<PAGE>







                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549


                                    Form 10-K

(Mark One)
    |X|  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
         OF THE SECURITIES EXCHANGE ACT OF 1934

 For the fiscal year ended...............................February 28, 1999

                                       OR

    |_|  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
         EXCHANGE ACT OF 1934 [NO FEE REQUIRED]

         For the transition period from................. to ..................
         Commission File Number.......................................0-17249

                               AURA SYSTEMS, INC.
             (Exact Name of Registrant as Specified in its Charter)

                       Delaware                              95-4106894
            (State or Other Jurisdiction of               (I.R.S. Employer
            Incorporation or Organization)                Identification No.)

                                2335 Alaska Ave.
                          El Segundo, California 90245
                    (Address of principal executive offices)

                                 (310) 643-5300
                          Registrant's telephone number

                              Name of each exchange
                               on which registered
                                      None

           Securities registered pursuant to Section 12(b) of the Act:

                                      None

           Securities registered pursuant to Section 12(g) of the Act:

                                  Common Stock

       Indicate by check mark whether the  registrant  (1) has filed all reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during  the  preceding  12 months  (or for such  shorter  period  that the
registrant was required to file such reports),  and (2) has been subject to such
filing requirements for the past 90 days. Yes |_| No |X|

       Indicate by check mark if  disclosure of  delinquent  filers  pursuant to
Item 405 of Regulation S-K is not contained  herein,  and will not be contained,
to the best of  registrant's  knowledge,  in  definitive  proxy  or  information
statements  incorporated  by  reference  in Part  III of this  Form  10-K or any
amendment to this Form 10-K. |X|

       On February 3, 2000 the  aggregate  market value of the voting stock held
by non-affiliates of the Registrant was $46,140,620.  The aggregate market value
has been  computed  by  reference  to the  last  trading  price of the  stock on
February 3, 2000. On such date the Registrant had  177,249,203  shares of Common
Stock outstanding.





<PAGE>




When  used in this  report,  the  word  "expects,"  "anticipates,"  and  similar
expressions   are  intended  to  identify   forward-looking   statements.   Such
forward-looking statements include, but are not limited to, statements regarding
future events and the Company's  plans and  expectations.  The Company's  actual
results may differ  significantly  from the results discussed in forward-looking
statements as a result of certain  factors,  including  those  discussed in this
Report.  The Company  expressly  disclaims any  obligations  or  undertaking  to
release  publicly  any updates or revisions  to any  forward-looking  statements
contained  herein to reflect  any  changes in the  Company's  expectations  with
regard hereto or any change in events,  conditions or circumstances on which any
such statement is based.  This Report  includes  product names,  trade names and
marks of companies other than the Company. All such company or product names are
trademarks,  registered  trademarks,  trade  names or marks of their  respective
owners and are not the property of the Company.


PART I

ITEM 1            BUSINESS
 I.      INTRODUCTION

          Aura Systems, Inc. ("Aura" or the "Company"),  a Delaware corporation,
was founded in 1987 to engage in the development, commercialization and sales of
products,   systems  and   components   using  its  patented   and   proprietary
electromagnetic  and  electro-optical  technology.   Since  1987  the  Company's
proprietary  and patented  technology  has been developed for use in systems and
products for commercial, industrial, consumer, and government use.

         Prior to Fiscal  1992,  the Company  was engaged in various  classified
military programs,  which allowed the Company to develop its electromagnetic and
electro-optical  technologies  and  applications.  A number  of  "one-of-a-kind"
systems were built and successfully  tested in these fields.  Subsequently,  the
Company developed  additional  electromagnetic  and electro-optics  know-how and
technology and transitioned from a supplier of defense  technology to a supplier
of consumer and industrial related products and services.

         In 1994,  the  Company  founded  NewCom,  Inc.  ("NewCom"),  a Delaware
corporation,   which  engaged  in  the  manufacture,   packaging,   selling  and
distribution  of computer  related  communications  and sound related  products,
including modems, CD-ROMs, sound cards, speaker systems and multimedia products,
thereby  expanding  presence  in  the  growing  multimedia,   communication  and
sound-related consumer electronics market.

         In 1996,  the Company  acquired 100% of the  outstanding  shares of MYS
Corporation  of Japan  ("MYS")  to expand  the range of its sound  products  and
speaker  distribution  network.  MYS  engaged  in the  manufacture  and  sale of
speakers and speaker systems for home,  entertainment and computers.  Subsequent
to Fiscal 1999, the Company sold MYS to MYS management.

         In  September  1997,  NewCom  completed  an  initial  public  offering,
resulting in Aura owning a majority  interest in NewCom at the conclusion of the
offering.  During the second half of Fiscal 1999 NewCom's business suffered from
adverse industry conditions,  including increased price reductions and a decline
in demand resulting from increased  incorporation of computer peripherals at the
OEM  level.  These  conditions  resulted  in  heavy  losses  to  NewCom  and its
competitors,  causing  a buildup  in  inventory  and  difficulty  in  collecting
receivables from mass merchants.  NewCom's  business reached a critical juncture
in the fourth  quarter of Fiscal 1999 when Deutsche  Financial  Services,  which
maintained  NewCom's  working  capital line,  announced that it was unwilling to
continue to advance working capital to NewCom under its credit  facility.  This,
in conjunction with the actions of the retail mass merchants, resulted in NewCom
ceasing  most of its  operations  by the end of  Fiscal  1999  and the  ultimate
cessation of its business shortly thereafter.

     Aura anticipated that its working capital needs in Fiscal 1999 would be met
     from  a  number  of  sources,   including   the   repayment  by  NewCom  of
     approximately $20 million of indebtedness, which was due in September 1998,
     and proceeds from external debt and equity financing. NewCom was ultimately
     unable  to meet  its  obligations  to Aura in  September  1998,  ultimately
     creating a significant cash shortfall to Aura. This required Aura beginning
     in late January  1999 to refocus its  operations  in shutting  down certain
     operating  divisions,  selling its MYS  subsidiary,  licensing  and selling
     proprietary based AuraSound speaker  technology and assets, and leasing its
     Electrotec  concert touring sound  equipment.  The Company also temporarily
     suspended the development of certain electro-magnetic  projects,  including
     the electromagnetic  valve actuator ("EVA").  Subsequent to Fiscal 1999 the
     Company entered into  agreements  providing for the  restructuring  of more
     than $85 million of debt and contingent  liabilities.  Of this amount, over
     $37 million was either  converted  into  equity or  forgiven.  See "Item 7.
     Management  Discussion  and Analysis of Financial  Condition and Results of
     Operations.

         Following  the end of  Fiscal  1999 the  Company's  operations  are now
focused on manufacturing and commercializing  the AuraGen(R)  ("AuraGen") family
of electromagnetic  products,  with applications for military,  industry and the
consumer. The AuraGen is a unique,  patented  electromagnetic  generator that is
mounted to the automobile engine, which generates both 110 and 220 volt AC power
at all engine  speeds  including  idle.  Commercial  production  of the  AuraGen
commenced  in Fiscal  1999 and  product is being  distributed  and sold  through
dealers, distributors and OEMs.

         Aura  intends to continue to focus its  business on the AuraGen line of
products during the remainder of Fiscal 2000 and beyond.  ( See  "Description of
Business - Magnetic  Technology".)  In  addition,  Aura is  entitled  to receive
royalties from Daewoo  Electronics  for its  electro-optics  technology  ("AMA")
licensed to Daewoo in 1992.
(See "Description of business - Electro-Optical Technology.")


II.      DESCRIPTION OF BUSINESS

A.       Technology

     a.  Magnetic Technology

         The  Company has  developed  and  patented  highly  efficient  magnetic
circuits,  which the Company believes  provides  substantial  improvements  over
devices of similar purpose, available prior to Aura's technology.  These designs
include the Ferrodisk  Induction Motor applied in the Company's  electromagnetic
power generator technology and electromagnetic  actuators, such as the HFATM and
the EMATM actuator designs.

         Ferrodisk Induction Motor (AuraGen(R))

         In Fiscal 1993, the Company's research discovered that certain magnetic
circuit  equations could apply,  with different  parameters,  to describe linear
actuators  that  could  provide  unusually  high  force  levels  in a device  of
relatively  small  volume and weight.  As this  concept  extended  from a linear
actuator  to a  rotary  actuator,  a motor  called  the  "Ferrodisk  Motor"  was
developed by the Company.

         In the  latter  half of 1995 and in early  1996,  a  device  named  the
Ferrodisk Alternator Starter (FAS(TM)) was designed, built, tested, installed on
a Ford  Ranger  truck,  and  displayed  publicly  at the  Society of  Automotive
Engineers (SAE) trade show.  FAS(TM) used its large torque capacity to start the
engine with direct drive, that is, with no gearing. After starting, its function
converted to that of an alternator,  which had a capacity for  generating  power
several  times  that of a  conventional  alternator.  The  Company  called  this
electromagnetic power generation feature the AuraGen.

         The  AuraGen  contains  aluminum  bars and  rings  embedded  in it.  AC
voltages,  similar  to  household  currents,  set up  electric  currents  in the
electromagnets, creating a series of magnetic poles that whirl around the rings.
When the disk of steel is forced to spin faster than the motion of the  magnetic
poles,  there is an interaction  between the magnetism in the disk and the coils
of the  electromagnets.  The  electric  currents in the wires are pushed so they
flow  backwards  against the voltages,  and this effect builds up the electrical
energy content in the  electronics at the expense of mechanical  energy provided
by the  rotor.  The  electronic  box of the  AuraGen  provides  the  alternating
voltages to make the device work, stores the electrical  energy  generated,  and
prepares  the exact  type of  voltages  as in  household  wiring.  The device is
controlled by a computer  processor that continuously  measures the speed of the
AuraGen rotor and the power drawn by the user, so that  alternating  voltages of
the best phase and frequency are sent to the electromagnets.

         Magnetic High Fidelity Actuators (HFATM)

         An  actuator  is a device that  creates a lateral  force upon  command.
Actuators  are  used in a wide  range of  applications,  including  high  speed,
precision  applications  such  as  audio  speaker  drivers,  computer-controlled
applications such as the control of aircraft flaps, and heavy-duty  applications
such  as the  lifting  of  the  bed of a dump  truck.  Actuators  are  generally
hydraulic,  pneumatic,  mechanical  or  voice  coil.  Hydraulic,  pneumatic  and
mechanical  actuators  can produce  extremely  high  forces and long  strokes in
relatively  small  packages.  Voice coil  actuators  provide high  precision and
high-speed  operation,  producing short stroke and very little force.  Actuators
are most commonly used to position objects, or to create or cancel vibrations by
producing a force upon command.

         The Company  believes that its high fidelity  electromagnetic  actuator
HFATM,  is the first "Lorenz's Law" actuator to provide both the high forces and
long  strokes  produced by  hydraulic  or  pneumatic  actuators at the speed and
precision  of  response  produced  by voice  coil  actuators.  This  ability  is
attributable to the patented magnetic design.  High-energy permanent magnets are
arranged to focus nearly all of their magnetic energy into useful work. Standard
voice coil  actuators  typically  utilize  about 40% of the  available  magnetic
energy  whereas  Aura's  HFATM uses  nearly  90% of that  energy.  The  magnetic
arrangement also allows virtually  unlimited  stroke  potential.  Standard voice
coil  actuators  typically  provide  less  than one inch of stroke  whereas  the
HFA(TM)'s stroke is virtually unlimited. For example, Aura's HFATM is capable of
producing more than 1,000 pounds of force over a 32 inch stroke. The Company has
commercially  used its HFATM  technology in  applications  such as actuated weld
heads and is currently employing HFA(TM) technology in industrial shakers.

         Electromagnetic Actuator ("EMA(TM)")

         During Fiscal 1995, the Company developed, built and demonstrated a new
type of actuator,  called the  Electromagnetic  Actuator,  or EMATM. The Company
developed  EMATM  to fill the  performance  gap  between  linear  actuators  and
solenoids.  To date,  the principal  application of the EMATM has been in Aura's
Electromagnetic    Valve    Actuator    System    ("EVA(TM)"),     a    patented
electromagnetically  powered  system which opens and closes engine valves at any
user specified time interval.

         Like a solenoid,  EMATM operates on purely electromagnetic  principles,
and therefore uses no permanent magnets.  The Company developed it initially for
the industrial and automotive markets,  but believes it may also be incorporated
into the test equipment  market as well. An EMA(TM) is physically  equivalent in
size to  solenoids  with  comparable  force  capacities  and can be  operated at
temperatures exceeding 450 degrees Fahrenheit.

         What sets  EMATM  apart  from a  standard  solenoid  is its  ability to
custom-tailor  the force  produced  as a function  of stroke.  For  example,  an
automotive EGR valve requires peak force at the beginning of the stroke in order
to "crack" the valve open. A standard  solenoid,  by its very  nature,  produces
peak force at the end of its stroke, not at the beginning. Therefore, a solenoid
will require a large amount of power to compensate for its inherent  limitation.
Conversely,  the force  profile of an EMATM can be  customized  to provide  high
force at the beginning of the stroke,  resulting in a more efficient device that
is much easier to control.

         Another  advantage  of  EMATM  over a  solenoid  is  its  actuator-like
ability,  which provides  consistent force over much longer lengths.  To be used
for an application  requiring  proportional  control, a "proportional"  solenoid
requires complex electronics to compensate for this inherent  non-linearity.  An
EMATM  basically  "spreads" the  solenoid's  peak force over the entire  stroke,
providing  linear force over a greatly  extended  stroke length without the need
for complex electronics.

     b. ELECTRO-OPTICAL Technology

         Light Efficient Displays - Actuated Mirror Array ("AMATM")

         The Company has developed  and patented a technology (a "light  valve")
for generation of images called the Actuated Mirror Array ("AMATM")  technology.
The AMA(TM) technology  utilizes an array of micro actuators in order to control
tiny mirrors  whose  position  change is used to cause a variation in intensity.
The Company  expects  this device to have a major impact on  applications  where
light  efficiency is paramount,  such as in large screen  television,  movie and
exhibition displays, and the testing of electro-optical  devices for military or
civilian use.

         Although  there can be no  assurances,  the Company  believes  that the
AMATM can be manufactured at a competitive cost in large quantities, thus making
it commercially  feasible.  Thus,  AMATM based devices are expected to offer the
combination of increased display intensity at a competitive production cost.

         Light displays, such as projectors and large screen televisions, can be
made by a number of  techniques,  many of which are currently  available.  These
include liquid crystal displays ("LCD"),  cathode ray tubes ("CRT"),  deformable
mirror displays  ("DMD"),  oil film projectors and plasma tubes. For the segment
of the display market addressing large images,  the principal  requirement is to
get more  light  out per unit watt of  electricity  in.  However,  each of these
technologies  requires  the  utilization  of an element,  which causes a loss of
light efficiency in order to create the image.

         Liquid  crystals   utilize  an  electric  field  to  change  the  light
polarization properties of a surface, which is divided into an array of cells to
paint an image. Cathode ray tubes utilize an electron beam, which is bent by the
video signal to create images by colliding  with a phosphor on the front surface
to create  light.  DMD's  utilize an electric  field to bend a mirror at a large
angle to switch  it to either  "on" or "off".  Oil film  projectors  change  the
transmissive  properties of an oil film allowing an image to be created.  Plasma
tubes  create an  electrical  discharge  in a tiny tube with gas.  The gas glows
allowing  an image to be created by an array of such tiny  tubes.  Each of these
technologies  has their own advantages  and  limitations,  thus creating  niches
within the display market where competitive advantages can be achieved.

         The  Company  believes  that  the  AMATM  technology  has  a  technical
advantage over other  technologies in achieving higher contrast,  more intensity
and longer lived elements.

         The Company has entered into a license and  manufacturing  agreement
with Daewoo  Electronics Co., Ltd. to manufacture  televisions  and other
devices based on AMATM  technology.  (See "  Description  of  Business-Certain
Product Risk Factors-AMA."

B.       Products

         a.       AuraGen(R)


         The AuraGen is a patented  technology  (US Patent No.  5,734,217)  that
could  potentially  have  substantial  benefits  in  size,  weight  and cost for
induction  type  electric  motors  and  generators.  The  technology  allows the
construction of induction  machines of somewhere  between one-half to two-thirds
reduction  in weight and size for the same output.  The machine  itself does not
use any exotic  materials  and the  components  are simple to  manufacture  with
conventional tooling. In addition to the mechanical advantages the system uses a
proprietary control system which optimizes  efficiency as a function of required
load. The AuraGen type machine could  potentially offer substantial cost savings
due  to  reduced  material  requirements  and  simpler  components.   While  the
technology  has wide  applications  over a large range of  horsepower it is best
utilized  for  machines  in the range of 1.5 to 50  horsepower.  The Company has
invested  substantial  resources to develop the technology  into a rugged system
that can be sold commercially.



         The  first  family  of  products  using  the  AuraGen   technology  are
generators  designed to fit under the hood of a full size pickup  truck,  SUV or
other large vehicle.  In the under the hood  application the AuraGen can provide
an effective  torque to weight ratio of 0.648 ft-lb/lb with efficiency of 86% as
compared to a typical heavy duty  brush-less  alternator  which has an effective
torque to weight ratio of 0.109 ft-lb/lb and efficiency of 65%. Thus the AuraGen
produces  nearly  six  times  more  power  per  pound  than  typical  heavy-duty
alternators.



         The Company has gone through  extensive testing of its 5KW (5000 watts)
continuous  power rated mobile electric  generator in both the laboratory and in
the  field.  Over 1000  units  have been in the field for up to two  years.  The
Company has begun  selling the 5KW  120/240V  pure sine wave  systems with total
harmonic distortion of less than 4%. Aura currently offers full turnkey plug and
play systems that fit in over 70 different engine  configurations in popular GM,
Ford and  Chrysler  vehicles,  as well as some  models of full size  trucks.  In
addition the Company is developing  other power rated  generators  between 3.5KW
and  12.5KW,  all of which  will fit  under-the-hood  of the  types of  vehicles
described above.



          The North American market for mobile  generators is estimated to be in
excess of $4 billion  per year and growing at 4% to 5% per year.  The  worldwide
use is estimated to be over $10 billion per year. Traditional mobile power users
are  found  in  construction,   cable,   emergency/rescue,   marine,   railroad,
recreational  vehicles,   telecommunications,   tool  sales  truck,   utilities,
municipalities  and personal  use. In addition to the  traditional  mobile power
market for generators, due to its compactness and clean power, the AuraGen could
potentially   allow  for  applications   that  were  not  practical  until  now,
particularly in areas that require computers and other sensitive instruments.



         One area where the AuraGen could be used with great  advantages in both
cost and  logistics is the  military.  In military  applications,  getting quiet
clean power from vehicles at low speed could potentially be critical as the Army
changes to digital  applications  with numerous  sophisticated  electronics  and
sensors.  The US Army has been testing the AuraGen product for over one year for
numerous  applications  and to date the results  show a reliable  and  effective
system that can be used by the military.  The Company is currently  working with
the US Army for the use of the AuraGen in multiple army vehicle types.



         Another  area  where  the  AuraGen  could   potentially   offer  unique
possibilities  is in the  telecommunication  industry.  Currently the AuraGen is
used by a number of broadcasting TV stations in their mobile news vehicles.  The
AuraGen is also being used on a limited  basis by cable  companies  for numerous
applications. The technical possibilities of the AuraGen have generated numerous
interests from utilities as well as municipalities across the nation.  Currently
over 23  utilities  across the nation  have  bought  AuraGens as samples and are
evaluating the product. Similarly over 33 state and city governments have bought
the AuraGen for evaluation and testing.

         The Company is  positioning  itself in the market place as a turn key
mobile power solution that is safer, more reliable,  more  convenient,  with
better quality and at an effective cost. The safer solution is based on the
following: a) no need to carry fuel in a container,  b) no exposed hot
components to touch/start,  c) nothing heavy to lift, d) no pull start required,
e) power outlets located away from hot components and f) not easily stolen.

         The  increased  reliability  is  based on using  the  standard  vehicle
engines as compared to small  stand-alone  engines.  The system does not require
any maintenance and does not have any starting problems associated with gensets.
The system uses the standard vehicle exhaust system, which results in a quieter,
cleaner power generating system.

         The  AuraGen  solution  provides  convenient  power by:  a) not  using
up  valuable  cargo  space,  b) not requiring  an  additional  fuel tank,  c)
no need to wait for the genset to cool down,  d)  available  power  while
driving  or parked  and e) the power  setup and use is  totally  transparent
to the  user.  The  quality  of power delivered by the AuraGen  system is pure
60 or 50 Hz sine wave at a constant  voltage.  As a result one can operate
sensitive equipment such as computers and coarse power such as tools and
compressors at the same time.

         b.       Electromagnetic Valve Actuator ("EVA(TM)")

         EVATM is an  electromagnetic  actuator  capable of opening  and closing
internal  combustion  engine  valves,  replacing the  mechanical  camshaft on an
engine

         Two major  benefits  arise from the EVA's ability to open and close the
valve electromagneticaly: 1) the camshaft and associated mechanical hardware can
be  eliminated;  and 2) the opening and closing of the intake and exhaust valves
can be commanded by the engine  computer.  Computer  control of the valve timing
has  potentially  material  benefits  to engine  performance,  fuel  economy and
emissions. With EVATM, the computer can precisely control the amount of air that
is allowed  into the engine in the same way that modern fuel  injectors  control
the amount of fuel. By  optimizing  this  "fuel-air  mixture"  dynamically  as a
function of engine RPM and load, optimum engine performance can be achieved over
the entire operating range of the engine.  With a standard camshaft,  the engine
can be optimized at only one range of RPM and load conditions.  That is why very
high  performance  engines idle  "rough",  as they are  optimized  for high RPM,
thereby sacrificing smoothness at low RPM.

         By  optimizing  the  fuel-air  mixture  dynamically,  both  performance
(horsepower)  and fuel economy will  increase,  while  emissions are expected to
decrease.  The entire camshaft assembly,  which includes timing chain, camshaft,
rockerarms,  etc., is replaced by very simple valve  actuators.  Other  emission
systems  currently on the vehicle,  such as the EGR (exhaust gas  recirculation)
and IMRC (intake manifold runner control) valves can be eliminated. The throttle
assembly  can also be  eliminated  by using  EVATM to control  the amount of air
going into the engine.

         In recent  years,  the  Company  has entered  into  agreements  with 15
companies  to  retrofit  EVA's on  different  types of  diesel,  automobile  and
motorcycle engines for evaluation and testing.  During Fiscal 1998 an EVA system
was delivered to a major domestic Original Equipment Manufacturer (OEM) which is
evaluating  EVA for possible use in its automobile  production.  In Fiscal 1998,
the Company  developed a new, more reliable  servo control  system that provides
reduced  power usage and reduced  noise over the entire RPM range.  In addition,
the Company  started work on an improved  latching  mechanism  for EVA that will
further reduce noise in the system.

         In  Fiscal  1999  as  part  of its  refocus,  the  Company  temporarily
suspended its  activities  on  EVA development  and  commercialization  to focus
its resources on the AuraGen.  The Company  is  however,  pursuing  licensing of
this  technology  to third  parties.  The Company  has not yet entered  into any
licensing agreements for EVA.




         C.       Certain Product Risk Factors


         The  Company's  business  on a  going-forward  basis is  focused on the
AuraGen  family of products and on royalties for the AMA  technology.  While the
technology for the AuraGen has been extensively  tested and verified , there are
significant  risks  associated  with  developing  a market  place for such a new
product.  Similarly,  the Company is totally dependent on Daewoo Electronics for
exploiting the AMA technology.

a.       AURAGEN(R)

         The AuraGen is a new product with limited  history in the market place.
There can be no assurances that the product will succeed in the marketplace.


         Currently,  the Company's  AuraGen is being  evaluated by the U.S. Army
with a potential  for a contract to install the AuraGen in thousands of military
vehicles.  No assurances  can be given when or if the contract will  materialize
and what the ultimate size of the contract may be.

         The U.S.  Army has  recently  completed  the field test of 5kW and 10kW
AuraGens.  No assurances can be given as to if and when the US Army will conduct
other and future tests.



         The Company has a U.S. Army contract for 10kW  AuraGens.  No
assurances  can be given that the Army will purchase any material  quantities of
this product.


         The U.S.  Marine Corp.  has recently  purchased 5kW AuraGens for
evaluation.  No assurances  can be given that any sizable contract will develop.

         The AuraGen is  currently  configured  for 110 and 240 volts.  The 240V
systems that are in use in other countries are different from the U.S.  240-Volt
system.  The  Company  is  currently  providing  a  solution  that  requires  an
additional transformer.  A future solution will incorporate the required changes
into the Electronic Control Unit ("ECU). While it is straightforward to make the
changes  to the  international  240  Volt,  it has not  been  done  as  yet.  No
assurances  can be given as to when the changes  will be made or if they will be
made.

         The Company has recently completed the development of a 10kW AuraGen in
the same  geometric  envelope as the 5kW unit. No  assurances  can be given that
such a device will succeed in the market place.

         The Company is currently  cooperating  and working closely with General
Motors, a major automotive OEM in regard to the AuraGen. Recently General Motors
has exhibited the AuraGen as a potential option in selected future vehicles.  No
assurances  can be given that the  Company's  AuraGen will be offered by General
Motors as an OEM option.

b.       AMA(TM)


     The Company  licensed  its AMA  technology  to Daewoo  Electronics  Limited
of Korea.  Since 1992, Daewoo has been responsible for the commercialization,
production and sale of the AMA  products.  Daewoo in fiscal 1999  announced  the
completion  of the commercialization of the AMA. While the Company anticipates
that the AMA will be available in the market place in the near future,  no
assurances can be given as to if and when it will be available.

         The  AMA(TM)/Aurascope(TM)  is a new  product  without a history in the
marketplace.  There can be no  assurances  that the product  will succeed in the
marketplace.

         The Company's rights under the license  agreement provide for a royalty
to be  paid on  every  unit  sold by  Daewoo  and 50% of all  sublicensing  fees
collected by Daewoo.  No  assurances  can be given as to when and if the royalty
stream will start.

D.       Competition

                  The Company is involved in the  application  of its technology
to  a  variety  of  products  and  services  and,  as  such,  faces  substantial
competition from companies offering different and competitive technologies.



                  The Company believes the principal  competitive factors in the
markets  for the  Company's  products  include  ability  to  develop  and market
technologically  advanced  products to meet changing market  conditions,  price,
reliability,  product  support  and the  ability  to secure  sufficient  capital
resources for the often substantial  periods between  technological  concept and
commercialization.  The  Company's  ability to compete  will also  depend on its
continued  ability to attract and retain skilled and experienced  personnel,  to
develop and secure patent and other protection for its technology and to exploit
commercially  its technology  prior to the development of competing  products by
others.



                  The  Company  competes  with  many  companies  that  have more
experience,  name  recognition,  financial and other  resources and expertise in
research and  development,  manufacturing,  testing,  and  obtaining  regulatory
approvals,  marketing  and  distribution.  Other  companies may also prove to be
significant competitors,  particularly through their collaborative  arrangements
with research and development companies.

                  Portable  generators  ("Genset")  meet a large market need for
auxiliary power. Millions of units per year are sold in North America alone, and
millions  more are sold  across  the world to meet  market  demands  for 1 to 10
Kilowatts  of  portable  power.  The market  for these  power  levels  basically
addresses  the  commercial,   leisure  and  residential   markets,   and  divide
essentially  into: a) higher power,  higher quality and higher price  commercial
level units; and b) lower power, lower quality and lower price level units.

                  There is significant competition in the auxiliary power market
from portable generator sets with such companies as Onan, Honda and Kohler which
are  well-established  and  respected  brand names in the genset market for high
reliability auxiliary power generation. There are presently 44-registered Genset
manufacturers ("Gensets").

                  The following table is a summary  comparing the leading Genset
products with the AuraGen(TM).



<TABLE>
<CAPTION>
                               TABLE 1: GENERATORS



<S>     <C>                        <C>                 <C>                <C>                 <C>       <C>
                                   Onan                Honda              Honda               Kohler    AuraGen(TM)
         Parameters                Marquis             EG5000X            EX5500              5CKM


         Rated Power      5000         5,000 W             4,500 W            5,000 W             5,000 W           5,000
                                                                                                       W
         Weight                    258                 146                393                 268               68
                          lbs/117.3 kg        lbs/66.4 kg        lbs/178.6 kg        lbs/122 kg        lbs/30.9 kg
         Cubic Feet/

         Cubic Meters              6.72/.19            5.39/.15           26.80/.76
                                                                                     3.71/0.11         0.25/0.01
         Output                    120 V               120/240            120/240 V
                                              V                                      120/240 V         120/240 V
         Engine RPM

         @ Rated Output            1,800               3,600              3,600               1,800             1,300
         Noise (DBA @

         10 Ft.)`                  73.5                82                 65                  88.5              64
         Load-Follower

         Economy                   No                  No                 No                  No                Yes
</TABLE>

                  In addition to competition  from Gensets,  there are six major
manufacturers  of  Inverters  in the U.S.;  representative  of the  leaders  are
Vanner, Dimension and Heart.



                  Inverters  provide strong  competition in specific  markets of
the overall market place for mobile power:  The specific markets where inverters
are strong  competitors  are  Ambulance,  Fire and  Rescue,  Small  Recreational
Vehicles and Telecommunications.

                  Limitations of Inverters:

o  Inverters address a much more limited and specialized market than Gensets;

o  The most significant portion of inverter sales are in the lower power range:
     i.e., 2500 watts or lower.

o  True quality Inverter power above 2500 watts requires a 24-volt  automotive
     electrical system (twice 12 volts);
     and the maximum  output for quality  power in the  commercial  market is on
      the order of 4800 watts.  (See Table 2).

o  Quality power (pure sine wave and  well-regulated  60Hz) is a significant
     cost factor in Inverters (Table 2).

o  Often,   Inverters  require   upgraded   vehicle   alternator   and   battery
   harness, and--for extended use period without battery charging--an additional
   battery pack.

                               TABLE 2: INVERTERS
<TABLE>
<CAPTION>
                                    Heart I/F       Vanner         Vanner        Vanner         AuraGen(TM)
         Parameters
<S>     <C>                         <C>             <C>            <C>           <C>            <C>

                                    Freedom 25      Bravo 2600     TB30-12       A40-120X       G5000

         1.   Max   Rated    Power           2500            2600                         4800           5000
(Watts)                                                            2800
         2. Weight (LBS)                     56              70             75            110            68
         2A. Weight Battery Pack                                                          No             No
                                    Add/No          Add/No         Add/No
         3. Overall Cubic In.
                                    1207.5          1866.73        1800          2595.94        432.73
         4. 60 Hz                            Yes             Yes            Yes           Yes            Yes
         5. Sine Wave @ All RPM                                             Yes                          Yes
                                    Modified        Modified                     Modified
         6.   Battery    Discharge           Yes             Yes            Yes           No             No
Operation
         7. Vehicle Engine Noise

                  (DBA @ 10Ft.)              64              64             64            64             64
         8. Load Follower-Economy            Yes             Yes            Yes           Yes            Yes
</TABLE>

E.       Manufacturing

         The AuraGen is assembled at Aura's  facility in El Segundo,  California
with parts which are produced by various  suppliers.  In Fiscal 1996 the Company
acquired a 27,692  square  foot  manufacturing  facility  in El Segundo  for the
AuraGen  production  line.  In Fiscal  1998,  the Company set up the  production
facilities in the acquired  building.  This facility is for assembly and testing
and has a production capability of 5000 units per month per operating shift.

         The Company's ceramic division  manufactures its products at its leased
38,000 square foot ceramic facility in New Hope, Minnesota.

          The class 100 clean room  fabrication  facility for the AMA product in
El Segundo,  California was closed in Fiscal 1999 as the Company  terminated all
manufacturing activities in the electro-optical area.

          Subsequent to the end of Fiscal 1999 the Company  either sold,  leased
or terminated all of its sound related  activities,  including all the off-shore
facilities  and joint  ventures.  The Company  sold MYS  Corporation,  AuraSound
assets, leased the assets of Electrotec, and licensed the AuraSound technology.

         NewCom  ceased most of its  operations  by the end of Fiscal 1999 after
Deutsche Financial Services seized Newcom's inventory.

F.       Quality Assurance and Testing

         As the Company focuses its activities on the AuraGen, quality assurance
and testing is a very important  component.  The Company performs  qualification
testing on the AuraGen hardware components, Electronic Control Unit ("ECU"), all
software and on installed in-vehicle systems to ensure reliability in the field.
The qualification  testing includes;  1) in-house endurance testing, 2) in-house
parametric thermal testing, 3) in house power quality testing and 4) independent
laboratory   environmental  testing.  In  addition,  field  failure  testing  is
performed on all returned units.

         In addition to the  qualification  testing,  the Company  implemented a
fully  controlled  manufacturing  lot  traceability  system,  documentation  and
configuration  control  system,  as well  as,  acceptance  test  and  compliance
procedures at all manufacturing  levels,  including suppliers.  The Company also
uses automated tools for "In Process Inspection" on its AuraGen assembly line.

G.        Product Development Expenditures

         During the fiscal years ended February 28, 1999, February 28, 1998, and
February 28, 1997 the Company spent  approximately  $ 2.8 million,  $1.4 million
and $6.0 million,  respectively,  on Company sponsored  research and development
activities. The Company plans to continue its research and may incur substantial
costs  in  doing  so.  All  of  the  Company's  sponsored  R & D is  focused  on
technological enhancements and product developments for the AuraGen.

H.       Patents

         Since Aura is  engaged  in the  development  and  commercialization  of
proprietary  technology,  it believes  patents and the protection of proprietary
technology are important to its business. The Company's policy is to protect its
technology by, among other ways, filing patent applications for technology which
it considers  important to the  development  of its  business.  The U.S.  Patent
Office has to date issued 78 patents. A majority of these patents expire between
the years 2008 and 2015.  The Company's  first issued  Auragen  patent  however,
expires  in  the  year  2017.  Of  the  issued   patents,   29  pertain  to  its
automotive/industrial   applications,   21   pertain   to   its   electrooptical
applications and 28 pertain to sound  applications.  There are additional patent
applications  in various stages of preparation  for filing and numerous  patents
are pending.  There are no assurances that any of the patent applications or any
new other  patents will be issued in the future.  The Company  believes that its
issued and allowed patents enhance its competitive position.

I.       Employees

         As of February 28, 1999 the Company employed  approximately 500 persons
worldwide.  During Fiscal 1999 and  continuing  into Fiscal 2000 the Company has
gone through a major  down-sizing and  restructure.  As of February 2, 2000, the
Company  employed 95 persons.  Thirteen  people are  dedicated  to the  ceramics
operation  and 82 to the  AuraGen  activities.  The  Company  believes  that its
relationship  with its  employees  is good.  The  Company  is not a party to any
collective bargaining agreements.

J.       Principal Sources of Revenues

         For the year ended  February 28, 1999,  multimedia  products and modems
were the largest single source of revenues on a consolidated basis, constituting
approximately  $46.8  million or 57.4% of net revenues.  Sound related  products
contributed  approximately  $29 million or 35.6% of net revenues.  During Fiscal
1998 multimedia products on a consolidated basis accounted for approximately $52
million,  or  32.3%  of  gross  revenues.  Sound  related  products  contributed
approximately $31 million or 19.3% of revenues.  Modems on a consolidated  basis
contributed approximately $38 million or 23.6% of Fiscal 1998 revenues. No other
products accounted for more than 10% of revenues during the foregoing periods.

After the  down-sizing,  ceasing  of NewCom  operations  and  selling  the sound
related  operations,  the  principal  sources of revenues  going forward will be
related to the Company's AuraGen  technology.  The AuraGen is a new product with
no historical basis for comparison.

K.       Significant Customers

         The Company sold sound related  products and computer  related products
on a consolidated basis to four significant  customers during Fiscal 1999. Sales
of speakers to a major electronics  retailer  accounted for  approximately $16.3
million or 20.1% of revenues. Sales of communications and multimedia products on
a  consolidated  basis to major mass  merchandisers  Best Buy,  Circuit City and
Staples accounted for approximately $12.6 million or 15.5% of revenues.

         After Fiscal 1999 none of the above will be significant customers since
the Company  will no longer be in the  consumer  electronics  business as it has
sold or leased all the sound related operations and NewCom has ceased
operations.

ITEM 2.  PROPERTIES

         The  Company  owns a 46,000  square  foot  headquarters  facility in El
Segundo,  California and a 27,692 square foot manufacturing  facility also in El
Segundo,  California for its AuraGen product. These properties are encumbered by
a deed of trust securing a Note in the original  principal amount of $5,450,000.
The Company  leases an  approximate  38,000 square foot ceramic  facility in New
Hope, Minnesota. Subsequent toFiscal 1999 the Company as part of its refocus and
downsizing,   vacated  approximately  135,000  square  feet  of  facilities.  In
addition,  the Company sold or terminated  all of its joint ventures and foreign
activities.  The Company retains approximately 115,000 square feet in facilities
and believes that such is adequate for its present needs.

ITEM 3.         LEGAL PROCEEDINGS

         The Company is engaged in various  legal actions  listed below.  In the
case of a judgment or settlement,  appropriate  provisions have been made in the
financial statements.

Shareholder Litigation

         Barovich/Chiau v. Aura

In May,  1995 two lawsuits  naming Aura,  certain of it directors  and executive
officers and a former  officer as  defendants,  were filed in the United  States
District Court for the Central District of California, Barovich v. Aura Systems,
Inc. et. al. (Case No. CV 95-3295) and Chiau v. Aura Systems, Inc. et. al. (Case
No. CV 95-3296),  before the Honorable Manuel Real. The complaints  purported to
be securities  class actions on behalf of all persons who purchased common stock
of Aura during the period from May 28, 1993 through January 17, 1995, inclusive.
The  complaints  alleged  that as a result of false and  misleading  information
disseminated  by the  defendants,  the market  price of Aura's  common stock was
artificially  inflated during the class period. The complaints were consolidated
as Barovich v. Aura Systems, Inc., et. al.

         A settlement  agreement for this  proceeding was submitted to the Court
on July 20, 1998, for preliminary  approval,  at which time the Court denied the
plaintiffs'  motion for approval of the  settlement.  On September 22, 1998, the
Company and certain of its officers  and  directors  renoticed  their motion for
summary  judgment.  Thereafter,  on  January  8, 1999,  the  plaintiffs  and the
defendants in the Barovich action executed a Stipulation of Settlement  pursuant
to which the Barovich action would be settled in return for payments by Aura and
its insurer to the plaintiff's settlement class and plaintiff's attorneys in the
amount of $2.8 million in cash (with  $800,000 to be  contributed by Aura and $2
million to be contributed by Aura's insurer,  subject to a reservation of rights
by the insurer  against the  insureds) and $1.2 million in cash or common stock,
at the Company's  option,  to be paid by Aura.  Subsequently the parties and the
insurer entered into an amended settlement agreement.  As amended the settlement
calls for the total settlement amount of $4 million to remain the same, with the
insurer  contributing $1.8 million, and the remaining $2.2 million to be paid by
Aura in cash over a period of three years,  with accrued interest at the rate of
8% per annum. The settlement was preliminarily approved by the Court on December
6, 1999, and is subject to final confirmation by the Court on March 20, 2000.


         Morganstein v. Aura.

         On April 28, 1997, a lawsuit naming Aura,  certain of its directors and
officers,  and the Company's independent accounting firm was filed in the United
States  District Court for the Central  District of  California,  Morganstein v.
Aura Systems,  Inc., et. al. (Case No. CV 97-3103),  before the Honorable Steven
Wilson. A follow-on complaint,  Ratner v. Aura Systems,  Inc., et. al. (Case No.
CV  97-3944),  was also  filed  and  later  consolidated  with  the  Morganstein
complaint.  The consolidated amended complaint purports to be a securities class
action on behalf of all persons who  purchased  common  stock of Aura during the
period from January 18, 1995 to April 25, 1997, inclusive. The complaint alleges
that as a  result  of  false  and  misleading  information  disseminated  by the
defendants,  the market price of Aura's common stock was  artificially  inflated
during the Class Period.  The complaint  contains  allegations which assert that
the company  violated  federal  securities  laws by selling Aura Common stock at
discounts  to the  prevailing  U.S.  market  price  under  Regulation  S without
informing Aura's shareholders or the public at large.

         In June, 1998, the Court entered an order staying further  discovery in
order to facilitate completion of settlement discussions between the parties. On
October 12, 1998, the parties  entered into a stipulation  for settlement of all
claims,  subject to approval by the Court.  Under the stipulation for settlement
Aura agreed to pay $4.5  million in cash or stock,  at Aura's  option,  plus 3.5
million  warrants at an exercise price of $2.25. In addition,  Aura's  insurance
carrier agreed to pay $10.5 million.  The settlement was finally approved by the
Court in October 1999 and was thereafter  amended in December 1999 to allow Aura
to defer  payment of the  settlement  amount until April 2000 in exchange for an
additional  2  million   shares  of  Aura  Common  Stock,   subject  to  certain
adjustments.

NewCom Related Litigation

         American Casualty v. Aura

         On June 22, 1999, a lawsuit  naming Aura was filed in the United States
District Court for the Central District of California, American Casualty Company
of  Reading,  Pennsylvania  ("American  Casualty")  vs.  Aura et. al.  (Case No.
CV-99-06343).  The complaint alleges that American Casualty, as surety, executed
and delivered a performance  bond on behalf of NewCom to Actrade  Capital,  Inc.
("Actrade") in 1998,  which American  Casualty  became liable to obligee Actrade
when  NewCom  defaulted  on  repayment  of the penal sum of $4,427,  093.92.  In
seeking  damages from NewCom,  American  Casualty  further alleged that Aura was
liable  because  it  executed  an  express   general   agreement  of  indemnity,
indemnifying  American  Casualty on the referenced NewCom bond and a rider which
became the subject of the  litigation.  Aura  answered the  complaint and NewCom
defaulted.  Subsequently,  in December,  1999, the parties  reached  mutually an
agreement  in  principal  to settle the matter,  Aura  agreeing to pay  American
Casualty:  (i) $1,000,000  plus interest at a rate of 8% per annum from December
1, 1999, in thirty-six  equal monthly  installments  commencing March 2000; (ii)
$1,000,000  plus  interest at a rate of 8% per annum from  December 1, 1999,  in
twenty-four equal monthly  installments  commencing  December 1, 2002; and (iii)
warrants to purchase up to 1,000,000 shares of the Company's common stock thirty
three months from November 1, 1999 at a pre-reverse  stock split  exercise price
of $2.46 per share.  The Company  expects to enter into the settlement  prior to
February 29, 2000, which is in accordance with Aura's restructure.

         NEC Technologies v. NewCom

         In 1998, a lawsuit naming NewCom,  Inc. was filed in the Superior Court
of the State of California,  Los Angeles County, NEC Technologies vs. NewCom et.
al (Case No. YC 033592). The complaint alleged that NewCom failed to pay NEC for
products purchased in the sum of approximately $3,000,000. Subsequently, NEC and
NewCom  entered into a stipulated  settlement  where Aura  guaranteed  expressly
NewCom's  performance  on the  settlement.  NewCom  thereafter  defaulted on the
settlement  and the  stipulated  judgment  was filed in April,  1999.  Following
negotiation  by Aura and NEC, in November,  1999, a settlement  was entered into
whereby NEC is to receive $2,479,142 plus interest at eight percent per annum
in thirty-six  equal monthly  installments,  which is in accordance  with Aura's
restructure.


         Deutsche Financial Services v. Aura

         In June,  1999,  a lawsuit naming Aura was  filed in the United  States
District  Court for the  Central  District  of  California,  Deutsche  Financial
Services ("DFS") vs. Aura (Case No. 99-03551 GHK (BQRx)).  The complaint follows
DFS'  termination of its credit  facility with NewCom of $11,000,000 and seizure
of substantially all of NewCom's  collateral in April,  1999. It alleges,  among
other  things,  that Aura is liable to DFS for NewCom's  indebtedness  under the
secured credit  facility  purportedly  guaranteed by Aura in 1996, well prior to
the NewCom initial public  offering of September  1997. In the  proceeding,  DFS
sought  an  order  to  attach  Aura's  assets  which  was  denied  following  an
evidentiary hearing before the Honorable Brian Quinn Robbins,  U.S.  Magistrate,
and the matter has been  ordered by the District  Court to binding  arbitration.
Aura has now responded in  arbitration,  denying  DFS'claims and has asserted in
its defense, among other things, that the guarantee,  if any, is discharged.  In
addition,  Aura through its counsel, has asserted  cross-claims for, among other
things,  tortious lender liability,  alleging that DFS wrongfully terminated the
NewCom credit facility,  wrongfully  seized the NewCom collateral and wrongfully
foreclosed upon NewCom collateral, acting in a commercially unreasonably manner.
A panel of three  arbitrators  has been  selected and  appointed by the American
Arbitration  Association  and a hearing in the arbitration has been set for May,
2000.  The  Company  believes  it has  meritorious  defenses  and  cross-claims.
However,  no  assurances  can  be  given  as to the  ultimate  outcome  of  this
proceeding.

         Excalibur v. Aura

On November 12, 1999,  a lawsuit was filed by three  investors  against Aura and
Zvi Kurtzman,  Aura's Chief  Executive  Officer,  in Los Angeles  Superior Court
entitled Excalibur Limited Partnership v. Aura Systems, Inc. (Case No. BC220054)
arising out of two NewCom, Inc. financings consummated in December 1998.

         The NewCom financings comprised (1) a $3 million investment into NewCom
in exchange for NewCom  Common  Stock,  Warrants for NewCom  Common  Stock,  and
certain  "Repricing  Rights" which entitled the investors to receive  additional
shares of NewCom Common Stock in the event the price of NewCom Common Stock fell
below a specified  level, and (2) a loan to NewCom of $1 million in exchange for
a Promissory Note and Warrants to purchase NewCom Common Stock. As part of these
financings Aura agreed with the investors to allow their  Repricing  Rights with
respect to NewCom Stock to be exercised for Aura Common Stock, at the investors'
option.  Aura also  agreed to  register  Aura  Common  Stock  relating  to these
Repricing Rights.

         The  Plaintiffs  allege  in their  complaint  that  Aura  breached  its
agreements  with the Plaintiffs by, among other things,  failing to register the
Aura Common Stock  relating to the  Repricing  Rights.  The  Plaintiffs  further
allege that Aura  misrepresented  its  intention  to register the Aura shares in
order to induce the  Plaintiffs  to loan $1.0 to  NewCom.  The  Complaint  seeks
damages of not less than $4.5 million.  In January 2000 Aura filed counterclaims
against  the  Plaintiffs,  including  claims  that  the  Plaintiffs  made  false
representations  to Aura in order to induce  Aura to agree to issue  its  Common
Stock  pursuant  to the  Repricing  Rights.  The  Company  believes  that it has
meritorious defenses and counterclaims to the Plaintiffs' allegations.  However,
no assurances can be given as to the ultimate outcome of this proceeding.

Securities and Exchange Commission Settlement.

         In October, 1996, the Securities and Exchange Commission ("Commission")
issued an order  (Securities Act Release No. 7352) instituting an administrative
proceeding against Aura Systems,  Zvi Kurtzman,  and an Aura former officer. The
proceeding  was  settled on consent of all the  parties,  without  admitting  or
denying any of the  Commission's  findings.  In its order,  the Commission found
that Aura and the others  violated the reporting,  recordkeeping  and anti-fraud
provisions  of the  securities  laws in 1993  and  1994 in  connection  with its
reporting on two  transactions in reports  previously filed with the Commission.
The Commission's  order directs that each party cease and desist from committing
or causing any future violation of these provisions.

The  Commission  did not require  Aura to restate any of the  previously  issued
financial  statements or otherwise amend any of its prior reports filed with the
Commission. Neither Mr. Kurtzman nor anyone else personally benefited in any way
from these events. Also, the Commission did not seek any monetary penalties from
Aura,  Mr.  Kurtzman or anyone  else.  For a more  complete  description  of the
Commission's Order, see the Commission's release referred to above.

Other Legal Actions

         The Company is also engaged in other legal  actions.  In the opinion of
management,  based upon the advice of counsel,  the ultimate resolution of these
matters will not have a material adverse effect.


ITEM 4.         SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

         No matter was  submitted  during the fourth  quarter of the fiscal year
covered by this report to a vote of security  holders,  through the solicitation
of proxies or otherwise.




<PAGE>



                                     PART II

ITEM 5.         MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED
                STOCKHOLDER MATTERS

         Since  1988,  Aura  Common  Stock has been  quoted on the Nasdaq  Stock
Market under the trading  symbol  "AURA".  On May 21, 1991,  Aura shares  became
listed on the Nasdaq National Stock Market.

         On July  21,  1999 the  Company's  shares  were  delisted  from  Nasdaq
National Market.  This action was taken as a result of the Company's  failure to
meet the filing,  minimum  $1.00 bid price and listing of  additional  shares as
stated in the Market Place Rules. Since that date the Company's stock has traded
on the over the counter market.

         Set forth below are high and low sales  prices for the Common  Stock of
Aura for each quarterly period in each of the two most recent fiscal years. Such
quotations  reflect  inter-dealer  prices,  without retail mark-up,  markdown or
commissions and may not necessarily  represent actual transactions in the Common
Stock. The Company had approximately  4450 stockholders of record as of February
3, 2000.

       Period                                     High                      Low


Fiscal 1998

       First Quarter ended May 31, 1997         $2.78                      $1.47
       Second Quarter ended August 31, 1997     $2.13                      $1.50
       Third Quarter ended November 30, 1997    $3.94                      $2.00
       Fourth Quarter ended February 28, 1998   $3.75                      $2.25

Fiscal 1999

       First Quarter ended May 31, 1998         $3.69                      $2.59
       Second Quarter ended August 31, 1998     $1.25                      $1.00
       Third Quarter ended November 30, 1998    $1.81                      $0.91
       Fourth Quarter ended February 28, 1999   $1.50                      $0.34

On  February  3, 2000,  the average  high and low  reported  sales price for the
Company's Common Stock was $0.27.

Dividend Policy

         The  Company  has not  paid  any  dividends  on its  Common  Stock  and
currently  intends to retain any future  earnings for use in its  business.  The
Company  does not  anticipate  paying any  dividends  on its Common Stock in the
foreseeable future but has no restrictions preventing it from paying dividends.

Changes in securities and Use of Proceeds

     In December  1998 the Company  completed a private  placement  of 3,597,300
shares of its common stock and warrants to purchase  1,798,650  shares of common
stock at an exercise price of $1.00 per share to a group of private investors.

     On December 1, 1998 (the  "Initial  Closing  Date"),  NewCom  consummated a
private placement of its Common Stock, warrants and Repricing Rights pursuant to
Regulation D of the  Securities Act of 1933 to three private  investors.  On the
Initial  Closing  Date the  Company  received  gross  proceeds  of $3 million in
exchange  for the  issuance  of  871,288  shares of its Common  Stock,  Warrants
exercisible  for five years  for up to  166,337  shares  of  Common  Stock at an
exercise price of $4.545, and 792,088 Repricing Rights.

     On  December  28,  1998,  the  same  investors  consummated  an  additional
financing  with NewCom  pursuant to certain Notes of NewCom  secured by a junior
lien on Newcom's  inventory and accounts  receivable  and issued an aggregate of
75,000  Warrants to purchase NewCom Common Stock.  The Repricing  Rights entitle
the  holder  to  purchase  that  number  of  shares  of  Common  Stock of NewCom
("Repricing Shares") determined by multiplying the number of Repricing Rights by
a fraction,  the  numerator  of which is the  Repricing  Price minus the Average
Market Price (as defined  below),  and the  denominator  of which is the Average
Market Price (defined as the two lowest closing bid prices during the 20 trading
days immediately preceding the exercise date of the Repricing Rights).

     The  "Repricing  Price" for the 792,088  Repricing  Rights  received on the
Initial  Closing Date is $4.32,  being 114% of the Initial Closing Date price of
$3.79  (computed  based  upon  the  average  closing  bid  prices  for the  five
consecutive  trading days ending on the day  immediately  preceding  the Initial
closing  Date) if the  Repricing  Rights  are  exercised  within 135 days of the
Initial  closing Date;  $4.40,  being 116% of the Initial closing Date Price, if
the  Repricing  Rights are  xercised  between the 136th and the 180th day of the
Initial  Closing Date; and an additional 2% during each 45 day period  following
180 days from the Initial closing Date.

     The Repricing  Price is increased by 7.5% if the Common Stock is listed for
trading on the Nasdaq SmallCap Market, and 15% if the Common stock is not listed
on a national stock exchange or the Nasdaq Stock Market or upon the occurance of
a "Repurchase Event" as described below.

     The investors also have the right to elect to receive shares of Aura Common
Stock upon  exercise of the  Repricing  rights in lieu of NewCom  Common  Stock,
based upon the Average Market Price of Aura Common stock at the time of exercise
of the Repricing Rights.

     In  January  Aura  commenced  legal  proceedings  against  these  investors
seeking,  among other things,  the recission of Aura's  obligations to honor the
Repricing Rights. See "Item 3, Legal Proceedings" elsewhere herein.


<PAGE>



ITEM 6.    SELECTED FINANCIAL DATA

         The following  Selected  Financial  Data has been taken or derived from
the audited consolidated  financial statements of the Company and should be read
in  conjunction  with and is qualified in its entirety by the full  consolidated
financial  statements,  related notes and other information  included  elsewhere
herein.


                                          AURA SYSTEMS, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>

                                         February 28,      February 28,    February 28,      February 29,     February 28,
                                             1999             1998              1997            1996              1995
<S>                                          <C>                <C>            <C>                  <C>             <C>

Net Revenues                                 $   81,518,162     $136,715,385   $109,950,202         $77,088,850     $42,444,213
                                              -------------      -----------    -----------          ----------      ----------
Cost of goods and overhead                      158,024,723      101,622,051      86,350,828         71,849,204     30,198,196
Research and development expenses                 2,831,847         1,395,160      6,022,586          5,225,735      2,037,464
Impairment of long-lived assets                   9,403,687               --             --                  --             --
Selling, General and administrative
     Expenses                                    74,419,812        45,018,066     18,542,840         26,399,794     12,771,151
                                             --------------        ----------     ----------         ----------     ----------
Total costs and expenses                        244,680,069       148,035,277    110,916,254        103,474,733     45,006,814
(Loss) from operations                       (163,161,907)        (11,319,892)      (966,052)       (26,385,883)    (2,429,340)
Other income and expense
     Gain on sale and issuance of
       Subsidiary stock and other assets         (1,042,665)      (12,952,757)      (250,000)               --              --
     Interest expense (income) net               12,014,690        6,827,269       1,415,934           (289,793)       220,539
     Class action litigation and
       Other settlements                          7,717,518        1,700,000              --                --              --
     Loss on disposal of assets                   1,188,329               --              --                --              --
     Termination of license
       Arrangements                                      --        3,114,030              --                --              --
     Loss on disposal of investment               4,877,839               --              --                --              --
     Equity in losses of unconsolidated
       Joint ventures                             6,268,384         1,937,747             --                --              --
     Minority    interests   in   income
       (loss)      of       Consolidated        (10,372,895)          946,405             --                --              --
       subsidiaries
     Loss in excess of basis of
       consolidated subsidiary                    8,080,695               --              --                --              --
     Excess loss of minority interest            26,561,481               --              --                --              --
     Provision (benefit) for income
       Taxes                                        570,641       (1,256,046)        570,484                --              --
     Foreign currency translation
       adjustment                                  (406,576)              --          40,642                 --             --
                                             ---------------    ------------     -----------       ------------    -----------
     Net (loss)                               $(150,148,156)     $(11,636,540)   $(2,880,111)      $(26,087,090)   $(2,649,879)
                                              ==============      ===========     ===========       ============    ===========
     Net (loss) per common share            $        (1.74)     $       (.15)   $       (.04)     $        (.48)  $       (.07)
                                             ==============      ===========     ===========       =============   ============
     Weighted average number of
       Common shares                             85,831,688       79,045,290     68,433,521          53,860,527     37,217,673
                                           ================     ============     ==========          ==========     ==========

Working capital (deficit)                        (4,869,876)      78,143,895      62,310,715        71,362,882      33,796,181
Total assets                                     90,143,392      227,302,629     182,528,399       134,080,568      73,467,003
Total liabilities and deferrals                 103,797,049      110,400,761      57,050,812        34,917,462      19,213,584
Net stockholders' equity (deficit)              (13,653,657)     116,901,868     125,477,587        99,163,106      54,253,419

</TABLE>


<PAGE>




ITEM 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AN
           RESULTS OF OPERATIONS

RESULTS OF OPERATIONS


Introduction

         During  the  Fiscal  year   February  28,  1999  the  Company   devoted
substantial  financial  and  human  resources  in  furtherance  of its  plan  to
manufacture and sell its patented,  proprietary AuraGen product. As is often the
case  with  the  introduction  of  a  capital  intensive  product  launch,  Aura
anticipated that in order to implement it's business plan, working capital would
be required in an amount that would exceed cash flow  generated from any initial
sales of the AuraGen.

         The Company  expected that its working capital needs would be met from,
among other things, the repayment by NewCom Inc. ("NewCom") of approximately $20
million of  indebtedness  which was due in September 1998 and with proceeds from
external debt and equity  financing.  NewCom was  ultimately  unable to meet its
obligations to Aura in September 1998,  creating a significant cash shortfall to
Aura.  NewCom's  operations  in the third  quarter of Fiscal 1999 were  severely
impacted by an industry-wide slump in the computer peripherals industry, causing
a buildup in inventory and  difficulty in collecting  receivables  from the mass
merchants.  NewCom's  business reached a critical juncture in the fourth quarter
of Fiscal 1999 when Deutsche Financial Services ("DFS"), which provided NewCom's
principal  working capital line,  announced that it was unwilling to continue to
advance working capital to NewCom under its credit facility.  This, coupled with
the retail mass merchants failure to pay NewCom for significant receivables past
due and owing, resulted in NewCom ceasing its day-to-day operations,  in January
1999.  These events  substantially  impacted  Aura's  results of operations  for
Fiscal 1999.



         Commencing  January 1999 Aura's  management was forced to take steps to
curtail  and  refocus its plans and  implement  measures to reduce its  overhead
until such time as additional  working  capital  could be obtained.  These steps
included  employee  layoffs,  selling the Company's MYS speaker  division to its
former  owners,   eliminating  the  display  division,   temporarily  suspending
development  activities associated with the EVA program,  leasing all the assets
of Electrotec,  selling the AuraSound subsidiary assets and the licensing of the
proprietary NRT and Line Source speaker technologies. In Fiscal 2000 the Company
reached an agreement in  principle  to sell the ceramics  assets  located in New
Hope, Minnesota to the president of the subsidiary.



         The  Company's  ability to  maintain  its  focused  AuraGen  operations
required an infusion of working capital and the restructure of Aura's  principal
indebtedness. The Company believed that the restructure of this indebtedness was
required in order to obtain working capital from other third parties. Management
therefore developed an informal restructure plan under which approximately $35.0
million  of  indebtedness   consisting  of  convertible   debt  and  other  debt
obligations would be eliminated.  By the end of the third quarter of Fiscal 2000
the Company had entered into agreements to eliminate approximately $32.2 million
of debt, and providing for the  conversion of most of such debt into equity.  In
addition, the Company has entered into an agreement to restructure approximately
$17.4 million of additional  debt  ("Infinity  note") into a $12.5  million,  36
month 8 percent note,  with interest only payments and a balloon  payment at the
end of the 36 months.



         The  Company  is also a party  to  certain  express  written  corporate
guarantees   of  NewCom   indebtedness,   including  a  guarantee   of  NewCom's
indebtedness to DFS of  approximately  $7.2 million and two other creditors with
claims for $2.4 million and $4.4  million  respectively.  The Company  reached a
settlement  agreement with American  Casualty and NEC Technologies for the above
guarantees (See Legal Item 3, Legal Proceedings,  NewCom Related Litigation). In
April 1999 DFS  commenced  legal  proceedings  against  the Company to obtain an
attachment on Aura's assets to secure Aura's  guarantee  obligations.  The court
denied the DFS  motion and the  matter has  been ordered to binding arbitration.
Aura has responded in arbitration, denying DFS  claims and has  asserted  in its
defense,  among other things,  that the  guarantee,  if any, is discharged  (See
NewCom Related Litigation).



         In the third  quarter of Fiscal  2000 the  Company  completed a private
placement of $6.9 million in the form of common stock and debt that will convert
into common stock upon the execution of the restructured Infinity note.



         Since January 1999 the Company's  limited  resources  have been devoted
almost entirely to the AuraGen product,  the restructure of debt and the raising
of new working  capital.  Although  the Company  has  experienced  delays in the
shipping  of  AuraGen  products  since  the  beginning  of 1999 as a  result  of
insufficient  working  capital,  necessary  parts started to be obtained by late
1999 and limited  shipments  of AuraGens  are now being made.  Over 33 state and
city governments across the U.S have purchased  evaluation units and some cities
have already  specified the AuraGen as a requirement for some of their vehicles.
Over 23 utilities in the U.S have also  purchased and are evaluating the AuraGen
for their  applications  and  requirements.  The Company has shipped a number of
AuraGen units to two major  telecommunication  companies and numerous  state and
federal agencies are evaluating the AuraGen for their specific applications. The
Company  continues  to support  the U.S Army in its  evaluation  of the  AuraGen
(known  to the U.S.  Army as  VIPER).  The  Company  has  continued  to  develop
different  engine mounts for the AuraGen.  As of January  2000,  the Company has
started production of mounts that will fit most of the trucks, pickups and SUV's
built in North  America by the three major OEMs.  The Company's 5KW model is now
available for more than 70 different  vehicle models and engine  configurations.
The Company  continues to work closely with General  Motors which has  displayed
the  AuraGen  on both the  Sierra  2000  professional  concept  vehicle  and the
Terradyne concept vehicle.


Fiscal 1999 as Compared to Fiscal 1998

         The  Company  continued  its  activity  in  development  of  commercial
applications of its proprietary magnetic technologies.  The Company has reported
a net loss for each of its five most  recent  fiscal  years.  The second half of
Fiscal 1999  had  significant  negative results  from  operations  which  caused
significant cash shortfall problems that affected the entire operation.

Revenues

         Net  revenues in Fiscal  1999  declined  to $81.5  million  from $136.7
million,  a decrease of 40.4%.  The  decrease was  primarily  due to the virtual
shutdown of operations of NewCom in the last quarter of the fiscal year, coupled
with the decline in sales of NewCom in the third quarter of the Fiscal year. The
decline in sales was primarily a result of price pressures in the retail channel
as well as a substantial decline in sales to one of NewCom's major customers. In
the last half of the fiscal year, as NewCom's  business  began to deteriorate in
conjunction with the overall deterioration of the computer peripherals industry,
the levels of returned  goods began to  accelerate.  In the last  quarter of the
fiscal year, when NewCom's  operations  virtually  shutdown,  returns  increased
dramatically  as retailers began to ship back product for fear that NewCom would
go out of business and would not be able to fulfill  warranty and other business
obligations. Magnification of this stemmed from its lender "DFS" and a judgement
creditor each sending  correspondence  to the retail mass merchants  asking that
they remit payments to them. A court battle produced an order describing whom to
pay,  which was sent to the  retail  customer.  The above  actions  added to the
uncertainties of NewCom's future and further deteriorated NewCom's relationships
with its customers.

Cost of Goods and Overhead

         Cost of goods and overhead  increased to $158.0  million in Fiscal 1999
from $101.6 million in Fiscal 1998.  This increase both in dollar terms and as a
percentage  of revenues is  primarily a result of the price  pressures  from the
retail mass merchants which included the substantial  rebates that were required
in order to maintain shelf space, as well as the overall business  conditions at
the Company's NewCom subsidiary as described above.

Gross Margin and Net Loss

         Gross margins for Fiscal 1999 were a negative  93.9%  compared to 25.7%
in Fiscal 1998,  primarily due to the substantial drop in gross margin at NewCom
in the third and fourth  quarters  of the Fiscal  year.  In the third and fourth
quarters of the Fiscal year,  price pressure applied by NewCom's major customers
and inventory write-downs which reflected the change in the computer peripherals
industry resulted in substantially  higher costs of product sold as a percentage
of the selling price.  Coupled with the substantial  rebates NewCom was required
to offer, the resulting gross margins were negative.

During the fourth  quarter of Fiscal  1999 the Company  experienced  severe cash
flow problems  that had a major impact on the entire  operations of the Company.
The Company began to consolidate  its operations  around the AuraGen  technology
and  product.  The  Company  terminated  all of its  joint  ventures  due to its
inability to support  them. As the Company was cutting down and scaling back its
operations  the Company  evaluated  its asset  utilization  and  concluded  that
certain assets values had been  impaired.  In addition  numerous  assets such as
machinery  and  equipment  that were no longer  needed were sold at a loss.  The
Company over the years has made  strategic  investments  in order to improve its
utilization of certain technologies. As the company eliminated operations, these
investments  no longer  retained  their economic  value.  In  addition   to  the
Company`s heavy losses in its NewCom  investment the Company was also a party to
certain explicit written  guarantees that were triggered when NewCom's  business
deteriorated.

The following table summarizes  certain fourth quarter events that contribute to
the loss in Fiscal 1999.

         Termination of Joint Ventures                              $5.6 million
         Depreciation Expense                                       $4.6 million
         Accounts Receivable reserves and write-off's              $13.0 million
         Asset Impairment                                           $9.4 million
         Interest Expense                                           $3.5 million
         Disposed Assets                                            $1.2 million
         Investment write-off's and losses                          $7.0 million
         Guarantees for NewCom                                      $9.9 million
         NewCom loss (Aura Share)                                  $45.8 million
        Total                                                     $100.0 million

Research and Development

         Research  and  development  expense for Fiscal 1999  increased  to $2.8
million  from  $1.4  million  in  Fiscal  1998 as the  Company  focused  all its
remaining resources on developing  additional engine mounts for the AuraGen, and
researching ways to expand its applications.

Selling, General & Administrative

         Selling, general and administrative expenses increased to $74.4 million
in Fiscal  1999 from $45  million in Fiscal  1998.  The  increase  is  primarily
attributable to a substantial  increase in sales and marketing  related expenses
at NewCom as the major retailers  required higher levels of sales promotions and
marketing allowances.  Further, increased amortization of product design related
costs were  necessary to account for  impairment  of these assets due to shorter
life cycles of products.

Bad Debt Expense

         Bad debt expense in Fiscal 1999  increased  to $13.3  million from $3.6
million in Fiscal 1998.

Interest Expense

         Net interest  expense for Fiscal 1999  increased to $12.0  million from
$6.8 million in the prior Fiscal year.  The increase is  attributable  to higher
levels of borrowing and a quarterly fee being charged to interest expense on the
$15 million note that was renegotiated in September of 1997.


Fiscal 1998 as Compared to Fiscal 1997

         The Company  continued  its activity in the  development  of commercial
applications  of its  proprietary  technologies  as well as sales of  commercial
products.  The Company has  reported a net loss for each of its five most recent
fiscal years.

Revenues

         Net  revenues  were $136.7  million as  compared  to $110.0  million in
Fiscal 1997, or an increase of 24.3%.  The increase in revenue was due primarily
to the increase in sales of computer products by the Company's NewCom subsidiary
along with an increase in sales in speakers from the sound group.

         Sales  of  computer  monitors  to two  unrelated  parties  declined  to
approximately $10 million in Fiscal 1998 or 6.2% of revenues, from $16.5 million
or 12.3% of revenues  in Fiscal  1997.  These sales are  expected to continue to
decline  both in dollar  terms and as a  percentage  of  revenues as the Company
continues to expand its product line and its customer base. Although the Company
does not have any long term agreement  with any  customers,  it has no reason to
believe that sales to customers will be abruptly curtailed.


Cost of Goods and Overhead

         Cost of goods and overhead  increased to $101.6  million in Fiscal 1998
from $86.4 million in Fiscal 1997.  While the dollar value increased as a result
of the  increase  in  sales,  as a  percentage  of net  revenues,  cost of goods
decreased to 74.3% from 78.5% in the prior fiscal year. As the Company continues
to bring new  products  to market  and  introduce  new  variations  of  existing
products, this percentage may fluctuate substantially in future periods.

Gross Margin and Net Loss

         Gross  margins for Fiscal 1998  increased to 25.7% from 21.5% in Fiscal
1997 partially due to the increase in gross margin for the Company's  subsidiary
NewCom to 34.8% in Fiscal 1998 from 33.6% in Fiscal 1997.


         Due to the increase of the  Company's  business and in particular as it
relates to consumer electronics, the Company in the fourth quarter increased its
reserve for potential returns of merchandise as well as product obsolescence and
potential  bad  debts.  On  a  consolidated   basis  the  reserve  increased  to
approximately  $10.5  million or 4.6% of assets as compared  to $5.8  million or
3.2% of assets in the prior year.

         The  following  table  summarizes  the above  discussion in the form of
percentages.
                                            FY 98                 FY 97

              Net Revenues                  100.0%                 100.0%
              Cost of Goods Sold             74.3%                  78.5%
              Gross Margins                  25.7%                  21.5%
              SG&A and R&D                   33.9%                  22.6%
              Loss from Operations            8.3%                   1.1%
              Net Loss                        8.5%                   2.7%

         During the fourth  quarter the Company  attended two major  tradeshows.
The CES show in January and the SAE show in  February.  Both of these had a bias
effect on expenses for the fourth quarter by approximately $0.9 million.  During
the fourth quarter the Company  experienced an incremental  increase in interest
of approximately $1.2 million due to the conversion of a $15 million convertible
note to a straight note in late 3rd quarter and additional  interest incurred on
a $10 million  financing that also occurred in late 3rd quarter.  Legal expenses
increased  above  other  periods  in the  fourth  quarter  as  legal  activities
increased in numerous areas. After a careful analysis and review of expenses the
Company consolidated and relocated its main warehouse facilities from San Diego,
California  to Kansas City,  Missouri.  The cost of  approximately  $0.8 million
associated with this  consolidation will be saved in approximately one year. Due
to  uncertainties  created by India's  detonation  of nuclear  devices  and U.S.
sanctions  against  India the Company  reserved  $3.1 million in license fee due
from K&K in India for the AuraGen. The Company also incurred losses from foreign
non-consolidated  Joint Ventures of approximately  $1.9 million.  After year-end
the Company settled one class action suit and other litigation and took a charge
of $1.7 million in Fiscal 1998.

         The  following   table   summarizes   certain   fourth  quarter  events
contributed to the loss in Fiscal 1998 as described above.
a. Seasonal expenses during the fourth quarter                      $0.9 million
b. Increment increase in 4th quarter interest expense               $1.2 million
c. Increment increase in 4th quarter legal expenses                 $0.5 million
d. Consolidate and relocate warehouse facilities in Kansas Ci       $0.8 million
e. Reserve on AuraGen License in India due to US sanctions          $3.1 million
f. Loss on foreign joint ventures                                   $1.9 million
g. Legal settlements                                                $1.7 million
      Total                                                        $10.1 million

Research & Development

         Research  and  development  costs for  Fiscal  1998  decreased  to $1.4
million from $6.0 million in Fiscal 1997. The Company continues its research and
development in the areas of displays and micromachines,  automotive applications
of magnetics and sound  systems.  As a percentage  of net revenues  research and
development  expenses  declined in Fiscal  1998 to 1.0% as compared  5.5% in the
prior year.

Selling, General & Administrative

         Selling,  general and administrative  expenses increased to $45 million
in Fiscal 1998 from $18.8 in Fiscal 1997, for an increase of $26.2 million.  The
increase is comprised principally of the following:  $8.86 million increase from
the NewCom  subsidiary;  an increase in bad debts over the prior year due to the
write-off  of $4.9 million in license  fees;  an increase in legal fees over the
prior year of  approximately  $1.0  million;  an increase in sales  promotion of
approximately  $1.5 million,  an increase of payroll and associated  benefits of
approximately $2.7 million with the addition of 40 new employees and an increase
in depreciation and amortization of approximately $1.3 million.

Bad Debt Expense

         Bad debt  expense in Fiscal 1998  increased  to $3.6  million from $0.7
million in Fiscal 1997.

Interest Expense

         Net  interest  expense for Fiscal 1998 was $6.8  million as compared to
net interest expense of approximately $1.4 million in the prior fiscal year. The
increase was due to increased lines of credit that were utilized  throughout the
year,  higher  levels  of  debt  issued  by the  Company,  premiums  paid on the
repurchase of  convertible  notes,  and a higher  interest rate on a $15 million
note.


Liquidity and Capital Resources

         As a result of the decline in the  Company's  ownership  percentage  in
NewCom to below 50%, the balance sheet, as of February 28, 1999 does not reflect
NewCom on a  consolidated  basis.  This  resulted in a  significant  decrease in
current assets and current liabilities for 1999 in comparison to 1998.

         Net working  capital  decreased by $64.5  million to $(4.8)  million at
Fiscal 1999 year end,  with the current  ratio  decreasing to .88:1 from 1.76:1.
The principal  differences  in the Company's  accounts from February 28, 1998 to
February  28, 1999 are a decrease in cash and  equivalents  of $2.3  million,  a
decrease in net  receivables  of $46 million,  a decrease in  inventories of $40
million a decrease in notes  payable of $20.4 million and a decrease in accounts
payable and accrued expenses of $17.4 million.

The Company's cash balances were $3,822,210 at February 28, 1999,  $6,079,411 at
February 28, 1998 and $7,112,354 at February 28, 1997.

         The net cash used in operating activities of $24.3 million decreased by
$5.3 million due  primarily to the increase in the loss  incurred  offset by the
decreases in accounts receivable,  inventory and accounts payable as a result of
the cessation of NewCom's business.

         The level of inventories has decreased primarily due to NewCom.

         In Fiscal  1998,  the  Company  raised  $584,850  from the  exercise of
warrants,  $900,000  from the sale of warrants  and $51,500 from the exercise of
stock  options.  The Company  also  received  proceeds of  $34,500,000  from the
issuance of convertible notes payable.

         In June 1998 the Company  completed  a  refinancing  of two  properties
owned by Aura in El  Segundo,  consisting  of its  headquarters  and an adjacent
facility.  As part of the financing the Company encumbered these properties with
a first deed of trust securing a Note in the amount of $5,450,000,  resulting in
net cash to the Company of approximately $3.0 million.

         Spending for property and  equipment  amounted to  $4,053,848 in Fiscal
1999,  $18,006,394 in Fiscal 1998 and  $22,855,000 in Fiscal 1997. Of the Fiscal
1999,   1998  and  1997  amounts,   $1,910,611,   $16,096,180   and  $16,539,899
respectively  was due to the manufacture of tooling and the remainder was due to
the  expansion of facilities  and purchases of equipment  which was necessary in
connection with research and development  activities,  services  performed under
various subcontracts and manufacturing requirements.

         The Company's cash flow generated from operating activities has to date
not been  sufficient to fund its working capital needs. In the past, the Company
has relied  upon  external  sources of  financing  to  maintain  its  liquidity,
principally  private and bank indebtedness and equity  financing.  No assurances
can be provided that these funding sources will be available in the future.  The
Company currently intends that funding required for future growth, operations or
any joint  ventures  entered into would occur through a combination  of existing
working  capital,  operating  profits,  bank credit lines,  equity and favorable
financial terms from vendors.  The inability of the Company to obtain sufficient
working capital at the times and in the amounts required  would  have a material
adverse affect on the Company's business and operations.

         Current fixed monthly expenses  corporate wide,  average  approximately
$900,000, principally for labor, overhead, travel and professional fees.

         The Company and its subsidiaries lease space located in El Segundo, New
Hope,  Minnesota,  and Kansas City,  Missouri.  Minimum  monthly rents under the
leases  approximate  $55,000.  Rent expense was  approximately  $1.8 million for
Fiscal 1999,  $1.3 million,  for Fiscal 1998,  and $1.3 million for Fiscal 1997.
Assuming no lease terminations or lease extensions,  rent expense is expected to
be  approximately  $650,000  for Fiscal  2000,  $680,000  for Fiscal  2001,  and
$570,000 for Fiscal 2002.  The Company has no other material  long-term  capital
commitments.

Debt Restructuring

         Following is a description  of the principle  components of Aura's debt
restructuring:

         Restructuring of RGC International Investors, LDC, Debt.


         Between  October 1997 and March 1998 the Company issued an aggregate of
$21.5  million of its  convertible  unsecured  debentures  to RGC  International
Investors,  LDC ("RGC").  The debentures  accrued interest at the rate of 7% per
annum,  with the entire  principle  amount due and payable between 2002 an 2003,
and were  convertible  into  common  stock  based upon a formula  related to the
market price of the Common Stock. In October 1998 the Company issued to RGC a $3
million convertible note which was secured by a lien on certain of the Company's
assets.

         In  October  1999  the  Company  entered  into an  agreement  with  RGC
International  Investors,  LDC and a third party  investor  (AuraSound's  assets
purchaser)  whereby  RGC  (i)  sold  to the  third  party  the  Company's  three
Convertible  Unsecured  Debentures  (the  "RGC  Debentures"),  in the  aggregate
principal amount of $17,365,000,  (ii) exchanged with the Company its $3 million
Secured  Convertible Note for a new  non-convertible  Secured Note (the "New RGC
Note") in the principal  amount of $3 million,  and (iii) cancelled  Warrants to
purchase  9,000,770  shares of the  Company's  Common  Stock in exchange for new
Warrants to purchase  1,000,000 shares of common stock exercisable at $0.375 per
share.  The New RGC  Note  bears  interest  at the  rate of 8% per  annum,  with
principal and interest  payable no less frequently  than quarterly.  The New RGC
Note  continues  to be  secured  by a lien on  certain  assets  of the  Company,
including inventory and accounts receivable.


         Under the agreement with the new holder of the RGC Debentures,  the RGC
Debentures are convertible into a maximum of 46,500,000  shares of the Company's
Common Stock unless Aura fails to complete the restructuring with Infinity.  The
holder of the RGC Debentures has agreed to cancel the outstanding  principal and
interest owed under the RGC Debentures upon consummation of the restructuring of
approximately  $17.4  million  of  outstanding  Debentures  held  Infinity.  See
"Restructuring of Infinity Investors debt" below.

         Retirement of JNC Debt

         In June 1997 the Company issued a $4 million convertible debenture in a
private  placement JNC Opportunity  Fund, Ltd.  ("JNC").  The debenture  accrued
interest at the rate of 7% per annum, payable quarterly,  and is due and payable
was June 1999. The Debenture was convertible into shares of the Company's Common
Stock at the then current market price at the time of  conversion.  The investor
also received 318,000 warrants exercisable at ($3.50) per share.

         In  December  1999,  the  Company  consummated  an  agreement  with JNC
Opportunity Fund, Ltd. resulting in the surrender for cancellation by JNC of the
Company's  Convertible  Debenture  and 318,000  warrants in exchange  for a cash
payment of $430,000,  3,500,000 shares of the Company's Common Stock and 113,000



         Restructuring of Infinity Investors Debt

         In March 1997 the Company issued $15 million of convertible  Debentures
to a group of accredited  investors in a private placement.  The Debentures were
convertible  into  Common  Stock  of the  Company  in  accordance  with a stated
formula. In October 1997 the Company and the investors entered into an Agreement
modifying the  Debentures to eliminate  the  conversion  feature in exchange for
increasing  the  interest  rate on the  principal  to 18% and the  payment  of a
quarterly fee of $935,000 for each quarter  during which the  Debentures  remain
outstanding. The stated maturity of the Debentures was shortened from March 2000
to September  1998.  The  Debentures,  as  modified,  are secured by a Note from
NewCom to Aura in the  original  principal  amount of $17 million and  1,250,000
shares of NewCom stock,  subject to adjustment under certain  circumstances.  As
part of the  modification,  the Company  issued  warrants  for an  aggregate  of
2,500,000  shares  of Common  Stock at an  exercise  price of $2.50  per  share,
subject to adjustment  after one year under certain  circumstances.  The Company
was unable to retire the Debentures upon their maturity in September 1998. As of
February 28, 1999 these  debentures had an outstanding  balance of approximately
$17.4 million.

         Subsequent  to  September   1998  the  Company   engaged  in  extensive
negotiations with the holders of these Debentures.  In November 1999 the Company
entered into an agreement  with these holders to exchange (the  "Exchange")  the
Debentures  for $3 million in cash,  1,111,111  shares of common stock,  100,000
Warrants  exercisable $0.375 per share, and a new Secured Note (the "New Secured
Note") in the principal  amount of $12.5  million.  The New Secured Note will be
secured by a lien on the Company's assets,  will bear interest at the rate of 8%
per annum,  interest only payable quarterly,  with the principal due three years
from the date of the  exchange.  In the event of a default under the New Secured
Note,  the holder is entitled to convert the unpaid  principal and interest into
Common  Stock of the  Company at $.60 per share.  The  Company is  entitled to a
discount if the New Secured Note is prepaid,  which discount is initially 20% of
the amount prepaid,  and the discount  declines ratably over the three year term
of the New Secured Note.  Consummation  of the Exchange is subject to completion
of a definitive agreement with the holders of the Debentures,  which is expected
to occur in February 2000.

         Restructuring of Trade debt

         In  December  1999,  the  Company   implemented  a   restructuring   of
approximately  $10.8  million  of trade  debt held by  certain  trade  creditors
whereby  the holders of a  substantial  portion of the trade debt have agreed to
the  repayment  of  outstanding  trade debt over a period of three  years,  with
interest at 8% per annum,  commencing  January 2000.  Certain trade payables are
subject to continuing negotiations with the creditors.

         Completion of Common Stock Private Placement

                  In November 1999 the Company  completed a private placement of
approximately  27  million  shares  of its  Common  Stock  at $0.27  per  share,
resulting in gross proceeds of approximately $6.9 million.

Recently Issued Accounting Pronouncements

In April 1998, the American  Institute of Certified  Public  Accountants  issued
Statement of Position No. 98-5 (SOP No.  98-5),  "Reporting on Costs of Start-up
Activities."  Adoption  of SOP No.  98-5  will  have no  material  impact on the
Company's financial statement.




<PAGE>



                                                 PART III

ITEM 10.        DIRECTORS AND OFFICERS OF THE REGISTRANT

Identification of Directors

         The following table sets forth all of the current directors,  executive
officers and key employees of Aura,  their age and the office they hold with the
Company.  Executive officers and employees serve at the discretion of the Board.
All directors hold office until the next annual meeting of  stockholders  of the
Company and until their successors have been duly elected and qualified.
<TABLE>
<CAPTION>

     NameAge                               Position with the Company

     Directors
<S>  <C>                                    <C>       <C>

     Zvi Kurtzman                           52        Chief Executive Officer, Chairman, Board of Directors
     Gerald S. Papazian                     44        President and Chief Operating Officer, Director
     Arthur J. Schwartz, Ph.D.              52        Executive Vice President, Director
     Cipora Kurtzman Lavut                  43        Senior Vice President, Corporate Communications, Director
     Neal B. Kaufman                        54        Senior Vice President, MIS, Director
     Steven C. Veen                         44        Senior Vice President and Chief Financial Officer, Director
     Harvey Cohen                           66        Director, member of Audit Committee
     Brigadier Ashok Dewan                  60        Director, member of Audit and Compensation Committees
     Salvador Diaz-Verson, Jr.              47        Director, member of Audit, and Compensation Committees
     Stephen A. Talesnick                   50        Director

     Other Executive Officers and Key Employees

     Michael Froch                          38        Senior Vice President, General Counsel and Secretary
     Keith O. Stuart                        44        Senior Vice President, Sales and Marketing
     Ronald J. Goldstein                    57        Senior Vice President, Sales and Marketing
     Jacob Mail                             49        Senior Vice President, Operations
</TABLE>

     Zvi  Kurtzman  is the CEO and  Chairman  of the Board of  Directors  of the
     Company and has served in this  capacity  since  1987.  Mr.  Kurtzman  also
     served as the Company's  President from 1987 to 1997. Mr. Kurtzman obtained
     his B.S. and M.S.  degrees in physics  from  California  State  University,
     Northridge  in  1970  and1971,   respectively,  and  completed  all  course
     requirements  for a Ph.D.  in  theoretical  physics  at the  University  of
     California,  Riverside.  He was  employed  as a senior  scientist  with the
     Science  Applications  International Corp. a scientific research company in
     San Diego, from 1984 to 1985 and with Hughes Aircraft Company, a scientific
     and aerospace company, from 1983 to 1984. Prior thereto, Mr. Kurtzman was a
     consultant  to major  defense  subcontractors  in the  areas of  computers,
     automation and engineering.

                    Arthur J.  Schwartz,  Ph.D. is the Executive  Vice President
                    and  director  of  the  Company  since  February  1987.  Dr.
                    Schwartz  obtained  his  M.S.  degree  in  physics  from the
                    University  of Chicago in 1971 and a Ph.D.  in physics  from
                    the  University  of  Pittsburgh  in 1978.  Dr.  Schwartz was
                    employed as a Technical  Director with Science  Applications
                    International  Corp., a scientific  research  company in San
                    Diego,  California  from  1983  to  1984  and  was a  senior
                    physicist  with Hughes  Aircraft  Company,  a scientific and
                    aerospace  company,  from 1980 to 1984. While at Hughes,  he
                    was responsible for advanced  studies and development  where
                    he  headed  a  research  and  development   effort  for  new
                    technologies to process  optical  signals  detected by space
                    sensors. While at Aura, he served for 3 years on a Joint Tri
                    Services  Committee  reporting  to the  U.S.  Government  on
                    certain technology issues.

Cipora Kurtzman Lavut is Senior Vice President,  Corporate  Communications,  and
has served in this capacity since  December 1991. She previously  served as Vice
President in charge of Marketing  and  Contracts  for the Company since 1988 and
was  appointed  director  of the  Company in 1989.  She  graduated  in 1984 from
California  State  University  at  Northridge  with a B.S.  degree  in  Business
Administration.

Neal B. Kaufman is Senior Vice President,  Management  Information  Systems, and
has served in this capacity  since 1988.  Mr.  Kaufman is also a director of the
Company and has served in this capacity since 1989.  Mr. Kaufman  graduated from
the University of California,  Los Angeles,  in 1967 where he obtained a B.S. in
engineering.  He  was  employed  as  a  software  project  manager  with  Abacus
Programming  Corp., a software  development firm, from 1975 to 1985. He headed a
team of software  specialists  on the Gas  Centrifuge  Nuclear  Fuel  enrichment
program  for the  United  States  Department  of Energy and  developed  software
related to the Viking and  Mariner  projects  for the  California  Institute  of
Technology Jet Propulsion Laboratory in Pasadena, California.

Gerald S. Papazian has been the Company's  President and Chief Operating Officer
since July 1997. He joined the Company in August 1988 from Bear,  Stearns & Co.,
an  investment-banking  firm,  where  he  served  from  1986 as Vice  President,
Corporate Finance.  His  responsibilities  there included valuation of companies
for potential financing,  merger or acquisition.  Prior to joining Bear Stearns,
Mr.  Papazian  was an  Associate in the New York law firm of Stroock & Stroock &
Lavan,  where he  specialized  in general  corporate and securities law with the
extensive experience in public offerings. He received a BA, Economics (magna cum
laude) from the University of Southern  California in 1977 and a JD and MBA from
the University of California, Los Angeles in 1981. He served as a trustee of the
University of Southern California from 1994 to 1999.

Steven C. Veen, a certified public accountant,  is Senior Vice President,  Chief
Financial  Officer,  and has served in this capacity since March 1994. He joined
the Company as its  Controller  in December  1992.  Before that,  he had over 12
years experience in varying capacities in the public accounting profession.  Mr.
Veen served from 1983 to December 1992 with Muller, King, Black, Mathys & Acker,
Certified  Public  Accountants.  He received a B.A. in accounting  from Michigan
State University in1981.

Harvey Cohen is a director of the Company and has served in this capacity  since
August  1993.  Mr.  Cohen is  President  of Margate  Advisory  Group,  Inc.,  an
investment advisor registered with the Securities and Exchange Commission, and a
management  consultant since August 1981. Mr. Cohen has consulted to the Company
on various  operating and growth  strategies since June 1989 and assisted in the
sale of certain of the  Company's  securities.  From  December 1979 through July
1981, he was President and Chief Operating  Officer of Silicon Systems,  Inc., a
custom integrated circuit manufacturer which made its initial public offering in
February  1981 after having raised $4 million in venture  capital in 1980.  From
1975 until 1979,  Mr. Cohen served as President and Chief  Executive  Officer of
International   Communication   Sciences,   Inc.,  a   communications   computer
manufacturing  start-up company for which he raised over $7.5 million in venture
capital.  From 1966 through  1975,  Mr. Cohen was  employed by  Scientific  Data
Systems, Inc. ("S.D.S."),  a computer  manufacturing and service company,  which
became Xerox Data Systems,  Inc.  ("X.D.S.")  after its  acquisition by Xerox in
1979. During that time, he held several senior management  positions,  including
Vice  President-Systems  Division of S.D.S.  and Senior Vice  President-Advanced
Systems  Operating of the Business  Planning Group.  Mr. Cohen received his B.S.
(Honors)  in  Electrical  Engineering  in 1955 and an MBA in 1957  from  Harvard
University.

Brigadier  Ashok  Dewan is a  director  of the  Company  and has  served in this
capacity  since  September  1997.  Mr.  Dewan is the founder and Chairman of K&K
Enterprises  of India (K&K),  since its formation in 1986. K&K is engaged in the
manufacture,  sale and distribution of consumer electronics, and has been on OEM
supplier to companies such as Philips,  ASM, JBL and Infinity Systems.  In 1995,
Aura and K&K formed a joint venture,  Dewan-Aura,  which  manufactured  and sold
Aura's  speakers  and  Bass  Shakers  in the  republic  of  Taiwan,  the  Indian
subcontinent,  Middle  East  and  Europe.  In  1989,  Mr.  Dewan  founded  Chand
International, which is engaged in the manufacture and sale of garments, and has
served as its Chairman since its formation.

     Salvador  Diaz-Verson,  Jr. is a director  of the Company and has served in
this capacity since  September 1997. Mr.  Diaz-Verson is the founder,  and since
1991 has been the Chairman and  President of  Diaz-Verson  Capital  Investments,
Inc.,  an  Investment  Adviser  registered  with  the  Securities  and  Exchange
Commission.  Mr.  Diaz-Verson  served as  president  and  member of the Board of
Directors of American Family Corporation (AFLCAC Inc.) a publicly held insurance
holding company,  from 1979 until 1991. Mr. Diaz-Verson also served as Executive
Vice President and Chief  Investment  Officer of American  Family Life Assurance
Company,  subsidiary of AFLCAC Inc. from 1976 through 1991. Mr. Diaz-Verson is a
graduate of Florida State University. He is currently a director of the board of
Miramar  Securities,  Clemente  Capital  Inc.,  Regions  Bank of Georgia and The
Philippine Strategic Investment Holding Limited.

Stephen  A.  Talesnick  is a  director  of the  Company  and has  served in this
capacity since September 1999, following  appointment by resolution of the Board
of Directors to fill a vacancy  pursuant to the Bylaws of the  corporation.  Mr.
Talesnick has owned and maintained a private law practice  since 1977,  which is
presently  located in Beverly Hills. Mr.  Talesnick  specializes in business and
financial transactions in addition to entertainment industry related matters. He
originally  practiced  as an associate in the New York law firm of White & Case.
In 1992,  Mr.  Talesnick  became a financial  advisor in the financial  services
industry and is registered  with the  Securities  and Exchange  Commission.  Mr.
Talesnick  is a graduate  of The Wharton  School Of Finance And  Commerce at The
University  Of  Pennsylvania  and received his Juris Doctor degree from Columbia
University  School  Of Law.

Michael I. Froch is Senior Vice President,  General Counsel and Secretary of the
Company  and has served as General  Counsel  since  March 1997 and as  Secretary
since July 1997.  He joined the Company in 1994 as its corporate  counsel.  From
1991 through 1994,  Mr. Froch was engaged in private law practice in California.
Mr.  Froch is admitted to the  California  and  District  of Columbia  bars.  He
received his Juris Doctor  degree from Santa Clara  University  School of Law in
1989, during which time he served as judicial extern to the Honorable Spencer M.
Williams,  United States District Judge for the Northern District of California.
He received his A.B.  degree from the  University  of  California at Berkeley in
1984,  serving from 1982 through 1983 as Staff  Assistant to the  Honorable  Tom
Lantos, Member of Congress.

Jacob Mail is Senior Vice President,  Operations, serving in this capacity since
November  1999.  Previously he has served as Vice  President of Operations  from
1995 to 1999.  Mr.  Mail served  over 20 years at Israeli  Aircraft  Industries,
starting  as a  Lead  Engineer  and  progressing  to  Program  Manager.  He  was
responsible for the development and production of hydraulic actuation,  steering
control systems,  rotor brake systems and other systems and subsystems  involved
in both commercial and military aircraft. Systems designed by Mr. Mail are being
used today all over the western  world.  In  addition,  Mr.  Mail has  extensive
experience  in  the  preparation  of  technical   specifications   planning  and
organizing production in accordance with customer specifications at full quality
assurance.

Ronald J.  Goldstein  is Senior  Vice  President,  Sales  and  Marketing  and is
responsible  for the  marketing  and sales of AuraGen for  worldwide  government
agencies,  military and OEMs and has served in various  capacities at Aura since
1989. He holds two M.S. degrees in Computing  Technology and the Management of R
& D from George Washington  University and has completed  coursework for a Ph.D.
in Nuclear  Engineering from North Carolina State University.  Mr. Goldstein has
over 25 years of experience in high  technology both in government and industry.
Since 1989 Mr.  Goldstein  has been  responsible  for all marketing and business
development activities for the Company. Prior to joining Aura, Mr. Goldstein was
Manager of Space  Initiatives  at Hughes  Aircraft  Company,  a  scientific  and
research  company,  where he was  responsible  for the  design,  production  and
marketing of a wide variety of aerospace systems and hardware.  Prior to joining
Hughes in 1982, Mr. Goldstein was the Special Assistant for National Programs in
the Office of the Secretary of Defense,  and before that held high level program
management  positions  with the  Defense  Department  and  Central  Intelligence
Agency.

Family Relationships

         Cipora  Kurtzman  Lavut, a Senior Vice  President and director,  is the
sister of Zvi Kurtzman, who is the Chief Executive Officer and a director of the
Company.  Jacob Mail,  Vice  President,  Operations  is a first cousin of Cipora
Kurtzman Lavut and Zvi Kurtzman.

Section 16(a) Beneficial Ownership Reporting Compliance

         Section  16(a) of the  Securities  and Exchange Act of 1934, as amended
(the  "Exchange  Act"),  requires  the  Company's  officers and  directors,  and
beneficial owners of more than ten percent of the Common Stock, to file with the
Securities and Exchange  Commission  and the National  Association of Securities
Dealers, Inc. reports of ownership and changes in ownership of the Common Stock.
Copies of such reports are required to be furnished to the Company. Based solely
on its review of the copies of such reports furnished to the Company, or written
representations that no reports were required,  the Company believes that during
its fiscal year ended February 28, 1999, all filing  requirements  applicable to
its officers, directors, and ten percent beneficial owners were satisfied.

Delinquent SEC Filings

None

ITEM 11.        EXECUTIVE COMPENSATION

Cash Compensation For Executives

         The following table summarizes all  compensation  paid to the Company's
Chief  Executive  Officer,  and to the four most  highly  compensated  executive
officers  of the  Company  other than the Chief  Executive  Officer  whose total
compensation exceeded $100,000 during the fiscal year ended February 28, 1999.

                                            SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
                                                     Annual                Long Term              All Other

                                                 Compensation(1)Compensation Awards             Compensation(2)
Name and
Principal Position                     Year          Salary             Options/SARs
<S>                                         <C>           <C>                  <C>                           <C>

  Zvi (Harry) Kurtzman (1)                  1999          $384,290             1,000,000                     $1,966
  Chief Executive Officer                   1998           245,018                 0
                                            1997           212,549                 0

  Arthur J. Schwartz (1)                    1999          $204,895              500,000                      $1,872
  Executive                                 1998           172,115                 0
  Vice President                            1997           163,971                 0

  Gerald Papazian (1)                       1999          $203,025              100,000                      $1,846
  President and Chief Operating             1998           154,737                 0
  Officer                                   1997           143,122                 0

  Steven Veen(1)                            1999          $196,412              100,000                      $1,811
  Senior Vice President and                 1998           150,127                 0
  Chief Financial Officer                   1997           151,817                 0

  Yoshikazu Masayoshi                       1999          $290,500                 0                          $   0
  President, MYS Corporation                1998           273,242                 0
                                            1997           270,000                 0
</TABLE>

 (1) The  amounts  shown are the  amounts  actually  paid to the named  officers
during the respective fiscal years. Because of the timing of the payments, these
amounts do not represent the actual salary accrued by each individual during the
period.  The actual salary rate for these  individuals  which was accrued during
the fiscal  year  ended  February  1999,  1998 and 1997,  respectively,  were as
follows:  Zvi  Kurtzman - $385,000,  $200,000,  $200,000;  Arthur J.  Schwartz,-
$205,000, $160,000, $160,000; Gerald S. Papazian - $210,000, $140,000, $140,000,
Steven C. Veen - $200,000, $150,000, $150,000.

(2) Such compensation  consisted of total Company contributions made to the plan
account of each individual  pursuant to the Company's  Employees Stock Ownership
Plan during the fiscal year ended February 28, 1999.

         No cash  bonuses or  restricted  stock awards were granted to the above
individuals  during the fiscal years ended February 28, 1999,  February 28, 1998
and February 28, 1997.  Effective December 1992, the Company elected to begin to
compensate  non-officer  directors  at the rate of $5,000  per  year.  Effective
September  1997, each  non-employee  director is entitled to receive $30,000 per
year for serving as a director, and $5,000 per year for each director who serves
on the audit committee.

         The following table summarizes certain information regarding the number
and value of all options to  purchase  Common  Stock of the Company  held by the
Chief Executive Officer and those other executive  officers named in the Summary
Compensation Table.
<TABLE>
<CAPTION>

                                AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
                                       AND FISCAL YEAR-END OPTION/SAR VALUES

                              Number of Unexercised                             Value of Unexercised
                              Options/SARs at Fiscal                            In-the-Money Options/
Name                                       Year End                             SARs at Fiscal Year End*

                                  Exercisable         Unexercisable         Exercisable          Unexercisable
<S>                                   <C>                 <C>                 <C>                      <C>

Zvi Kurtzman                          870,000             600,000             $         0              $      0
Arthur Schwartz                       515,000             300,000             $         0              $      0
Gerald Papazian                       166,000              60,000             $         0              $      0
Steven Veen                           215,000             210,000             $         0              $      0
Yoshikazu Masayoshi                         0                0                $         0              $      0
</TABLE>

*Based on the average high and low reported prices of the Company's Common Stock
on the last day of the fiscal year ended February 28, 1999.

No options were exercised by the above individuals  during the fiscal year ended
February 28, 1999.

         Compensation Committee Report

         The  Company  maintains a  Compensation  Committee  (the  "Committee"),
consisting entirely of outside,  disinterested,  directors who are not employees
or former employees of the Company.  The Committee  recommends  salary practices
for  executive  officers of the Company,  with all  compensation  determinations
ultimately made by a majority of the outside, disinterested, directors. Prior to
Fiscal 1998, compensation of executive officers,  other than the Chief Executive
Officer,  was  determined  by the  Chief  Executive  Officer  after  review  and
consultation with the Committee.

         Compensation Philosophy

         The Company's policy in compensating executive officers is to establish
methods  and levels of  compensation  that will  provide  strong  incentives  to
promote  the  profitability  and  growth  of the  Company  and  reward  superior
performance.  Compensation  of  executive  officers  includes  salary as well as
stock-based programs.  The Board believes that compensation of the Company's key
executives should be sufficient to attract and retain highly qualified personnel
and also provide meaningful incentives for measurably superior performance.  The
Company places special  emphasis on equity-based  compensation,  particularly in
the form of options.  This  approach  also serves to match the  interests of the
executive  officers with the interest of the stockholders.  The Company seeks to
reward  achievement of long and short-term  performance goals which are measured
by a  number  of  factors,  including  improvements  in  revenue  and  achieving
profitability.

         Included  in the factors  considered  by the  Committee  in setting the
compensation  of the  Company's  Chief  Executive  Officer are the growth in the
Company's  commercial sales, the development of commercial  applications for the
Company's technology, and the effective allocation of capital resources.

         Employment Contracts

         The Company offers employment  contracts to key executives only when it
is in the best  interest  of the  Company  and its  stockholders  to attract and
retain such key executives and to ensure continuity and stability of management.
Effective as of March 1998,  the Company  entered into  employment and severance
agreements with Mr. Kurtzman, the Company's Chief Executive Officer, and Messrs.
Schwartz and Kaufman and Ms. Kurtzman Lavut (the "Named Executive Officers") and
other key  executives of the Company.  The Committee  reviewed and approved such
agreements  unanimously after consulting with a nationally  recognized  employee
benefits firm and  determining  that such  agreements were necessary in order to
retain highly qualified executives whose abilities are critical to the long-term
success and competitiveness of the Company.

         Compensation of Chief Executive Officer and Other Executives

         The Compensation  Committee  increased Mr.  Kurtzman's  salary in March
1998 to  $385,000,  effective  as of  December  1997,  after  consulting  with a
nationally  recognized  employee  benefits  firm.  The  increase  reflected  the
Compensation  Committee's  assessment  of his  performance  and  Mr.  Kurtzman's
service to the Company.  Salary increases for other senior  executives  effected
during  1998  were  based  on  similar   considerations   including   individual
performance, position, tenure, experience and compensation surveys of comparable
companies.

         In March 1998, the Committee  reviewed and  unanimously  approved stock
option  awards under the  Company's  stock option plan after  consulting  with a
nationally recognized employee benefits firm. The Committee granted Mr. Kurtzman
an option to purchase  1,000,000 shares of Common Stock, which vest 20% per year
over five years.  The options are  exercisable at $3.31 per share which was 105%
of the market price of the Company's  Common Stock on the date of grant.  Senior
executives  in the  Company  participate  in  the  stock  option  plan  and  the
Compensation  Committee granted such executives options to purchase Common Stock
during Fiscal 1998. In determining the number of shares to award to Mr. Kurtzman
and other executives,  the Compensation  Committee  considered  several factors,
including  primarily Mr. Kurtzman's and other  executives'  actual and potential
contributions  to the  Company's  long  term  success,  and the  size of  awards
provided to other executives in comparable companies holding similar positions.

                    In  July  1997  the   Compensation   Committee   unanimously
                    recommended  the re-pricing of stock options  granted to key
                    employees,  including Mr.  Kurtzman and the Named  Executive
                    Officers. The Compensation Committee's re-pricing of options
                    for key  employees  was made to those  persons who have made
                    significant contributions to the Company's business, for the
                    purpose of  maintaining  corporate  morale and  creating  an
                    incentive for continued employment. See "Option Re-pricing"

         Effective in Fiscal 1999 Mr. Kurtzman and the Named Executive  Officers
are,  pursuant to their  employment  agreements with the Company,  entitled to a
discretionary  annual bonus as  determined by the  Compensation  Committee and a
majority of the outside, disinterested,  directors of the Board of Directors. In
determining the amounts of such bonuses,  the Compensation  Committee  considers
the individual performance of each executive and the performance of the Company.
Based  upon  the  Company's   financial   performance  during  Fiscal  1999  the
Compensation  Committee  determined not to award bonuses to Mr.  Kurtzman or the
Named Executive Officers.

         Section 162(m) Policy

         Section  162(m)  of the  Internal  Revenue  Code of 1986,  as  amended,
generally provides that publicly held companies may not deduct compensation paid
to certain of its top executive officers to the extent such compensation exceeds
$1 million per officer in any year.  However,  pursuant to regulations issued by
the Treasury Department, certain limited exemptions to Section 162(m) apply with
respect to "qualified  performance-based  compensation" and to compensation paid
in certain  circumstances  by companies in the first few years  following  their
initial  public  offering of stock.  The Company has taken steps to provide that
these exemptions will apply to compensation paid to its executive officers,  and
the Company will continue to monitor the  applicability of Section 162(m) to its
ongoing compensation arrangements. Accordingly, the Company does not expect that
amounts  of  compensation  paid  to  its  executive  officers  will  fail  to be
deductible by reason of Section 162(m).

                                Committee Members

                              Brigadier Ashok Dewan
                            Salvator Diaz-Verson, Jr.

Compensation Committee Interlocks and Insider Participation

         The  Compensation  Committee is comprised of Brigadier  Ashok Dewan and
Salvador Diaz-Verson, Jr. Decisions regarding compensation of executive officers
for the  fiscal  year  ended  February  28,  1999 were made  unanimously  by the
outside,  disinterested,  directors of the Board of Directors,  after  reviewing
recommendations of the Compensation Committee. Decisions regarding option grants
under the 1989 Option Plan for the fiscal year ended February 28, 1999 were made
unanimously by the outside, disinterested,  directors of the Board of Directors,
after reviewing recommendations of the Compensation Committee.



<PAGE>



ITEM 12.      SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT


         The  following  table  sets forth  certain  information  regarding  the
Company's  Common  Stock  owned as of January 24, 2000 (i) by each person who is
known by Aura to be the  beneficial  owner of more than five percent (5%) of its
outstanding  Common Stock, (ii) by each of the Company's  directors and nominees
and those executive officers named in the Summary  Compensation Table, and (iii)
by all directors and executive officers as a group:
<TABLE>
<CAPTION>

                                                        Shares of                        Percent of
                                                      Common Stock                      Common Stock
Name                                               Beneficially Owned                Beneficially Owned
<S>                                                    <C>                                        <C>

Gardner Lewis Asset Management                         20,517,936                                 11.58%
Zvi (Harry) Kurtzman                                    2,444,468  (1)(2)                           1.2%
Arthur J. Schwartz                                      1,928,487  (1)(3)(4)                        1.1%
Cipora Kurtzman Lavut                                   1,655,468  (5)                                 *
Neal B. Kaufman                                         1,732,657  (1)(7)                              *
Harvey Cohen                                              306,250  (6)                                 *
Yoshikazu Masayoshi                                       283,455  (8)                                 *
Ashok Dewan                                                     0                                      *
Salvador Diaz-Verson, Jr.                                  44,000                                      *
Stephen A. Talesnick                                    2,437,596  (9)                              1.4%
Gerald S. Papazian                                        314,992  (10)                                *
Steven C. Veen                                            378,585  (11)                                *
Michael I. Froch                                          217,997  (12)                                *
Keith O. Stuart                                           322,366  (13)                                *
Ronald Goldstein                                          180,188  (14)                                *
Jacob Mail                                                214,763  (15)                                *

All executive officers and directors                   12,461,272                                   7.0%
as a group (15 persons)
</TABLE>
--------------------
*        Less than 1% of outstanding shares.

(1)      Includes 175,000 shares held of record by Advanced Integrated Systems,
Inc.

(2)  Includes  870,000  shares  which may be  purchased  pursuant to options and
convertible securities exercisable within 60 days of January 24, 2000.

(3)  Includes  515,000  shares  which may be  purchased  pursuant to options and
convertible securities exercisable within 60 days of January 24, 2000.

(4) Includes  32,000 shares held by Dr.  Schwartz as custodian for his children,
to which Dr. Schwartz disclaims any beneficial ownership.

(5)      Includes 515,000 shares which may be purchased  pursuant to options
exercisable within 60 days of January 24, 2000.

(6) Includes 31,250 shares  beneficially  owned, and 265,000 shares which may be
purchased  pursuant  to  options  within 60 days of  January  24,  2000 of which
100,000 are beneficially owned.

(7)  Includes  470,000  shares  which may be  purchased  pursuant to options and
convertible securities exercisable within 60 days of January 24, 2000.

(8)      Includes 283,455 shares which were received as part of the MYS
acquisition purchase consideration.

(9)  Includes  196,364  shares  which  may be  purchased  pursuant  to  warrants
exercisable  within 60 days of January 24, 2000. Mr.  Talesnick joined the Board
of Directors in September 1999.

(10)     Includes 166,000 shares which may be purchased  pursuant to options
exercisable within 60 days of January 24, 2000.

(11)  Includes  215,000  shares which may be  purchased  pursuant to options and
warrants exercisable within 60 days of January 24, 2000.

(12)     Includes 130,000 shares which may be purchased  pursuant to options
exercisable within 60 days of January 24, 2000.

(13)  Includes  300,000  shares  which  may be  purchased  pursuant  to  options
exercisable  within 60 days of January 24,  2000.  In Fiscal 2000 these  options
were divided equally pursuant to a court order as part of a marital  dissolution
proceeding.

(14)     Includes 140,000 shares which may be purchased  pursuant to options
exercisable within 60 days of January 24, 2000.

(15)     Includes 150,000 shares which may be purchased  pursuant to options
exercisable within 60 days of January 24, 2000.

         The mailing address for each of these  individuals is c/o Aura Systems,
Inc., 2335 Alaska Avenue, El Segundo, CA 90245.




a)       ITEM 13.        CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         None.



<PAGE>



                                     PART IV


ITEM 14.     FINANCIAL STATEMENTS, SCHEDULES, REPORTS ON FORM 8-K AND EXHIBITS

       (a) Documents filed as part of this Form 10-K:

              (1)    Financial Statements

       See Index to Consolidated Financial Statements at page F-1

              (2)    Financial Statement Schedules

       See Index to Consolidated Financial Statements at page F-1

              (3)    Exhibits

       See Exhibit Index

       (b)    Reports on Form 8-K

       No reports on Form 8-K were filed in the quarter ended February 28, 1999.




<PAGE>



                                INDEX TO EXHIBITS

                            Description of Documents

        3.1(1)    Certificate of Incorporation of Registrant.
        3.2(1)    Bylaws of Registrant.
       10.1(1)    Aura Systems, Inc. 1987 Stock Option Plan for Non-Employee
                  Directors.
       10.2(1)    Form of Aura Systems, Inc. Non-Statutory Stock Option
                  Agreement.
       10.3(1)    Deed of Trust and  Assignment  of Rents,  dated as of February
                  27,  1989,  by  the  Registrant  in  favor  of  Chicago  Title
                  Insurance  Company,  as  Trustee,  for  the  benefit  of  City
                  National Bank.
       10.4(2)    Indenture,  dated as of March 1, 1989,  between the Registrant
                  and Interwest  Transfer Co., Inc. as Trustee,  relating to the
                  7% Secured Convertible Non-Recourse Notes due 1999.
       10.5(2)    Form of 7% Secured Convertible Non-Recourse Notes due 1999.
       10.6(2)    Deed of  Trust,  Assignment  of Leases  and Rents and  Fixture
                  Filing,  dated as of March 1, 1989, by the Registrant in favor
                  of Ticor Title Insurance Company, as Trustee,  for the benefit
                  of  Interwest   Transfer  Co.,  Inc.,  as  trustee  under  the
                  Indenture.
       10.7(3)    Form of 7% Secured Convertible Non-Recourse Note due 2000.
       10.8(4)    1989 Stock Option Plan.
       10.9(5)    Joint  Development  and License  Agreement,  dated  August 24,
                  1992, between the Registrant and Daewoo Electronics Co., Ltd.
       10.10(6)   Agreement, dated September 23, 1993, between the Registrant
                  and Burlington Technopole SDN. BHD.
       10.11(7)   Dedicated  Supplier  Agreement,  dated  December  2,  1993,
                  between  the  Registrant  and Daewoo Electronics Co., Ltd.
       10.12(8)   Form of 7% Secured Convertible Non-Recourse Note due 2002.
       10.13(9)   Agreement dated July 19, 1995 between the Company and K&K
                  Enterprises.
       10.14(9)   Agreement dated July 19, 1995 between the Company and K&K
                  Enterprises.
       10.15(9)   Agreement dated July 12, 1995 between the Company and K&K
                  Enterprises.
       10.16(9)   Agreement dated July 12, 1995 between the Company and K&K
                  Enterprises.
       10.17(9)   Stock Purchase and Sale Agreement dated April 30, 1996 between
                  the Company and MYS Corporation
       10.18(9)   Joint Venture Agreement dated July 26, 1995 between the
                  Company and Microbell
       10.19      AuraSound Asset Purchase
       10.19.1    Asset  Purchase   Agreement   dated  December  1,  1999  among
                  AuraSound, Inc., Aura Systems, Inc., AlgoSound, Inc., and Algo
                  Technology, Inc.
       10.19.2    Amendment dated December 22, 1999 to Asset Purchase Agreement
                  dated December 1, 1999.
       10.19.3    Assignment  and License  Agreement  as of July 15, 1999
                  between Speaker Acquisition  Sub,  Algo Technology, Inc., Aura
                  Systems, Inc., AuraSound Inc.
       10.20      MYS Stock Purchase
       10.20.1    Escrow  Agreement  as of March 26,  1999  among  the  Company,
                  Inc.,Yoshikazu Masayoshi,  Sadao Masayoshi,  Sachie Masayoshi,
                  Kazuaki  Masayoshi,  and Wolf Haldenstein Adler Freeman & Herz
                  LLP.
       10.20.2    Promissory  Note in the amount of  $1,000,000  dated March 26,
                  1999  payable to the  Company by  Yoshikazu  Masayoshi,  Sadao
                  Masayoshi, Sachie Masayoshi and Kazuaki Masayoshi.
       10.20.3    Promissory  Note in the amount of  $3,200,000  dated March 26,
                  1999  payable to the  Company by  Yoshikazu  Masayoshi,  Sadao
                  Masayoshi, Sachie Masayoshi and Kazuaki Masayoshi.
       10.20.4    Stock  Purchase  Agreement  dated March 26,  1999  between the
                  Company  and  Yoshikazu  Masayoshi,  Sadao  Masayoshi,  Sachie
                  Masayoshi and Kazuaki Masayoshi.
       10.21      Agreement with RGC International Investors, LDC
       10.21.1    First  Amendment to Security  Agreement dated October 22, 1999
                  between RGC International Investors, LDC and the Company.
       10.21.2    Settlement  Agreement and Complete Release of all Claims dated
                  October 22, 1999 between RGC International Investors, LDC, and
                  the Company
       10.21.3    Stock Purchase Warrant issued to RGC International Investors,
                  LDC by the Company.  10.21.4 Amended and Restated  Convertible
                  Senior Secured Note dated October 7, 1998 in the amount of
                  $3,000,000 issued to RGC International Investors, LDC by the
                  Company.
       10.22      Settlement Agreement and Release of Claims dated as of
                  December 1, 1999 between JNC  Opportunity Fund, Ltd., and the
                  Company.
       10.23      Payment  Agreement by and between  Credit  Managers
                  Association  of California and Aura Systems, Inc.
       21.1       Aura Systems, Inc. and Subsidiaries

       EX-27      Data Schedule

(1)      Incorporated by reference to the Exhibits to the Registration Statement
         on Form S-1 (File No. 33-19530).
(2)      Incorporated by reference to the Exhibits in the  Registrant's  Current
         Report on Form 8-K dated March 24, 1989 (File No. 0-17249).
(3)      Incorporated  by  reference  to the  Exhibits  to  Post-Effective
         Amendment  No.  2 to  the  Registration Statement on Form S-1 (File No.
         33-27164).
(4)      Incorporated by reference to the Exhibits to the Registration Statement
         on Form S-8 (File No. 33-32993).
(5)      Incorporated by Reference to the Exhibit to the Registration Statement
         on Form S-1 (File No. 35-57 454).
(6)      Incorporated by reference to the Registrants Current Report in Form
         10-Q dated November 30, 1993.
(7)      Incorporated by reference to the Exhibits to the Registration Statement
         on Form S-1 (File No.-33-57454).
(8)      Incorporated by reference to the Exhibits to the  registrants  Annual
         Report Form 10-K for the fiscal year
         ended February 28, 1994 (File No. 0-17249).
(9)      Incorporated  by reference to the  Registrants  Annual Report Form 10-K
         for the fiscal year ended February 29, 1996 (File No. 0-17249)



<PAGE>



         Pursuant to the  requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

                                                   AURA SYSTEMS, INC.

Dated:   February 7, 2000
                                                   By:      /s/   Zvi Kurtzman
                                                              Zvi Kurtzman
                                                       Chief Executive Officer

         Pursuant to the  requirements  of the Securities  Exchange Act of 1934,
this  report has been  signed  below by the  following  persons on behalf of the
registrant in the capacities and on the date indicated.
<TABLE>
<CAPTION>

Signatures                   Title                       Date
<S>                                      <C>                                                   <C>


/s/Zvi Kurtzman                          Chief Executive Officer and Director                  February 7, 2000
---------------------------------
Zvi Kurtzman                             (Principal Executive Officer)

/s/Steven C. Veen                        Senior Vice President,                                February 7, 2000
---------------------------------
Steven C. Veen                           Chief Financial Officer
                                         (Principal Financial and Accounting
                                          Officer)

/s/Gerald S. Papazian                    President and Director                                February 7, 2000
---------------------------------
Gerald Papazian

/s/Arthur J. Schwartz                    Executive Vice President and Director                 February 7, 2000
---------------------------------
Arthur J. Schwartz

/s/Neal Kaufman                          Senior Vice President and Director                    February 7, 2000
---------------------------------
Neal B. Kaufman

/s/Cipora Kurtzman Lavut                 Senior Vice President and Director                    February 7, 2000
---------------------------------
Cipora Kurtzman Lavut

                                         Director                                              February 7, 2000
---------------------------------
Ashok Dewan

/s/Salvador Diaz-Verson, Jr.             Director                                              February 7, 2000
---------------------------------
Salvador Diaz-Verson, Jr.

                                         Director                                              February 7, 2000
---------------------------------
Stephen A. Talesnick

/s/Harvey Cohen                          Director                                              February 7, 2000
---------------------------------
Harvey Cohen

</TABLE>




                               AURA SYSTEMS, INC.
                                AND SUBSIDIARIES


                   Index to Consolidated Financial Statements

<TABLE>
<CAPTION>
<S>                                                                                                          <C>

    Independent Auditors' Report on Consolidated Financial Statements and
           Financial Statement Schedule                                                                          F-2
    Consolidated Financial Statements of Aura Systems, Inc. and Subsidiaries:
    Consolidated Balance Sheets-February 28, 1999 and February 28, 1998                                       F-3 to F-4
    Consolidated Statements of Operations and Comprehensive Income (Loss) -
            Years ended  February 28,  1999,  February 28, 1998 and February 28,
    1997 F-5 Consolidated Statements of Stockholders' Equity (Deficit)-Years ended
           February  28,  1999,  February  28,  1998 and  February  28, 1997 F-6
    Consolidated Statements of Cash Flows-Years ended February 28, 1999,
           February 28, 1998 and February 28, 1997                                                            F-7 to F-8

   Notes to Consolidated Financial Statements                                                                 F-9 to F-25

   Consolidated Financial Statement Schedule:
      II      Valuation and Qualifying Accounts                                                                  F-26

   Schedules  other than those  listed  above are omitted  because  they are not
   required or are not applicable,  or the required  information is shown in the
   respective consolidated financial statements or notes thereto.
</TABLE>




<PAGE>












                          INDEPENDENT AUDITORS' REPORT


To the Board of Directors and Stockholders of
   Aura Systems, Inc.
El Segundo, California


We have  audited the  consolidated  balance  sheets of Aura  Systems,  Inc.  and
subsidiaries  as of February  28,  1999,  and  February 28, 1998 and the related
consolidated  statements of operations  and  comprehensive  loss,  stockholders'
equity (deficit), and cash flows for each of the three years in the period ended
February 28, 1999 and the related  financial  statement  schedule  listed in the
accompanying  Index at Item 14. These  consolidated  financial  statements,  and
financial statement schedule are the responsibility of the Company's management.
Our  responsibility  is to express an  opinion on these  consolidated  financial
statements and financial statement schedule based on our audits.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material respects,  the financial position of Aura Systems,  Inc.
and  subsidiaries as of February 28, 1999, and February 28, 1998 and the results
of their  operations  and their  cash  flows for each of the three  years in the
period ended February 28, 1999, and the financial  statement  schedule  presents
fairly,  in all material  respects,  the information  set forth therein,  all in
conformity with generally accepted accounting principles.

The accompanying  financial statements have been prepared assuming Aura Systems,
Inc.  will  continue  as a  going  concern.  As  discussed  in  note  1  to  the
consolidated financial statements,  the Company has generated significant losses
from  operations,  all major debt obligations were in default as of year-end and
the  Company  is  currently  in the  process  of  restructuring  all major  debt
obligations. If the Company continues to suffer recurring losses from operations
and continues to have a net capital  deficiency, there may be  substantial doubt
about its ability to continue as a going concern.  Management's  plans in regard
to these matters are described in Note 1.

/s/ Pannell Kerr Forster
Certified Public Accountants
A Professional Corporation

Los Angeles, California  90017
February 4, 2000





<PAGE>



                                                AURA SYSTEMS, INC.
                                                 AND SUBSIDIARIES

                                            Consolidated Balance Sheets

                                              February 28,          February 28,
                                                1999                  1998
ASSETS
CURRENT ASSETS:
   Cash and equivalents                    $    3,822,210        $    6,079,411
   Receivables, net                             8,380,414            54,418,141
   Inventories                                 18,477,058            58,713,875
   Prepayments                                  3,435,645            13,326,789
   Other current assets                         2,124,535             5,925,642
   Deferred income taxes                               --               838,000
   Note receivable                                250,000                    --
                                            -------------         -------------

         Total current assets                  36,489,862           139,301,858
                                            -------------         -------------

PROPERTY AND EQUIPMENT, AT COST                47,976,699            66,667,671
   Less accumulated depreciation and
   amortization                               (10,994,734)          (11,888,586)
                                        -----------------        --------------
         Net property and equipment            36,981,965            54,779,085

JOINT VENTURES                                         --             6,903,918
LONG-TERM Investments                           2,923,835             7,476,299
long-term receivables                           2,500,000             3,627,098
Patents and trademarks-Net                      5,293,278             6,410,771
GOODWILL-NET                                    5,383,208             6,146,642
OTHER ASSETS                                      571,244             2,656,958
                                            -------------         -------------
         Total                               $ 90,143,392        $  227,302,629
                                           ==============         =============



          See accompanying notes to consolidated financial statements.


<PAGE>




                               AURA SYSTEMS, INC.
                                AND SUBSIDIARIES

                           Consolidated Balance Sheets

                                              February 28,          February 28,
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)    1999                  1998
                                              -----------           -------
CURRENT LIABILITIES:
   Notes payable                           $    8,787,113         $  31,147,572
   Convertible note, unsecured                  2,000,000                    --
   Accounts payable                            22,515,842            43,995,364
   Accrued expenses                             8,056,783             3,990,027
                                            -------------         -------------
         Total current liabilities             41,359,738            79,132,963
                                            -------------         -------------
                                               25,955,529             3,282,003
                                            -------------         -------------
NOTES PAYABLE AND OTHER LIABILITIES

convertible Notes-SECURED                       4,000,000             2,112,900
                                            -------------         -------------
CONVERTIBLE NOTES-UNSECURED                    32,481,782            15,500,000
                                            -------------         -------------
MINORITY INTERESTS IN SUBSIDIARY                       --            10,372,895
                                            -------------         -------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY (DEFICIT):
   Common stock par value $.005 per share
   and additional paid in capital. Issued
   and outstanding 107,752,042 and
   80,001,244 shares respectively.            218,693,245           199,100,614

   Cumulative currency translation
   adjustment (CTA)                              (365,932)               40,642
   Accumulated deficit                       (231,980,970)          (82,239,388)
                                           --------------        --------------

    Total stockholders' equity (deficit)      (13,653,657)          116,901,868
                                           --------------          -----------
         Total                             $   90,143,392         $227,302,629
                                            =============          ===========





          See accompanying notes to consolidated financial statements.



<PAGE>



<TABLE>
<CAPTION>
                                                AURA SYSTEMS, INC.
                                                 AND SUBSIDIARIES
                               Consolidated  Statements of Operations and  Comprehensive
                                     Loss Years ended February 28, 1999,  February 28,
                                                1998 and February 28, 1997
                                                              1999                  1998                  1997
                                                           -------------         -------------         -------
<S>                                                          <C>                  <C>                   <C>
Net Revenues                                                 $81,518,162          $136,715,385          $109,950,202
Cost of GOODS AND OVERHEAD                                   158,024,723           101,622,051            86,350,828
                                                           -------------         -------------         -------------

GROSS PROFIT (LOSS)                                          (76,506,561)           35,093,334            23,599,374
                                                           --------------        -------------         -------------

EXPENSES:
   Research and development                                    2,831,847             1,395,160             6,022,586
   Impairment of long-lived assets                             9,403,687                    --                    --
   Selling, general and administrative expenses               74,419,812            45,018,066            18,761,123
                                                           -------------         -------------         -------------
         Total expenses                                       86,655,346            46,413,226            24,783,709
                                                           -------------         -------------         -------------

(LOSS) FROM OPERATIONS                                      (163,161,907)          (11,319,892)           (1,184,335)

OTHER (INCOME) AND EXPENSE

   Gain on sale and issuance of subsidiary  stock and
   other assets                                               (1,042,665)          (12,952,757)             (250,000)
   Legal settlements                                           7,717,518             1,700,000                    --
   Equity in losses of unconsolidated joint ventures           6,268,384             1,937,747                    --
   Loss on disposal of assets                                  1,188,329                    --                    --
   Loss on disposal of investment                              4,877,839                    --                    --
   Termination of license arrangement                                 --             3,114,030                    --
   Interest income                                              (184,168)             (224,385)             (475,758)
   Interest expense                                           12,198,858             7,051,654             1,891,692
                                                           -------------         -------------         -------------

(LOSS) BEFORE INCOME TAXES AND OTHER ITEMS
                                                            (194,186,002)          (11,946,181)           (2,350,269)
   Provision (benefit) for taxes                                 570,651            (1,256,046)              570,484
   Minority interests in consolidated subsidiary:
     Income                                                           --               946,405                    --
     Loss                                                     10,372,895                    --                    --
   Loss in excess of basis of consolidated subsidiary

     Aura                                                      8,080,695                    --                    --
     Minority interests                                       26,561,481                    --                    --
                                                          --------------         -------------         -------------

NET (LOSS)                                                  (149,741,582)          (11,636,540)           (2,920,753)
                                                          --------------=       --------------=        -------------=

Other comprehensive income (loss), net of taxes:
   Foreign currency translation adjustments                     (406,574)                   --                40,642
                                                          ---------------       --------------         -------------
Comprehensive loss                                        $ (150,148,156)       $  (11,636,540)        $  (2,880,111)
                                                          ===============        ==============         =============

NET (LOSS) PER COMMON SHARE                               $        (1.74)       $         (.15)        $        (.04)
                                                          ===============        ==============         =============

WEIGHTED AVERAGE NUMBER OF
   COMMON SHARES                                              85,831,688            79,045,290            68,433,521
                                                           =============         =============         =============
</TABLE>
          See accompanying notes to consolidated financial statements.



<PAGE>



                                                AURA SYSTEMS, INC.
                                                 AND SUBSIDIARIES

                 Consolidated Statements of Stockholders' Equity (Deficit)

     Years ended February 28, 1999, February 28, 1998 and February 28, 1997
<TABLE>
<CAPTION>

                                                                                          Accumulated
                                                         Additional                          other
                                         Common Stock            Paid-in         Accumulated     Comprehensive
                                       Shares      Amount        Capital           Deficit      (CTA) Income (Loss)   Total
<S>                                     <C>         <C>           <C>              <C>              <C>         <C>

Balances at February 29, 1996           62,222,438  $311,112      $166,534,089     $(67,682,095)    $      --   $99,163,106


Private placements, net of
 issuance cost                             385,000     1,925         1,499,575               --            --     1,501,500
Notes payable converted                 12,815,368    64,077        24,679,389               --            --    24,743,466
Exercise of warrants                       300,000     1,500           598,500               --            --       600,000
Exercise of stock options                   10,000        50            34,950               --            --        35,000
Stock issued to acquire assets             748,860     3,744         2,310,882               --            --     2,314,626
Other comprehensive income (CTA)                --        --                --               --        40,642        40,642
Net (loss)                                      --        --                --       (2,920,753)                 (2,920,753)
                                       -----------    ------     -------------       -----------     --------    -----------

Balances at February 28, 1997           76,481,666   382,408       195,657,385      (70,602,848)       40,642   125,477,587

Notes payable converted                  3,164,001    15,820         4,528,958               --            --     4,544,778
Exercise of warrants                       241,688     1,208           583,642               --            --       584,850
Exercise of stock options                   25,000       125            51,375               --            --        51,500
Proceeds from issuance of
 warrants                                       --        --           900,000               --            --       900,000
Repurchase of warrants                          --        --        (1,679,956)              --            --    (1,679,956)
Stock issued to acquire assets              88,889       445           199,555               --            --       200,000
Expenses of issuances                           --        --        (1,540,351)              --            --    (1,540,351)
Net (loss)                                      --        --                --      (11,636,540)                (11,636,540)
                                       -----------    ------     -------------      ------------     --------   ------------

Balances at February 28, 1998           80,001,244   400,006       198,700,608      (82,239,388)       40,642   116,901,868

Notes payable converted                 16,513,282    82,566        10,126,867               --            --    10,209,433
Exercise of warrants                     7,475,383    37,377         7,971,198               --            --     8,008,575
Exercise of stock options                   50,000       250           102,750               --            --       103,000
Stock issued to acquire assets             114,833       574            28,134               --            --        28,708
Private placements                       3,597,300    17,986         1,779,656               --            --     1,797,642
Expenses of issuances                           --        --          (554,727)              --            --      (554,727)
Other comprehensive income (CTA)                --        --                --               --      (406,574)     (406,574)
Net (loss)                                      --        --                --     (149,741,582)           --  (149,741,582)


Balances at February 28, 1999          107,752,042  $538,759      $218,154,486    $(231,980,970)    $(365,932) $(13,653,657)
                                    ==============  ========   ===============    ============== ============= =============
</TABLE>



          See accompanying notes to consolidated financial statements.



<PAGE>



                                                AURA SYSTEMS, INC.
                                                 AND SUBSIDIARIES


                                       Consolidated  Statements  of  Cash  Flows
                      Years  ended  February  28,  1999,  February  28, 1998 and
                      February 28, 1997

<TABLE>
<CAPTION>

                                                                           1999              1998              1997

                                                                           ----              ----              ----
<S>                                                                 <C>                  <C>                <C>
Cash flows from operating activities:
    Net loss                                                        $(149,741,582)       $(11,636,540)      $(2,920,753)
                                                                    --------------         ----------         ---------
    Adjustments to reconcile net loss to net
    cash used by operating activities:
    Depreciation and amortization                                       12,985,278          8,362,110         4,797,436
    Provision for environmental cleanup                                     44,516             40,597            37,021
   (Gain) Loss on disposition of assets                                  6,066,168           (555,326)         (255,665)
    Equity in losses of unconsolidated joint ventures                    6,268,384          1,937,747                --
    Gain on sale of subsidiary and other stock investments                (262,804)       (12,144,740)               --
    Impairment of long-lived assets                                      9,403,687                 --         2,005,000
    Foreign currency translation adjustment                               (406,574)                --           172,617
    Assets-(Increase) Decrease:
     Receivables                                                        46,037,727           (674,443)      (12,830,713)
     Inventories                                                        40,236,817        (24,866,579)       (9,410,343)
     Prepayments                                                         9,891,144         (5,631,521)               --
     Other current assets                                                3,801,107         (5,534,281)        1,245,613
     Deferred income taxes                                                 838,000           (940,000)               --
    Liabilities-Increase (Decrease):
     Accounts payable                                                  (21,479,522)        20,279,113         3,270,971
     Accrued expenses                                                    4,614,005          2,086,583           323,435
     Litigation and other liabilities                                    7,389,649           (345,372)               --
                                                                      ------------        ------------      -----------
    Total adjustments                                                 125,427,582         (17,986,112)      (11,986,546)
                                                                      -----------          ----------        ----------
         Net cash used by operating activities                        (24,314,000)        (29,622,652)      (13,565,381)
                                                                      ------------         ----------      -------------
Cash flows from investing activities:
   Proceeds from sale of assets                                          2,721,000            920,000           286,217
   Purchase of property and equipment                                   (2,143,237)        (1,910,214)       (8,606,686)
   Manufacture of special tools and equipment                           (1,910,611)       (16,096,180)      (16,539,899)
   Purchase of subsidiary                                                       --                 --        (1,101,278)
   Investment in joint ventures                                           (164,466)         1,202,138        (3,163,475)
   Long-term investments                                                (4,940,000)        (1,117,465)       (2,430,756)
   Long-term receivables                                                 3,436,809          3,347,144        (2,450,959)
   Patents and trademarks                                                 (467,167)        (1,903,718)         (696,677)
   Goodwill and other assets                                             1,425,794         (2,398,400)         (645,241)
   Proceeds from subsidiary stock                                        1,611,873          5,472,656                --
                                                                       -----------        -----------       -----------
         Net cash used by investing activities                            (430,005)       (12,484,039)      (35,348,754)
                                                                       ------------        ----------=       -----------
</TABLE>




           See accompanying notes to consolidated financial statements



<PAGE>



                                                AURA SYSTEMS, INC.
                                                 AND SUBSIDIARIES
                                       Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
                                                              1999            1998             1997
                                                              ----            ----             ----
<S>                                                     <C>              <C>               <C>
     Cash flows from financing activities:
        Net proceeds from borrowings                    $17,922,584      $26,287,632       $  9,772,600
        Repayment of notes payable                       (3,396,083)     (10,874,683)        (2,624,214)
        Proceeds from exercise of options                   103,000               --                 --
        Net proceeds from issuance of common stock        1,675,873          636,350          2,136,500
        Net proceeds from exercise of warrants            7,884,325               --                 --
        Proceeds from issuance of warrants                       --          900,000                 --
        Net proceeds from issuance of convertible notes
                                                         11,720,000       13,959,649         24,841,239
        Repayment of convertible notes                   (3,050,000)      (5,905,223)                --
        Minority interest adjustment                    (10,372,895)      17,749,979                 --
        Repurchase of warrants                                   --       (1,679,956)                --
                                                       ------------        ---------        -----------
            Net cash provided by financing activities    22,486,804       41,073,748         34,126,125
                                                       ------------       ----------        -----------
              Net decrease in cash and equivalents       (2,257,201)      (1,032,943)       (14,788,010)
     Cash and equivalents at beginning of year            6,079,411        7,112,354         21,900,364
                                                       ------------      -----------         ----------
     Cash and equivalents at end of year               $  3,822,210     $  6,079,411       $  7,112,354
                                                       ============      ===========        ===========
     Supplemental disclosures of cash flow
      information:
        Cash paid during the year for:
          Interest                                     $  3,374,992     $  6,280,859         $1,065,796
                                                       ============      ===========          =========
          Income Taxes                                 $  2,244,762     $    186,310       $      8,000
                                                       ============      ===========        ===========
</TABLE>

     Supplemental disclosures of non-cash investing and financing activities:

     During the year ended  February 28, 1997, the Company issued 748,860 shares
     in connection  with the  acquisitions of MYS  Corporation.,  Phillips Sound
     Labs and Revolver U.K. Limited valued at $2,314,626.  During the year ended
     February 28, 1997,  $25,900,000 of convertible  notes and accrued  interest
     were converted into 12,815,368 shares of common stock.

     During the year ended February 28, 1998,  $4,544,778 of  convertible  notes
     and accrued  interest were converted into 3,164,001 shares of common stock.
     Effective  January 29,  1998,  the Company  executed a contract to purchase
     title and  interest to the "Aura"  trademark  name in several  locations in
     Europe, Hong Kong and Taiwan.  Partial consideration paid included $200,000
     worth of Aura common stock or 88,889  shares,  and  $1,587,678 of operating
     assets  transferred  to the seller of the trademark  name.  During the year
     ended  February 28, 1998 the Company  entered into  financing  arrangements
     whereby it acquired assets for notes payable in the amount of $493,781.

     During the year ended February 28, 1999,  $10,209,433 of convertible  notes
     and accrued interest were converted into 16,513,282 shares of common stock.
     Additionally,  90,510  shares of common  stock  were  issued  for  services
     received  totaling  $90,510.  During  the year  ended  February  28,  1999,
     2,000,000  shares of the  Company's  investment  in NewCom Inc.,  valued at
     $2,820,000,  were  surrendered to a NewCom creditor  pursuant to a security
     agreement that collateralized a NewCom note in the amount of $1,000,000.

     During the year ended February 28, 1999,  $800,000 in joint ventures assets
     were transferred to long term  investments.  During the year ended February
     28, 1999,  the Company sold a stock  investment  for  $5,499,000,  of which
     $2,750,000  was  recorded  as a note  receivable.  During  the  year  ended
     February 28, 1999, the Company assumed  explicitly  certain  obligations of
     NewCom,  effectively  transferring  approximately  $9,900,000  from current
     notes and trade payables to litigation payable.  The $9,900,000  represents
     NewCom  obligations  guaranteed by the Company,  including a line of credit
     with a commercial lending institution and two other trade creditors.

                           See  accompanying  notes  to  consolidated  financial
statements.



<PAGE>



                               AURA SYSTEMS, INC.
                                AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

     Years ended February 28, 1999, February 28, 1998 and February 28, 1997

(1)      Business and Summary of Significant Accounting Policies

         Business

                    Aura Systems,  Inc.  ("Aura" or the  "Company"),  a Delaware
                    corporation,     is    engaged    in    the     development,
                    commercialization   and  sales  of  products,   systems  and
                    components    using    its    patented    and    proprietary
                    electromagnetic and electro-optical technology.

         In 1994, the Company founded its subsidiary NewCom, Inc. ("NewCom"),  a
         Delaware corporation, which was engaged in the manufacture,  packaging,
         selling and distribution of computer related  communications  and sound
         related  products,  including  modems,  CD-ROMs,  sound cards,  speaker
         systems and multimedia products,  thereby expanding its presence in the
         growing   multimedia,    communication   and   sound-related   consumer
         electronics market. NewCom ceased operations in 1999.

         The Company acquired 100% of the outstanding  shares of MYS Corporation
         of Japan ("MYS") in 1996 to expand the range of its sound  products and
         speaker  distribution  network.  Subsequent to Fiscal 1999, the Company
         sold MYS to its management.

         The Company is  involved  in the  application  of its  technology  to a
         variety of  products  and  services  and,  as such,  faces  substantial
         competition   from  companies   offering   different  and   competitive
         technologies.

         The Company believes the principal  competitive  factors in the markets
         for the  Company's  products  include the ability to develop and market
         technologically  advanced products to meet changing market  conditions,
         price,   reliability,   product  support  and  the  ability  to  secure
         sufficient capital resources for the often substantial  periods between
         technological concept and  commercialization.  The Company's ability to
         compete will also depend on its continued ability to attract and retain
         skilled and  experienced  personnel,  to develop and secure  patent and
         other  protection for its technology  and to exploit  commercially  its
         technology prior to the development of competing products by others.

         The Company  competes with many  companies  that have more  experience,
         name  recognition,  financial  and other  resources  and  expertise  in
         research and development,  manufacturing, testing, obtaining regulatory
         approvals,  marketing and distribution.  Other companies may also prove
         to be significant competitors, particularly through their collaborative
         arrangements with research and development companies.

         Basis of Presentation and Going Concern

     The accompanying consolidated financial statements of the Company have been
     prepared on the basis that it is a going concern,  which  contemplates  the
     realization of assets and satisfaction of liabilities,  except as otherwise
     disclosed,  in the normal course of business.  However,  as a result of the
     Company's  losses  from  operations  and  inability  to  service  its  debt
     obligations,  such  realization of assets and liquidation of liabilities is
     subject to significant  uncertainties.  Further,  the Company's  ability to
     continue as a going concern is dependent upon the successful  restructuring
     of  obligations,  achievement  of profitable  operations and the ability to
     generate  sufficient cash from operations and financing sources to meet the
     restructured  obligations.  Management  is  currently  seeking or obtaining
     additional  sources of funds and the Company has restructured a significant
     portion of its debt obligations.  The Company intends to focus its business
     on the  AuraGen  line of  products.  Except  as  otherwise  disclosed,  the
     consolidated financial statements do not include any adjustments to reflect
     the possible future effects on the  recoverability  and  classification  of
     assets or the amount and classification of liabilities that may result from
     the  possible  inability  of the Company to continue as a going  concern as
     otherwise disclosed.

         Principles of Consolidation

         The consolidated  financial  statements include accounts of the Company
         and its wholly owned subsidiaries,  MYS and its subsidiaries Audio-MYS,
         MYS America and MYS U.S.A,  Aura  Ceramics,  Inc.,  Aura Sound Inc. and
         Electrotec   Productions,   Inc.  (and  its  wholly  owned   subsidiary
         Electrotec Europe). For the years ended February 28, 1998 and 1997, the
         Company's interest in NewCom, a majority owned subsidiary,  is reported
         on a consolidated basis, the consolidated  financial statements include
         100 percent of the assets and  liabilities of the  subsidiary,  and the
         ownership  percentage  of minority  interests  is recorded as "Minority
         Interests in  Subsidiary."  In February 1999,  the Company  reduced its
         interest  in NewCom to  approximately  41%.  Accordingly,  for the year
         ended February 28, 1999, the Statement of Operations and  Comprehensive
         Loss reflects the operating results of NewCom through the period of
         majority ownership. The balance sheet as of February 28, 1999 reflects
         the Company's investment on an equity basis of accounting.  In
         consolidation,  all significant  intercompany balances and transactions
         have been eliminated.

         For the year ended February 28, 1999, the Company's losses from NewCom,
         on a consolidated basis, were in excess of the Company's allocation of
         losses as accounted for under the equity method.  In accordance with
         Accounting Principles Board Opinion No. 18 "The Equity Method of
         Accounting for Investments in Common Stock" the Company has recognized
         losses up the amount of their investment, advances, and guarantees of
         indebtedness.  Losses related to the consolidation of NewCom in excess
         of losses appropriate under the equity method, in the amount of
         $8,080,695, are reflected as an other item in the Statement of
         Operations and Comprehensive Loss.

         For the year ended February 28, 1999, the minority interest in loss of
         subsidiary are in excess of minority interests investments.  The
         minoritiy interests loss in excess of investment in the amount of
         $26,561,481, are reflected as an Other Item in the Statement of
         Operations and Comprehensive Loss.

         Revenue Recognition

         The Company  recognizes  revenue for product sales upon  shipment.  The
         Company  provides  for  estimated  returns  and  allowances  based upon
         experience.  The Company also earns a portion of its revenues from
         license fees, and generally  records  these fees as income when the
         Company has fulfilled its obligations under the particular agreement.

         Comprehensive Income

         In March 1997, the FASB issued SFAS No. 130,  "Reporting  Comprehensive
         Income." This statement establishes standards for reporting and display
         of   comprehensive   income  and  its  components  in  a  full  set  of
         general-purpose financial statements.  This statement requires that all
         items that are required to be recognized under accounting  standards as
         components of comprehensive income be reported in a financial statement
         that  is  displayed  with  the  same   prominence  as  other  financial
         statements. This standard requires that an enterprise classify items of
         other  comprehensive  income by their nature in a financial  statement;
         display  the  accumulated   balances  of  other  comprehensive   income
         separately from retained earnings and additional paid-in capital in the
         equity  section of a statement of financial  position.  the Company
         adopted SFAS 130 in Fiscal 1999.  The adoption of this  statement
         did not have any  impact on the  Company's  results of operations,
         financial position, or cash flows.

         Cash Equivalents

         maturity of less than three months, to be cash equivalents.

         Use of Estimates

         The  preparation of financial  statements in conformity  with generally
         accepted  accounting  principles  requires management to make estimates
         and  assumptions  that  affect  the  reported  amounts  of  assets  and
         liabilities,  disclosure of contingent  assets and  liabilities  at the
         date of the financial statements,  and the reported amounts of revenues
         and expenses during the reporting  period.  Actual future results could
         differ from those estimates.

         Long-Term Investments

         Investments  in equity  securities  with no readily  determinable  fair
         value  are  stated at cost.  Management  periodically  evaluates  these
         investments  as to whether  fair value is less than cost.  In the event
         fair value is less than cost, and the decline is determined to be other
         than temporary, the Company will reduce the carrying value accordingly.

         Goodwill

         Goodwill  represents  the excess  purchase  price over the fair  market
         value of the assets acquired of certain acquisitions. Goodwill is being
         amortized over 40 years on a straight-line basis.

         The  carrying  value  of  goodwill  is based  on  management's  current
         assessment of recoverability. Management evaluates recoverability using
         both  objective  and  subjective  factors.  Objective  factors  include
         management's best estimates of projected future earnings and cash flows
         and analysis of recent sales and earnings  trends.  Subjective  factors
         include competitive analysis and the Company's strategic focus.

         Inventories

         Inventories are stated at the lower of (first-in,first-out) or market.

         Per Share Information

         The  consolidated  net loss per common  share is based on the  weighted
         average  number of common shares  outstanding  during the year.  Common
         share  equivalents  have been excluded since inclusion would dilute the
         reported loss per share.

         Patents and Trademarks

     The Company  capitalizes  the costs of obtaining  or acquiring  patents and
     trademarks.  Amortization  of patent  costs is provided for by the straight
     line method over the shorter of the legal or estimated  economic life. If a
     patent or trademark is rejected,  abandoned,  or otherwise  invalidated the
     un-amortized cost is expensed in that period.

         Joint Ventures

         The Company  initially  records  investments in joint ventures at cost.
         These cost  amounts are  adjusted  quarterly  to reflect the  Company's
         share of venture income or losses.

         Impairment of long-lived assets

         The Company  reviews  long-lived  assets and  identifiable  intangibles
         whenever events or  circumstances  indicate that the carrying amount of
         such assets may not be fully  recoverable.  The Company  evaluates  the
         recoverability  of long-lived  assets by measuring the carrying amounts
         of the assets against the estimated  undiscounted cash flows associated
         with  these  assets.  At the time such  evaluation  indicates  that the
         future  undiscounted  cash flows of certain  long-lived  assets are not
         sufficient  to  recover  the  assets'  carrying  value,  the assets are
         adjusted to their fair values (based upon discounted cash flows).

         During 1999, the Company's management  redirected its strategy to focus
         on the  AuraGen  production.  The  Company  made the  decision to cease
         operations  in various  divisions,  reduce  overhead  and sell or lease
         Company  assets that were not compatible  with the Company's  strategy.
         Management  reviewed the  estimated  future cash flows related to these
         operations  and deemed  them to be  insufficient  to fully  recover the
         carrying value of the assets.  Accordingly,  the Company has recognized
         an  $9,403,687  impairment  expense  to  reduce  the  assets  to  their
         estimated  fair value.  The  impairment  includes a write down of
         property and equipment and goodwill of $8,893,259 and $510,428,
         respectively.

         Research and Development

         Research and development costs are expensed as incurred.

         Advertising Costs

         Advertising  costs are  expensed as  incurred.  Advertising  charged to
         expense in Fiscal 1999, 1998 and 1997 approximated $ 9.4 million,  $5.8
         million and $4.5 million,  respectively,  including  approximately nil,
         $300,000 and $700,000 for the production of the  advertising,  which is
         continuing to be used but has been expensed.

         Buildings, Equipment and Leasehold Improvements

         Buildings,  equipment and leasehold improvements are stated at cost and
         are  being  depreciated  using  the  straight-line  method  over  their
         estimated useful lives as follows:

                           Buildings                           40 years
                           Machinery and equipment           5-10 years
                           Furniture and fixtures               7 years
                           Leasehold improvements         Life of lease

         During 1999 and 1998, the Company  capitalized  costs of $1,910,611 and
         $16,096,180,  respectively,  on special tools and equipment, which have
         been  designed for the  manufacturing  and  development  of  actuators,
         speakers and related  products,  automotive  products,  actuator mirror
         array wafers and internet access and multimedia computer products.  The
         capitalized  amounts,  included in  machinery  and  equipment,  include
         allocated costs of direct labor and overhead.  During 1999,  management
         reduced previously  capitalized  amounts to their estimated fair value,
         due to  impairment  of assets.  See note on  Impairment  of  long-lived
         assets.

                           Depreciation and  amortization  expense of buildings,
         machinery   and   equipment,   furniture  and  fixtures  and  leasehold
         improvements  approximated $11.9 million, $5.4 million and $3.2 million
         for Fiscal 1999, 1998 and 1997, respectively.

         Product Return Risks

         The Company has been  exposed to the risk of product  returns  from its
         retailer mass merchant and distributor customers as a result of several
         factors,  including  returns from their  customers,  contractual  stock
         rotation   privileges,   returns  of  defective   products  or  product
         components,   primarily  through  NewCom.  In  addition,   the  Company
         generally  accepts  returns of unsold  product from customers with whom
         the Company has severed its customer relationship.  Overstocking by the
         Company's  customers  could lead to higher than normal  returns,  which
         could  have a  material  adverse  effect on the  Company's  results  of
         operations.  The Company also has a policy of offering price protection
         to its customers for some or all of their  inventory,  whereby when the
         Company  reduces  its  prices for a product,  the  customer  receives a
         credit for the  difference  between the original  purchase price of the
         product and the Company's reduced price for the product. As a result of
         this policy,  significant  reductions in price have had, and may in the
         future  have, a material  adverse  effect on the  Company's  results of
         operations.  In management's  opinion, the financial statements include
         adequate provisions to reserve for future product returns.

(2)      Receivables

         Receivables consist of the following:
<TABLE>
<CAPTION>
                                                                     1999              1998
                                                                     ----              ----
<S>                                                               <C>               <C>
         Commercial receivables:
           Amounts billed                                         $16,548,666       $59,277,378
           Recoverable costs and accrued profits not billed                --           931,056
                                                                  -----------       -----------
               Total commercial receivables                        16,548,666        60,208,434

         Advances due from related parties                            102,773           210,837
         Less  allowance  for  uncollectible  receivables  and     (8,271,025)       (6,001,130)
                                                                  -----------        ----------
         sales returns

                                                                   $8,380,414       $54,418,141
</TABLE>

         Bad debt expense was  approximately  $13.3 million,  $3.6 million and
         $.7 million in Fiscal 1999, 1998 and 1997 respectively.

(3)      Long Term Investments

         Long-term investments consist of the following:

                                               1999                      1998
                                               ----                      ----

         Telemac Cellular C            $           --                $4,782,500
         Aquajet Corporation                  923,835                   883,834
         Alaris Industries,                 1,200,000                 1,200,000
         Other                                800,000                   609,965
                                           ----------               -----------
                                           $2,923,835                $7,476,299
                                           ==========                ==========

     During  Fiscal  1999,  the Company  sold a portion of its shares in Telemac
     Cellular  Corp.(Telemac)  back to Telemac.  The Company then entered into a
     cancellation of shares agreement  whereby it tendered its shares to Telemac
     in  exchange  for a  note  receivable  from  Telemac  resulting  in a  gain
     recognized of approximately $850,000.

         In February  1998,  NewCom,  Inc.  entered into an  Equipment  Buy-Sell
         Agreement with Fourth  Communications  Network  ("FCN")  whereby NewCom
         purchased  200,000  shares of FCN Series F  Preferred  Stock,  which is
         convertible  into  Common  Stock at a  conversion  price of $25.00  per
         share, and received warrants to purchase 200,000 shares of Common Stock
         at $15.00 per share, in  consideration  of a cash payment of $5,000,000
         of which  $150,000  was paid in  February  1998  with  the  balance  of
         $4,850,000  paid in March  1998.  In Fiscal  1999,  NewCom  pledged the
         investment as collateral to a secured creditor. The investment has been
         foreclosed upon.

(4)      Joint Ventures and Other Agreements

    (a)  Malaysian Joint Venture

         In  1993,  the  Company  entered  into  an  agreement  with  Burlington
         Technopole  SDN.  BHD., a Malaysian  corporation  (Burlington)  for the
         formation of a joint venture to  manufacture  and sell  speakers  using
         Aura's  proprietary  technology.  In Fiscal 1999 the joint  venture was
         terminated,  and a total of  $1,064,911  in joint  venture  losses  and
         write-off's were recorded during Fiscal 1999.

    (b)  Aura-Dewan Joint Venture

         In 1995, the Company  entered into an agreement with K&K Enterprises of
         India ("K&K") for the formation of a joint venture to  manufacture  and
         sell speakers using Aura's proprietary technology.  In 1995 the Company
         also entered into an  agreement  with K&K for the  formation of a joint
         venture to manufacture  Aura's Bass ShakerTM.  In Fiscal 1999 the joint
         venture was terminated, and a total of $534,911 in joint venture losses
         and  write-off's  were recorded  during Fiscal 1999. The Company's
         remaining  investment in property of the joint venture,  for the amount
         of $800,000 has been reclassified to long term investments.

    (c)  Daewoo Agreement

         In 1992,  the Company  entered into a joint  development  and licensing
         agreement with Daewoo  Electronics Co., Ltd.  ("Daewoo") to develop and
         commercialize televisions using Aura's AMA(TM) display technology. Aura
         is to receive a fixed royalty  (depending on television size), for each
         television set  manufactured by Daewoo or licensed by Daewoo to a third
         party. Due to Daewoo's existing financial difficulties, it is currently
         undeterminable  if Daewoo will be able to  commercialize  a  television
         using Aura's AMA(TM)  display  technology.

    (d)  Eric Joint Venture

         In 1997, the Company  entered into an agreement with the European Group
         to form a joint venture for sales, marketing and further development of
         motion base simulators using the Company's proprietary  technology.  In
         Fiscal 1999, as a result of financial  crisis the Company ceased on its
         commitment to continue to develop  improvements to the Company's motion
         base  simulator  technology.  The parties agreed to terminate the joint
         venture, and $3,856,091 was written-off to loss in joint ventures.

    (e)  Microbell Joint Venture

         In 1995 the Company  entered into an agreement with Microbell to form a
         joint  venture  to  further  develop  and  commercialize  patented  and
         proprietary  technology developed by Microbell.
         Aura's inability to continue to fund the joint venture as required, the
         joint venture was  terminated,  and $635,902 was written-off to loss in
         joint venture.

(5)      Related Party Transactions

         Notes and advances due from related  parties,  aggregated  $102,773 and
         $210,837 at February  28, 1999 and  February  28,  1998,  respectively,
         included  in  current  receivables,  and $0  and  $19,000  included  in

(6)      Inventories

         Inventories,  stated  at the  lower of cost  (first-in,  first-out)  or
         market, consist of the following:

                                               1999                  1998
                                               ----                  ----
         Raw materials                      $11,318,263           $19,202,024
         Finished goods                      15,034,795            44,046,851
         Reserves for product obsolence      (7,876,000)           (4,535,000)
                                        ---------------       ---------------
                                            $18,477,058           $58,713,875
                                         ==============        ==============

Inventories at February 28, 1999 and 1998 include approximately $3.5 million and
$5.0 million,  respectively,  that was received  subsequent to year end, but was
shipped F.O.B.  shipping point,  requiring the Company to include this amount in
its reported  inventory  and to record the  corresponding  liability in accounts
payable.  At February 28, 1999,  inventories consist primarily of components and
completed units for the Company's AuraGen product, along with speaker components
and finished product.


(7)      Property and Equipment

         Property and Equipment, at cost is comprised as follows:
                                               1999                1998
                                              ----                ----
 Land                                     $  3,877,074          $  3,870,361
 Buildings                                   9,396,392             9,366,512
 Machinery and equipment                    32,354,243            48,610,238
 Furniture, fixtures and
   leasehold improvements                    2,348,990             4,820,560
                                          ------------           -----------
                                           $47,976,699           $66,667,671
                                           ===========            ==========

(8)      Notes Payable and Other Liabilities

         Notes Payable and Other Liabilities consist of the following:

         All major debt obligations were in default as of February 28, 1999, see
note 21.

                                                   1999             1998
                                                   ----      ---    ----

Litigation payable                               $17,302,047       $        --
Lines of Credit                                    3,000,000         9,569,235
Notes payable-equipment (a)                          194,296         2,870,971
Notes payable-buildings (b)                        8,549,854         3,553,187
Unsecured notes payable (c)                        4,907,068        17,975,000
Unsecured bonds payable (d)                          283,679                --
                                              --------------       -----------
                                                  34,236,944        33,968,393
Less: current portion                              8,787,113        31,147,572
                                              --------------        ----------
Long term portion                                 25,449,831         2,820,821
Reserve for environmental cleanup                    505,698           461,182
                                              --------------       -----------
                                                 $25,955,529       $ 3,282,003
                                              ==============       ===========

   (a)  Notes  payable-equipment  consists of various notes maturing at various
         dates through  September 2000 bearing interest at various rates and are
         collaterized by equipment.

            (b)
         Notes  payable-buildings  consists of a 1st Trust Deed on a building in
         California,   due  in  Fiscal  2009,   and  a  note  due  October  2000
         collateralized by a building in Malaysia.


    (c)  Unsecured notes payable consists of two notes.

    (d)  There are five unsecured bonds payable.

      Annual  maturities of long term notes payable and  litigation  payable for
the next fiscal years are as follows:
                                  Fiscal Year                      Amount

                                  2000                         $8,787,113
                                  2001                          7,825,765
                                  2002                          2,686,351
                                  2003                          2,493,440
                                  2004                            925,941
                                  thereafter                   11,518,334
                                                               ----------
                                                              $34,236,944
                                                               ==========

(9)      Convertible Notes Payable

In Fiscal 1993, the Company issued its Secured 7% Convertible  Notes due 2002 in
the total amount of $5.5 million.  In Fiscal 1999,  the remaining  $2,122,900 of
these notes were redeemed by the Company.


In Fiscal 1997, the Company issued  $26,350,000 of unsecured  convertible  notes
due at various  dates,  $17.9  million of these notes plus  accrued  interest of
$228,534 were converted into 10,069,924 shares of common stock in Fiscal 1997.

In Fiscal 1998, the Company  issued $34.5 million of unsecured  notes payable to
investors.  During the fiscal year the Company  redeemed  $3.8  million of notes
issued  in  Fiscal  1997  and  $2  million  of  notes  issued  in  Fiscal  1998.
Additionally,  $4.5 million of notes issued in Fiscal 1997 were  converted  into
3,164,001  shares of common stock. In Fiscal 1999, the Company issued $8 million
of unsecured  notes payable to investors and $4,662,900 of secured notes payable
to  investors.  During the Fiscal  year the  Company  redeemed  $1.6  million of
convertible  notes  issued  in Fiscal  1998.  Additionally  $9,662,184  worth of
convertible  notes  issued  in Fiscal  1998  plus  interest  of  $547,249,  were
converted into 16,513,282 shares of common stock.

(10)     Accrued Expenses

 Accrued expenses consist of the following:

                                                   1999              1998
                                                   ----              ----
Accrued payroll and related expenses             $1,076,185         $1,092,082
Bond interest payable                             4,535,789            880,158
Other                                             2,444,809         2,017,787
                                              -------------         ---------
                                                 $8,056,783        $3,990,027

(11)     Income Taxes

At February 28, 1999,  the Company had net  operating  loss  carry-forwards  for
Federal and state  income tax  purposes of  approximately  $216  million and $95
million respectively, which expire through 2014.


Under SFAS 109 "Accounting for Income Taxes" the Company  utilizes the liability
method of accounting for income taxes.  Accordingly,  the Company has recorded a
deferred  tax  benefit of  approximately  $93  million  for Fiscal  1999 and $23
million for Fiscal 1998.  The Company has also  recorded a valuation  account to
fully offset the deferred  benefit due to the  uncertainty of the realization of
this benefit.

     As of  September  19,  1997,  NewCom,  Inc.  is no longer  included  in the
Company's   consolidated  Federal  tax  return  since  the  Company's  ownership
percentage  was  reduced  below  80% as of that  date.  In  connection  with the
deconsolidation of NewCom, Inc. for Federal income tax reporting  purposes,  the
Company  recognized  an income tax  benefit of  approximately  $1.3  million for
financial  reporting  purposes in the  accompanying  statement of operations for
Fiscal 1998. The Company's  Japanese  subsidiary,  MYS Corporation,  pays income
taxes to the Japanese  government at an effective  rate of  approximately  fifty
eight percent. At February 28, 1999 and February 28, 1998, MYS Corporation had a
current  income tax  receivable  and  liability  of  approximately  $153,000 and
$176,000, respectively.

(12)     Common Stock, Stock Options and Warrants

         The  Company has  200,000,000  shares of $.005 par value  common  stock
authorized for issuance.

     The Company has granted nonqualified stock options to certain directors and
employees.  Options are granted at fair market value at the date of grant,  vest
immediately,  and are exercisable at any time within a five-year period from the
date of grant.

         A summary of activity in the directors stock option plan follows:
<TABLE>
<CAPTION>

                                                                    Shares       Exercise Price

<S>                                                                 <C>          <C>
         Options outstanding at February 29, 1996                   1,009,578    $1.44-$5.50

         Grants                                                            --               --
         Cancellations                                                     --               --
         Exercises                                                         --               --
                                                                   ----------    -------------
         Options outstanding at February 28, 1997                   1,009,578        1.44-5.50

         Grants                                                        50,000             2.30
         Cancellations                                                      --              --
         Exercises                                                          --              --
         Options outstanding at February 28, 1998                   1,059,578        1.44-5.50

         Grants                                                            --                --
         Cancellations                                                     --                --
         Exercises                                                         --                --
         Expired                                                      499,578         1.44-5.50
                                                               --------------    --------------
         Options outstanding at February 28,1999                      560,000       $2.06-$4.75
                                                               ==============    ==============
</TABLE>

                      The following table summarizes  information about director
stock options at February 28, 1999:


<TABLE>
<CAPTION>
                           Number                                  Weighted              Number
      Range of         Outstanding at         Average          Average Exercise      Exercisable As
Exercise Price             2/28/99       Remaining Life      Price                     of 2/28/99       Exercise Price

       <S>                  <C>                <C>                    <C>                  <C>                <C>
       $2.30                 50,000            8.13                   2.30                  50,000            $2.30
       $2.06                400,000            8.36                   2.06                 400,000            $2.06
       $3.06                 70,000            0.33                   3.00                  70,000            $3.06
       $4.75                 40,000            0.09                   4.75                  40,000            $4.75
</TABLE>

 (13)    Employee Stock Plans

         The  Company  has  two  employee  benefit  plans:  The  Employee  Stock
         Ownership  Plan (ESOP) and the 1989 Stock Option Plan (the Stock Option
         Plan). A previous plan,  the 1989 Employee  Stock  Ownership  Plan, was
         terminated  in Fiscal  1992 and all plan  assets  were  distributed  to
         participants.

         The ESOP is a qualified  discretionary  employee  stock  ownership plan
         that  covers  substantially  all  employees.  This  plan  was  formally
         approved by the Board of Directors during Fiscal 1990. The Company made
         no   contributions   to  the  ESOP  in  Fiscal  1999,   1998  and  1997
         respectively.

         During Fiscal 1990, the Company's Board of Directors  adopted the Stock
         Option Plan, a nonqualified plan which was subsequently approved by the
         shareholders.  The Stock Option Plan authorizes the grant of options to
         purchase the greater of up to 8% of the  Company's  outstanding  common
         shares or  4,170,000  common  shares.  Shares  currently  under  option
         generally vest ratably over a five year period.

         In October 1995, the Financial  Accounting  Standards Board issued SFAS
         No. 123  "Accounting for  Stock-Based  Compensation,"  which contains a
         fair  value-based  method for  valuing  stock-based  compensation  that
         entities may use,  which  measure  compensation  cost at the grant date
         based on the fair value of the award.  Compensation  is then recognized
         over  the  service  period,   which  is  usually  the  vesting  period.
         Alternatively, the standard permits entities to continue accounting for
         employee stock option and similar equity  instruments under APB Opinion
         No. 25,  "Accounting  for Stock  Issued to  Employees."  Entities  that
         continue  to account  for stock  options  using APB  Opinion No. 25 are
         required to make pro forma  disclosures  of net income and earnings per
         share, as if the fair value-based  method of accounting defined is SFAS
         No. 123 had been  applied.  Management  accounts for options  under APB
         Opinion No. 25. If the  alternative  accounting-related  provisions  of
         SFAS No. 123 had been adopted as of the  beginning of 1995,  any effect
         on 1999,  1998 and 1997 net loss and  loss  per share  would have
         been immaterial.

         A summary of activity in the employee stock option plan is as follows:
<TABLE>
<CAPTION>

                                                                    Shares         Exercise Price

<S>                                                                <C>               <C>
         Options outstanding at February 29, 1996                   3,889,800          $1.44-7.31
                                                                  -----------       -------------

         Grants                                                            --                  --
         Cancellations                                                     --                  --
         Exercises                                                    (10,000)               3.50

         Options outstanding at February 28, 1997                   3,879,800           1.44-7.31
                                                                    ---------       -------------

         Grants                                                     2,983,000           1.79-2.15
         Cancellations                                             (3,002,800)          1.44-3.06
         Exercises                                                    (25,000)               2.06
                                                                  -----------       -------------

         Options outstanding at February 28, 1998                   3,835,000           1.44-7.31
                                                               --------------       -------------

         Grants                                                     2,800,000                3.31
         Cancellations                                                (59,700)          1.44-7.31
         Exercises                                                    (50,000)               2.06
                                                               ---------------      -------------
         Options outstanding at February 28, 1999                   6,525,300          $1.44-7.31

                                                               ==============       =============
</TABLE>

The following  table  summarizes  information  about  employee  stock options at
February 28, 1999:

<TABLE>
<CAPTION>
                           Number                                  Weighted              Number
      Range of         Outstanding at         Average          Average Exercise      Exercisable As
Exercise Price             2/28/99       Remaining Life      Price                     of 2/28/99       Exercise Price

    <S>                   <C>                  <C>                    <C>                <C>               <C>
    $3.06-$4.12             131,800            0.44                   3.26                 131,800         $3.06-$4.12
       $1.44                431,000            1.92                   1.44                 431,000            $1.44
       $7.25                  7,500            2.75                   7.25                   7,500            $7.25
    $3.00-$4.00             215,000            3.62                   3.47                 215,000         $3.00-$4.00
    $3.50-$7.31              32,000            4.60                   5.89                  32,000         $3.50-$7.31
    $1.79-$2.15           2,908,000            8.42                   2.04               2,628,000            $2.06
       $3.31              2,800,000            9.05                   3.31                      --            $3.31
</TABLE>

(14)     Leases

     The Company leases office  facilities and equipment under operating  leases
that expire through Fiscal 2009. Other costs, such as property taxes,  insurance
and  maintenance,  are also  paid by the  Company.  Rental  expense  charged  to
operations  approximated $ 1.8 million,  $1.3 million and $1.3 million in Fiscal
1999, 1998 and 1997, respectively.


     At February 28, 1999, minimum rentals under non-cancelable operating leases
are as follows: Fiscal year:

                      Gross Rents        Sublease         Net Rents

2000                   $1,238,623           $77,472       $1,161,151
2001                    1,030,348            18,005        1,012,343
2002                      995,209                --          995,209
2003                      998,728                --          998,728
2004                      959,456                --          959,456
2005-2009               3,049,967                --        3,049,967
                   --------------    --------------   --------------
                       $8,272,331           $95,477       $8,176,854
                   ==============    ==============   ==============

(15)     Significant Customers

         The Company on a  consolidated  basis sold sound  related  products and
         computer related  products to five significant  customers during Fiscal
         1999.  Sales  by  MYS  Corporation  to  a  major  electronics  retailer
         accounted for approximately $16.3 million or 20.1% of  revenues.  Sales
         of  communications  and multimedia products to major mass merchandisers
         Best  Buy,  Circuit  City,  and  Staples accounted for $12.6 million or
         15.5% of revenues.  None of these  customers are related to the Company
         or any other customer of the Company.

 (16)    Commitments and Contingencies

         The Company is engaged in various  legal actions  listed below.  In the
         case of a judgment or settlement, appropriate provisions have been made
         in the financial statements.

         At February 28,  1999,  the Company had  approximately  $2.8 million in
         firm  non-cancelable  commitments  related to tooling costs incurred by
         independent contractors and for the purchase of inventory.

         Shareholder Litigation

         Barovich/Chiau v. Aura


     In May,  1995 two  lawsuits  naming  Aura,  certain  of its  directors  and
     executive  officers and a former officer as  defendants,  were filed in the
     United  States  District  Court for the  Central  District  of  California,
     Barovich v. Aura  Systems,  Inc. et. al. (Case No. CV 95-3295) and Chiau v.
     Aura  Systems,  Inc. et. al. (Case No. CV  95-3296),  before the  Honorable
     Manuel Real.  The  complaints  purported to be securities  class actions on
     behalf of all persons who purchased  common stock of Aura during the period
     from May 28, 1993  through  January 17,  1995,  inclusive.  The  complaints
     alleged that as a result of false and misleading  information  disseminated
     by the defendants, the market price of Aura's common stock was artificially
     inflated  during the class period.  The  complaints  were  consolidated  as
     Barovich v. Aura Systems, Inc., et. al.

         A settlement  agreement for this  proceeding was submitted to the Court
         on July 20, 1998,  for  preliminary  approval,  at which time the Court
         denied  the  plaintiffs'  motion for  approval  of the  settlement.  On
         September  22,  1998,  the  Company  and  certain of its  officers  and
         directors renoticed their motion for summary judgment.  Thereafter,  on
         January 8, 1999,  the  plaintiffs  and the  defendants  in the Barovich
         action  executed a  Stipulation  of  Settlement  pursuant  to which the
         Barovich action would be settled in return for payments by Aura and its
         insurer to the plaintiff's  settlement class and plaintiff's  attorneys
         in the amount of $2.8 million in cash (with  $800,000 to be contributed
         by Aura and $2 million to be contributed by Aura's insurer,  subject to
         a reservation  of rights by the insurer  against the insureds) and $1.2
         million in cash or common stock, at the Company's option, to be paid by
         Aura.  Subsequently the parties and the insurer entered into an amended
         settlement  agreement.  As amended the  settlement  calls for the total
         settlement  amount of $4 million to remain the same,  with the  insurer
         contributing  $1.8 million and the remaining $2.2 million to be paid by
         Aura in cash over a period of three years, with accrued interest at the
         rate of 8% per annum. The settlement was preliminarily  approved by the
         Court on December 6, 1999, and is subject to final  confirmation by the
         Court on March 20, 2000.

         Morganstein v. Aura.

         On April 28, 1997, a lawsuit naming Aura,  certain of its directors and
         officers,  and the Company's  independent  accounting firm was filed in
         the  United  States   District  Court  for  the  Central   District  of
         California,  Morganstein  v. Aura Systems,  Inc.,  et. al. (Case No. CV
         97-3103),  before the Honorable Steven Wilson.  A follow-on  complaint,
         Ratner v. Aura Systems,  Inc., et. al. (Case No. CV 97-3944),  was also
         filed  and  later  consolidated  with the  Morganstein  complaint.  The
         consolidated amended complaint purports to be a securities class action
         on behalf of all persons who purchased  common stock of Aura during the
         period  from  January  18,  1995 to  April  25,  1997,  inclusive.  The
         complaint alleges that as a result of false and misleading  information
         disseminated by the defendants, the market price of Aura's common stock
         was  artificially  inflated  during  the Class  Period.  The  complaint
         contains  allegations  which assert that the company  violated  federal
         securities  laws by  selling  Aura  Common  stock at  discounts  to the
         prevailing  U.S.  market  price under  Regulation  S without  informing
         Aura's shareholders or the public at large.

         In June, 1998, the Court entered an order staying further  discovery in
         order to facilitate  completion of settlement  discussions  between the
         parties.  On October 12, 1998,  the parties  entered into a stipulation
         for settlement of all claims,  subject to approval by the Court.  Under
         the  stipulation for settlement Aura agreed to pay $4.5 million in cash
         or stock,  at Aura's option,  plus 3.5 million  warrants at an exercise
         price of $2.25.  In addition,  Aura's  insurance  carrier agreed to pay
         $10.5  million.  The  settlement  was finally  approved by the Court in
         October 1999 and was thereafter  amended in December 1999 to allow Aura
         to defer payment of the settlement  amount until April 2000 in exchange
         for an  additional 2 million  shares of Aura Common  Stock,  subject to
         certain adjustments.

         NewCom Related Litigation

         American Casualty v. Aura

         On June 22, 1999, a lawsuit  naming Aura was filed in the United States
         District  Court  for  the  Central  District  of  California,  American
         Casualty  Company of Reading,  Pennsylvania  ("American  Casualty") vs.
         Aura et.  al.  (Case  No.  CV-99-06343).  The  complaint  alleges  that
         American Casualty, as surety, executed and delivered a performance bond
         on behalf of NewCom to Actrade Capital, Inc. ("Actrade") in 1998, which
         American   Casualty  became  liable  to  obligee  Actrade  when  NewCom
         defaulted on repayment  of the penal sum of  $4,427,093.92.  In seeking
         damages from NewCom,  American  Casualty  further alleged that Aura was
         liable because it executed an express  general  agreement of indemnity,
         indemnifying  American  Casualty  on the  referenced  NewCom bond and a
         rider which  became the subject of the  litigation.  Aura  answered the
         complaint and NewCom defaulted.  Subsequently,  in December,  1999, the
         parties  reached  mutually  an  agreement  in  principal  to settle the
         matter,  Aura agreeing to pay American  Casualty:  (i) $1,000,000  plus
         interest at a rate of 8% per annum from December 1, 1999, in thirty-six
         equal monthly installments  commencing March 2000; (ii) $1,000,000 plus
         interest  at a  rate  of  8%  per  annum  from  December  1,  1999,  in
         twenty-four equal monthly installments commencing December 1, 2002; and
         (iii)  warrants  to purchase up to  1,000,000  shares of the  Company's
         common stock thirty three months from November 1, 1999 at a pre-reverse
         stock split exercise price of $2.46 per share.  The Company  expects to
         enter into the  settlement  prior to  February  29,  2000,  which is in
         accordance with the Aura's informal restructure .

         NEC Technologies v. NewCom

                  In 1998,  a  lawsuit  naming  NewCom,  Inc.  was  filed in the
         Superior  Court of the State of  California,  Los Angeles  County,  NEC
         Technologies  vs.  NewCom et. al (Case No. YC  033592).  The  complaint
         alleged that NewCom failed to pay NEC for products purchased in the sum
         of approximately $3,000,000.  Subsequently, NEC and NewCom entered into
         a  stipulated  settlement  where  Aura  guaranteed  expressly  NewCom's
         performance  on the  settlement.  NewCom  thereafter  defaulted  on the
         settlement  and the  stipulated  judgment  was  filed in  April,  1999.
         Following negotiation by Aura and NEC, in November,  1999, a settlement
         was entered into whereby NEC is to receive  $2,479,142.50 plus interest
         at eight  percent per annum in thirty-six  equal monthly  installments,
         which is in accordance with Aura's informal restructure.


         Deutsche Financial Services v. Aura

         In June,  1999,  a  lawsuit  naming  Aura was  filed in  United  States
         District  Court  for  the  Central  District  of  California,  Deutsche
         Financial Services ("DFS") vs. Aura (Case No. 99-03551 GHK (BQRx)). The
         complaint  follows DFS'  termination of its credit facility with NewCom
         of $11,000,000 and seizure of substantially all of NewCom's  collateral
         in April, 1999. It alleges,  among other things, that Aura is liable to
         DFS  for  NewCom's  indebtedness  under  the  secured  credit  facility
         purportedly  guaranteed  by Aura in  1996,  well  prior  to the  NewCom
         initial  public  offering of September  1997.  In the  proceeding,  DFS
         sought an order to attach Aura's  assets which was denied  following an
         evidentiary  hearing  before the Honorable  Brian Quinn  Robbins,  U.S.
         Magistrate,  and the matter has been ordered by the  District  Court to
         binding  arbitration.  Aura has now responded in  arbitration,  denying
         DFS' claims and has asserted in its defense,  among other things,  that
         the  guarantee,  if any, is discharged.  In addition,  Aura through its
         counsel,  has asserted  cross-claims for, among other things,  tortious
         lender  liability,  alleging that DFS wrongfully  terminated the NewCom
         credit facility, wrongfully seized the NewCom collateral and wrongfully
         foreclosed   upon   NewCom   collateral,   acting  in  a   commercially
         unreasonably manner. A panel of three arbitrators has been selected and
         appointed by the American Arbitration  Association and a hearing in the
         arbitration  has been set for May,  2000.  The Company  believes it has
         meritorious  defenses and cross claims.  However,  no assurances can be
         given as to the ultimate outcome of this proceeding.

         Excalibur v. Aura

     On November 12, 1999, a lawsuit was filed by three  investors  against Aura
     and Zvi Kurtzman,  Aura's Chief Executive Officer,  in Los Angeles Superior
     Court entitled  Excalibur Limited  Partnership v. Aura Systems,  Inc. (Case
     No. BC220054)  arising out of two NewCom,  Inc.  financings  consummated in
     December 1998.

         The NewCom financings comprised (1) a $3 million investment into NewCom
         in exchange for NewCom Common Stock,  Warrants for NewCom Common Stock,
         and certain "Re-pricing Rights" which entitled the investors to receive
         additional  shares  of  NewCom  Common  Stock in the event the price of
         NewCom  Common  Stock fell below a specified  level,  and (2) a loan to
         NewCom of $1 million in exchange for a Promissory  Note and Warrants to
         purchase NewCom Common Stock.  As part of these  financings Aura agreed
         with the  investors  to allow their  Re-pricing  Rights with respect to
         NewCom Stock to be exercised for Aura Common Stock,  at the  investors'
         option.  Aura also agreed to register  Aura  Common  Stock  relating to
         these Re-pricing Rights.

         The  Plaintiffs  allege  in their  complaint  that  Aura  breached  its
         agreements  with the  Plaintiffs  by,  among other  things,  failing to
         register the Aura Common Stock relating to the Re-pricing  Rights.  The
         Plaintiffs  further  allege that Aura  misrepresented  its intention to
         register the Aura shares in order to induce the Plaintiffs to loan $1.0
         million to NewCom.  The  Complaint  seeks damages of not less than $4.5
         million.  In  January  2000  Aura  filed   counterclaims   against  the
         Plaintiffs,   including   claims   that  the   Plaintiffs   made  false
         representations  to Aura in order to induce  Aura to agree to issue its
         Common Stock pursuant to the Re-pricing  Rights.  The Company  believes
         that it has meritorious  defenses and  counterclaims to the Plaintiffs'
         allegations.  However,  no  assurances  can be given as to the ultimate
         outcome of this proceeding.

         Securities and Exchange Commission Settlement.

         In October, 1996, the Securities and Exchange Commission ("Commission")
         issued an order  (Securities  Act  Release  No.  7352)  instituting  an
         administrative  proceeding against Aura Systems,  Zvi Kurtzman,  and an
         Aura former  officer.  The proceeding was settled on consent of all the
         parties, without admitting or denying any of the Commission's findings.
         In its order,  the Commission  found that Aura and the others  violated
         the  reporting,   record-keeping  and  anti-fraud   provisions  of  the
         securities  laws in 1993 and 1994 in  connection  with its reporting on
         two transactions in reports  previously filed with the Commission.  The
         Commission's  order  directs  that each  party  cease and  desist  from
         committing or causing any future violation of these provisions.

         The  Commission  did not require Aura to restate any of the  previously
         issued financial statements or otherwise amend any of its prior reports
         filed  with  the  Commission.  Also,  the  Commission  did not seek any
         monetary  penalties from Aura, Mr. Kurtzman or anyone else. Neither Mr.
         Kurtzman  nor anyone else  personally  benefited  in any way from these
         events. For a more complete  description of the Commission's Order, see
         the Commission's release referred to above.

         Other Legal Actions

         The Company is also engaged in other legal  actions.  In the opinion of
         management,  based upon the advice of counsel,  the ultimate resolution
         of these matters will not have a material adverse effect.

(17)     Concentrations of Credit Risk

         Financial  instruments  that  subject the Company to  concentration  of
         credit risk are cash equivalents,  trade receivables, notes receivable,
         trade payables and notes payable. The carrying value of these financial
         instruments  approximate  their fair value at February 28,  1999.  Cash
         equivalents consist principally of short-term money market funds, these
         instruments are short term in nature and bear minimal risk.

         The Company performs credit  background checks and evaluates the credit
         worthiness of all potential new customers prior to granting credit. UCC
         financing statements are filed, when deemed necessary.

(18)     Recently Issued Accounting Pronouncements

     In April 1998,  the  American  Institute of  Certified  Public  Accountants
     issued  Statement of Position No. 98-5 (SOP No. 98-5),  "Reporting on Costs
     of  Start-up  Activities."  Adoption  of SOP No. 98-5 will have no material
     impact on the Company's financial statements.

(19)     Fourth Quarter Adjustments

         Certain  fourth quarter  adjustments  were made in Fiscal 1999 that are
         significant  to  the  quarter  and  to  comparisons  between  quarters.
         Presented below are the approximate amount of adjustments which are the
         result of fourth  quarter  events  and their  effects  recorded  in the
         fourth quarter.

     During the fourth  quarter of Fiscal  1999 the Company  experienced  severe
     cash flow problems that had a major impact on the entire  operations of the
     Company. The Company began to consolidate its operations around the AuraGen
     technology  and product.  The Company  terminated all of its joint ventures
     due to its  inability to support  them. As the Company was cutting down and
     scaling back its operations the Company evaluated its asset utilization and
     concluded that certain asset values had been impaired. In addition numerous
     assets such as machinery and equipment that were no longer needed were sold
     at a loss.  The Company over the years has made  strategic  investments  in
     order to improve its  utilization of certain  technologies.  As the company
     eliminated operations,  these investments no longer retained their economic
     value. In addition to the Company`s  heavy losses in its NewCom  investment
     the Company was also a party to certain  explicit  written  guarantees that
     were triggered when NewCom's business deteriorated.

         The following  table  summarizes  certain  fourth  quarter  events that
contribute to the loss in Fiscal 1999.

         Termination of Joint Ventures                              $5.6 million
         Depreciation Expense                                       $4.6 million
         Accounts Receivable reserves and write-off's              $13.0 million
         Asset Impairment                                           $9.4 million
         Interest Expense                                           $3.5 million
         Disposed Assets                                            $1.2 million
         Investment write-off's and losses                          $7.0 million
         Guarantees for NewCom                                      $9.9 million
         NewCom loss (Aura Share)                                  $45.8 million
         Total                                                    $100.0 million

(20)     Segment Reporting

         The Company adopted Statement of Financial Accounting Standards No. 131
         ("SFAS 131"),  Disclosures  about Segments of an Enterprise and Related
         Information,"  as of February 28, 1999. SFAS 131 establishes  standards
         for  the way  public  business  enterprises  report  information  about
         operating  segments in annual  financial  statements and requires those
         enterprises to report selected  information about operating segments in
         interim financial  reports issued to shareholders.  It also establishes
         standards  for  related   disclosures   about   products  and  services
         geographic  areas  and  major  customers.  SFAS 131  defined  operating
         segments as components of an enterprise about which separate  financial
         information  is  available  that is  evaluated  regularly  by the chief
         operating  decision makers in deciding how to allocate resources and in
         assessing   performance.   The  Company  has  aggregated  its  business
         activities  into  three   operating   segments:   electromagnetic   and
         electro-optical  technology (Aura), computer related communications
         (NewCom) and sound and professional and consumer sound system
         components (AuraSound).

         The electromagnetic and  electro-optical  technology  operating segment
         consists of the development,  commercialization  and sales of products,
         systems and components  using patented and proprietary  electromagnetic
         and  electro-optical   technology.   The  Company  has  aggregated  all
         electromagnetic and electro-optical  operating units due to commonality
         of  economic   characteristics,   technology  employed,  and  class  of
         customer.  In  addition,  this  segment  also  includes  our  corporate
         headquarters and revenues generated from the sale of computer monitors.
         The overall management and operating results for this segment are based
         on the activities and operations as noted.

         The  computer  related   communications   and  sound  related  products
         operating  segment  consists of the  manufacturing  and selling of high
         performance  computer  communication  and  multimedia  products for the
         personal  computer  market.  The segment  also  includes  internal  and
         external data fax modems,  speaker phones,  sound cards, and multimedia
         kits. This operating  segment  suffered  significant  operating  losses
         during  the  year ended   February  28,  1999  and  ceased   operations
         subsequent to the year ended February 28, 1999.

         The sound segment  consists of the manufacture and sale of professional
         and consumer sound system components and products,  including speakers,
         amplifiers, and Bass Shakers. We aggregated the sound segment operating
         units due to  economic  characteristics,  products  and  services,  the
         production   process  class  of  customer  and  distribution   process.
         Subsequent  to February 28, 1999,  the Company  elected to  discontinue
         this segment and the segment was sold in two separate transactions, see
         note 21.
<TABLE>
<CAPTION>

                                      Aura               NewCom             AuraSound          Consolidated
Net Revenues*                                        (in thousands)
<S>                              <C>                  <C>                 <C>                 <C>
                 1999            $       6,830        $       46,820      $       27,868      $        81,518
                 1998            $      10,252        $       93,687      $       32,776      $       136,715
                 1997            $      27,547        $       50,632      $       31,771      $       109,950

Income (loss) from Operations
                 1999            $     (54,396)       $      (94,357)     $      (14,409)     $      (163,162)
                 1998            $     (19,238)       $       11,872      $       (3,954)     $       (11,320)
                 1997            $      (4,913)       $        5,164      $       (1,435)     $        (1,184)

Identifiable Assets
                 1999            $      63,754        $           --      $       26,389      $        90,143
                 1998            $      96,735        $       96,127      $       34,441      $       227,303
                 1997            $      86,957        $       47,435      $       48,136      $       182,528

Depreciation and Amortization
                 1999            $       7,375        $        1,511      $        4,099      $        12,985
                 1998            $       3,621        $        1,274      $        3,467      $         8,362
                 1997            $       2,591        $          348      $        1,858      $         4,797

Capital Expenditures
                 1999            $       2,450        $          161      $        1,443      $         4,054
                 1998            $      15,322        $        1,455      $        1,229      $        18,006
                 1997            $      14,008        $        2,121      $        9,018      $        25,147

Number of operating locations at year-end (unaudited)
                 1999                  2                    2                   5                   9
                 1998                  2                    2                   5                   9
                 1997                  4                    1                   5                   10
</TABLE>

*        Includes revenue from external customers for all groups of products and
         services in each segment  reported.  Products and services sold by each
         segment are generally  similar in nature;  also it is  impracticable to
         disclose revenues by product.

Segment Reporting
Revenue from customer geographical segments are as follows (in thousands):

<TABLE>
<CAPTION>
                                                 1999                       1998                      1997
                                                 ----                       ----                      ----
<S>                                        <C>        <C>            <C>         <C>           <C>         <C>
U.S., Canada, Latin America                $58,871    72.22%         $120,517    88.15%        $84,862     77.18%
Europe                                       $ 772     0.95               451     0.33           1,404      1.28
Pacific Rim                                 21,875    26.83            15,747    11.52          23,684     21.54
                                           -------   ------          --------    ------       --------    ------
                                           $81,518   100.00%         $136,715   100.00%       $109,950    100.00%
                                           =======   =======        =========   =======      =========   =======
</TABLE>
         The majority of the Company's operating long-lived assets are located
         in the United States

(21)     Subsequent Events

         Sale of MYS Corp.

         In March 1999,  the Company  entered into an agreement  for the sale of
         MYS Corp. and  subsidiaries  to the management of MYS. The terms of the
         agreement  called  for a  purchase  price of $4.2  million  with a down
         payment  of $1.0  million,  which was paid on April 15,  1999,  and the
         balance,  including  interest  at 8% per  annum,  due in  twelve  equal
         monthly installments.


         Sale of Assets of AuraSound

         In July  1999, the Company  entered into an agreement for the sale of
         the assets of the Company's  AuraSound speaker division with a supplier
         to Sound.  The terms of the  agreement  called for a purchase  price of
         $2.0 million  plus the  assumption  of up to $1.6 million in debt.  The
         terms further stated that the liabilities  assumed would not exceed the
         net realizable value of the accounts  receivable by more than $300,000.
         In  addition  to the sale of the assets,  the  Company  entered  into a
         licensing agreement with the purchaser which calls for a license fee of
         $1.5 million payable in monthly installments, with an additional option
         to purchase the patents under  license.  The option may be exercised at
         any time prior to the third year anniversary for an additional payments
         of $1,500,000.


         Restructuring of RGC International Investors, LDC, debt

         In  October  1999  the  Company  entered  into an  agreement  with  RGC
         International  Investors,  LDC and a third party investor  (AuraSound's
         assets purchaser) whereby RGC (i) sold to the third party the Company's
        Convertible Unsecured Debentures (the "RGC debentures") in the aggregate
         principal amount of $17,365,000, (ii) exchanged with the Company its $3
         million Secured Convertible Note for a new non-convertible Secured Note
         (the "New RGC Note") in the principal  amount of $3 million,  and (iii)
         cancelled Warrants to purchase 9,000,770 shares of the Company's Common
         Stock in exchange  for new  Warrants to  purchase  1,000,000  shares of
         common stock  exercisable  at $0.375 per share.  The New RGC Note bears
         interest  at the rate of 8% per  annum,  with  principal  and  interest
         payable no less frequently  than quarterly.  The New RGC Note continues
         to be  secured by a lien on certain  assets of the  Company,  including
         inventory and accounts receivable.


         Under the agreement with the new holder of the RGC Debentures,  the RGC
         Debentures are convertible  into a maximum of 46,500,000  shares of the
         Company's  Common Stock. The holder of the RGC Debentures has agreed to
         cancel  the  outstanding  principal  and  interest  owed  under the RGC
         Debentures upon  consummation  of the  restructuring  of  approximately
         $14.7  million of  outstanding  Debentures  held by a third party.  See
         "Restructuring of Infinity Investors debt" below.

         Retirement of JNC Debt

         In  December  1999,  the  Company  consummated  an  agreement  with JNC
         Opportunity  Fund, Ltd.  resulting in the surrender for cancellation by
         JNC of the  Company's  Convertible  Debenture  and 318,000  warrants in
         exchange  for a cash  payment  of  $430,000,  3,500,000  shares  of the
         Company's Common Stock and 113,000  Warrants  exercisable at $0.375 per
         share expiring December 1, 2002.

         Restructuring of Infinity Investors Debt

         In November 1999 the Company entered into an agreement with the holders
         of  approximately  $14.7  million  of  Debentures  which  were  due  in
         September  1998.  Under the terms of the agreement  the Investors  have
         agreed to exchange  (the  "Exchange")  the  Debentures  and Warrants to
         purchase  1,111,111 shares of the Company's Common Stock for $3 million
         in  cash  and a new  Secured  Note  (the  "New  Secured  Note")  in the
         principal amount of $12.5 million. The New Secured Note will be secured
         by a lien on the Company's assets, will bear interest at the rate of 8%
         per annum,  payable quarterly,  with the principal due three years from
         the date of the  exchange.  In the  event of a  default  under  the New
         Secured  Note,  the holder is entitled to convert the unpaid  principal
         and interest  into Common  Stock of the Company at $.60 per share.  The
         Company is entitled  to a discount if the New Secured  Note is prepaid,
         which discount is initially 20% of the amount prepaid, and the discount
         declines  ratably  over the three  year term of the New  Secured  Note.
         Consummation  of the Exchange is subject to  completion of a definitive
         agreement with the holders of the Debentures.

         Restructuring of Trade debt

         In  December  1999,  the  Company   implemented  a   restructuring   of
         approximately  $10.8  million  of  trade  debt  held by  certain  trade
         creditors  whereby  the holders of a  substantial  portion of the trade
         debt have  agreed to the  repayment  of  outstanding  trade debt over a
         period  of three  years,  with  interest  at 8% per  annum,  commencing
         January 2000.

         Completion of Common Stock Private Placement

         In  November  1999  the  Company   completed  a  private  placement  of
         approximately 27 million shares of its Common Stock at $0.27 per share,
         resulting in gross proceeds of approximately $6.9 million.




<PAGE>



                                                    SCHEDULE II
                                                AURA SYSTEMS, INC.
                                                 AND SUBSIDIARIES

                        Valuation and Qualifying Accounts

     Years ended February 28, 1999, February 28, 1998 and February 28, 1997


<TABLE>
<CAPTION>
                                     Balance at      Charged to       Charged to                        Balance at
                                     beginning of    costs and          other                             end
                                       period         expenses         Accounts       Deductions        of period

                                     -----------------------------------------------------------------------------------


<S>                                    <C>             <C>               <C>              <C>            <C>
Allowances  are  deducted  from  the
assets to which they apply

Year ended February 28, 1999 Allowance for:
    Uncollectible Accounts             $  5,431,525     $13,314,320      $10,000,000      $20,596,294    $  8,149,551
    Reserve for returns                     569,605      24,741,084               --       25,189,215         121,474
    Reserve  for  potential  product
    obsolescence                          4,535,000      15,906,337               --       12,565,337       7,876,000
                                          ---------      ----------     ------------       ----------       ---------
                                        $10,536,130     $53,961,741      $10,000,000      $58,350,846     $16,147,025
                                         ==========      ==========       ==========      ===========      ==========

Year ended February 28, 1998:

Allowance for:
    Uncollectible Accounts               $2,090,652    $  3,617,056      $        --     $    276,183      $5,431,525
    Reserve for returns                   1,512,679      23,504,148               --       24,447,222         569,605
    Reserve for potential product
    obsolescence                          2,255,000       4,030,000               --        1,750,000       4,535,000
                                          ---------    ------------       ----------      -----------      ----------
                                         $5,858,331     $31,151,204      $        --      $26,473,405     $10,536,130
                                          =========      ==========       ==========       ==========      ==========

Year ended February 28, 1997:

Allowance for:
    Uncollectible Accounts              $ 1,947,883      $  737,577      $        --     $    594,808      $2,090,652
    Reserve for returns                     535,119         977,560               --               --       1,512,679
    Reserve for potential product
    obsolescence                                 --       2,255,000               --               --       2,255,000
                                         ----------       ---------      -----------      -----------       ---------
                                         $2,483,002      $3,970,137      $        --      $   594,808      $5,858,331
                                          =========       =========       ==========       ==========       =========

</TABLE>
Amounts charged to other accounts include amounts charged for price protection
and rebates.