The following discussion of our financial condition, changes in financial condition and results of operations for the nine months ended June 30, 2009 and 2008 should be read in conjunction with our unaudited interim financial statements and related notes for the nine months ended June 30, 2009 and 2008. The following discussion contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of many factors, including, but not limited to, those set forth below under the heading "Risk Factors".

Our Corporate History

Our Company was formed under the laws of the State of Nevada on August 26, 2004 under the name "Fortune Partners, Inc." By an amendment to our Articles of Incorporation we changed our name to "Power Air Corporation" effective on December 22, 2005.

Our principal business offices are located at Suite 125-9 Burbidge Street, Coquitlam, British Columbia, Canada, V3K 7B2. Our telephone number is (604) 468-7771.

We own 100% of the issued and outstanding shares of Power Air Tech, Inc., which was formed under the laws of the State of Delaware in October of 1997, together with 50% of the issued and outstanding shares of Power Air (Canada) Corp. ("Power Air Canada"), which was formed under the laws of the Province of British Columbia, Canada, on December 12, 2005. Power Air (Canada) Corp. is considered a variable interest entity due to our Company's control over the operations and 100% funding of costs to date, and thus is considered a 100% consolidated subsidiary.

On September 30, 2005, we acquired all of the issued and outstanding shares of Power Air Tech, Inc. As a result of such acquisition, we are a development stage company engaged in the business of developing, manufacturing and marketing of fuel cell based commercial products.

This acquisition represented a change in control of our Company. The change in control, for accounting purposes, constitutes a re-capitalization of our Company and, therefore, the transaction has been accounted for as a reverse merger whereby Power Air Corporation is considered the acquired entity and the operations of Power Air Tech, Inc. have become the continuing operations of our Company.

Prior to the completion of the acquisition, the operations of Power Air Tech, Inc. focused on raising funds through a reverse merger with a public company, settling outstanding debt and maintaining its license with Lawrence Livermore National Laboratory ("LLNL") in Livermore, California.

Our Business

We hold the exclusive world-wide license for the development and commercialization of the zinc air fuel cell ("ZAFC") technology developed through an extensive joint collaboration effort with Lawrence Livermore National Laboratory ("LNLL") and the United States Department of Energy ("DOE"). We also have exclusive world-wide rights to a second LLNL patent pertaining to a low-cost process for recovering zinc and converting it to pellet form for reuse in the ZAFC system. LLNL is a leading United States Government research and development facility located in Livermore, California.

Our ZAFC technology is a metal oxide fuel cell using simple physical chemistry. It uses a combination of atmospheric oxygen and zinc pellets in a liquid alkaline electrolyte mixture referred to as an "electrolyte" to generate electricity. The by-products from the chemical reaction are zinc oxide and potassium zincates. The electrolyte used in the ZAFC fuel cells is potassium hydroxide, a chemical which is readily available in commercial quantities. In operation, the fuel cell consumes all of the zinc; and is operationally quiet, providing instantaneous stable electrical energy with zero greenhouse gas emissions.

We have determined to focus our initial technology and product development efforts on the design and development of a series ("Z Series") of auxiliary power pack products that would be developed and designed by Power Air, manufactured by a contract manufacturer, and marketed by Power Air. The initial products will be small, pocket-sized power packs that will allow end-users to recharge their portable electronic devices (cell phones, PDAs, music players, handheld games, etc.) anywhere, anytime. In parallel, we will continue technology development to develop a ZAFC based portable emergency generator designed for back-up or emergency use in homes and small businesses. We have developed prototypes of both of these products using our ZAFC technology. In order to complete development of commercial products, we will have to complete the following phases of development:

º completion of technology development required to complete a "technology transfer" to product development;

º completion of the design, manufacture and testing of engineering prototypes;

º completion of the design, manufacture, testing and certification of manufacturing prototypes; and

º pilot production of commercial products.

Our working capital at June 30, 2009 is not sufficient to enable us to complete the design and testing of engineering prototypes, the design of manufacturing prototypes, and the commercial release of our first consumer products. Our ability to complete this work, as well as the certification and pilot production of commercial Z Series products, will require that we obtain additional equity financing. We intend to raise additional equity financing to continue our technology and product development projects, to fund the manufacturing and packaging of our initial Z Series inventories, to test and certify our auxiliary power packs, and to expand our engineering and sales/marketing headcount. However, we do not currently have such financing in place. If the Company is not able to raise additional capital, our continuing operations will be delayed and/or discontinued.

Our long-term goal is to be a commercially viable fuel cell company, powering low cost, silent, zero emission fuel cell based products developed with OEM partners for portable, stationary, light mobility and transportation markets. However, we have not yet completed the development of any products incorporating our ZAFC fuel cell technology that can be commercially marketed and sold. Further, we have not achieved any revenues to date and we are currently considered a development stage company. We will require substantial additional financing for us to achieve our business objectives.

Industry Background

Generic Fuel Cells

A fuel cell is an electrochemical device, which cleanly converts chemical energy of a fuel and oxidant directly into low voltage direct current (DC) electricity. A fuel cell produces electricity and heat using a "fuel source" and oxygen. There is no conversion into heat by combustion of the fuel, and no conversion into mechanical energy, as is the case of a heat driven generator system. Thus, the efficiency of fuel cells is not a function of operating temperature.

Commercialization of Fuel Cells

While generic fuel cells have been in existence for over a century, a recent expansion in demand for more efficient, stable and continuous supply of power, which can operate cleanly and quietly, has led to attempts to commercialize fuel cells as a source of power. Currently, batteries and engines provide reasonable power solutions in a broad number of markets and applications. However, each of these power solutions has its own inherent disadvantages. Engines are not suitable for many applications as they are noisy, polluting and unreliable as a power source. Batteries are not suitable for many applications as they are heavy, have to be recharged, have a variable life span and gradually lose power.

Fuel cells have been presented as an alternative technology for power solutions as they do not possess some of the limitations of batteries and engines. Fuel cells offer an alternative solution as they can operate without the noise and emissions associated with hydrocarbon combustion and can provide a continuous source of electrical power.

Initial commercialization efforts have focused on polymer electrolyte membrane ("PEM") fuel cells that use hydrogen as a source of fuel. While PEM fuel cell prototypes have been tested in a variety of applications, conventional PEM fuel cells are costly to produce and operate, and the fuel (hydrogen) is difficult to distribute and store. These limitations have made commercialization of products powered by conventional PEM fuel cells difficult at present.

Our ZAFC Technology Solution

We believe that fuel cells incorporating our ZAFC technology offer the opportunity to deliver a fuel cell solution without the limitations of commercial products powered by conventional PEM fuel cells. We believe that our ZAFC technology offers the ability to develop and manufacture a fuel cell that has lower manufacturing and operating cost than conventional PEM fuel cells and that uses inexpensive, abundant and non-volatile zinc as its fuel, rather than hydrogen which is volatile and is difficult to distribute and store. Accordingly, our business objective is to develop ZAFC fuel cells that we will target for those segments of the power generation market that we believe will be most ready to accept a ZAFC fuel cell as an acceptable alternative to conventional sources of power. Based on our initial mapping of market opportunities, two markets show an immediate need that can be addressed in the short (next 24 months) to medium (24 to 48 months) term:

º Mobile electronic devices are an emerging $6.5 Billion application opportunity for fuel cells. As devices increase in functionality, the larger screens, faster processors and extended RAM all require more power. This applies to cell phones, smart phones, laptop PCs and almost every portable device. For the more than 50 Million mobile workers in the US, these energy hungry devices have become mission critical and running out of power is not an option.

º Power outages are becoming more and more frequent and widespread. Too often we are witnessing apartment and home occupants inconvenienced and in fact put into dangerous situations due to power outages caused by storms and technical failures. Residents are forced to cope with no lights, no heat, no information, spoiled food, and no working appliances for hours, days or even weeks at a time. Back-up generators are the current solution, but these generators cannot be used indoors, are noisy and polluting, heavy and messy. No back-up solution is offered whatsoever for apartment residents unless the whole building is backed up with a large diesel or natural gas generator.

Anticipated Markets for Fuel Cells

Fuel cells have not yet reached the stage where they have achieved widespread commercial adoption. As such, we believe that the market for fuel cells is in its early stages and is still developing. Based on industry experience to date, and learning from the experience of other fuel cell manufacturers, particularly PEM fuel cell based companies where prototypes have been tested in a variety of applications, we believe that the markets for fuel cell based products will evolve as follows:

First-to-Market: Occasional use products, such as generator and battery substitutes for industrial, residential, and personal back-up power solutions, with low operating lifetime requirements:

º Emergency and mobile power packs
º Emergency generators for residential and small business
º Uninterruptible Power Supply ("UPS") back-up (PC's, Servers, Data Centres)
º Telecom, Utility, Cable TV and Commercial Building back-up

Next-to-Market : Intermittent use products, such as longer running generators and light mobility vehicles, requiring longer operating life (i.e.: to 10,000 hours and over) and on-board fuel storage and re-fuelling logistics:

º Alternate Power Units ("APUs") that power non-drive train functions for trucks, boats, RV's, and Military vehicles.
º Seasonal (i.e.: cabins, cottages) and special events power supply units.
º Light mobility fleet units such as forklifts, golf carts, scooters, airport ground support vehicles, military vehicles, small hybrid vehicles.
º Hybrid electric vehicles.

Last-to-Market : Continuous use products, requiring operating lifetimes to 40,000 hours and fuel infrastructure support in place:

º Co-Generation - residential or commercial heating and electricity supply using the existing natural gas (or other) infrastructure and reformers.
º Grid replacement and "peaker" products.
º Fuel cell automobiles
º Large and Heavy Vehicles - e.g. Buses

We hold our rights to the ZAFC technology pursuant to a limited exclusive patent license agreement between Power Air Tech and Lawrence Livermore National Security, LLC ("LLNS") dated October 15, 2007 (the "License Agreement"). Under the terms of the License Agreement, LLNS granted to Power Air Tech an exclusive, non-transferable, royalty-bearing license to make, use, sell, offer for sale and import products that incorporate the licensed patents in the United States and worldwide where the patent rights to the technology exist. The license rights are limited to a "field of use" described as the zinc air fuel technology for stationary and mobile applications. LLNS also granted to Power Air Tech the right to issue royalty-bearing sublicenses to third parties to the zinc air fuel technology for stationary and mobile applications.

The licensed patents are those inventions with respect to the ZAFC technology that are summarized as follows:

                         United States Patents Granted

  Invention
  Disclosure
    Number       US Patent Number           Title           Inventors    Issue Date
     8776           5,434,020          Continuous-feed    John F. Cooper  7/18/95
                                     Electrochemical Cell
                                       with Non-Packing
                                         Particulate
                                          Electrode
     9407           5,578,183         Production of Zinc  John F. Cooper  11/26/96
                                           Pellets


                            Foreign Patents Granted

  Invention
  Disclosure
    Number       AU Patent Number           Title           Inventors    Issue Date
     9407             714879          Production of Zinc  John F. Cooper   5/4/00
                                           Pellets


                          Foreign Patent Applications

 Invention
 Disclosure
   Number    International Serial Number        Title           Inventors    Issue Date
    9407         Europe - 96916453.2      Production of Zinc  John F. Cooper  5/10/96
                 Japan - 534285/1996           Pellets

The United States government retained the rights to practice the licensed patents for its own purposes. LLNS retained the right to use the licensed patents for educational and research purposes.

In order to maintain our license rights, we are required to:

º pay royalty payments on net sales of end-use, stand-alone products that incorporate the licensed technology equal to 1.2%;

º pay royalty payments on net sales of individual zinc air fuel cells equal to 3.3%; and

º pay royalty payments on net sales by any sub-licensees equal to the earned royalty that would be payable by us had the sales been made by us, provided that we will also pay an additional 0.25% royalty on net sales to foreign entities by any sub-licensees.

We have also agreed to pay a minimum royalty to LLNS which will equal $100,000 for each remaining year of the license. This minimum royalty amount is payable on February 28 th of each year of the License Agreement.

The term of the License Agreement commenced March 13, 2001 and will remain in effect until the expiration or abandonment of the last of the licensed patents, unless terminated earlier in accordance with the terms of the License Agreement.

As at February 28, 2009, the annual royalty payment of $100,000 was not made but the Company has not received notice of default. The Company is negotiating a new agreement with the Lawrence Livermore National Laboratory.

Power Air has also filed a Provisional Patent for Electrolyte Life Extension, which is intended to add to our intellectual property.

Our Fuel Cell Technology

The Zinc Air Fuel Cell

Our fuel cell technology is a metal oxide fuel cell using simple physical chemistry. It uses a combination of atmospheric oxygen and zinc pellets in a liquid alkaline electrolyte mixture referred to as an "electrolyte" to generate electricity. The by-products from the chemical reaction are zinc oxide and potassium zincates. The electrolyte used in the ZAFC fuel cells is potassium hydroxide, a chemical which is readily available in commercial quantities. In operation, the fuel cell consumes all of the zinc and is operationally quiet, providing instantaneous stable electrical energy with zero greenhouse gas emissions.

LLNL scientists and engineers achieved significant breakthroughs in the design of the ZAFC which were subsequently patented and now exclusively licensed to us. The current, self-feeding design incorporates a hopper from which the zinc pellets, less than one millimeter in size, feed through a restricted opening into a wedge-shaped cell to react with the flowing electrolyte during operation. The size of the lightweight fuel cell stack determines power (measured in kilowatts); the electrolyte reserve tank (together with the amount of zinc in the hopper) determines the total energy capacity (measured in kilowatt-hours) and operational cycle of the device.

The ZAFC Stack

The zinc-air fuel cell is constructed in a modular form of unit cells known as a ZAFC stack. The ZAFC stack forms the base platform component of our planned products. The ZAFC stack incorporates individual unit cells into a stack of fuel cells in a configuration that will enable us to specifically design, engineer, package and brand a range of products that can be targeted at a range of applications suitable for the customers' requirements. By designing and incorporating ZAFC stacks into our products, we will be able to provide customized power/energy requirements.

The ZAFC stack is constructed in a modular form of unit cells, each of which is made up of a hopper, a self-feeding galvanic cell with air and refueling ports. The hoppers in each cell act as buffers to protect the air electrodes during refueling and handling. The cells are joined or molded together in a fuel stack module that is connected to an electrolyte storage tank that contains the electrolyte and discharge products. Each cell contains a lightweight plastic frame, a current collector/mesh, and a paper-thin air electrode. The plastic frame extends upwards to create a hopper which can hold additional zinc pellets that are fed into the cell as the zinc is used up in the cell. The lightweight cells generate the power from the ZAFC stack. The size of the lightweight fuel cell stack determines power (measured in kilowatts); and the electrolyte reserve tank (together with the amount of zinc in the hopper) determines, the total energy capacity (measured in kilowatt-hours) and operational cycle of the device.

º air cathodes;

º cell frames and stand-offs;

º current collector, metal plates and discs;

º controllers, pumps and blowers; and

º containers and filters.

The stack module is connected to an electrolyte storage tank containing electrolyte and discharge products, a blower to circulate air, a pump to circulate the electrolyte through the cells and over the zinc, and several other ancillary components depending on the specific application. A diagram presenting a cross-section view of a ZAFC fuel cell within a ZAFC stack is presented below:

[[Image Removed]]

In operation zinc pellets, less than one millimeter in diameter, are pushed along the base of horizontal fill tubes by the flowing electrolyte. The zinc pellets flow through slots to load each individual cell situated above the reaction cell.

The very narrow (less than three millimeter wide) cell openings allow the particles to feed informally into the cell to form an open, loosely packed structure, which permits the oxidation of the zinc and easy flow of electrolyte. The electrolyte flows upward through the cell and hopper to remove heat and reaction by products.

The ZAFC based devices are self-contained and the electric power required to drive the ancillary air and electrolyte pumps is negligible, consuming less than four percent of the fuel cell stacks gross output.

Recycling and Recovery of Fuel

During operation, zinc is converted into zinc oxides that are retained in the electrolyte. At any period during discharge zinc can be recovered from the electrolyte and recycled for later re-use. The zinc is not consumed, in the sense of gasoline or diesel; rather, it operates as a carrier of electrical energy. Residual zinc oxide created during this process can be recycled back into reusable zinc (via electrolysis) so that it can again be processed into pellets and fed into the ZAFC stack.

Zinc oxides can be recycled to form new zinc by electrolysis using a simple process, which may be incorporated in the overall system or sited at a central or service station location.

Our license rights include exclusive world-wide rights to the second LLNL patent pertaining to a low-cost process for recovering zinc and converting it to pellet form for reuse in the ZAFC system. We may pursue the development of a zinc recovery and recycling unit in conjunction with a zinc partner; however, there are zinc recovery systems using other processes that may be adaptable to our purposes with less development.

Advantages of our Zinc Air Fuel Cell Technology

We believe that our ZAFC technology offers a unique combination of advantages over alternative competing technologies and power solutions. These advantages include:

º Economical Energy Source. We currently estimate that fuel cell products based on our ZAFC technology offer can be manufactured and marketed at lower costs than can be achieved for conventional PEM fuel cell power solutions. We believe that lower manufacturing and marketing costs will result in products based on our ZAFC technology being able to be competitively priced against incumbent technologies. The low capital cost of the ZAFC is as a result of its simple design and low operating temperature which allow the majority of components to be conventionally sourced and combined with low-cost fabrication techniques. In addition, the consumables used comprise zinc and potassium hydroxide, both of which are inexpensive and easily sourced.

º High Specific Energy. The ZAFC has an energy output of approximately five to six times that of lead acid batteries of the same weight.

º Rapid Refueling and Continuous Use . Products incorporating our ZAFC technology can be designed to be rapidly refuelable through an exchange of electrolyte and addition of zinc pellets, rather than being slowly recharged using electricity. This will allow products incorporating our ZAFC technology to be used for applications requiring near continuous use.

º Environmental - Zero Airborne Emissions . Products incorporating our ZAFC technology will not produce any significant airborne emissions. The reaction by-product, zinc-oxide, is retained in the electrolyte and can be recycled via electrolysis.

º Technology Safety Issues. Products incorporating our ZAFC technology will not face the safety, distribution, storage and siting issues inherent in . . .