SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549


                                   Form 10-K/A

(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 29, 2000

                                       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   |X|   No   |_|

       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 June 12, 2000 the aggregate market value of the voting stock held by
non-affiliates of the Registrant was $68,875,417. The aggregate market value has
been computed by reference to the last trading price of the stock on June 12,
2000. On such date the Registrant had 239,361,352 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.

     The Company is currently  focused on its  electromagnetic  patented AuraGen
technology  and product  line.  The  AuraGen  ("AuraGen")  is an electric  power
induction  machine that generates  electricity  when coupled to the engine of an
automobile.  The  AuraGen  system  is  composed  of three  basic  components:  a
mechanical  component,  an electronic  control box and bracketry to fit specific
automobile  engines.  The  mechanical  component is hooked up to the  automotive
engine with the specific designed bracket. The rotation of the engine causes the
mechanical   component  to  generate  electricity  similar  to  the  traditional
alternator system.  However,  unlike the traditional  alternator which generates
very little  electric power at slow speeds,  the AuraGen can generate full power
at all engine speeds including enhanced idle. In addition,  the power generating
capabilities  of the AuraGen  are  significantly  larger  than that  produced by
alternators  at any speed.  The  electronic  control box known as the "ECU" is a
proprietary  system  designed to condition the power generated by the mechanical
device.  This system  provides  clean 110V or 220V  alternating  current  ("AC")
power.  Numerous tests and measurements have shown that the quality of the power
generated by the integrated system is equal or better than the power provided by
the electric company.  Available AuraGen options also provide 14V and 28V direct
current  ("DC")  power.  The system can be  configured to provide any DC voltage
between 12V and 400V.

     The  Company's   operations  are  totally  focused  on  manufacturing   and
commercializing  the  AuraGen(R)  family  of  electromagnetic   products,   with
applications  for  military,  industry  and  the  consumer.  Limited  commercial
production of the AuraGen  commenced in Fiscal 1999 and is being distributed and
sold through dealers, distributors and OEMs.

     The Company  intends to continue to focus its  business on the AuraGen line
of products (See "Description of Business - Magnetic Technology").  In addition,
the Company is entitled to receive  royalties from Daewoo  Electronics Co., Ltd.
("Daewoo") for its electro-optics  technology ("AMA") licensed to Daewoo in 1992
(See "Description of Business - Electro-Optical Technology").

Historical Summary

     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.
As a result,  the Company  expanded  its  presence  in the  growing  multimedia,
communication and sound-related  consumer electronics market. In September 1997,
NewCom  completed an initial public  offering,  decreasing  Aura's  ownership in
NewCom down to a majority  interest at the conclusion of the offering.  Over the
next year and a half, Aura's ownership decreased to a minority position.  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  and  furthermore  seized
NewCom's  assets.  This, in conjunction  with the non-payment by the retail mass
merchants, resulted in the cessation of NewCom operations in early Fiscal 2000.

     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.  In Fiscal
2000, the Company sold MYS back to the original Japanese owners who were part of
MYS management.

     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.  Due to its financial condition,  NewCom was
unable to meet its obligations to Aura in September 1998,  ultimately creating a
significant cash shortfall to Aura. This required Aura beginning in January 1999
to refocus its operations by 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 further  development of
certain electro-magnetic projects,  including the electromagnetic valve actuator
("EVA").

     In Fiscal  2000 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.
Subsequent to Fiscal 2000 the Company sold its Aura Ceramics division. See "Item
7 - Management  Discussion  and Analysis of Financial  Condition  and Results of
Operations."

II.  DESCRIPTION OF BUSINESS

A.   Technology

     1. 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  exceptional  high  force  levels in a device of
relatively  small  volume and weight.  As this  concept  extended  from a linear
actuator  to a  rotary  actuator,  an  electrical  induction  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)

     Actuators are used in a wide range of  applications,  including high speed,
precision  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.

     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.  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 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.

     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.

2.   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).  The AMA(TM)
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 could 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  potentially
offer the combination of increased display intensity at a competitive production
cost. The Company believes that the AMATM  technology has a technical  advantage
over other technologies in achieving higher contrast,  more intensity and longer
lived elements.

     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 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

1.   AuraGen(R)

     The  AuraGen is a patented  technology  (US Patent  Numbers  5,734,217  and
6,157,175) 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 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 electric
power induction machines designed to fit under the hood of a full size pickup
truck, Sports Utility Vehicle (SUV) or other large vehicle.. The AuraGen is
composed of three basic subsystems. The first subsystem consists of a mechanical
device that is bolted to the automotive engine. The second subsystem is an
electronic control unit ("ECU") that can be mounted anywhere in the vehicle
except under the hood. The mechanical component generates electricity when the
system is rotated by the engine similar to the conventional alternator. Unlike
the alternator this device generates maximum power at all speeds including
enhanced idle. The ECU filters and conditions the electric power to provide
different steady voltages and clean AC power.

     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 during the past 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 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 two years 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.

     Currently  the AuraGen is used by a number of  broadcasting  TV stations in
their mobile news  vehicles.  The AuraGen is also being used 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. 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 is positioning  itself in the market place as a turn key mobile
power  solution  that is safer,  more  reliable,  more  convenient,  with better
quality 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  (except  normal belt wear and tear) 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.

     The Company's  marketing  approach consists of three basic components.  The
first  component  is the  establishment  of a  distribution  network  for  sale,
installation  and service.  The second  component  consists of establishing  OEM
relationships.  The third  component is an  educational  and awareness  campaign
where  the  AuraGen  and  its  capabilities  are  presented  to  industrial  and
commercial  users. To date,  most of the marketing  efforts have been focused on
introducing the AuraGen to as many potential  industrial and commercial users as
possible.

2.   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  electromagnetically:  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  the  timing  chain,
camshaft  and  rockerarms  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) for the
purpose of  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 further 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.  The
Company  is totally  dependent  on Daewoo  Electronics  for  exploiting  the AMA
technology. Certain of these risk factors are discussed below.

1.   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 military  evaluation  has
been ongoing for over a year.  The first set of tests and  evaluation  have been
conducted at Ft. Irwin,  California for desert type usage. Currently the Army is
conducting  additional tests at Ft. Bragg, North Carolina.  The test results are
very supportive of the AuraGen  product.  The Army in its 1998 Advance  Concepts
and Technology II publication  refered to the AuraGen  technology as "leap-ahead
technology to generate electric power".  The AuraGen and the potential  benefits
to the Army are described in the 1999 Army Logistican publication.

     In addition to technical evaluation when dealing with the government, other
issues such as budgets and  planning  may cause  delays in ordering or deploying
units.

     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 U.S.  Army  will
conduct other tests.

     The Company has  recently  delivered  to the U.S.  Army 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 may  incorporate  the required  changes into the
Electronic Control Unit ("ECU"). While the Company expects 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 or if the changes 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  working with General Motors,  a major  automotive
OEM in regard to the AuraGen.  The activities were focused on incorporating  the
AuraGen  into a number  of  concept  vehicles  to be  shown  at the Auto  Shows.
Recently  General  Motors has  exhibited  the AuraGen as a  potential  option in
selected future concept vehicles.

2.   Actuated Mirror Array (AMA(TM))

     The Company licensed its AMA technology to Daewoo Electronics, Co., Ltd. of
Korea   ("Daewoo").   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.  Due to
Daewoo's  financial crisis, no assurances can be given as to the future plans of
the AMA technology at Daewoo.

     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 solutions.

     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  manufacturing,
testing, and obtaining regulatory approvals, marketing and distribution.

     Portable  generators  ("Gensets")  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.  The main advantage of Gensets over the
AuraGen is their stand alone  operation.  Gensets,  unlike the AuraGen come with
their own engine and do not  require a vehicle to operate.  There are  presently
44-registered genset manufacturers.

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

<TABLE>
<CAPTION>
                               TABLE 1: GENERATORS

                                 Onan              Honda              Honda              Kohler           AuraGen(TM)
       Parameters            Marquis 5000         EG5000X             EX5500              5CKM             G5000
------------------------- ------------------- ----------------- ------------------- ----------------- -----------------

<S>                       <C>                 <C>               <C>                 <C>               <C>
Rated Power               5,000 W             4,500 W           5,000 W             5,000 W           5,000 W
Weight                    258 lbs/117.3 kg    146 lbs/66.4 kg   393 lbs/178.6 kg    268 lbs/122 kg    68 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 V         120/240 V           120/240 V         120/240 V
Engine RPM
@ Rated Output            1,800               3,600             3,600               1,800             1,300
Noise (db @10 Ft.)`       73.5                82                65                  88.5              64
Load-Follower
Economy                   No                  No                No                  No                Yes
</TABLE>


     As can be seen from the table  above the  AuraGen  volume  and  weight  are
substantially  lower than  traditional  Gensets.  In addition the AuraGen in use
generates  less noise than the  competing  Gensets.  The AuraGen  provides  load
following  economy.  Load following  means that the AuraGen will produce as much
power as is needed at any instant up to the maximum capability.  Gensets provide
fixed power at all times.

     In addition to competition from Gensets,  there are six major manufacturers
of  Inverters  in the  United  States  including  Vanner,  Dimension  and Heart.
Inverters are devices that use batteries to generate AC electric power.

     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    Higher  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>
<CAPTION>

                               TABLE 2: INVERTERS

                                    Heart I/F       Vanner         Vanner        Vanner         AuraGen(TM)
Parameters                          Freedom 25      Bravo 2600     TB30-12       A40-120X       G5000

<S>                                 <C>             <C>            <C>           <C>            <C>
1. Max Rated Power (Watts)          2500            2600           2800          4800           5000
2. Weight (LBS)                     56              70             75            110            68
2A. Weight Battery Pack             Add             Add            Add           No             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              Modified        Modified       Yes           Modified       Yes
6. Vehicle Engine Noise
         (db @ 10Ft.)               64              64             64            64             64
7. Load Follower-Economy            Yes             Yes            Yes           Yes            Yes
</TABLE>

     Providing pure sine wave at all RPM is a very difficult  specification  for
inverters.  Most  inverters  provide a modified wave that could cause  potential
damage to sensitive digital  equipment.  No inverter provides pure sine waves at
high  power and those  that  provide  such sine wave at low power are  extremely
expensive.

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 5,000 units per month per 8 hour  operating
shift. As of May 31, 2000 the production facility was drastically  underutilized
with only  sporadic  operations  and limited  shipments.  The Company  leases an
approximate  38,000  square  foot  ceramics  facility  in New  Hope,  Minnesota.
Subsequent  to year end the Company  sold its  ceramics  division  and no longer
leases this facility.

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, the 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 has  established a
Quality  Management  system,  and  is  in  pursuit  of  both  ISO  and  QS  9000
registration.  Elements  include a  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 SPC,  In-Process  Inspection  and
Functional Test on its AuraGen assembly line.

G.   Product Development Expenditures

     During the fiscal years ended  February 29,  2000,  February 28, 1999,  and
February 28, 1998 the Company spent  approximately $ 0.1 million,  $ 2.0 million
and $.5 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 29, 2000 the Company employed  approximately 85 persons. 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 29, 2000,  ceramics  products were the largest
single source of revenue on a  consolidated  basis,  constituting  approximately
$2.9  million or 50% of net  revenues.  License fees for sound  related  patents
constituted  $1.5 million or 25.6% of revenues.  For the year ended February 28,
1999,  multi-media products and modems were approximately $46.8 million or 87.2%
of net  revenues.  With the sale of the ceramics  facility  subsequent to Fiscal
2000,  the  principal  source of revenue  going  forward  will be related to the
Company's AuraGen technology.

K.   Significant Customers

     The Company sold ceramics related products to a single significant customer
during  Fiscal 2000 for a total of  approximately  $2.1  million or 36.2% of net
revenues.  After Fiscal 2000 this customer will not be a significant customer as
the Company has sold the ceramics division.

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 to year end the Company sold its ceramics division and no
longer leases this facility.

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 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 finally approved in or about April, 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.  The deferral resulted from the limitations on the number of shares
authorized.  The final  distribution  of stock  and  warrants  to class  members
occurred in April and May 2000.

NewCom Related Litigation

     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 approximately  $11,000,000
of 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 set for May,
2000 was suspended by the panel without yet  scheduling a new hearing date.  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 twoNewCom, 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 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
Repricing Rights.  The parties have agreed to submit this matter to mediation on
June 28,  2000.  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 on financial conditions, results
of operations or cash flow.

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 requirements 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 4,400 stockholders of record as of June 12,
2000.
<TABLE>
<CAPTION>

       Period                                                             High                      Low


Fiscal 1999

<S>                                                                      <C>                        <C>
       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

Fiscal 2000

       First Quarter ended May 31, 1999                                  $0.50                      $0.22
       Second Quarter ended August 31, 1999                              $0.28                      $0.06
       Third Quarter ended November 30, 1999                             $0.51                      $0.06
       Fourth Quarter ended February 29, 2000                            $0.42                      $0.17
</TABLE>

     On June 12, 2000,  the average  high and low  reported  sales price for the
Company's Common Stock was $0.315.

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


Private Placement of Common Stock

     In the third quarter of Fiscal 2000 the Company sold  26,640,740  shares of
its  Common  Stock to a group of  accredited  investors  for gross  proceeds  of
approximately  $6.9  million,  and issued  1,020,890  shares to unrelated  third
parties in payment of placement  fees. In the fourth  quarter of Fiscal 2000 the
Company sold an additional 2,500,000 shares of Common Stock to a single investor
for gross proceeds of  approximately  $600,000.  These  securities  were sold in
reliance  upon Section  4(2) of the  Securities  Act of 1933 as the  transaction
involved a private placement to a small group of accredited investors.

Warrant Exercises

     During the fiscal quarter ended May 31, 1999, warrants for 70,000 shares of
Common Stock were  exercised by two accredited  individuals:  30,000 shares were
issued for cash  consideration of $9,300,  and 40,000 shares were issued against
satisfaction of $20,000 of outstanding liabilities.

     The securities issued in these warrant exercises were sold in reliance upon
Section  4(2)  of the  Securities  Act of 1933 as the  transactions  involved  a
private placement to a small group of accredited investors.

Management Compensation

     In the third  and  fourth  quarter  of Fiscal  2000 the  Company  issued an
aggregate of 1,135,086 and 1,772,189  shares of Common Stock,  respectively,  to
eight executive officers of the Company in exchange for an aggregate of $306,474
and $478,491,  respectively, of accrued and unpaid wages due to them under their
employment contracts with the Company.

     The  securities  issued to these  individuals  were sold in  reliance  upon
Section  4(2)  of the  Securities  Act of 1933 as the  transactions  involved  a
private placement to a small group of sophisticated investors who are members of
the Company's senior management.

Debt Restructuring

     Between  October 1999 and February 2000 an unrelated  third party converted
approximately  $5.3 million  principal  amount of  convertible  debt  originally
issued to RGC International  Investors, LDC in 1997 in exchange for an aggregate
of  46,500,000  shares of Common  Stock,  which shares were issued to such third
party  and a small  group  of  unrelated,  accredited  investors.  In  addition,
2,400,000  restricted  shares were issued by the Company to an  unrelated  third
party  as  a  placement  fee  for   assisting  in  connection   with  this  debt
restructuring,  which shares were issued by the Company subsequent to the end of
Fiscal 2000.

     In February  2000 an  unrelated  third  party  converted  approximately  $4
million  principal amount of convertible debt originally issued in March 1997 in
exchange for an aggregate of  18,534,445  shares of Common  Stock,  which shares
were  issued to such  third  party and a small  group of  unrelated,  accredited
investors.

     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.

     As part of the Company's financial restructuring in Fiscal 2000 the Company
offered to exchange  convertible  notes  originally  issued to seven  accredited
investors in 1993 for Common Stock. As a result of the restructuring the Company
exchanged  the notes at a price of $.27 per share,  resulting in the issuance of
2,520,000 shares of Common Stock to these seven individuals.

     The  securities  issued in  connection  with  these  debt  conversions  and
exchanges  were sold in reliance upon Section 4(2) of the Securities Act of 1933
as each of the transactions  involved a private placement to a single accredited
investor or a small group of accredited investors.

     For further  information  regarding the Company's debt  restructuring,  see
"Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations - Liquidity and Capital Resources -Debt Restructuring" and Note 24
to the Company's  Consolidated  Financial Statements appearing elsewhere in this
Report.

December 1998 Private Placement

     In December 1998 the Company completed a private placement of Units to nine
accredited  investors,  each Unit  consisting  of 10 shares of Common  Stock and
Warrants to purchase  four shares of Common Stock at an exercise  price of $1.00
per share for five years,  for total gross  offering  proceeds of  approximately
$1.8 million.  The terms of the offering  called for,  among other  things,  the
prompt  registration  of the  purchased  securities  with the  SEC.  As a result
principally  of delays in  completing  the  Company's  audit for the fiscal year
ended  February  1999,  the  Company  was  unable  to timely  file the  required
registration.  Consequently in amendments to the offering terms which culminated
in March 2000, the Company  agreed to increase the number of shares  received by
each  investor  based upon an agreed  price of $.33 per share and the  investors
agreed to surrender  the Warrants and their right to receive  interest  from the
Company,  resulting  in an issuance in March 2000 of an  aggregate  of 1,775,824
shares to these nine investors.

     The  securities  issued in connection  with this  transaction  were sold in
reliance  upon Section  4(2) of the  Securities  Act of 1933 as the  transaction
involved a private placement to a small group of accredited investors.

Directors' Fees

     In March 2000 the Company  issued an aggregate of 541,667  shares of Common
Stock to four  outside  members of the Board of Directors in lieu of accrued and
unpaid  directors'  fees in the  aggregate  amount of $146,500.  The  securities
issued in connection  with this  transaction  were sold in reliance upon Section
4(2) of the  Securities  Act of  1933  as the  transaction  involved  a  private
placement to a small group of accredited investors.

<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.  The data for Fiscal 2000,  1999,  and 1997 has been restated to reflect
discontinued  operations.  The data for Fiscal 1996 has not been  revised as the
discontinued operations were not in existence in Fiscal 1996.
<TABLE>
<CAPTION>

                       AURA SYSTEMS, INC. AND SUBSIDIARIES

                                                  February 29,      February 28,  February 28,     February 28,     February 29,
                                                    2000              1999            1998             1997           1996
                                                  --------------      ---------      -------------    -----------    ------------

<S>                                                <C>                <C>           <C>              <C>             <C>
Net Revenues                                       $   5,788,221      $53,650,025   $103,939,641     $76,424,311     $77,088,850
                                                   -------------       ----------    -----------     -----------      ----------
Cost of goods and overhead                            13,424,304      130,437,194     71,774,522      57,030,239      71,849,204

Expenses:
   Research and development                              148,443        1,996,198        475,992       5,674,302       5,225,735
   Impairment of long-lived assets                            --        5,838,466             --              --              --
   Selling, general and administrative                10,725,397       64,131,074     35,266,048      12,742,269      26,399,794
                                                   -------------       ----------     ----------   -------------      ----------
   expenses
         Total expenses                               24,298,144      202,402,932    107,516,562      61,115,169     103,474,733
                                                   -------------      -----------    -----------      ----------     -----------

Income (loss) From Operations                        (18,509,922)    (148,752,907)    (3,576,921)       (977,501)    (26,385,883)

Other (Income) and Expense

   Net interest expense                                4,476,690       11,577,990      6,450,741        1,181,910         298,793
   Termination of license agreements                          --               --      3,113,030              --              --
   Loss on disposal of assets and investments           (259,724)       5,809,811             --              --              --
   Gain on sale & issuance of subsidiary                      --         (811,657)   (12,632,265)       (250,000)             --
   stock
   Class action litigation & other                     2,777,762        7,717,518      1,700,000              --              --
   settlements
   Equity in losses of unconsolidated joint
     ventures                                                 --        6,268,384      1,937,747              --              --
   Other                                              (1,101,279)              --       (220,291)         40,642              --
   Provision (benefit) for taxes                              --          566,635     (1,275,555)         13,148              --
   Minority interests                                         --      (36,934,376)       946,405              --              --
   Loss in excess of basis of subsidiary                      --       (8,080,695)              --            --              --
                                                  --------------       ----------- ---------------     ---------       ---------

Income (loss) from continuing operations             (24,403,371)    (134,866,517)    (3,597,733)         73,085     (26,087,090)
Discontinued Operations:
     Loss from Discontinued Operations, Net
     of                                               (4,131,501)     (14,875,065)    (8,038,807)     (2,953,196)             --
     Income taxes
Extraordinary Item
     Gain on extinguishment of debt
     obligations, net of income taxes                 19,068,916         (406,574)            --              --              --
                                                  --------------      ------------   -----------       ---------       ---------
Net loss                                          $   (9,465,956)   $(149,741,582)  $(11,636,540)    $(2,880,111)    $ (26,087,090)
                                                   -------------    -------------=  ------------      ----------=      -----------
Other comprehensive loss, net of taxes                        --         (406,574)           --               --                --
Comprehensive loss                                    (9,465,956)    (150,148,156) $ (11,636,540)    $(2,880,111)    $ (26,087,090)
                                                                -

NET (LOSS) PER COMMON SHARE                       $        (0.08)    $      (1.74) $                  $     (.04)      $      (.48)
                                                   ==============    =============  ============       =========       ============
                                                                                           (.15)
 Income (loss) from continuing operations
   per common share                                $       (0.20)    $      (1.57)   $    (0.05)      $        --      $     (0.48)
                                                    =============    =============    ==========       ==========       ==========
 (Loss) from discontinued operations per
   common share                                   $        (0.03)    $      (0.17)  $     (0.10)      $    (0.04)      $       --
                                                   ============== ================   ===========       =========        =========
Extra-ordinary income per common share            $         0.15     $        --    $          --     $        --     $        --
                                                  ==============      ==========     ============      ==========      ==========
WEIGHTED AVERAGE NUMBER OF
   COMMON SHARES                              124,293,861              85,831,688     79,045,290      68,433,521      53,860,527
                                              ===========            ============     ==========      ==========      ==========

Working capital (deficit)                                826,213       (4,869,876)    78,143,895      62,310,715     71,362,882
Total assets                                          56,122,538       90,143,392    227,302,629     182,528,399    134,080,568
Long-term debt                                        46,951,716       34,236,944     33,968,393      18,897,631      2,661,028
Net stockholder's equity (deficit)                     1,516,008      (13,635,657)   116,901,868     125,477,587     99,163,106
</TABLE>


<PAGE>



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

Forward Looking Statements

     Statements in this Report,  including those  concerning our expectations of
future  sales  revenues,  gross  profits,  research and  development,  sales and
marketing,   and  administrative   expenses,   product  introductions  and  cash
requirements include forward-looking statements. As such, our actual results may
vary  materially  from our  expectations.  Factors  which could cause our actual
results  to differ  from  expectations  include,  but are not  limited  to,  the
following risks and contingencies: changed business conditions in the industrial
and  automotive  industries  and the overall  economy;  increased  marketing and
manufacturing  competition and accompanying  price  pressures;  contingencies in
initiating   production   at  new   factories   along   with   their   potential
underutilization,  resulting in production  inefficiencies  and higher costs and
start-up expenses and;  inefficiencies,  delays and increased depreciation costs
in connection with the start of production in new plants and expansions.

     Relating  to  the  above  are  potential  difficulties  or  delays  in  the
development,  production,  testing and marketing of products, including, but not
limited to, a failure to ship new products and  technologies  when  anticipated.
Manufacturing  economies  may fail to  develop  when  planned,  products  may be
defective and/or customers may fail to accept them in the marketplace.

     In addition to these factors,  risks and  contingencies may exist as to the
amount and rate of growth in the Company's  selling,  general and administrative
expenses,  and the impact of unusual items resulting from the Company's  ongoing
evaluation  of its business  strategies,  asset  valuations  and  organizational
structures.  The focus by the Company's business on any large order could entail
fluctuating results from quarter to quarter.

     The effects of, and changes in, trade,  monetary and fiscal policies,  laws
and  regulations,   other  activities  of  governments,   agencies  and  similar
organizations,  and social and economic  conditions,  such as trade restrictions
impose  yet other  constraints  on any  Company  statements.  The cost and other
effects of legal and administrative cases and proceedings present another factor
which may or may not have an impact.

Overview

     During  the  Fiscal  Year  ended  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 early
Fiscal 2000.  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,  which was consummated in
May 2000.

     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 fourth 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 restructured 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.

     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  converted
into common stock upon the restructuring of the 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 2000 as Compared to Fiscal 1999

Revenues

     Net revenues in Fiscal 2000  declined to $5.8 million from $53.7 million in
Fiscal 1999, a decrease of 89.2%. In Fiscal 1999, net revenues included revenues
of $45.2  million or 84.2% of revenues  from the NewCom  subsidiary  in which it
held an approximate 41% interest at February  28,1999.  NewCom ceased operations
shortly after the end of Fiscal 1999, resulting in no revenue being recorded for
NewCom in the current Fiscal year.  Included in Fiscal 2000 revenues are license
fees  pertaining to sound related  patents of $1.5 million or 25.9% of revenues.
There  were no such  revenues  in the prior  year  period.  License  fees have a
pronounced  effect on the results of operations since there is little or no cost
involved. Revenue from the ceramics facility totalled approximately $2.9 million
or 50% of the  revenues  for Fiscal  2000,  as  compared to  approximately  $2.7
million or 5% of revenues in the prior year period. In Fiscal 2000, net revenues
from the Company's AuraGen product totaled approximately $.8 million compared to
approximately  $1.2  million in Fiscal  1999.  The  decline  was a result of the
Company's financial difficulties and resultant cut back in sales activities.

     Although  inventory  levels are extremely high in relation to sales volume,
the  Company's net inventory is currently  comprised  solely of AuraGen  related
items.  While most of the inventory is  approximately  two years old, there have
been no changes to the product  which would render the inventory  obsolete.  The
Company  fully  expects that with  increasing  sales,  the  inventory  levels in
relation to sales will be drastically reduced.

Cost of Goods and Overhead

     Cost of goods and overhead  decreased  to $13.4 from $130.4  million in the
prior  Fiscal  year  primarily  as a result  of the  shutdown  of the  Company's
subsidiary previously mentioned.  Cost of goods and overhead for this subsidiary
totaled  approximately  $98.8 million in Fiscal 1999.  Included in cost of goods
and  overhead  for Fiscal 2000 is  approximately  $4.9  million in  depreciation
related to the AuraGen product.

Gross Profit and Net Loss

     Gross profit for Fiscal 2000 was a negative  131.9%  compared to a negative
143% in Fiscal  1999.  The  negative  gross  profit in the prior Fiscal year was
primarily a result of the Company's NewCom subsidiary. The current year negative
gross  profit  is a result  of  insufficient  sales in the  Company's  remaining
business to cover the overhead costs associated with the ongoing operations. The
gross profit was favorably  impacted by the license  revenue which has virtually
no cost  associated  with it. Gross profit from the ceramics  facility  improved
from 27.5% in Fiscal 1999 to 35.8% in Fiscal 2000.  The improved  margin results
from cost reduction efforts and the fact that little incremental  overhead costs
are incurred for the increased sales level.

Research and Development

     Research and  development  expense for Fiscal 2000 decreased to $.1 million
from $2.0 million in Fiscal 1999.  This is a result of the Company  focusing its
efforts on marketing and selling the AuraGen.

Selling, General and Administrative

     Selling,  general and administrative expenses decreased to $10.7 million in
Fiscal  2000 from  $64.1  million in Fiscal  1999.  The  primary  reason for the
decrease is the shutdown of the Company's  subsidiary  as previously  mentioned.
The Company also reduced the number of employees at the  Company's  headquarters
in conjunction with the  restructuring  the Company has undergone in the current
Fiscal year.  Additionally,  the Company  reduced other  expenses it was able to
control  such as  consolidating  facilities  and  reducing  travel.  Included in
selling, general and administrative expenses for Fiscal 2000 are legal costs and
expenses of  approximately  $1.7 million,  and  depreciation and amortization of
approximately $950,000.

Bad Debt Expense

     Bad debt expense  decreased to  approximately  $163,000 in Fiscal 2000 from
$12.8 million in the prior Fiscal year.

Interest Expense

     Interest  expense for Fiscal 2000 declined to  approximately  $ 4.5 million
from  $11.7  million  in  Fiscal  1999.  This  was  primarily  a  result  of the
elimination of interest expense from the  subsidiaries  that were either sold or
shutdown, and a result of the conversion of debt into equity and the forgiveness
of debt.

Discontinued Operations

     Effective  March 1, 1999, the Company sold its MYS group of subsidiaries to
the  management  of MYS and in June  1999,  the  Company  sold the assets of its
AuraSound  division.  Accordingly,  the  results of these  operations  have been
classified as a single item as a discontinued operation.

Fourth Quarter Adjustments

     Certain  events  occurred in the fourth quarter of Fiscal 2000 which impact
the financial statements.  The primary item that occurred was the forgiveness of
debt by certain of the Company's  creditors in the  approximate  amount of $19.1
million.

Fiscal 1999 as Compared to Fiscal 1998

     The  Company   continued   its  activity  in   development   of  commercial
applications of its proprietary magnetic technologies. 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 $53.6 million from $103.9  million,
a decrease of 48.4%.  These revenues were comprised  primarily of  approximately
$45.5  million  from  NewCom,  $2.7  million  from  ceramics,  $2.9 million from
Electrotec,  and $1.2 million from the Company's AuraGen product. In Fiscal 1998
revenues were  comprised  primarily of $93.7  million from NewCom,  $2.8 million
from the ceramics  facility and $3.1 million from  Electrotec.  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 $130.4 million in Fiscal 1999 from
$71.8  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 Profit and Net Loss

     Gross  profit for Fiscal  1999 was a negative  143%  compared  to 30.95% in
Fiscal 1998,  primarily due to the substantial drop in gross profit 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 profit was 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  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

Research and Development

     Research and development  expense for Fiscal 1999 increased to $2.0 million
from $.5  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 $64 million in
Fiscal  1999 from $35.3  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.


Liquidity and Capital Resources

     The working  capital  deficit  improved by  approximately  $5.7  million to
positive working capital of approximately $800,000 at Fiscal 2000 year end, with
the  current  ratio  improving  slightly to 1.05:1  from  .88:1.  The  principal
differences  in the  Company's  accounts  from February 28, 1999 to February 29,
2000 are a decrease in cash and  equivalents of $3.6 million,  a decrease in net
receivables  of $5.9 million,  a decrease in  inventories  of $7.3 million and a
decrease in accounts  payable and accrued  expenses of $25 million.  The primary
reason for these changes is the sale of the Company's MYS Corporation subsidiary
and the sale of the speaker assets of AuraSound Inc.

     The Company's cash balances were $260,437 at February 29, 2000,  $3,822,210
at February 28, 1999 and $6,079,411 at February 28, 1998.

     In Fiscal  2000 the Company  received  net  proceeds  of $7.4  million in a
private placement and proceeds of $24,800 from the exercise of warrants.

     The net cash used in operating  activities  of  $(15,568,917)  decreased by
$8,745,083 due primarily to the decrease in the loss incurred in addition to the
decreases in accounts receivable,  inventory and accounts payable as a result of
the cessation of NewCom's business.


     Spending  for property  and  equipment  amounted to $15,938 in Fiscal 2000,
$4,053,848  in Fiscal 1999 and  $18,006,394  in Fiscal 1998. Of the Fiscal 2000,
1999 and 1998 amounts,  nil, $1,910,611 and $16,096,180  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,  and the sale of assets. No
assurances  can be provided that these funding  sources will be available in the
future,  or at the times and in the amounts  necessary.  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,  equity, sale of non-essential assets 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 effect 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 and New
Hope,  Minnesota.  Minimum monthly rents under the leases  approximate  $55,000.
Rent expense was  approximately  $.9 million for Fiscal  2000,  $1.8 million for
Fiscal 1999, and $1.3 million for Fiscal 1998. At February 29, 2000, the Company
has no long term operating leases.

Debt Restructuring

     Following  is a  description  of the  principal  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 and 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 were convertible into a maximum of 46,500,000 shares of the Company's
Common Stock unless Aura failed to complete the restructuring with Infinity. The
holder of the RGC  Debentures  converted  a portion of the RGC  Debentures  into
46,500,000  shares  of Common  Stock  and  canceled  the  remaining  outstanding
principal and interest owed under the RGC Debentures as of the  consummation  of
the restructuring of approximately $17.4 million of outstanding  Debentures held
by 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 was due and payable
in 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 Warrants
exercisable at $0.375 per share expiring December 1, 2002.

     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 February 2000 the Company  consummated
an agreement  with these holders and a third party to exchange (the  "Exchange")
the Debentures for $3 million in cash, 1,111,111 shares of common stock, 100,000
Warrants  exercisable  at $0.375  per  share,  and new  Secured  Notes (the "New
Secured  Notes") in the aggregate  principal  amount of $12.5  million.  The New
Secured  Notes are secured by a lien on the Company's  assets,  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 an  uncured
default  under the New  Secured  Notes,  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.

     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.


<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>

                                       Director
 Name                      Age      Since   Title
<S>                        <C>      <C>     <C>
Zvi Kurtzman               53       1987    Chief Executive Officer, Chairman, Board of Directors,
                                            Member of Nominating Committee
Harvey Cohen               66       1993    Director, member of Audit Committee
Salvador Diaz-Verson, Jr.  47       1997    Director, member of Compensation Committees
Stephen A. Talesnick       50       1999    Director, member of Compensation and Nominating Committees
Norman Reitman             76       2000    Director, member of Audit Committee
David F. Hadley            35       2000    Director, member of Compensation and Nominating Committees
Sanford R. Edlein          56       2000    Director, member of Audit Committee
</TABLE>

Business Experience of Directors and Nominees During the Past Five Years

     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 and
1971,  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.

     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.

     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  with 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.

     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.

     Norman Reitman is a director of the Company and has served in this capacity
since March 6, 2000.  He  previously  served as a director  of the Company  from
January 1989 to  September  1998.  Mr.  Reitman  obtained  his B.B.A.  degree in
business administration from St. Johns University in 1946 and became licensed as
a public  accountant in New York in 1955. Mr. Reitman is the retired Chairman of
the Board and President of Norman Reitman Co., Inc.,  insurance auditors,  where
he served from 1979 until June 1990.  Mr. Reitman was a senior partner in Norman
Reitman Co., a public  accounting  firm, where he served from 1952 through 1979.
Mr.  Reitman  served  on the  Board of  Directors  and was a Vice  President  of
American Family Life Assurance Co., a publicly held insurance company, from 1966
until April 1991.

     David F.  Hadley  is a  director  of the  Company  and has  served  in this
capacity  since March 6, 2000. He is the founder and president of D.F.  Hadley &
Co., Inc. ("DFH&Co"). DFH&Co is a boutique financial services firm that provides
consulting and advisory  services to emerging  growth  companies  located in the
western  United  States.  The  principals  of  DFH&Co  also  seek to  invest  as
principals in the equity securities of DFH&Co clients.  Prior to founding DFH&Co
in August  1999,  Mr.  Hadley was a managing  director in the global  investment
banking group of BT Alex. Brown Inc.,  focusing on the media and  communications
sector.  Mr. Hadley was employed by  subsidiaries  of Bankers Trust  Corporation
from  1986 to June  1999.  He  received  his  MSc.  In  Economic  History  (with
distinction)  from the London School of Economics  and his A.B.  from  Dartmouth
College (summa cum laude).

     Sanford R.  Edlein,  is a director  of the  Company  and has served in this
capacity  since March 6,2000.  He is a Certified  Public  Accountant,  Certified
Turnaround Professional, and has served as a consultant and senior executive for
privately held and public  companies for more than thirty years and has assisted
in financial and operating matters, corporate governance,  crisis management and
mergers  and  acquisitions.  He has  served on the  boards  of public  companies
including  Sport Supply Group,  Inc.,  BSN  Corporation,  Tennis Lady,  Escalade
Corporation and American Equity  Financial  Corporation.  Since 1998 he has been
employed with Glass & Associates, Inc. a firm that specializes in turnaround and
crisis  management.  From 1996 to 1998 he was  president of Edlein & Associates,
LLC. a  consulting  firm.  From 1994 to 1996 he was CEO, COO and a member of the
board of directors of Sport Supply  Group,  Inc. From 1965 through 1980 and 1989
through  1994,  respectively,  Mr.  Edlein served as a partner and then managing
partner of Grant Thornton LLP (Boston office).  Mr. Edlein has a AAS degree from
Bronx Community College and a BBA degree from City University of New York.

MANAGEMENT

     Listed below are Executive Officers of the Company who are not directors or
nominees, their ages, titles and background information. All the officers listed
below hold their offices at the pleasure of the Board of Directors.
<TABLE>
<CAPTION>

Name                       Age              Title

<S>                        <C>              <C>
Gerald S. Papazian         44               President, Chief Operating Officer
Arthur J. Schwartz, Ph.D.  52               Executive Vice President
Cipora Kurtzman-Lavut      43               Senior Vice President, Corporate Communications
Neal B. Kaufman            55               Senior Vice President, Management Information Systems
Steven C. Veen             44               Senior Vice President, Chief Financial Officer
Michael I. Froch           38               Senior Vice President, General Counsel and Secretary
Keith O. Stuart            43               Senior Vice President Sales and Marketing
Ronald J. Goldstein        58               Senior Vice President Sales and Marketing
Jacob Mail                 49               Senior Vice President, AuraGen Operations
Richard E. Van Allen       53               Senior Vice President, Industrial and Special Programs
</TABLE>

     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
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.

     Arthur J.  Schwartz,  Ph.D.  has been the Executive  Vice  President 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 for the Company since 1988. 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  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.

     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 in 1981.

     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.

     Keith O.  Stuart is Senior  Vice  President,  Sales and  Marketing  and has
served in this capacity since November,  1999. Previously he served as President
of the Company's Tech Center division,  from 1995 to 1999 and has been in charge
of hardware  development  for Aura since 1988. Mr. Stuart  obtained his B.S. and
M.S.  degrees in electrical  engineering  from the  University of California Los
Angeles in 1978 and 1980, respectively. Mr. Stuart worked for Cyphermaster, Inc.
during 1986 and was  employed  by Hughes  Aircraft  Company,  a  scientific  and
aerospace  company,  prior  thereto.  Mr.  Stuart has  designed  and  fabricated
digitally  controlled,  magnetically  supported  gimbals that isolate the seeker
portion of a United States Space  Defense  Initiative  and has also  developed a
multi-computer  automated  test  station  for the  evaluation  of  sophisticated
electro-optical devices.

     Ronald J. Goldstein is Senior Vice President, Sales and Marketing,  serving
in this capacity since  November,  1999. He is responsible for the marketing and
sales of AuraGen to  worldwide  government  agencies  and the  military  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 was
responsible  for all  marketing  and  business  development  activities  for the
Company and served since 1995 as President of the Automotive/Industrial division
of 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.

     Jacob Mail is Senior Vice President,  AuraGen  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.

     Dr. Richard E. Van Allen is Senior Vice  President,  Industrial and Special
Programs,  serving in this capacity since June 1999. He is currently the Program
Manager  for the  military  version  of the  commercial  AuraGen  generator.  In
addition,  Dr. Van Allen manages ongoing  electromagnetic  actuator projects. He
joined the company in 1990 and  previously was Manager and Vice President of the
AuraSound  Division,  and before  that was  Division  manager  of the  Magnetics
Division. In these positions, Dr. Van Allen has been involved in the development
and  manufacture  of virtually  every  electromagnetic  system  produced by Aura
Systems.  Prior  to  joining  Aura,  he was a  Laboratory  Manager  in  Advanced
Government  Programs at the Hughes  Aircraft  Company  Space and  Communications
Group. Before joining Hughes, Dr. Van Allen served as the Navigation Team Leader
for  the  Voyager  outer  planets  exploration  program  at the  Jet  Propulsion
Laboratory.  He  received  his B.S.  degree in  Aeronautical  and  Astronautical
Engineering,  along with an M.S. and Ph.D. in Aerospace Engineering, from Purdue
University

Family Relationships

     Cipora Kurtzman-Lavut,  a Senior Vice President,  Corporate Communications,
is the sister of Zvi Kurtzman, who is the Chief Executive Officer and a director
of the Company. Jacob Mail, Senior Vice President, AuraGen 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 29, 2000, all filing  requirements  applicable to
its officers, directors, and ten percent beneficial owners were satisfied except
that Zvi  Kurtzman  and  Keith  Stuart  failed to  timely  file a single  Form 5
covering four and seven transactions, respectively, and Norman Reitman failed to
timely file a single Form 3. All such filings have now been made.

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 29, 2000.
<TABLE>
<CAPTION>

                           SUMMARY COMPENSATION TABLE

                                                     Annual                Long Term              All Other
                                                 Compensation(1)Compensation Awards             Compensation(2)
Name and
Principal Position                     Year          Salary             Options/SARs
<S>                    <C>                  <C>           <C>                  <C>                          <C>
  Zvi (Harry) Kurtzman (1)                  2000          $386,232                 0                            $  0
  Chief Executive Officer                   1999           384,290             1,000,000
                                            1998           245,018                 0

  Gerald S. Papazian (1)                    2000          $217,777                 0                          $2,392
  President and Chief Operating             1999           203,025              100,000
  Officer                                   1998           154,737                 0

  Arthur J. Schwartz (1)                    2000          $210,192                 0                            $  0
  Executive Vice President                  1999           204,895              500,000
                                            1998           172,115                 0

  Steven C. Veen(1)                         2000          $205,469                 0                          $2,257
  Senior Vice President and                 1999           196,412              100,000
  Chief Financial Officer                   1998           150,127                 0

  Cipora Kurtzman-Lavut(1)                  2000          $203,942                 0                            $  0
  Senior Vice President                     1999           199,221              500,000
                                            1998           162,225                 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  2000,  1999 and  1998,
     respectively, were as follows: Zvi Kurtzman - $385,000, $385,000, $200,000;
     Gerald S.  Papazian - $210,000,  $210,000,  $140,000;  Arthur J. Schwartz -
     $205,000,   $205,000,  $160,000;  Steven  C.  Veen  -  $200,000,  $200,000,
     $150,000; Cipora Kurtzman-Lavut - $195,000, $195,000, $150,000.

     Of the  compensation  paid in  Fiscal  2000,  $144,561,  $34,781,  $78,201,
     $44,918  and $58,520  was paid in the form of  535,413,  128,818,  289,632,
     166,363,  and 216,742 shares,  respectively,  of restricted common stock of
     the Company, valued as of the date of grant, to Mr. Kurtzman, Mr. Papazian,
     Dr. Schwartz, Mr. Veen and Ms. Kurtzman-Lavut, respectively. As of February
     29,  2000,  these  restricted  shares  were  valued at  $174,009,  $41,866,
     $94,130, $54,068 and $70,441,  respectively based upon the average high and
     low reported prices of the Company's Common Stock on such date.

(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 years ended February 29, 2000.

     No cash  bonuses  or  restricted  stock  awards  were  granted to the above
     individuals  during the fiscal years ended February 29, 2000,  February 28,
     1999 and February 28, 1998.  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
Gerald S. Papazian                    166,000                  60,000         $         0              $      0
Arthur J. Schwartz                    515,000                 300,000         $         0              $      0
Steven C. Veen                        215,000                 210,000         $         0              $      0
Cipora Kurtzman-Lavut                 515,000                 300,000         $         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 29, 2000.

No options were exercised by the above individuals during the fiscal year ended
February 29, 2000.

     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.

     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.
Papazian,  Schwartz  and Veen  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.

     The  employment  agreements  with  Mr.  Kurtzman  and the  Named  Executive
Officers have an initial term of three years. The term is automatically extended
for  one  year on  each  anniversary  of the  effective  date of the  employment
agreement  unless  either  party  gives  prior  notice  of  termination  of  the
agreement.  Upon the death or disability of these  executives,  their employment
agreements  provide  for a lump sum payment  equal to one year's  salary and the
immediate  vesting  of stock  based  compensation  awards.  In the  event of the
executive's  termination for cause, the terminated executive is entitled only to
compensation  accrued  through  the date of  termination.  If the  executive  is
terminated  by the Company  other than by reason of death,  disability or cause,
the  terminated  executive is entitled to  continued  payment of the base salary
through the end of the stated term together with an annual bonus for each of the
remaining years under the employment agreement equal to the highest annual bonus
amount  received  by the  terminated  executive  in the  three  years  preceding
termination and the immediate vesting of stock based compensation awards.

     Pursuant to severance  agreements entered into effective March 1998 between
the Company and key  executives of the Company,  including Mr.  Kurtzman and the
Named Executive  Officers,  these individuals are entitled to certain additional
benefits,  which become effective at such time as there is a "change in control"
of the Company,  as defined in the  severance  agreements.  If such  executive's
employment is  terminated  following a change in control other than by reason of
death,  disability or by the executive without "good reason",  or if following a
change in control the executive  elects to terminate  his  employment on the one
year  anniversary  following a change in control,  the terminating  executive is
entitled to  specified  severance  payments  in lieu of salary,  bonus and other
compensation  which would otherwise  accrue to the executive upon termination of
the employment agreement.  Specifically,  the severance agreements provide that,
for Messrs.  Kurtzman and Schwartz and Ms. Kurtzman-Lavut,  a lump sum severance
payment  is due upon  termination  in the  amount of three  times the sum of the
terminated  executive's base salary then in effect plus the highest annual bonus
earned in the three years preceding the date of termination;  and in the case of
Messrs.  Veen and Papazian,  1.5 times such base salary and bonus. The severance
agreements  also provide for the  accelerated  vesting of stock based awards and
the  continuation of life and health  insurance  benefits  following the date of
termination   (36  months  for   Messrs.   Kurtzman   and   Schwartz,   and  Ms.
Kurtzman-Lavut, and 18 months for Messrs. Papazian and Veen).

     Compensation of Chief Executive Officer and Other Executives

     Pursuant to employment  agreements  entered into effective as of March 1998
the Compensation Committee increased Mr. Kurtzman's base salary in March 1998 to
$385,000,  and increased the base salary of Papazian,  Schwartz and Veen and Ms.
Kurtzman-Lavut  to  $210,000,  $205,000,  $200,000  $195,000,  effective  as  of
December 1997, after consulting with a nationally  recognized  employee benefits
firm.  The increase for Mr.  Kurtzman  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.  Under the terms of their
employment  agreements  the base salary is subject to annual  adjustment,  based
upon the Company's  normal  historical  business  practices and consistent  with
salaries  paid to  executives  performing  similar  functions in the Los Angeles
area.

     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  2000  the
Compensation  Committee  determined not to award bonuses to Mr.  Kurtzman or the
Named Executive Officers.

         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.

     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 Member

                            Salvador Diaz-Verson, Jr.

Compensation Committee Interlocks and Insider Participation

     The  Compensation  Committee  for the Fiscal year ended  February  29, 2000
comprised of Salvador  Diaz-Verson,  Jr. and  Brigadier  Ashok Dewan.  Decisions
regarding  compensation of executive officers for the Fiscal year ended February
29, 2000 were made unanimously by the outside,  disinterested,  directors of the
Board  of  Directors,   after  reviewing  recommendations  of  the  Compensation
Committee.  As of March 6,  2000,  the  Compensation  Committee  of the Board of
Directors is  comprised  of Salvador  Diaz-Verson,  Jr.,  David F.  Hadley,  and
Stephen A. Talesnick.

Audit Committee Fraud Detection Program

     In August 1998 a lawsuit  captioned Collins v. Kurtzman et al. was filed in
U.S. District Court in the Central District of California, which purported to be
a derivative  shareholder suit on behalf of Aura against members of the Board of
Directors of the Company.  Aura believes that the action was without  merit.  In
April 1999 a final settlement was entered into by the parties which called for a
dismissal  of  the  action  and  no  payments  by  any  of  the  defendants.  In
consideration  of the plaintiff  dismissing its lawsuit Aura agreed to adopt and
implement a fraud detection  program (the  "Program")  under the auspices of the
Audit Committee,  after consulting with the Company's  outside legal counsel and
independent auditors. The purpose of the Program is to detect and prevent fraud,
maintain  accurate  books and  records  for  financial  transactions,  establish
procedures to ensure the  recording of  transactions  to be in  accordance  with
generally accepted accounting  principles,  and to ensure that the Company's SEC
filings  comply  with  SEC  rules  and  regulations.   The  Audit  Committee  is
responsible for monitoring the Program on an ongoing basis,  with the assistance
of the Company's outside legal counsel and its independent auditors.

<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 May 31, 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 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                         19,980,436                                   8.3%
Zvi (Harry) Kurtzman                                    3,391,314  (1)(2)                           1.4%
Arthur J. Schwartz                                      2,544,838  (1)(3)(4)                        1.1%
Cipora Kurtzman Lavut                                   1,874,512  (5)                                 *
Neal B. Kaufman                                         1,736,870  (1)(7)                              *
Harvey Cohen                                              468,287  (6)                                 *
Salvador Diaz-Verson, Jr.                               1,006,037                                      *
Stephen A. Talesnick                                    2,787,698                                   1.2%
Gerald S. Papazian                                        443,810  (8)                                 *
Steven C. Veen                                            659,763  (9)                                 *
Michael I. Froch                                          342,735  (10)                                *
Keith O. Stuart                                           161,188  (11)                                *
Ronald Goldstein                                          207,579  (12)                                *
Jacob Mail                                                278,841  (13)                                *
Norman Reitman                                            587,142  (14)                                *
Sanford R. Edlein                                               0                                      *
David F. Hadley                                           600,000                                      *
Richard Van Allen                                          91,973  (15)                                *

All executive officers and directors                    17,182,587                                  7.2%
as a group (16 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 May 31, 2000.

(3)  Includes  515,000  shares  which may be  purchased  pursuant to options and
     convertible securities exercisable within 60 days of May 31, 2000.

(4)  Includes  32,000 shares held by Dr. Schwartz as custodian for his children,
     and 74,000 owned by Dr. Schwartz' 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 May 31, 2000.

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

(7)  Includes  470,000  shares  which  may  be  purchased  pursuant  to  options
     exercisable within 60 days of May 31, 2000.

(8)  Includes  166,000  shares  which  may  be  purchased  pursuant  to  options
     exercisable within 60 days of May 31, 2000.

(9)  Includes  215,000  shares  which  may  be  purchased  pursuant  to  options
     exercisable  within 60 days of May 31, 2000,  and 20,000 shares held by Mr.
     Veen as  custodian  for his  children,  to which  Mr.  Veen  disclaims  any
     beneficial ownership.

(10) Includes  130,000  shares  which  may  be  purchased  pursuant  to  options
     exercisable within 60 days of May 31, 2000.

(11) Includes  150,000  shares  which  may  be  purchased  pursuant  to  options
     exercisable within 60 days of May 31, 2000.

(12) Includes  140,000  shares  which  may  be  purchased  pursuant  to  options
     exercisable within 60 days of May 31, 2000.

(13) Includes  150,000  shares  which  may  be  purchased  pursuant  to  options
     exercisable within 60 days of May 31, 2000.

(14) Includes  345,000  shares  which  may  be  purchased  pursuant  to  options
     exercisable  within 60 days of May 31, 2000 and 12,500  shares owned by Mr.
     Reitman's  wife,  as to which  12,500  shares he disclaims  any  beneficial
     ownership.

(15) Includes  24,000  shares  which  may  be  purchased   pursuant  to  options
     exercisable  within 60 days of May 31,  2000,  and 3,000 shares held by Dr.
     Van Allen as custodian  for his  children to which Dr. Van Allen  disclaims
     any beneficial ownership.

     The  mailing  address  for  Gardner  Lewis  Asset  Management,  L.P. is 285
Wilmington - West Chester Pike, Chadds Ford, Pa. 19317.

     The mailing  address for the others is c/o Aura Systems,  Inc., 2335 Alaska
Avenue, El Segundo, CA 90245.




ITEM 13.        CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

December 1998 Private Placement

In December 1998 the Company  completed a private  placement of Units, each Unit
consisting  of 10 shares of Common Stock and Warrants to purchase four shares of
Common  Stock at an  exercise  price of $1.00  per  share  for five  years.  The
original  subscription  price was $10.00 per Unit.  Of the total gross  offering
proceeds of approximately  $1.8 million,  $100,000 was invested by the mother of
Zvi Kurtzman,  and $400,000 was invested by Stephen Talesnick,  who subsequently
became a member of the Board of  Directors  in 1999.  The terms of the  offering
called  for,  among  other  things,  the prompt  registration  of the  purchased
securities  with the SEC. As a result  principally  of delays in completing  the
Company's  audit for the fiscal year ended February 1999, the Company was unable
to timely file the required  registration.  Consequently  in  amendments  to the
offering  terms which  culminated in March 2000,  the Company agreed to increase
the number of shares  received by each  investor  based upon an agreed  price of
$.33 per share and the  investors  agreed to  surrender  the  Warrants and their
right to receive interest from the Company.

Convertible Note Exchange

As part of the  Company's  financial  restructuring  in Fiscal  2000 the Company
offered to exchange  convertible  notes  issued to  investors in 1993 for Common
Stock.  As a result of the  restructuring  the Company  converted the notes to a
price of $.27 per share.  These investors among others included Zvi Kurtzman and
Arthur J.  Schwartz,  whose  notes  entitled  them to receive  from the  Company
$100,000  and $80,000,  respectively,  plus  accrued and unpaid  interest.  Both
Messrs.  Kurtzman and Schwartz  exchanged  their notes for Common Stock in March
2000.


<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 29, 2000.



<PAGE>

<TABLE>
<CAPTION>

                                INDEX TO EXHIBITS
                            Description of Documents

<S>                 <C>
        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(10)    AuraSound Asset Purchase
       10.19.1(10)  Asset Purchase Agreement dated December 1, 1999 among AuraSound, Inc., Aura Systems, Inc., AlgoSound, Inc., and
                    Algo Technology, Inc.
       10.19.2(10)  Amendment dated December 22, 1999 to Asset Purchase Agreement dated December 1, 1999.
       10.19.3(10)  Assignment and License Agreement as of July 15, 1999 between Speaker Acquisition Sub, Algo Technology, Inc.,
                    Aura Systems, Inc., AuraSound Inc.
       10.20(10)    MYS Stock Purchase
       10.20.1(10)  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(10)  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(10)  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(10)  Stock Purchase Agreement dated March 26, 1999 between the
                    Company and Yoshikazu Masayoshi, Sadao Masayoshi, Sachie
                    Masayoshi and Kazuaki Masayoshi.
       10.21(10)    Agreement with RGC International Investors, LDC
       10.21.1(10)  First Amendment to Security Agreement dated October 22, 1999
                    between RGC International Investors, LDC and the Company.
       10.21.2(10)  Settlement Agreement and Complete Release of all Claims
                    dated October 22, 1999 between RGC International Investors,
                    LDC, and the Company
       10.21.3(10)  Stock Purchase Warrant issued to RGC International Investors, LDC by the Company.
       10.21.4(10)  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(10)    Settlement Agreement and Release of Claims dated as of December 1, 1999 between JNC Opportunity Fund, Ltd., and
                    the Company.
       10.23(10)    Payment Agreement by and between Credit Managers Association of California and Aura Systems, Inc.
       10.24        Release from Infinity Investors Limited et al. to Aura Systems, Inc.
       10.25        Release from Aura Systems, Inc. to Infinity Investors Limited et al.
       10.26        Exchange Agreement dated as of February 22, 2000, by and among Aura Systems, Inc., Infinity Investors Limited et
                    al.
       10.27        Guaranty dated as of February 22, 2000, by Aura Systems, Inc. and certain of its subsidiaries.
       10.28        Stock Pledge Agreement dated as of February 22, 2000, between Aura Systems, Inc. and HW Partners, L.P. as agent.
       10.29        Security Agreement dated as of February 22, 2000, between Aura Systems, Inc., certain subsidiaries of Aura
                    Systems, Inc. and HW Partners L.P.
       10.30        Secured Note dated February 22, 2000, from Aura Systems, Inc. to Infinity Investors Limited.
       10.31        Secured Note dated February 22, 2000, from Aura Systems, Inc. to Global Growth Limited.
       10.32        Secured Note dated February 22, 2000, from Aura Systems, Inc. to Summit Capital Limited.
       10.33        General Assignment and Bill of Sale dated February 29, 2000, between Alpha Ceramics, Inc. and Aura Ceramics,
                    Inc.
       10.34        Assignment and Assumption of Specified Liabilities dated as of May 3, 2000, by and between Alpha Ceramics, Inc.
                    and Aura Ceramics, Inc.
       10.35        Assignment and Assumption of Lease dated as of May 3, 2000, by and between Alpha Ceramics, Inc. and Aura
                    Ceramics, Inc.
       10.36        Revolving Credit and Term Loan Agreement dated as of May 2000, by and between Alpha Ceramics, Inc. and Excel
                    Bank.
       10.37        Asset Purchase Agreement dated February 29, 2000, between Alpha Ceramics, Inc. and Aura Ceramics, Inc.
       10.38        Subordination Agreement dated as of May 2000, by Aura Ceramics, Inc. and Aura Systems, Inc.
       10.39        Escrow Agreement dated March 6, 2000, by and among Guzik & Associates, Aura Systems, Inc. and Isosceles Fund
                    Limited.
       10.40        Subscription Agreement from Isosceles Fund Limited to Aura Systems, Inc.
       10.41        Stock Purchase Warrant of Aura Systems, Inc. issued to Isosceles Fund Limited.
       10.42        Settlement Agreement and Release of Claims dated as of March 6, 2000, between Aura Systems, Inc. and Isosceles
                    Fund Limited.
       21.1         Subsidiaries of Aura Systems, Inc.

(1)      Incorporated by reference to the Exhibits to the Company's Statement on Form S-1 (File No. 33-19530).
(2)      Incorporated by reference to the Exhibits in the Company'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 Company's Registration Statement on
         Form
         S-1 (File No. 33-27164).
(4)      Incorporated by reference to the Exhibits to the Company's Statement on Form S-8 (File No. 33-32993).
(5)      Incorporated by reference to the Exhibit to the Company's Statement on Form S-1 (File No. 35-57 454).
(6)      Incorporated by reference to the Company's Current Report in Form 10-Q dated November 30, 1993.
(7)      Incorporated by reference to the Exhibits to the Company's Registration Statement on Form S-1 (File No.-33-57454).
(8)      Incorporated by reference to the Exhibits to the Company's Annual Report Form 10-K for the fiscal year ended February 28,
         1994 (File No. 0-17249).
(9)      Incorporated by reference to the Company's Annual Report Form 10-K for the fiscal year ended February 29, 1996 (File No.
         0-17249)
(10)     Incorporated by reference to the Company's Annual Report on Form 10-K for the Fiscal year ended February 28, 1999 (File No.
         0-17249)
</TABLE>


<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:   May 11, 2001
                                             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 and in the capacities and on the date indicated.
<TABLE>
<CAPTION>

Signatures                                              Title                                     Date


<S>                                      <C>                                                     <C>
/s/Zvi Kurtzman                          Chief Executive Officer and Director                    May 11, 2001
---------------------------------
Zvi Kurtzman                             (Principal Executive Officer)

/s/Steven C. Veen                        Senior Vice President,                                  May 11, 2001
---------------------------------
Steven C. Veen                           Chief Financial Officer
                                         (Principal Financial and Accounting Officer)

/s/Norman Reitman                        Director                                                May 11, 2001
---------------------------------
Norman Reitman

/s/Salvador Diaz-Verson, Jr.             Director                                                May 11, 2001
---------------------------------
Salvador Diaz-Verson, Jr.

/s/ Stephen A. Talesnick                 Director                                                May 11, 2001
---------------------------------
Stephen A. Talesnick

/s/Harvey Cohen                          Director                                                May 11, 2001
---------------------------------
Harvey Cohen

/s/ Harry Haisfield                      Director                                                May 11, 2001
---------------------------------
Harry Haisfield

/s/ Neal Meehan                          Director                                                May 11, 2001
---------------------------------
Neal Meehan

/s/ William Richbourg                    Director                                                May 11, 2001
---------------------------------
William Richbourg
</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 29, 2000 and February 28, 1999                                       F-3 to F-4

    Consolidated Statements of Operations and Comprehensive Loss-
            Years ended February 29, 2000, February 28, 1999 and February 28,  1998                              F-5

    Consolidated Statements of Stockholders' Equity (Deficit) -Years ended
           February 29, 2000, February 28, 1999 and February 28, 1998                                             F-6

    Consolidated Statements of Cash Flows-Years ended February 29, 2000,
           February 28, 1999 and February 28, 1998                                                            F-7 to F-9

   Notes to Consolidated Financial Statements                                                                F-10 to F-25

   Consolidated Financial Statement Schedule:

      II      Valuation and Qualifying Accounts                                                                  F-26
</TABLE>

   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.



<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  29,  2000,  and  February 28, 1999 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 29, 2000 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 29, 2000, and February 28, 1999 and the results
of their  operations  and their  cash  flows for each of the three  years in the
period ended February 29, 2000, 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.  As the Company has suffered  recurring losses from operations,
there is  substantial  doubt about its  ability to continue as a going  concern.
Management's  plans in  regard to these  matters  are  described  in note 1. The
financial  statements do not include any adjustments  that might result from the
outcome of this uncertainty.




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

Los Angeles, California  90017
May, 11, 2001




<PAGE>
<TABLE>
<CAPTION>


                               AURA SYSTEMS, INC.
                                AND SUBSIDIARIES

                           Consolidated Balance Sheets
<S>                                                              <C>                    <C>

                                                                   February 29,            February 28,
                                                                       2000                    1999
                                                                    -----------               -------
ASSETS
CURRENT ASSETS:
   Cash and equivalents                                            $      260,437        $    3,822,210
   Receivables, net                                                     2,459,200             8,380,414
   Inventories                                                         11,189,227            18,477,058
   Prepayments                                                                 --             3,435,645
   Other current assets                                                   360,177             2,124,535
   Note receivable                                                      3,557,007               250,000
                                                                    -------------         -------------

         Total current assets                                          17,826,048            36,489,862
                                                                    -------------         -------------

PROPERTY AND EQUIPMENT, AT COST                                        42,219,417            47,976,699
   Less accumulated depreciation and amortization                     (15,184,362)          (10,994,734)
                                                                    --------------        --------------
         Net property and equipment                                    27,035,055            36,981,965

LONG-TERM Investments                                                   2,123,835             2,923,835
long-term receivables                                                   1,250,000             2,500,000
Patents and trademarks-Net                                              4,615,769             5,293,278
GOODWILL-NET                                                                   --             5,383,208
OTHER ASSETS                                                            3,271,831               571,244
                                                                    -------------         -------------
         Total                                                     $   56,122,538          $ 90,143,392
                                                                    =============          ============
</TABLE>












          See accompanying notes to consolidated financial statements.

<PAGE>
<TABLE>
<CAPTION>



                               AURA SYSTEMS, INC.
                                AND SUBSIDIARIES

                           Consolidated Balance Sheets
<S>                                                                   <C>                   <C>

                                                                       February 29,            February 28,
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)                             2000                   1999
                                                                        -----------               -------
CURRENT LIABILITIES:
   Notes payable                                                       $    9,899,531        $    8,787,113
   Convertible note, unsecured                                              1,250,000             2,000,000
   Accounts payable                                                         4,216,004            22,515,842
   Accrued expenses and other                                               1,634,300             8,056,783
                                                                        -------------         -------------
         Total current liabilities                                         16,999,835            41,359,738
                                                                        -------------         -------------
                                                                           37,606,695            25,955,529
                                                                        -------------         -------------
NOTES PAYABLE AND OTHER LIABILITIES

convertible Notes-SECURED                                                          --             4,000,000
                                                                        -------------         -------------
CONVERTIBLE NOTES-UNSECURED                                                        --            32,481,782
                                                                        -------------         -------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY (DEFICIT):
   Common stock par value $.005 per share and additional paid in
   capital. Issued and outstanding 196,975,392 and 107,752,042            234,196,092           218,693,245
   shares respectively.
   Common Stock Not Issued                                                  9,132,774                    --
   Cumulative currency translation adjustment (CTA)                          (365,932)             (365,932)
   Accumulated deficit                                                   (241,446,926)         (231,980,970)
                                                                        --------------        --------------

         Total stockholders' equity (deficit)                               1,516,008           (13,653,657)
                                                                        -------------         --------------
         Total                                                         $   56,122,538        $   90,143,392
                                                                        =============         =============

</TABLE>









          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 29,
                  2000, February 28, 1999 and February 28, 1998
<S>                                                           <C>                   <C>                   <C>
                                                                2000                  1999                  1998
                                                           -------------         -------------         -------
Net Revenues                                               $   5,788,221         $  53,650,025          $103,939,641
Cost of GOODS AND OVERHEAD                                    13,424,303           130,437,194            71,774,522
                                                           -------------         -------------         -------------

GROSS PROFIT (LOSS)                                           (7,636,082)          (76,787,169)           32,165,119
                                                           --------------        --------------        -------------

EXPENSES:
   Research and development                                      148,443             1,996,198               475,992
   Impairment of long-lived assets                                    --             5,838,466                    --
   Selling, general and administrative expenses               10,725,397            64,131,074            35,266,048
                                                           -------------         -------------         -------------
         Total expenses                                       10,873,840            71,965,738            35,742,040
                                                           -------------         -------------         -------------

(LOSS) FROM OPERATIONS                                       (18,509,922)         (148,752,907)           (3,576,921)
Gain on issuance and sale of subsidiary stock                         --                    --            12,144,740

OTHER INCOME AND (EXPENSE)                                    (5,893,449)          (30,562,046)          (12,494,702)
(LOSS) BEFORE INCOME TAXES AND OTHER ITEMS
                                                             (24,403,371)         (179,314,953)           (3,926,883)
   Provision (benefit) for taxes                                      --               566,635            (1,275,555)
   Minority interests in consolidated subsidiary                      --            10,372,895              (946,405)
   Loss in excess of basis of subsidiary:
     Aura Systems, Inc.                                               --             8,080,695                    --
     Minority interests                                               --            26,561,481                    --
                                                          --------------        --------------         -------------
Loss from continuing operations                              (24,403,371)         (134,866,517)           (3,597,733)
                                                          ---------------       ---------------       ---------------
Discontinued Operations:
     Loss from Discontinued Operations, Net of
     taxes of $0 for 2000,1999 & 1998 respectively            (1,433,859)          (14,875,065)           (8,038,807)
     Loss on Disposal, Net of Taxes of 0 for 2000             (2,697,642)                   --                    --
                                                          ---------------       --------------        --------------
Loss from Discontinued Operations                             (4,131,501)          (14,875,065)           (8,038,807)
                                                          ---------------       ---------------       ---------------
Loss before extraordinary item                               (28,534,872)         (149,741,582)          (11,636,540)
Extraordinary Item
     Gain on extinguishment of debt obligations,  net
     of income taxes of $0                                    19,068,916                    --                    --
                                                          --------------        --------------        --------------
Net loss                                                      (9,465,956)         (149,741,582)          (11,636,540)

Other comprehensive income (loss), net of taxes:                      --              (406,574)                   --
                                                          --------------        ---------------       --------------
Comprehensive loss                                        $   (9,465,956)       $ (150,148,156)       $  (11,636,540)
                                                           ==============       ===============        ==============

NET (LOSS) PER COMMON SHARE                               $        (0.08)       $        (1.74)       $         (.15)
                                                           ==============       ===============        ==============

Loss from continuing operations per common share           $       (0.20)        $       (1.57)        $       (0.05)
                                                            =============         =============         =============
Loss from discontinued operations per common share
                                                           $       (0.03)        $       (0.17)        $       (0.10)
                                                            =============         =============         =============
Extraordinary income per common share                      $        0.15         $          --         $          --
                                                            ============           ============          ============

WEIGHTED AVERAGE NUMBER OF
   COMMON SHARES                                              124,294,051           85,831,688            79,045,290
                                                              ===========        =============         =============


          See accompanying notes to consolidated financial statements.
</TABLE>


<PAGE>

<TABLE>
<CAPTION>

                               AURA SYSTEMS, INC.
                                AND SUBSIDIARIES

            Consolidated Statements of Stockholders' Equity (Deficit)

     Years ended February 29, 2000, February 28, 1999 and February 28, 1998


                                                                                                      Accumulated
                                                                                                         Other
                                      Common Stock          Additional     Common                    Comprehensive
                                      ------------
                                                              Paid-in    Stock not    Accumulated    (CTA) Income
                                    Shares        Amount     Capital       Issued       Deficit          (Loss)        Total
                                    ------        ------     -------       ------       -------     -    ------        -----
<S>                                <C>          <C>        <C>           <C>          <C>               <C>        <C>
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)

Notes payable converted            68,534,445    342,672     10,036,430         --               --           --      10,379,102
Exercise of warrants                  120,000        600         44,200         --               --           --          44,800
Stock    issued   to   satisfy      2,907,275     14,536        770,429         --               --           --         784,965
    liabilities
Private placements                 17,661,630     88,308      4,400,692         --               --           --       4,489,000
Expenses of issuances                      --         --      (195,020)         --               --           --        (195,020)
Common stock not issued                                                  9,132,774                                     9,132,774
Net (loss)                                 --         --             --         --       (9,465,956)          --      (9,465,956)
                               --------------   --------   ------------  ---------   ---------------    --------

Balances at February 29, 2000     196,975,392   $984,875    $233,211,217  $9,132,774   $(241,446,926)  $(365,932)      $1,516,008
                               ==============   ========    ============  ==========   ==============  ==========       =========


</TABLE>










          See accompanying notes to consolidated financial statements.


<PAGE>


                               AURA SYSTEMS, INC.
                                AND SUBSIDIARIES

<TABLE>
<CAPTION>

                         Consolidated Statements of Cash
                  Flows Years ended February 29, 2000, February
                         28, 1999 and February 28, 1998


                                                                           2000              1999              1998
                                                                           ----              ----              ----
<S>                                                                  <C>              <C>                 <C>
Cash flows from operating activities:
    Net loss                                                          $ (9,465,956)    $(149,741,582)      $(11,636,540)
                                                                      -------------    --------------        ----------
    Adjustments to reconcile net loss to net
    cash used by operating activities:
    Depreciation and amortization                                        6,853,924         12,985,278         8,362,110
    Provision for environmental cleanup                                     48,812             44,516            40,597
   (Gain) Loss on disposition of assets                                    (93,638)           925,525          (555,326)
    Equity in losses of unconsolidated joint ventures                           --          6,268,384         1,937,747
    (Gain) loss on sale of subsidiary and other stock investments               --                 --       (12,144,740)
    Impairment of long-lived assets                                             --          9,403,687                --
    Gain on extinguishment of Debt                                     (19,068,916)                --                --
    Long term assets charged to operations                                      --          1,425,794                --
    Minority interest in earnings (loss) of subsidiary                          --        (10,372,895)          946,405
    Loss on disposal of investments                                             --          4,877,839                --
    Loss on disposal of discontinued operations                          2,697,642                 --                --
    Assets-(Increase) Decrease:
     Receivables                                                           462,541         46,037,727          (674,443)
     Inventories                                                         4,019,810         40,236,817       (24,866,579)
     Prepayments                                                                --          9,891,144        (5,631,521)
     Other current assets                                                1,515,787          3,801,107        (5,534,281)
     Deferred income taxes                                                      --            838,000          (940,000)
    Liabilities-Increase (Decrease):
     Accounts payable                                                   (1,371,174)       (21,479,522)       20,279,113
     Accrued expenses                                                   (1,577,248)         4,614,005         2,086,583
     Litigation and other liabilities                                      222,223          7,389,649          (345,372)
                                                                    --------------       ------------       ------------
    Total adjustments                                                   (6,102,961)      116,887,055        (17,039,707)
                                                                    ---------------    -------------        ------------
         Net cash used by operating activities                         (15,568,917)      (32,854,527)       (28,676,247)
                                                                    ---------------    --------------       ------------
Cash flows from investing activities:
   Payments from Notes Receivable                                        5,674,828                 --                --
   Proceeds from sale of assets                                            327,109          2,721,000           920,000
   Purchase of property and equipment                                      (16,103)        (2,143,237)       (1,910,214)
   Manufacture of special tools and equipment                                   --         (1,910,611)      (16,096,180)
   Proceeds from joint ventures                                                 --                 --         1,755,000
   Investment in joint ventures                                                 --           (164,466)         (552,862)
   Long-term investments                                                        --         (4,940,000)         (412,399)
   Long-term receivables                                                        --          3,436,809         3,347,144
   Patents and trademarks                                                       --           (467,167)       (1,903,718)
   Other assets                                                                 --                 --        (2,398,400)
   Proceeds from subsidiary stock                                               --          1,611,873         5,472,656
                                                                    --------------        -----------       -----------
         Net cash provided (used) by investing activities                5,985,834         (1,855,799)      (11,778,973)
                                                                    --------------        ------------      ------------
</TABLE>






           See accompanying notes to consolidated financial statements


<PAGE>


<TABLE>
<CAPTION>
                               AURA SYSTEMS, INC.
                                AND SUBSIDIARIES
                      Consolidated Statements of Cash Flows
                                                                          2000              1999              1998
                                                                          ----              ----              ----
<S>                                                                    <C>               <C>               <C>
     Cash flows from financing activities:
        Net proceeds from borrowings                                     $251,101        $17,922,584       $26,287,632
        Repayment of notes payable                                     (1,218,571)        (3,396,083)      (10,874,683)
        Proceeds from exercise of options                                      --            103,000                --
        Net proceeds from issuance of common stock                      7,393,980          1,675,873           636,350
        Net proceeds from exercise of warrants                             24,800          7,884,325                --
        Proceeds from issuance of warrants                                     --                 --           900,000
        Net proceeds from issuance of convertible notes                        --         11,720,000        13,959,649
        Repayment of convertible notes                                   (430,000)        (3,050,000)       (5,905,223)
        Sale of minority interest in subsidiary                                --                 --        16,098,508
        Foreign currency translation adjustment                                --           (406,574)               --
        Repurchase of warrants                                                 --                 --        (1,679,956)
                                                                     ------------       ------------         ---------
            Net cash provided by financing activities                   6,021,310         32,453,125        39,422,277
                                                                     ------------       ------------       -----------
              Net decrease in cash and equivalents                     (3,561,773)        (2,257,201)       (1,032,943)
     Cash and equivalents at beginning of year                          3,822,210          6,079,411         7,112,354
                                                                     ------------       ------------       -----------
     Cash and equivalents at end of year                           $      260,437       $  3,822,210      $  6,079,411
                                                                     ============        ===========       ===========
     Supplemental disclosures of cash flow
      information:
        Cash paid during the year for:
          Interest                                                   $    922,708       $  3,374,992      $  6,280,859
                                                                      ===========       ============       ===========
          Income Taxes                                               $         --       $  2,244,762      $    186,310
                                                                      ===========       ============       ===========
</TABLE>

Supplemental disclosures of non-cash investing and financing activities:

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.  The  Company  recorded  a loss of
$1,820,000 as a result of this transaction in Fiscal 1999.

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 its stock  investment  in Telemac  for  $5,499,000,  of which
$2,750,000 was recorded as a note  receivable,  and proceeds of $2,699,000  were
received which are reflected  above as proceeds from sale of assets.  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>

During the year ended February 29, 2000,  $11,009,102 of convertible  notes were
converted into 71,054,445 shares of common stock.  Additionally,  liabilities of
$20,000 were satisfied by the exercise of 40,000 warrants with an exercise price
of $.50 per  share,  and  1,020,890  shares  of  stock  were  issued  as fees in
connection with the private  placement.  The Company issued  2,907,275 shares of
common stock in  settlement  of accrued and unpaid  management  compensation  of
$784,965.

During the year ended February 29, 2000, the Company sold its MYS subsidiary for
a total of $4.2  million  consisting  of a $1 million  down  payment  and a note
receivable  of $3.2  million.  The Company also sold the assets of its AuraSound
subsidiary  for  approximately  $2.4  million  consisting  of a down  payment of
$100,000 and a note receivable of approximately $2.3 million.


Subsequent to year end, the Company issued the following  shares of common stock
which were  recorded as a component of  stockholder's  equity  (common stock not
issued) at February 29, 2000. The common stock could not be issued prior to year
end due to the limitation on the number of shares  authorized (see note 13). The
Company  issued  2,520,000  shares of common stock for the  conversion  of notes
payable and accrued  interest of  $686,524;  541,667  shares of common  stock in
settlement of accrued and unpaid director's fees of $146,250;  12,500,000 shares
of  common  stock,  in the  amount  of  $3,100,000  for  the  Company's  private
placement,  and 14,687,972  shares of common stock with a value of $5,200,000 to
satisfy the  liability  for a class action  settlement.  In addition,  2,400,000
shares of common stock were issued as a finder's fee for the  Company's  private
placements  and  1,775,824  shares of common stock for repricing a prior private
placement of the Company.  The finder's fee and repricing had no effect on total
stockholders'  equity.  The above items total  34,425,463  shares which were not
issued as of February 29, 2000 due to insufficient shares being authorized.  The
proceeds noted above total $9,132,774 as shown in the Consolidated Statements of
Stockholders' Equity as Common Stock not issued.






          See accompanying notes to consolidated financial statements.


<PAGE>


                               AURA SYSTEMS, INC.
                                AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

     Years ended February 29, 2000, February 28, 1999 and February 28, 1998

(1)  Business and Summary of Significant Accounting Policies

     Business

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

     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 vehicle  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 is being distributed and sold through dealers,
     distributors, and OEMs.

     The Company  intends to continue to focus its  business on the AuraGen line
     of products. In addition, the Company is entitled to receive royalties from
     Daewoo Electronics Co., Ltd.  ("Daewoo") for its electro-optics  technology
     ("AMA") licensed to Daewoo in 1992.

     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.  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.  NewCom  ceased  operations  in early Fiscal
     2000.

     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.  In
     Fiscal 2000, the Company sold MYS to MYS management.

     AuraSound  manufactured  and sold  professional  and consumer  sound system
     components  and  products.  In  July  1999,  the  Company  entered  into an
     agreement for the sale of the assets of AuraSound.

     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 such realization of assets and liquidation
     of  liabilities  is subject to  significant  uncertainties.  Management  is
     currently seeking or obtaining  additional sources of funds and the Company
     has  restructured  a  significant  portion  of its  debt  obligations.  The
     Company's  ability to continue  as a going  concern is  dependent  upon the
     successful achievement of profitable operations and the ability to generate
     sufficient  cash  from  operations  and  financing   sources  to  meet  the
     restructured  obligations.  The Company is now focusing 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

     For the year ended February 29, 2000, the consolidated financial statements
     include  accounts  of the Company and its wholly  owned  subsidiaries  Aura
     Ceramics,  Inc.  and  Electrotec  Productions,  Inc.  (and its wholly owned
     subsidiary Electrotec Europe). During the year ended February 29, 2000, the
     Company divested its AuraSound segment (see note 22). The AuraSound segment
     included the Company's wholly owned  subsidiaries  AuraSound,  Inc. and MYS
     and its subsidiaries  Audio-MYS,  MYS America and MYS U.S.A.  Subsequent to
     year-end  the Company  sold its  interest in Aura  Ceramics,  Inc. to local
     management.  For  the  year  ended  February  28,  1999,  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 year ended February 28, 1998, 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 to 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 losses of
     subsidiary are in excess of minority  interests  investments.  The minority
     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.  The Company  recognized $1.5
     million in revenue from the assignment of patents related to sound products
     in Fiscal 2000.

     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 and 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. For Fiscal
     1999 the Company's other  comprehensive  loss consists of foreign  currency
     translations. The adoption of this statement did not have any impact on the
     Company's results of operations, financial position, or cash flows.

     Gains and losses on subsidiaries stock

     The Company  recognizes in the  consolidated  statement of operations gains
     and  losses  resulting  from  the  sale  of  newly-issued   shares  of  its
     subsidiaries  stock,  unless  such  sales are part of a  broader  corporate
     reorganization  contemplated or planned by the Company.  The amount of gain
     or  loss  is  determined  by the  resulting  increase  or  decrease  in the
     Company's  proportionate  share of the  dollar  amount of the  subsidiary's
     equity resulting from such sales.

     Cash Equivalents

     The Company considers all highly liquid assets, having an original maturity
     of less than three months when purchased, 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

     In Fiscal 1999,  goodwill  represented  the excess  purchase price over the
     fair market value of the assets acquired of certain acquisitions.  Goodwill
     was being amortized over 40 years on a straight-line  basis. As a result of
     the  Company's  AuraSound  sale,  there was no goodwill as of February  29,
     2000.

     Inventories

     Inventories  are  stated  at the  lower of cost  (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. Such common stock  equivalents  amount to 11,709,000 common
     shares  for  convertible  debt,  warrants  and  options  for the year ended
     February  29,  2000,  and  21,312,781  and  18,070,015  for the years ended
     February 28, 1999 and 1998 respectively.

     Patents and Trademarks

     The Company  capitalizes  the costs of obtaining  or acquiring  patents and
     trademarks.  Amortization  of patent and trademark 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.

     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 Fiscal 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,  in Fiscal 1999 the Company  recognized  a $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.  Of this  amount,  $3,565,221  is
     included  in the loss  from  discontinued  operations  in the  Consolidated
     Statement of Operations.

     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  2000,  1999 and 1998  approximated  nil,  $9.4  million and $5.8
     million, respectively.

     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  Fiscal  2000 and 1999,  the  Company  capitalized  costs of nil and
     $1,910,611,  respectively,  on special tools and equipment, which have been
     designed for the manufacturing and development of automotive products.  The
     capitalized amounts, included in machinery and equipment, include allocated
     costs of direct labor and overhead.  During Fiscal 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
     $6.5  million,  $11.9  million and $5.4 million for Fiscal  2000,  1999 and
     1998, respectively.



(2)  Receivables

     Receivables consist of the following:

                                                         2000            1999
                                                         ----            ----
   Commercial receivables:
     Amounts billed                                   $10,100,962   $16,548,666
     Advances due from related parties                     31,455       102,773
     Less allowance for  uncollectible  receivable
        and sales returns                              (7,673,217)   (8,271,025)
                                                      ----------    -----------
           and sales returns
                                                       $2,459,200     $8,380,414
                                                        =========      =========

     Bad debt expense was  approximately  $0.5  million,  $13.3 million and $3.6
     million in Fiscal 2000, 1999 and 1998 respectively.

(3)  Notes Receivable

     Notes receivable consist of the following:

<TABLE>
<CAPTION>
                                            2000                     1999
                                            ----                     ----
<S>                                       <C>                 <C>
               MYS                        $   570,092         $           --
               Algo                         1,736,975                     --
               Telemac                      2,500,000              2,750,000
                                            ---------              ---------
                                            4,807,067              2,750,000
               Less current portion         3,557,067                250,000
                                            ---------              ---------
                                           $1,250,000             $2,500,000
                                            =========              =========
</TABLE>

     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 the remaining shares
     to Telemac in exchange for a note  receivable  from Telemac  resulting in a
     gain  recognized of  approximately  $850,000.  A payment of $1,250,000 plus
     accrued  interest is due in February  2001,  with the  remaining  principal
     balance of $1,250,000 plus accrued  interest due in February 2002. The Note
     bears an interest rate of 8%.

     In  March  1999,  the  Company  sold  MYS  Corp.  and  subsidiaries  to the
     management of MYS for a sales price of $4.2 million.  The terms of the sale
     called  for a $1  million  down  payment  and twelve  monthly  payments  of
     $290,000 including interest at 13.9%. All payments were made timely and the
     final  payment was received in April 2000. A loss on the sale of MYS in the
     amount of $1,696,273 is included in the loss from discontinued  operations.
     In  December  1999,  the  Company  finalized  the sale of the assets of the
     AuraSound speaker division,  total consideration received was approximately
     $2.4 million.  The purchaser of  AuraSound's  assets is the same party that
     acquired the majority of the  Company's  restructured  debt as described at
     Note 24. The terms of the sale called for a down  payment of  $100,000  and
     monthly  payments of $100,000  plus  interest at a rate of 8%. All payments
     have  been  made  timely.  A loss on the sale of the  AuraSound  assets  of
     $1,001,369 is included in the loss from discontinued operations.

(4)  Long Term Investments

     Long-term investments consist of the following:

<TABLE>
<CAPTION>
                                                                2000                      1999
                                                                ----                      ----
<S>                                                          <C>                     <C>
                  Aquajet Corporation                        $  923,835              $    923,835
                  Alaris Industries, Inc.                     1,200,000                 1,200,000
                  Other                                               0                   800,000
                                                             ----------               -----------
                                                            $ 2,123,835                $2,923,835
                                                             ==========                ==========
</TABLE>

(5)  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. In Fiscal 2000 the Company's  remaining
     investment  in property of the joint  venture was  disposed of, and certain
     claims and liabilities were satisfied. A loss on disposal of assets, in the
     amount of $800,000, was recorded in Fiscal 2000.

 (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.  Daewoo was taken  over by its  creditors  during  Fiscal  1999.  No
     assurances  can be given as to the future plans of the "AMA"  technology at
     Daewoo.

 (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 its financial  crisis the Company  ceased 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 in Fiscal 1999.

 (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.  In Fiscal 1999, due to 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 ventures.

(6)  Related Party Transactions

     Notes  and  advances  due from  related  parties,  aggregated  $31,455  and
     $102,773 at February 29, 2000 and February 28, 1999, respectively, included
     in current receivables.

(7)  Inventories

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

<TABLE>
<CAPTION>
                                                                       2000                1999
                                                                       ----                ----
<S>                                                                <C>                  <C>
         Raw materials                                             $4,205,828           $11,318,263
         Finished goods                                             7,310,335            15,034,795
         Reserves for potential product obsolesence                  (326,936)           (7,876,000)
                                                               ---------------       ---------------
                                                                  $11,189,227           $18,477,058
                                                               ==============        ==============
</TABLE>

     At February 29, 2000,  inventories  consist  primarily  of  components  and
     completed units for the Company's AuraGen product.

(8)  Property and Equipment

     Property and Equipment, at cost is comprised as follows:

<TABLE>
<CAPTION>
                                                                          2000                1999
                                                                          ----                ----
<S>                                                                  <C>                   <C>
         Land                                                        $  3,187,997          $  3,877,074
         Buildings                                                      8,708,796             9,396,392
         Machinery and equipment                                       27,755,903            32,354,243
         Furniture, fixtures and leasehold improvements                 2,566,721             2,348,990
                                                                     ------------    ------------------
                                                                      $42,219,417           $47,976,699
                                                                      ===========           ===========
</TABLE>


(9)  Notes Payable and Other Liabilities

     Notes Payable and Other Liabilities consist of the following:

<TABLE>
<CAPTION>
                                                            2000               1999
                                                            ----        ---    ----
<S>                                                   <C>                  <C>
Litigation payable                                    $    5,722,221       $17,302,047
Lines of Credit (a)                                        2,584,000         3,000,000
Notes payable-equipment (b)                                   31,353           194,296
Notes payable-buildings (c)                                5,535,693         8,549,854
Unsecured notes payable (d)                                6,807,676         5,190,747
Trade debt (e)                                            10,961,151                --
Secured notes payable (f)                                 15,309,622                --
                                                          ----------    --------------
                                                          46,951,716        34,236,944
Less: current portion                                      9,899,531         8,787,113
                                                      --------------    --------------
Long term portion                                         37,052,185        25,449,831
Reserve for environmental cleanup                            554,510           505,698
                                                         -----------       -----------
                                                      $   37,606,695       $25,955,529
                                                       =============    ==============
</TABLE>

 (a) The line of credit  consists  of a single  credit  line in the amount of $3
     million,  bearing  an  interest  rate of 12% and is  secured  by a  general
     security  interest in the assets of the Company.  The line currently  calls
     for a monthly principal payment of $100,000 plus accrued interest, and does
     not  allow  for any  additional  draws.  The  Company  is in  violation  of
     substantially all of the original terms of this agreement, for which it has
     received a waiver from the bank.

 (b) Notes payable-equipment at February 29, 2000 consists of a note maturing in
     February 2005 bearing interest at the rate of 8.45%.

 (c) Notes  payable-buildings  consists  of a 1st Trust  Deed on a  building  in
     California,  due in Fiscal 2009 and  bearing  interest at a rate of 7.625%,
     and in Fiscal 1999  includes a note due October  2000  collateralized  by a
     building in Malaysia with interest at the Bank's Libor rate plus 1.5%.

 (d) Unsecured  notes  payable  consists of four notes at February  29, 2000 and
     three notes at February 28, 1999 all bearing interest at a rate of 8%.

 (e) Trade debt was  restructured  with  payment  terms over a three year period
     with interest at 8% per annum commencing on January 2000.

 (f) Secured notes payable consists of three notes bearing interest at a rate of
     8%. One of the secured notes includes warrants to purchase 1,000,000 shares
     of the Company's  common stock  exercisable at $0.375 per share. On another
     of the  secured  notes,  in the event of default  the holder is entitled to
     convert the unpaid  principal and interest into common stock of the Company
     at $0.60 per share;  however,  the Company is entitled to a discount if the
     note is prepaid, which discount is initially 20% of the amount prepaid, and
     the discount declines proportionally over the three year term of the note.

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

<TABLE>
<CAPTION>
                       Fiscal Year                 Amount
                       -----------                  ------
<S>                      <C>                     <C>
                         2001                    $9,899,531
                         2002                     6,578,296
                         2003                    18,882,754
                         2004                       619,521
                         2005                       629,028
                         thereafter              10,342,586
                                                 ----------
                                                $46,951,716
</TABLE>

(10) 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
     obligation  of  $2,122,900,  related  to these  notes was  redeemed  by the
     Company.

     In Fiscal 1998, the Company issued $34.5 million of unsecured notes payable
     to investors.  Of this amount approximately $14 million is convertible into
     the Company's  Common Stock.  During Fiscal 1998 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
     Fiscal 2000 the Company  redeemed $1.6 million of convertible  notes issued
     in Fiscal 1998 with the  payment of  $430,000  in cash and the  issuance of
     3,500,000 shares of common stock. Additionally,  in Fiscal 1999, $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.

     In Fiscal 2000,  the Company  restructured  much of its  convertible  notes
     payable through debt forgiveness and equity conversion (see note 24).

(11) Accrued Expenses

     Accrued expenses consist of the following:

<TABLE>
<CAPTION>
                                                            2000              1999
                                                            ----              ----
<S>                                                      <C>               <C>
Accrued payroll and related expenses                     $   582,850       $1,076,185
Bond interest payable                                        261,330        4,535,789
Deferred income                                              500,000                --
Other                                                        290,120        2,444,809
                                                          ----------    -------------
                                                         $ 1,634,300       $8,056,783
                                                          ==========    ==============
</TABLE>

(12) Income Taxes

     At February 29, 2000, the Company had net operating loss carry-forwards for
     Federal and state  income tax  purposes of  approximately  $242 million and
     $108 million respectively, which expire through 2020.

     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 $97 million for Fiscal
     2000 and $93 million  for Fiscal  1999.  The  Company  has also  recorded a
     valuation  account  to  fully  offset  the  deferred  benefit  due  to  the
     uncertainty of the  realization  of this benefit.  The deferred tax benefit
     consists solely of the benefit of the net operating loss carryforward.

     The Company's  formerly owned Japanese  subsidiary,  MYS Corporation,  paid
     income  taxes  to  the  Japanese   government  at  an  effective   rate  of
     approximately  fifty eight percent.  At February 28, 1999, MYS  Corporation
     had a current income tax receivable of approximately $153,000.

(13) Common Stock, Stock Options and Warrants

     At February 29, 2000, the Company had 200,000,000 shares of $.005 par value
     common stock authorized for issuance.  The number of authorized  shares was
     increased to 500,000,000 subsequent to February 29, 2000 (see Note 23).

     At February 29, 2000 there were warrants  outstanding to purchase 1,213,000
     shares of the Company's common stock exercisable at $0.375 a share.

     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>              <C>
         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

         Grants                                                            --                --
         Cancellations                                                     --                --
         Exercises                                                         --                --
         Expired                                                      (60,000)        3.00-4.75
                                                                      --------      -----------
         Options outstanding at February 29, 2000                     500,000       $2.06-$2.30
                                                                      =======       ===========
</TABLE>

     The following table summarizes  information about director stock options at
     February 29, 2000:
<TABLE>
<CAPTION>

                                 Number             Average             Weighted              Number
           Range of          Outstanding at     Remaining Life      Average Exercise      Exercisable As
                                                              -
        Exercise Price          2/29/00            in Years              Price              of 2/29/00
        --------------          -------            --------              -----              ----------

<S>          <C>                  <C>                <C>                  <C>                    <C>
             $2.30                50,000             7.13                 $2.30                  50,000
             $2.06               450,000             7.36                 $2.06                 400,000
</TABLE>

(14) Employee Stock Plans

     As of February 29, 2000,  the Company has one employee  benefit  plan:  The
     Employee Stock  Ownership  Plan (ESOP).  In addition,  the options  granted
     under the 1989 Stock Option Plan are valid and subject to exercise.

     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 2000, 1999 and 1998 respectively.

     In March 2000,  the  Company's  Board of  Directors  adopted the 2000 Stock
     Option Plan, a  nonqualified  plan which was  subsequently  approved by the
     shareholders.  The Stock  Option  Plan  authorizes  the grant of options to
     purchase  up to 10% of the  Company's  outstanding  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 2000,  1999 and 1998 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>                <C>
         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

         Grants                                                            --                  --
         Cancellations                                               (454,500)          2.06-7.31
         Exercises                                                         --                  --
         Expired                                                     (131,800)          3.06-4.12
                                                                  ------------        -----------
         Options outstanding at February 29, 2000                   5,939,000          $1.44-7.31
                                                                  ===========       ---==========
</TABLE>

     The following table summarizes  information about employee stock options at
     February 29, 2000:

<TABLE>
<CAPTION>
                                 Number             Average             Weighted              Number
           Range of          Outstanding at     Remaining Life      Average Exercise      Exercisable As
                                                              -
        Exercise Price          2/29/00            in Years              Price              of 2/29/00
        --------------          -------            --------              -----              ----------

<S>          <C>                 <C>                 <C>                  <C>                   <C>
             $1.44               431,000             0.92                 $1.44                 431,000
             $7.25                 6,000             1.75                 $7.25                   6,000
          $3.00-$4.00            215,000             2.62                 $3.47                 215,000
             $7.31                 6,000             3.60                 $7.31                   6,000
          $1.79-$2.15          2,481,000             7.42                 $2.04               2,481,000
             $3.31             2,800,000             8.05                 $3.31                 560,000
</TABLE>

(15) Leases

     At February 29, 2000, the Company has no long term operating leases. Rental
     expense charged to operations  approximated  $.9 million,  $1.8 million and
     $1.3 million in Fiscal 2000, 1999 and 1998, respectively.

(16) Significant Customers

     The Company sold ceramics related products to a single significant customer
     during  Fiscal 2000 for a total of  approximately  $2.1 million or 29.7% of
     net  revenues.  After Fiscal 2000 this  customer  will not be a significant
     customer as the Company has sold the Ceramics division.

     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.

     The Company sold sound related  products and computer  related  products to
     five significant customers during Fiscal 1998. Sales of speakers to a major
     electronics  retailer accounted for approximately  $11.8 million or 7.3% of
     gross revenues.  Sales of communications  and multimedia  products to major
     mass  merchandisers Best Buy, Circuit City, and Staples accounted for $60.1
     million  or 37.3% of gross  revenues.  Sales of  computer  monitors  to two
     customers  accounted  for  approximately  $10  million  or  6.2%  of  gross
     revenues.

(17) 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.

     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 finally approved in or about
     April, 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.  The deferral
     resulted from the limitation on the number of shares  authorized  (see note
     23). The final  distribution of stock and warrants to class members occured
     in June 2000.

     NewCom Related Litigation

     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 set for May,  2000 was suspended by
     the panel without yet scheduling a new hearing date.  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
     parties  have agreed to submit this matter to  mediation  on June 28, 2000.
     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.

(18) 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  29,  2000.  Cash
     equivalents  consist  principally of short-term  money market funds,  these
     instruments are short term in nature and bear minimal risk.

     For cash, cash  equivalents,  trade  receivables  and trade  payables,  the
     carrying  value of these  amounts is a  reasonable  estimate  of their fair
     value.

     The fair value of noncurrent  receivables,  including notes  receivable are
     estimated by using the current  rates at which  similar loans would be made
     to such  borrowers  based on the  remaining  maturities,  consideration  of
     credit risks, and other business issues pertaining to such receivables.

     Long and Short Term Debt: The fair values of debt instruments are estimated
     based on quoted market  prices or, where quoted  prices are not  available,
     estimated  based upon  borrowing  rates for similar debt  instruments or on
     estimated prices based on current yields for debt issues of similar quality
     and terms.

     Considerable  judgment is necessarily  required in interpreting market data
     to develop estimates of fair value.  Accordingly,  the estimates used by us
     are not  necessarily  indicative  of the  amounts  that the  Company  would
     realize in a current market exchange.

     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.

(19) Other (Income) and Expenses

     Other (income) and expenses consist of:

<TABLE>
<CAPTION>
                                                           2000                  1999                  1998
                                                           ----                  ----                  ----

<S>                                                         <C>                   <C>                   <C>
             Legal settlements                              2,777,762             7,717,518             1,700,000
             Equity in  losses  of  unconsolidated
             joint ventures                                        --             6,268,384             1,937,747
             (Gain) loss on disposal of assets                 93,638               925,525              (555,326)
             Loss on disposal of investment                        --             4,877,839                    --
             Termination of license arrangement                    --                    --             3,114,030
             Other income                                  (1,454,641)             (906,921)             (152,490)
             Interest expense                               4,476,690            11,679,701             6,450,741
                                                            ---------            ----------         -------------
                                                        $   5,893,449         $  30,562,046         $  12,494,702
                                                            =========          ============            ==========
</TABLE>

     The loss on disposal of  investment  in Fiscal 1999,  consists of a loss on
     investment  in  4th  Network   Communications   by  the  Company's   NewCom
     subsidiary. The majority of the legal settlements noted above were recorded
     in the  fourth  quarter  of each  fiscal  year,  primarily  as a result  of
     settlements reached subsequent to each respective fiscal year.

(20) Gain on Issuance and Sale of Subsidiary Stock

     In September 1997, the Company's then wholly-owned subsidiary, NewCom Inc.,
     which was engaged in the manufacture,  packaging,  selling and distribution
     of computer-related  communications and sound-related products completed an
     Initial Public Offering in which 2,000,000 newly issued shares were sold to
     the  public  for  cash  at a per  share  price  of  $9.50  for a  total  of
     $19,000,000,  along  with  300,000  shares of the  Company's  holdings.  In
     February 1998 the Company sold, for cash, an additional  200,000 shares, at
     a per share  price of $14.625  resulting  in a reduction  of its  ownership
     percentage to  approximately  70.2% as of February 28, 1998. As a result of
     these transactions, the Company has reported a gain on issuance and sale of
     subsidiary stock in fiscal 1998 of approximately  $12.1 million  consisting
     of  approximately   $4.7  million  on  the  sale  of  500,000  shares,  and
     approximately  $7.4  million  on the sale of the newly  issued  shares.  No
     current or deferred  income taxes have been provided on the gain recognized
     as the Company has sufficient net operating  loss  carryforwards  to offset
     any  current  or  future   income  tax  liability   resulting   from  these
     transactions.  The legal  settlements shown above were record in the fourth
     quarter of each fiscal year.

(21) Fourth Quarter Adjustments

     Certain  fourth  quarter  adjustments  were  made in  Fiscal  2000 that are
     significant to the quarter and to comparisons between quarters.  During the
     fourth  quarter  of  Fiscal  2000,  in   conjunction   with  the  Company's
     restructuring,  $13,218,750 in debt and $5,850,168 in accrued  interest was
     forgiven by the Company's  major  creditors.  This  forgiveness  of debt is
     recorded as an extraordinary item in the fourth quarter of Fiscal 2000 (see
     note 24).

(22) 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 related products including  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. This includes
     the  ceramics  business  which is involved in the  manufacture  and sale of
     piezo electric based  electro-magnetic micro actuators.  In addition,  this
     segment also includes our corporate  headquarters,  revenues generated from
     the sale of computer  monitors,  activity from Electrotec and license fees.
     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 in early Fiscal 2000.

     The sound segment  consists of the manufacture and sale of professional and
     consumer  sound  system  components  and  products,   including   speakers,
     amplifiers,  and Bass Shakers.  AuraSound  reflects the  aggregate  segment
     operating units based on economic  characteristics,  products and services,
     the  production  process  class  of  customer  and  distribution   process.
     AuraSound was sold during Fiscal 2000.

<TABLE>
<CAPTION>
                                      Aura               NewCom             AuraSound          Consolidated
Net Revenues*                                      (in thousands)
<S>              <C>             <C>                  <C>                 <C>                 <C>
                 2000            $       5,788        $           --      $           --      $         5,788
                 1999            $       6,830        $       46,820      $           --      $        53,650
                 1998            $      10,252        $       93,687      $           --      $       103,939

Income (loss) from Operations
                 2000            $     (18,510)       $           --      $           --      $       (18,510)
                 1999            $     (54,396)       $      (94,357)     $           --      $      (148,753)
                 1998            $     (15,448)       $       11,872      $           --      $        (3,516)

Identifiable Assets
                 2000            $      56,036        $           --      $           --      $        56,036
                 1999            $      63,754        $           --      $       26,389      $        90,143
                 1998            $      96,735        $       96,127      $       34,441      $       227,303

Depreciation and Amortization
                 2000            $       6,854        $           --                  --      $         6,854
                 1999            $       7,375        $        1,511      $        4,099      $        12,985
                 1998            $       3,621        $        1,274      $        3,467      $         8,362

Capital Expenditures
                 2000            $          16        $           --      $           --      $            16
                 1999            $       2,450        $          161      $        1,443      $         4,054
                 1998            $      15,322        $        1,455      $        1,229      $        18,006

Number of operating locations at year-end (unaudited)
                 2000                  2                   --                  --                   2
                 1999                  2                    2                   5                   9
                 1998                  2                    2                   5                   9
</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
Net Revenue from customer geographical segments are as follows (in thousands):

<TABLE>
<CAPTION>
                                            2000                         1999                            1998
                                            ----                         ----                            ----
<S>                                     <C>           <C>          <C>           <C>          <C>         <C>
U.S., Canada, Latin America             $6,845        96.75%       $58,871       72.22%       $120,517    88.15%
Europe                                      63          .89            772        0.95             451     0.33
Asia                                       168         2.36         21,875       26.83         15,747     11.52
                                 ----      ---      -------  --     ------      -------   ---  -------   ------
                                        $7,076       100.00%       $81,518      100.00%      $136,715    100.00%
                                        ======       =======       =======      ======       =========   ======
</TABLE>

     All of the Company's operating  long-lived assets are located in the United
     States

(23) Discontinued Operations

     In June  1999  and  March  1999,  the  Company  divested  its  interest  in
     AuraSound,  Inc. and the MYS group of entities,  respectively.  Pursuant to
     Accounting  Principles Board Option ("APB") No. 30,  "Reporting the Results
     of Operations-Reporting  the Effects of Disposal of a Segment of a Business
     and   Extraordinary,   Unusual  and   Infrequently   Occurring  Events  and
     Transactions,"  the consolidated  financial  statements of the Company have
     been  reclassified to reflect the disposition of the AuraSound segment as a
     discontinued operation.  Net operating revenues for discontinued operations
     for Fiscal 2000, 1999 and 1998 were approximately  $1,037,000,  $27,868,000
     and $32,776,000 respectively.

(24) Subsequent Events

     Note Conversion

     On March 6, 2000,  the Company  entered  into a  settlement  agreement  and
     release  of  claims  for a  $1,000,000  convertible  note in  exchange  for
     3,000,000 shares of the Company's common stock.

     Sale of Assets of Aura Ceramics

     Effective  March 1, 2000 the Company  entered an agreement  for the sale of
     the assets of Aura Ceramics.  The agreement calls for a sales price of $3.5
     million with a down payment of $1 million,  which was paid on May 2000. The
     balance,  including interest at 8% per annum is due in monthly installments
     of $31,000,  with a balloon payment of the remaining principal and interest
     due at the end of seven years.

     Completion of Common Stock Private Placement

     In May 2000,  the Company  completed a private  placement of  approximately
     15.5  million  shares of its common  stock at $0.32 per share  resulting in
     gross proceeds of approximately $5.0 million.

     Authorized Stock

     In March 2000,  the  Company's  shareholders  approved an  amendment to the
     articles  of   incorporation  to  increase  the  number  of  common  shares
     authorized  to  500,000,000,  and  to  authorize  the  issuance  of  up  to
     10,000,000 shares of preferred stock.

     2000 Stock Option Plan

     At the March 6, 2000  Annual  Meeting,  the  Company's  Board of  Directors
     adopted, and shareholders approved, the 2000 Stock Option Plan.

(25) Extinguishment of Debt

     At the start of Fiscal 2000,  the Company had  $38,481,782  in  convertible
     notes payable,  of which most were in default.  During the current year the
     Company  restructured  much of its  convertible  notes  payable  obligation
     through debt forgiveness and equity conversion.  With the debt restructure,
     $11,009,102 of convertible  notes was converted into  71,054,445  shares of
     the Company's  common stock, of which 2,520,000 shares are not reflected as
     outstanding as of February 29, 2000. The Company also redeemed  $430,000 of
     convertible  notes, and $12,535,898 in convertible  notes and $5,850,168 in
     accrued  interest  were  forgiven.  The balance of these  notes  became non
     convertible  and are included in secured  notes  payable for the year ended
     February  29,  2000,  as  detailed  in  footnote  10.  A  majority  of  the
     restructure  was   accomplished  by  a  single  unrelated  party  acquiring
     $21,345,000 of the convertible  notes payable and  subsequently  converting
     $9,224,102  into 65,034,445  shares of the Company's  common stock and debt
     forgiveness of $12,120,898.  In addition,  $682,852 in accounts payable and
     accrued  expenses was also forgiven.  Total debt forgiveness of $19,068,918
     is  reflected as an  extraordinary  item in the  accompanying  consolidated
     financial  statements  and  resulted in  extraordinary  income per share of
     $.15.


<PAGE>


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

                        Valuation and Qualifying Accounts

     Years ended February 29, 2000, February 28, 1999 and February 28, 1998


                                     Balance at      Charged to       Charged to                        Balance at
                                     beginning of    costs and          other                             end
                                       period         expenses         Accounts       Deductions        of period
                                     -----------------------------------------------------------------------------------

Allowances  are  deducted  from  the
assets to which they apply

Year ended February 29, 2000 Allowance for:
<S>                                      <C>          <C>             <C>                 <C>              <C>
    Uncollectible Accounts               $8,149,551   $     456,233   $           --      $   932,567      $7,673,217
    Reserve for returns                     121,474         359,488               --          480,962              --
    Reserve  for  potential  product
    obsolescence                          7,876,000          82,913               --        7,631,977         326,936
                                          ---------        --------     ------------        ---------      ----------
                                        $16,147,025   $     898,634   $            --      $9,045,506      $8,000,153
                                         ==========         =======   ===============      ==========       =========

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


     Amounts  charged  to  other  accounts  include  amounts  charged  to  price
     protection and rebates in Fiscal 1999.