Reorganized Debtor will be Marc Hoffman (the
        Debtor's current President); Art Schwartz (a member of the Creditors' Committee,
        a former Director of the Debtor, and a former head of technology at the Debtor);
        Richard Armhurst (a newly appointed outside Board member); Melvin Gagerman
        (a
        newly appointed outside Board member); and Shelly Appel (a newly appointed
        outside Board member). </font></div>
      <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><br></div>
      <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><font id="TAB1" style="MARGIN-LEFT: 36pt"></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Within
        180 days following the Effective Date, or as soon as possible thereafter,
        the
        Reorganized Debtor will conduct its first stockholder meeting at which the
        stockholders of the Reorganized Debtor will have the right to elect new Board
        members or to leave some or all of the existing Board members in
        place.</font></div>
      <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><br></div>
      <div id="PGBRK" style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt">
        <div id="FTR">
          <div id="GLFTR" style="WIDTH: 100%" align="left">
          </div>
        </div>
        <div id="PN" style="PAGE-BREAK-AFTER: always">
          <div style="WIDTH: 100%; TEXT-ALIGN: center">
          </div>
          <div style="WIDTH: 100%; TEXT-ALIGN: center">
            <hr style="COLOR: black" noshade size="2">
          </div>
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        <div id="HDR">
          <div id="GLHDR" style="WIDTH: 100%" align="right">
          </div>
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      <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><font id="TAB1" style="MARGIN-LEFT: 36pt"></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">The
        Reorganized Debtor will have the ability to increase or reduce the number
        of
        officers and directors as needed, but the number of Board members will never
        be
        less than five. Marc Hoffman, the Debtor's current President, will serve
        as the
        initial President of the Reorganized Debtor. Sandra Ferro (the Debtor's current
        Chief Financial Officer) will serve as the initial Chief Financial Officer
        and
        Corporate Secretary of the Reorganized Debtor. </font></div>
      <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><br></div>
      <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><font id="TAB1" style="MARGIN-LEFT: 36pt"></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">The
        Reorganized Debtor Bylaws will require annual stockholders meetings to be
        held
        no later than nine months after the end of each fiscal year and all Board
        members will be up for election at every annual meeting (i.e., there will
        be no
        staggered board). The Reorganized Debtor Bylaws will further provide that
        the
        Board may not, without first obtaining the approval of the holders of a majority
        of the stock having voting power at a meeting of the stockholders, (i) issue
        any
        securities convertible into shares of Reorganized Debtor Common Stock (other
        than those Warrants authorized for issuance under the Plan), (ii) grant a
        security interest in all or substantially all of the assets of the Reorganized
        Debtor (other than the liens granted to the Koyah Entities and all other
        secured
        creditors described in the Plan), (iii) grant any options or warrants to
        any
        individuals or entities (other than those Warrants authorized for issuance
        under
        the Plan), or (iv) sell, issue or otherwise dispose of more than twenty percent
        (20%) of Reorganized Debtor Common Stock in a private placement of such
        securities.</font></div>
      <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><br></div>
      <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 27pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Information
        as to the assets and liabilities of the Debtor was filed as Exhibit 99.1
        to the
        Debtor&#8217;s Current Report on Form 8-K on January 4, 2006 (the &#8220;Monthly Operating
        Report&#8221;). The Monthly Operating Report is incorporated herein by reference. The
        information contained in the Monthly Operating Report is preliminary and
        subject
        to revision, and the Debtor cautions readers not to place undue reliance
        upon
        this information. The Monthly Operating Report is unaudited, in a format
        prescribed by applicable bankruptcy laws, and has not been prepared in
        conformity with generally accepted accounting principles. The information
        in the
        Monthly Operating Report might not be indicative of the Debtor&#8217;s financial
        condition or operating results for the period that would be reflected in
        the
        Debtor&#8217;s financial statements or in a periodic report filed pursuant to the
        Securities Exchange Act of 1934, as amended. The information set forth in
        the
        Monthly Operating Report should not be viewed as indicative of future results
        and should not be used for investment purposes.</font></div>
      <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 27pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><br></div>
      <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong>Item
        8.01. Other Events. </strong></font></div>
      <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left">&#160;</div>
      <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 27pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Attached
        as Exhibit 99.1 hereto is a press release, dated January 18, 2006, issued
        by the
        Debtor regarding confirmation of the Plan, among other things. Such exhibit
        shall not be deemed &#8220;filed&#8221; for purposes of Section 18 of the Securities
        Exchange Act of 1934, as amended, nor shall it be deemed incorporated by
        reference in any filing under the Securities Act of 1933, as amended, except
        as
        shall be expressly set forth by specific reference in such filing.</font></div>
      <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
      <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 27pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">This
        Current Report on Form 8-K contains &#8220;forward looking statements&#8221; within the
        meaning of Section 27A of the Securities Act of 1933, as amended, and Section
        21E of the Securities Exchange Act of 1934, as amended. All statements other
        than statements of historical fact included in this filing are forward looking
        statements and, although the Debtor believes that the expectations reflected
        in
        such forward looking statements are reasonable, it can give no assurance
        that
        such expectations will prove to have been correct. The Debtor&#8217;s business and
        financial results are subject to various risks and uncertainties, including
        the
        accuracy of its budget, the Debtor&#8217;s ability to obtain future financing, and to
        generate positive cash flow to cover its operating expenses, that may cause
        actual results to differ materially from the Debtor&#8217;s expectations. The Debtor
        does not intend to provide updated information other than as otherwise required
        by applicable law. All subsequent written and oral forward looking statements
        attributable to the Debtor or persons acting on its behalf are expressly
        qualified in their entirely by the cautionary statements contained in this
        paragraph and elsewhere in this report.</font></div>
      <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 27pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><br></div>
      <div id="PGBRK" style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt">
        <div id="FTR">
          <div id="GLFTR" style="WIDTH: 100%" align="left">
          </div>
        </div>
        <div id="PN" style="PAGE-BREAK-AFTER: always">
          <div style="WIDTH: 100%; TEXT-ALIGN: center">
          </div>
          <div style="WIDTH: 100%; TEXT-ALIGN: center">
            <hr style="COLOR: black" noshade size="2">
          </div>
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        <div id="HDR">
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      <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 27pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify"><br></div>
      <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 27pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
      <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong>Item
        9.01.</strong></font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">&#160;</font><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong>Financial
        Statements and Exhibits.</strong></font></div>
      <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><br></div>
      <div>
        <table cellpadding="0" cellspacing="0" width="100%">

            <tr>
              <td align="right" valign="top" width="7%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="right"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">(d)
                  </font></div>
              </td>
              <td align="left" valign="top" width="65%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">&#160;
                  Exhibits</font></div>
              </td>
            </tr>

        </table>
      </div>
      <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><br></div>
      <div>
        <table cellpadding="0" cellspacing="0" width="100%">

            <tr>
              <td align="right" valign="top" width="10%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="right"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">2.1
                  </font></div>
              </td>
              <td width="2%">&#160;</td>
              <td align="left" valign="top" width="88%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Debtor&#8217;s
                  First Amended Plan of Reorganization.</font></div>
              </td>
            </tr>
            <tr>
              <td align="right" valign="top" width="10%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="right">&#160;</div>
              </td>
              <td width="2%">&#160;</td>
              <td align="left" valign="top" width="88%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left">&#160;</div>
              </td>
            </tr>
            <tr>
              <td align="right" valign="top" width="10%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="right"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">2.2
                  </font></div>
              </td>
              <td width="2%">&#160;</td>
              <td align="left" valign="top" width="88%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Order
                  Confirming First Amended Plan of Reorganization.</font></div>
              </td>
            </tr>
            <tr>
              <td align="right" valign="top" width="10%">&#160;</td>
              <td width="2%">&#160;</td>
              <td align="left" valign="top" width="88%">&#160;</td>
            </tr>
            <tr>
              <td align="right" valign="top" width="10%" style="border-bottom: medium none;">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="right"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">99.1</font></div>
              </td>
              <td width="2%">&#160;</td>
              <td align="left" valign="top" width="88%" style="border-bottom: medium none;">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Press
                  Release of Aura Systems, Inc.</font></div>
              </td>
            </tr>

        </table>
      </div>
      <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center">&#160;</div>
      <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center">&#160;</div>
      <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center"><br>&#160;</div>
      <div id="PGBRK" style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt">
        <div id="FTR">
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          </div>
        </div>
        <div id="PN" style="PAGE-BREAK-AFTER: always">
          <div style="WIDTH: 100%; TEXT-ALIGN: center">
          </div>
          <div style="WIDTH: 100%; TEXT-ALIGN: center">
            <hr style="COLOR: black" noshade size="2">
          </div>
        </div>
        <div id="HDR">
          <div id="GLHDR" style="WIDTH: 100%" align="right">
          </div>
        </div>
      </div>
      <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong>SIGNATURES</strong></font></div>
      <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center">&#160;</div>
      <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 36pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Pursuant
        to the requirements of the Securities Exchange Act of 1934, the registrant
        has
        duly caused this report to be signed on its behalf by the undersigned hereunto
        duly authorized.</font></div>
      <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 36pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left">&#160;</div>
      <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 36pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left">
        <table align="center" bgcolor="#ffffff" border="0" cellpadding="0" cellspacing="0" width="100%">

            <tr valign="top" bgcolor="#ffffff">
              <td width="50%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: ">&#160;</font></td>
              <td width="1%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: ">&#160;</font></td>
              <td width="49%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: ">&#160;</font></td>
            </tr>
            <tr valign="top" bgcolor="#ffffff">
              <td><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: ">&#160;</font></td>
              <td colspan="2">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">AURA
                  SYSTEMS, INC.</font></div>
              </td>
            </tr>
            <tr valign="top" bgcolor="#ffffff">
              <td><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: ">&#160;<br>&#160;</font></td>
              <td><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: ">&#160;<br>&#160;</font></td>
              <td><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: ">&#160;<br>&#160;</font></td>
            </tr>
            <tr valign="top" bgcolor="#ffffff">
              <td><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: ">Date:&#160;January
                20, 2006</font></td>
              <td><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: ">By:&#160;&#160;</font></td>
              <td><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: ">/s/&#160;Raymond
                Yu</font></td>
            </tr>
            <tr valign="top" bgcolor="#ffffff">
              <td colspan="2"><font style="FONT-FAMILY: " size="1">&#160;</font></td>
              <td align="left">
                <hr style="COLOR: black" align="left" noshade size="2" width="80%"><font size="2">Raymond
                Yu</font></td>
            </tr>
            <tr valign="top" bgcolor="#ffffff">
              <td colspan="2"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: ">&#160;</font></td>
              <td>
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">President
                  &amp; Chief Executive Officer</font></div>
              </td>
            </tr>

        </table>
      </div>
      <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 36pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left">&#160;</div>
      <div align="left">&#160;</div>
      <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left">&#160;</div>
      <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><br></div>
      <div id="PGBRK" style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt">
        <div id="FTR">
          <div id="GLFTR" style="WIDTH: 100%" align="left">
          </div>
        </div>
        <div id="PN" style="PAGE-BREAK-AFTER: always">
          <div style="WIDTH: 100%; TEXT-ALIGN: center">
          </div>
          <div style="WIDTH: 100%; TEXT-ALIGN: center">
            <hr style="COLOR: black" noshade size="2">
          </div>
        </div>
        <div id="HDR">
          <div id="GLHDR" style="WIDTH: 100%" align="right">
          </div>
        </div>
      </div><br><br>
      <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><strong>EXHIBIT
        INDEX </strong></font></div>
      <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><br></div>
      <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left">&#160;</div>
      <div>
        <table cellpadding="0" cellspacing="0" width="100%">

            <tr>
              <td align="left" valign="middle" width="8%">&#160;</td>
              <td align="left" valign="bottom" width="4%">&#160;</td>
              <td align="left" valign="middle" width="60%">&#160;</td>
            </tr>
            <tr>
              <td align="left" valign="bottom" width="8%" style="border-bottom: black thin solid;">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 8pt; FONT-FAMILY: Times New Roman, serif"><strong>Exhibit
                  No.</strong></font></div>
              </td>
              <td align="left" valign="bottom" width="4%" style="border-bottom: #ffffff solid;">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left">&#160;</div>
              </td>
              <td align="left" valign="bottom" width="60%" style="border-bottom: black thin solid;">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 8pt; FONT-FAMILY: Times New Roman, serif"><strong>Description</strong></font></div>
              </td>
            </tr>
            <tr>
              <td align="left" valign="bottom" width="8%">&#160;</td>
              <td align="left" valign="bottom" width="4%">&#160;</td>
              <td align="left" valign="bottom" width="60%">&#160;</td>
            </tr>
            <tr>
              <td align="left" valign="top" width="8%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">2.1</font></div>
              </td>
              <td align="left" valign="bottom" width="4%">&#160;</td>
              <td align="left" valign="bottom" width="60%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Debtor&#8217;s
                  First Amended Plan of Reorganization.</font></div>
              </td>
            </tr>
            <tr>
              <td align="left" valign="top" width="8%">&#160;</td>
              <td align="left" valign="bottom" width="4%">&#160;</td>
              <td align="left" valign="bottom" width="60%">&#160;</td>
            </tr>
            <tr>
              <td align="left" valign="top" width="8%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">2.2</font></div>
              </td>
              <td align="left" valign="bottom" width="4%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left">&#160;</div>
              </td>
              <td align="left" valign="bottom" width="60%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Order
                  Confirming First Amended Plan of Reorganization.</font></div>
              </td>
            </tr>
            <tr>
              <td align="left" valign="top" width="8%">&#160;</td>
              <td align="left" valign="bottom" width="4%">&#160;</td>
              <td align="left" valign="bottom" width="60%">&#160;</td>
            </tr>
            <tr>
              <td align="left" valign="top" width="8%" style="border-bottom: medium none;">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">99.1</font></div>
              </td>
              <td align="left" valign="bottom" width="4%" style="border-bottom: medium none;">&#160;</td>
              <td align="left" valign="bottom" width="60%" style="border-bottom: medium none;">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; LINE-HEIGHT: 1.25; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Press
                  Release of Aura Systems, Inc.</font></div>
              </td>
            </tr>

        </table>
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{"company-data": {"conformed-name": "AURA SYSTEMS INC", "cik": "0000826253", "assigned-sic": "3690", "irs-number": "954106894", "state-of-incorporation": "DE", "fiscal-year-end": "0228"}, "filing-values": {"form-type": "8-K", "act": "34", "file-number": "000-17249", "film-number": "06539913"}, "business-address": {"street1": "2335 ALASKA AVE", "city": "EL SEGUNDO", "state": "CA", "zip": "90245", "phone": "3106435300"}, "mail-address": {"street1": "2335 ALASKA AVE", "city": "EL SEGUNDO", "state": "CA", "zip": "90245"}}
UNITED
      STATES
SECURITIES
      AND EXCHANGE COMMISSION
Washington,
      D.C. 20549
FORM
      8-K
Current
      Report
Pursuant
      to Section 13 or 15(d)
of
      the Securities Exchange Act of 1934
Date
      of Report (Date of earliest event reported): January 18,
      2006
AURA
      SYSTEMS, INC.
(Exact
      name of registrant as specified in charter)
Delaware
0-17249
95-4106894
(State
                or other
jurisdiction
                of
incorporation)
(Commission
                File
Number)
(IRS
                Employer
Identification
                No.)
2335
      Alaska Avenue, El Segundo, California 90245
(Address
      of principal executive offices) (Zip Code)
Registrant's
      telephone number, including area code: (310) 643-5300
Not
      Applicable
(Former
      name or former address, if changed since last report)
Check
      the
      appropriate box below if the Form 8-K filing is intended to simultaneously
      satisfy the filing obligation of the registrant under any of the following
      provisions (see General Instruction A.2. below):
¨
Written
                communications pursuant to Rule 425 under the Securities Act (17
                CFR
                230.425)
¨
Soliciting
                material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
                240.14a-12)
¨
Pre-commencement
                communications pursuant to Rule 14d-2(b) under the Exchange Act (17
                CFR
                240.14d-2(b))
¨
Pre-commencement
                communications pursuant to Rule 13e-4(c) under the Exchange Act (17
                CFR
                240.13e-4(c))
Item
        1.03.
Bankruptcy
        or Receivership
.
On
        January 18, 2006, the United States Bankruptcy Court, Central District of
        California, Los Angeles Division (the "Court"), entered an order (the
"Confirmation Order") confirming Aura Systems, Inc. (the "Debtor") First Amended
        Plan of Reorganization (the "Plan"), as modified
,
under
        Chapter 11 of the United States Bankruptcy Code (the "Bankruptcy Code"). The
        Debtor filed a voluntary petition for relief with the Court under Chapter
        11 of
        the Bankruptcy Code on June 24, 2005. The effective date of the Plan (the
        "Effective Date") will be January 31,
2006
        unless the Debtor and certain other parties stipulate to make the Effective
        Date
        earlier than January 31,
2006.
A
        copy of
        the Plan
,
        the
        Confirmation Order
and
        the
        press release announcing the confirmation of the Plan
are
        attached and incorporated by reference hereto as Exhibits
2.1,
        2.2
        and 99.1
,
        respectively.
Summary
        of the Plan
Set
        forth
        below is a summary of certain material provisions of the Plan that is qualified
        in its entirety by reference to the Plan
and
        the
        Confirmation Order
.
        On the
        Effective Date, the Debtor
as
        reorganized
(the
        "Reorganized
Debtor")
        will continue to be a publicly traded corporation, with no more than 23,000,000
        shares of common stock ("Reorganized Debtor Common Stock") issued and
        outstanding and no more than 5,230,000 warrants reserved for issuance.
The
        only
        outstanding debt of the Reorganized Debtor existing on the Effective Date
        will
        be any allowed
and
        still
        outstanding
priority
        tax claims, the $2,525,000 Koyah Entities Promissory Note (defined below),
        and
        any other allowed secured claims which the Reorganized Debtor elects to pay
        over
        time. The Debtor does not believe that there
will
        be
any
        allowed priority tax claims
to be
        paid over time
or
        any
        allowed secured claims
to
        be
        paid over time
(other
        than the secured claims of Koyah Leverage Partners, L.P., Koyah Partners,
        L.P.,
        Koyah Ventures, LLC, Raven Partners, L.P., Koyah Microcap Partners Master
        Fund,
        L.P. (collectively, the "Koyah Entities")
.
A
        group
        of people and/or entities (collectively referred to as the "New Money
        Investors"
,
)
will
        contribute a total of $3,045,000 of new money (the "New Money Contribution")
        to
        the Reorganized Debtor on the Effective Date
(except
        as set forth below)
.
        This
        New Money Contribution will be in addition to the debtor-in-possession ("DIP")
        financing provided by Blue Collar Films, Inc. ("Blue Collar"), AGP Lender LLC
        ("AGP") and the Berg Group (collectively, the "DIP Lenders") to the Debtor. In
        exchange for the New Money Contribution, (i) the New Money Investors will
        receive approximately 3,349,500 shares of Reorganized Debtor Common Stock,
        which
        will comprise approximately 14.8% of the Reorganized Debtor Common Stock
        issued
        and outstanding on the Effective Date, plus approximately 669,900 Warrants
        (defined below), and (ii) for major contributions to the Plan, Disclosure
        Statement which describes the Plan, business analysis and modeling, feasibility
        study, assistance in settlement disputes between the Debtor and certain
        creditors, and providing valuation analysis for pricing of the New Money
        Contribution, as well as the conversion rates for the DIP Lender, the Aries
        Group will receive 2,541,500 shares of Reorganized Debtor Common Stock, which
        will comprise approximately 11.2% of the Reorganized Debtor Common Stock
        issued
        and outstanding on the Effective Date, plus 508,300 Warrants. Of the 2,541,500
        shares of Reorganized Debtor Common Stock and 508,300 Warrants that will
        be
        received by the Aries Group, 900,000 shares of Reorganized Debtor Common
        Stock
        and 179,800 Warrants will be delivered to Harry Kurtzman.
The
        DIP
        Lenders, whom the Debtor estimates will be owed a total of approximately
        $4,064,018 of secured debt on the Effective Date, will, with their consent,
        collectively receive (on a pro rata basis based upon the amount of their
        respective secured debt) in full settlement and satisfaction of their debt
        owing
        by the Debtor, 6,065,699 shares of Reorganized Debtor Common Stock, which
        will
        comprise approximately 26.8% of the Reorganized Debtor Common Stock issued
        and
        outstanding on the Effective Date, plus 606,570 Warrants. The DIP Lenders
        may
        elect, at their option and discretion, to have their members or participants
        receive their shares of Reorganized Debtor Common Stock and Warrants in their
        individual names.
The
        Koyah
        Entities, whom the Debtor estimates will be owed approximately $5,500,000
        of
        secured debt on the Effective Date, will, with their consent, receive in
        full
        settlement and satisfaction of all of their claims against the Debtor, (i)
        1,134,000 shares of Reorganized Debtor Common Stock, which will comprise
        5% of
        the Reorganized Debtor Common Stock issued and outstanding on the Effective
        Date, plus (ii) 259,900 Koyah Entities Warrants (defined below) (or such
        lesser
        amount as the Koyah Entities designate), plus (iii) a restated promissory
        note
        from the Reorganized Debtor (the "Koyah Entities Promissory Note"), which
        will
        have, among others, the following terms:
(a)
        a
        principal balance of $2,600,000, (b) a term of five years, (c) an annual
        interest rate of 7%, (d) provide for the Reorganized Debtor to make an initial
        payment of $75,000 to the Koyah Entities on the Effective Date (which will
        reduce the principal amount owing under the Koyah Entities Promissory Note
        on
        the Effective Date to $2,525,000), (e) beginning with the twelfth full calendar
        month following the Effective Date, provide for the Reorganized Debtor to
        repay
        the balance of the Koyah Entities Promissory Note over the following forty-eight
        months by making equal monthly payments to the Koyah Entities, (f) provide
        for
        the Reorganized Debtor to pay to the Koyah Entities by the date which is
        five
        years following the Effective Date all outstanding principal and interest
        which
        remain outstanding on that date, and (g) provide for the Reorganized Debtor
        to
        have the right to prepay all or any portion of the outstanding obligations
        owing
        under the Koyah Entities Promissory Note at any time with no prepayment penalty.
        The obligations of the Reorganized Debtor to the Koyah Entities on account
        of
        the Koyah Entities Promissory Note will be secured by a lien against the
        same
        assets which secured the pre-bankruptcy claim of the Koyah Entities. The
        lien
        will have the same priority as the pre-bankruptcy lien of the Koyah Entities.
        The Reorganized Debtor will execute any and all documents reasonably requested
        by the Koyah Entities and delivered by the Koyah Entities to the Reorganized
        Debtor to evidence the debt owing by the Reorganized Debtor to the Koyah
        Entities, including, but not limited to, the restated Koyah Entities Promissory
        Note, a restated security agreement, and a restated financing statement.
        In
        addition to the foregoing, the Koyah Entities will receive, on account of
        their
        Series B Preferred Stock (the "Series B Stock"), Series A Preferred Stock (the
        "Series A Stock") and issued and outstanding Common Stock (the "Current Common
        Stock") the same pro rata treatment as received by all other holders of Series
        B
        Stock, Series A Stock and Current Common Stock (or such lesser amounts of
        such
        interests as the Koyah Entities designate).
Ezra
        Meyer, whom the Debtor estimates will be owed approximately $105,000 of secured
        debt on the Effective Date, will, with his consent, receive in full settlement
        and satisfaction of all of his claims against the Debtor
cash
        on
        the Effective Date of $105,000. Mr. Meyer has agreed to contribute $100,000
        of
        the cash that he will receive from the Reorganized Debtor on account of his
        allowed secured claims towards the $3,045,000 New Money
        Contribution.
All
        other
        allowed secured claims, which the Debtor estimates are in the total amount
        of
        $0, will, at the election of the Reorganized Debtor, either be (i) paid in
        cash
        in full on the Effective Date from the New Money Contribution, or (ii) be
        paid
        over a period of five years on a fully amortized basis with a rate of interest
        equal to the Federal Funds Rate (which is the interest rate at which banks
        and
        other depository institutions lend money to each other, usually on an overnight
        basis, and which is currently at approximately 4% per annum) existing on
        the
        date of January 10, 2006, plus 2%, or such other rate of interest agreed
        to
        between the Debtor and the holder of such allowed secured claim, or determined
        by the Court. The Reorganized Debtor will issue a promissory note and a related
        security agreement and financing statement to the holder of any such allowed
        secured claim that the Reorganized Debtor does not pay in cash in full on
        the
        Effective Date from the New Money Contribution.
The
        holders of all allowed unsecured claims, which the Debtor estimates is in
        the
        total amount of approximately $8.3 million, will collectively receive (on
        a pro
        rata basis based upon the amount of their respective allowed unsecured claims)
        in full settlement and satisfaction of their allowed unsecured claims 4,729,499
        shares of Reorganized Debtor Common Stock, which will comprise approximately
        20.9% of the Reorganized Debtor Common Stock issued and outstanding on the
        Effective Date, plus up to 945,900 Warrants. The holders of allowed unsecured
        claims also have the right to elect to receive a cash distribution equal
        to 5%
        of the amount of their allowed unsecured claims, in lieu of receiving any
        Reorganized Debtor Common Stock.
The
        holders of $9,979,838 issued and outstanding Series B Stock which has been
        fully
        and properly paid for will receive under the Plan in full settlement and
        satisfaction of their Series B interests (on a pro rata basis based upon
        the
        amount of their respective Series B Stock) 2,961,585 shares of Reorganized
        Debtor Common Stock, which will comprise approximately 13.1% of the Reorganized
        Debtor Common Stock issued and outstanding on the Effective Date, plus up
        to
        987,195 Warrants. In addition, the holders of $9,979,838 issued and outstanding
        Series B Stock will receive one Warrant for each three shares of Reorganized
        Debtor Common Stock that they receive under the Plan, rounded downward for
        those
        Series B interest holders who receive an amount of Reorganized Debtor Common
        Stock which is not wholly divisible by three.
The
        holders of all issued and outstanding Series A Stock, comprised of approximately
        591,110 shares of Series A Stock, will collectively receive (on a pro rata
        basis
        based upon the amount of their respective Series A Stock) in full settlement
        and
        satisfaction of their Series A Stock 357,818 shares of Reorganized Debtor
        Common
        Stock, which will comprise approximately 1.6% of the Reorganized Debtor Common
        Stock issued and outstanding on the Effective Date, plus up to 89,455
        Warrants.
The
        holders of all issued and outstanding Current Common Stock, which the Debtor
        estimates is comprised of approximately 439,458,082 shares of Current Common
        Stock, will collectively receive (on a pro rata basis based upon the amount
        of
        their respective Current Common Stock) in full settlement and satisfaction
        of
        their Current Common Stock, 1,300,000 shares of Reorganized Debtor Common
        Stock,
        which will comprise approximately 5.7% of the Reorganized Debtor Common Stock
        issued and outstanding on the Effective Date. This equates to an exchange
        of
        approximately 338 shares of Current Common Stock for each share of Reorganized
        Debtor Common Stock.
All
        allowed claims which are less than $2,500 in amount, which the Debtor estimates
        are in the total amount of approximately $50,000, will be paid in cash in
        full
        on the Effective Date from the New Money Contribution. Holders of allowed
        unsecured claims which are greater than $2,500, but not greater than $10,000,
        will have the right to reduce their claim to $2,500 and elect to be paid
        in cash
        in full on the Effective Date from the New Money Contribution.
On
        the
        Effective Date, a total of up to approximately 3,807,319 of warrants (the
        "Warrants") will be issued to the New Money Investors, the Aries Group, the
        DIP
        Lenders, the holder of general unsecured claims, Series B interests, and
        Series
        A interests as follows:
1.
To
                  the New Money Investors (who will receive one Warrant for each
                  five shares
                  of Reorganized Debtor Common
                  Stock).
2.
To
                  the Aries Group (who will receive one Warrant for each five shares
                  of
                  Reorganized Debtor Common Stock).
3.
To
                  the DIP Lenders (who will receive one Warrant for each ten shares
                  of
                  Reorganized Debtor Common Stock).
4.
To
                  holders of allowed unsecured claims (who will receive one Warrant
                  for each
                  five shares of Reorganized Debtor Common Stock).
5.
To
                  holders of issued and outstanding Series B Stock (who will receive
                  one
                  Warrant for each three shares of Reorganized Debtor Common
                  Stock).
6.
To
                  holders of issued and outstanding Series A Stock (who will receive
                  one
                  Warrant for each four shares of Reorganized Debtor Common
                  Stock).
Each
        Warrant will entitle the holder of the Warrant to purchase one share of
        Reorganized Debtor Common Stock at a price of $3.00 during the first twelve
        months following the Effective Date, $3.50 during the second twelve months
        following the Effective Date, and $4.00 during the third twelve months following
        the Effective Date.
In
        addition, a total of 500,000 warrants will be reserved for the management
        of the
        Reorganized Debtor (the "Management Warrants"), and a total of 500,000 warrants
        will be reserved for the members of the Reorganized Debtor's Board of Directors
        (the "Board Warrants"). Management will have a vesting period for the Management
        Warrants of thirty-six months with prorated vesting to occur on a monthly
        basis.
        Each Management Warrant will entitle the holder of the Management Warrant
        to
        purchase one share of Reorganized Debtor Common Stock at a price of $2.00
        during
        the first twelve months after issuance, $2.50 during the second twelve months
        after issuance, and $3.00 during the third twelve months after issuance.
        Board
        members will have a vesting period for the Board Warrants, with 25% of the
        Warrants vesting every six months of service on the Board. Each vested Board
        Warrant will entitle the holder of the Board Warrant to purchase one share
        of
        Reorganized Debtor Common Stock at a price of $2.50. All unvested Warrants
        will
        remain as an asset of the Reorganized Debtor to be distributed in the manner
        the
        Reorganized Debtor deems appropriate.
As
        described above, on the Effective Date, a total of 259,900 warrants will
        be
        issued to the Koyah Entities (the "Koyah Entities Warrants"). The Koyah Entities
        Warrants will entitle the Koyah Entities to purchase one share of Reorganized
        Debtor Common Stock at a price of $2.00 during the first twelve months following
        the Effective Date, $2.50 during the second twelve months following the
        Effective Date, and $3.00 during the third twelve months following the Effective
        Date.
All
        allowed administrative claims (excluding those held by the DIP Lenders) and
        all
        allowed priority claims, which the Debtor estimates are in the total amount
        of
        approximately $1,141,081.46 (comprised of an estimated $1,086,600 of
        administrative claims plus $54,481.46 of priority claims), to the extent
        not
        otherwise paid prior to the Effective Date, will be paid in cash in full
        on the
        Effective Date from the New Money Contribution.
Incorporated
        into the Plan was a Settlement and Mutual Release Agreement (the "Settlement
        Agreement") entered into on January 11, 2006 between the Debtor, the Debtor's
        affiliate Aura Realty, Inc. ("ARI"), Yair Ben Moshe ("Moshe"), David Maimon
        ("Maimon"), Adi Harari, Izar Fernbach, Fred Balitzer, and ZD Products, Inc.
        ("ZD"). The Court approved the Settlement Agreement at the same hearing that
        the
        Court confirmed the Plan. The Settlement Agreement, among other things, resolved
        the objection to Plan confirmation filed by Moshe and Maimon. The following
        sets
        forth some of the key terms of the Settlement Agreement:
1.
On
                  account of the $244,000 general unsecured claim filed by Harari
                  against
                  the Debtor, the $956,041 general unsecured claim filed by Maimon
                  against
                  the Debtor, and the $1,426,915 general unsecured claim filed by
                  Moshe
                  against the Debtor, and any other claims of Maimon and Moshe against
                  the
                  Debtor, Maimon and Moshe shall collectively receive one allowed
                  general
                  unsecured claim against the Debtor in the collective, aggregate
                  amount of
                  $590,000 (the "Allowed ASI Claim").
2.
ZD
                  agreed to purchase the Allowed ASI Claim from Maimon and Moshe,
                  and Maimon
                  and Moshe hereby agree to sell to ZD, the Allowed ASI Claim for
                  the cash
                  purchase price of $225,000. Of this $225,000 paid by ZD for the
                  Allowed
                  ASI Claim, $150,000 shall be paid directly to Maimon and Moshe,
                  and
                  $75,000 shall be contributed towards the $3,045,000 New Money
                  Contribution.
3.
The
                  Debtor has assigned to Maimon and Moshe, jointly, the first $225,000
                  that
                  the Debtor receives from the sale proceeds from ARI's previous
                  sale of its
                  real property interests. Maimon and Moshe, in turn, have agreed
                  to
                  contribute this $225,000 towards the $3,045,000 New Money Contribution
                  concurrently the distribution of those funds by ARI. The Debtor
                  believes
                  that this $225,000 will be distributed by ARI's bankruptcy estate
                  and
                  added to the New Money Contribution after the Effective Date but
                  before
                  June 30, 2006.
4.
Maimon
                  and Moshe have agreed to a release of the $3,738,000 unsecured
                  claim that
                  they filed against ARI in ARI's Chapter 11 bankruptcy case. In
                  the event
                  that the $225,000 from ARI's bankruptcy estate is not distributed
                  for the
                  benefit of Maimon and Moshe (and then assigned to the Reorganized
                  Debtor
                  as part of the New Money Contribution as set forth above) by September
                  30,
                  2006 (or such later date as agreed to in a signed writing by Maimon
                  and
                  Moshe), then (a) Maimon's and Moshe's release of their $3,738,000
                  claim in
                  ARI shall not be effective, and (b) Maimon and Moshe reserve all
                  of their
                  rights to assert their claim against ARI; provided, however, that
                  under no
                  circumstance may Maimon and Moshe receive more than $225,000 from
                  ARI on
                  account of their currently filed or any other claim asserted against
                  ARI,
                  and provided further that ARI and any other party in interest reserve
                  all
                  of their rights to object to any claim asserted by Maimon and Moshe
                  against ARI. Maimon and Moshe shall have no obligation to fund
                  this
                  $225,000 portion toward the New Money Contribution unless and until
                  such
                  proceeds are received from ARI.
5.
Maimon
                  and Moshe agreed that all of the stock interests that they never
                  paid for,
                  as well as the 200,000 shares of Series B Stock which were previously
                  issued to Moshe and/or Maimon in connection with their former agreement
                  to
                  purchase the ARI property, shall be cancelled and/or be deemed
                  null and
                  void upon the Effective Date.
6.
The
                  Debtor has agreed to dismiss its pending lawsuit against Maimon
                  and Moshe
                  with prejudice.
7.
All
                  of the parties entered into mutual
                  releases.
8.
Maimon
                  and Moshe withdrew their objection to Plan confirmation, and, with
                  the
                  approval of the Court, changed their dissenting votes on the Plan
                  to
                  consenting votes.
The
        Reorganized Debtor will use its best efforts to file a SB-2 registration
        statement with the Securities and Exchange Commission (the "SEC") within ninety
        days following the Effective Date to register the Reorganized Debtor Common
        Stock and Warrants issued to the New Money Investors
,
the
        Aries
        Group,
the
        Koyah Entities or any of their owners or members. No assurances can be made
        as
        to when such a registration will be declared effective by the SEC. In the
        event
        that the Reorganized Debtor fails to file an SB-2 registration statement
        with
        the SEC within ninety days following the Effective Date, the New Money Investors
        Entities will receive additional shares of Reorganized Debtor Common Stock
        at
        the rate of 5% per month, up to a maximum of 25%. The Debtor contemplates
        that
        the Reorganized Debtor will seek to become current with all filing requirements
        with the SEC as soon after the Effective Date as possible.
The
        Reorganized Debtor will adopt a new certificate of incorporation (the
"Reorganized Debtor Certificate of Incorporation") and new bylaws (the
        "Reorganized Debtor Bylaws"), which will replace the Debtor's current
        certificate of incorporation (including all certificates of designations
        adopted
        thereunder) and bylaws in their entirety. The Reorganized Certificate of
        Incorporation will authorize 50,000,000 shares of Reorganized Debtor Common
        Stock and will not provide for the authorization of any preferred stock.
        The
        Reorganized Debtor Bylaws will provide for the Reorganized Debtor to have
        an
        initial five members on its Board of Directors. The Board of Directors will
        be
        independent in accordance with all applicable rules of the SEC. In addition,
        the
        Board of Directors will not be subject to any appointment rights by any person
        or entity.
The
        initial Board members of the Reorganized Debtor will be Marc Hoffman (the
        Debtor's current President); Art Schwartz (a member of the Creditors' Committee,
        a former Director of the Debtor, and a former head of technology at the Debtor);
        Richard Armhurst (a newly appointed outside Board member); Melvin Gagerman
        (a
        newly appointed outside Board member); and Shelly Appel (a newly appointed
        outside Board member).
Within
        180 days following the Effective Date, or as soon as possible thereafter,
        the
        Reorganized Debtor will conduct its first stockholder meeting at which the
        stockholders of the Reorganized Debtor will have the right to elect new Board
        members or to leave some or all of the existing Board members in
        place.
The
        Reorganized Debtor will have the ability to increase or reduce the number
        of
        officers and directors as needed, but the number of Board members will never
        be
        less than five. Marc Hoffman, the Debtor's current President, will serve
        as the
        initial President of the Reorganized Debtor. Sandra Ferro (the Debtor's current
        Chief Financial Officer) will serve as the initial Chief Financial Officer
        and
        Corporate Secretary of the Reorganized Debtor.
The
        Reorganized Debtor Bylaws will require annual stockholders meetings to be
        held
        no later than nine months after the end of each fiscal year and all Board
        members will be up for election at every annual meeting (i.e., there will
        be no
        staggered board). The Reorganized Debtor Bylaws will further provide that
        the
        Board may not, without first obtaining the approval of the holders of a majority
        of the stock having voting power at a meeting of the stockholders, (i) issue
        any
        securities convertible into shares of Reorganized Debtor Common Stock (other
        than those Warrants authorized for issuance under the Plan), (ii) grant a
        security interest in all or substantially all of the assets of the Reorganized
        Debtor (other than the liens granted to the Koyah Entities and all other
        secured
        creditors described in the Plan), (iii) grant any options or warrants to
        any
        individuals or entities (other than those Warrants authorized for issuance
        under
        the Plan), or (iv) sell, issue or otherwise dispose of more than twenty percent
        (20%) of Reorganized Debtor Common Stock in a private placement of such
        securities.
Information
        as to the assets and liabilities of the Debtor was filed as Exhibit 99.1
        to the
        Debtor's Current Report on Form 8-K on January 4, 2006 (the "Monthly Operating
        Report"). The Monthly Operating Report is incorporated herein by reference. The
        information contained in the Monthly Operating Report is preliminary and
        subject
        to revision, and the Debtor cautions readers not to place undue reliance
        upon
        this information. The Monthly Operating Report is unaudited, in a format
        prescribed by applicable bankruptcy laws, and has not been prepared in
        conformity with generally accepted accounting principles. The information
        in the
        Monthly Operating Report might not be indicative of the Debtor's financial
        condition or operating results for the period that would be reflected in
        the
        Debtor's financial statements or in a periodic report filed pursuant to the
        Securities Exchange Act of 1934, as amended. The information set forth in
        the
        Monthly Operating Report should not be viewed as indicative of future results
        and should not be used for investment purposes.
Item
        8.01. Other Events.
Attached
        as Exhibit 99.1 hereto is a press release, dated January 18, 2006, issued
        by the
        Debtor regarding confirmation of the Plan, among other things. Such exhibit
        shall not be deemed "filed" for purposes of Section 18 of the Securities
        Exchange Act of 1934, as amended, nor shall it be deemed incorporated by
        reference in any filing under the Securities Act of 1933, as amended, except
        as
        shall be expressly set forth by specific reference in such filing.
This
        Current Report on Form 8-K contains "forward looking statements" within the
        meaning of Section 27A of the Securities Act of 1933, as amended, and Section
        21E of the Securities Exchange Act of 1934, as amended. All statements other
        than statements of historical fact included in this filing are forward looking
        statements and, although the Debtor believes that the expectations reflected
        in
        such forward looking statements are reasonable, it can give no assurance
        that
        such expectations will prove to have been correct. The Debtor's business and
        financial results are subject to various risks and uncertainties, including
        the
        accuracy of its budget, the Debtor's ability to obtain future financing, and to
        generate positive cash flow to cover its operating expenses, that may cause
        actual results to differ materially from the Debtor's expectations. The Debtor
        does not intend to provide updated information other than as otherwise required
        by applicable law. All subsequent written and oral forward looking statements
        attributable to the Debtor or persons acting on its behalf are expressly
        qualified in their entirely by the cautionary statements contained in this
        paragraph and elsewhere in this report.
Item
        9.01.
Financial
        Statements and Exhibits.
(d)
Exhibits
2.1
Debtor's
                  First Amended Plan of Reorganization.
2.2
Order
                  Confirming First Amended Plan of Reorganization.
99.1
Press
                  Release of Aura Systems, Inc.
SIGNATURES
Pursuant
        to the requirements of the Securities Exchange Act of 1934, the registrant
        has
        duly caused this report to be signed on its behalf by the undersigned hereunto
        duly authorized.
AURA
                  SYSTEMS, INC.
Date: January
                20, 2006
By:
/s/ Raymond
                Yu
Raymond
                Yu
President
                  & Chief Executive Officer
EXHIBIT
        INDEX
Exhibit
                  No.
Description
2.1
Debtor's
                  First Amended Plan of Reorganization.
2.2
Order
                  Confirming First Amended Plan of Reorganization.
99.1
Press
                  Release of Aura Systems, Inc.