SECURITIES AND EXCHANGE  COMMISSION   Washington, D.C. 20549

**Form 10-K/A**  (Mark One)

**ANNUAL REPORT PURSUANT  TO SECTION 13 OR 15(d)  OF THE SECURITIES EXCHANGE ACT OF 1934**

[X] For the fiscal year  ended......................................February 28, 2003  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 incorporation or organization) | (I.R.S. Employer          Identification No.) |

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

Registrant's telephone number,  including area code: **(310) 643-5300**

Former name, former address  and former fiscal year, if changed since last report: **None**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. |_|

On July 25, 2003 the aggregate market  value of the voting stock held by non-affiliates of the Registrant was approximately  $20 million. The aggregate market value has been computed by reference to the  last trading price of the stock on July 25, 2003. On such date the Registrant  had 430,923,150 shares of common stock outstanding.

When used in this report, the word "expects,"  "believes," "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 change in  the Company's expectations or any 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.

| Aura 2003      Form 10-K/A | 1 |
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Table of Contents
TABLE OF CONTENTS
     Page No.**PART      I**    ITEM      1. BUSINESS3 to 15    **PART      II**    ITEM      7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS      OF OPERATIONS16 to 27     ITEM      8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA26 to 28    **PART      IV**    ITEM      14. FINANCIAL STATEMENTS, SCHEDULES, REPORTS ON FORM 8-K AND EXHIBITS29     INDEX      TO EXHIBITS30     CERTIFICATION32 to 33     *Index      to Consolidated Financial Statements*34    
 
Aura 2003      Form 10-K/A2
Table of Contents
Part I, Item 1PART  IITEM 1. BUSINESSA. Introduction and History
Aura Systems, Inc., a Delaware corporation,  ("Aura" or the "Company") designs, assembles and sells the  AuraGen®, the Company's patented mobile power generator that  uses the engine of a vehicle to generate power. It installs under-the-hood in  many motor vehicles and delivers on-location, plug-in electricity for any end  use including industrial, commercial, recreational and military applications.  Compared to the traditional solutions (i.e., GenSets and inverters) addressing  the multi-billion dollar North American mobile power market, the Company believes  the AuraGen® provides cleaner electricity with greater reliability  and flexibility at a lower cost to the end user. The Company began commercializing  the AuraGen® in late 1999 as a 5,000-watt 120/240V AC machine  compatible with certain Chevrolet engine models. In mid and late 2001, the Company  added an 8,500 watt configuration and also introduced AC/DC and Inverter Charger  System (ICS) options. The Company now has configurations available for more  than 90 different engine types including a majority of General Motors and Ford  models, many Daimler Chrysler models and numerous others made by Caterpillar,  Detroit Diesel, Cummins, Freightliner and Navistar, among other chassis and  engine manufacturers.

To date, AuraGen® units  have been sold to more than 500 customers in more than 10 industries, including  recreational, utilities, telecommunications, emergency/rescue, public works,  catering, oil and gas, transportation, Government and the military. The Company's  objective is to be the leading developer and supplier of fully integrated mobile  electric power systems.

The Company was founded in 1987 and,  until 1992, primarily engaged in supplying defense technology to classified  military programs. In 1992 the Company transitioned to being primarily a supplier  of consumer and industrial products and services using its developed technology.  In 1994, the Company founded NewCom, Inc., which sold and distributed computer  communications and sound products such as CD-ROMs and sound cards. In 1997,  the Company acquired MYS Corporation of Japan, a manufacturer of speaker systems.  New Com ceased operations in 1999 and the Company experienced severe financial  hardship from this and other causes. In fiscal 2000, the Company sold MYS, the  Company's business divisions providing sound products, and other assets, restructured  substantial indebtedness and concentrated its focus on the AuraGen®  product.

The Company continues to hold several  patents, in addition to those related to the AurGen®, which it  believes provide the basis for economically viable products in addition to the  AuraGen®, but sales of the AuraGen® currently  provide substantially all the Company's operating revenues.
Aura 2003      Form 10-K/A3
Table of Contents
Part I, Item 1
Early in its AuraGen®  program, the Company determined it was most cost-effective to outsource production  of components and subassemblies to volume-oriented manufacturers, rather than  produce these parts in house. As a result of this decision, and based on then  anticipated sales, the Company purchased, prior to fiscal 2001, a substantial  inventory of components at volume prices, most of which was then assembled into  finished AuraGen® units. Since sales did not meet such expectations,  the Company has been selling product from this inventory for several years.  These assembled units and components in inventory do not deteriorate with age  and require only minor applications of parts and labor to bring them to current  specifications. In fiscal 2002 and fiscal 2003, the Company has substantially  reduced its internal staffing to be more appropriate to the slower-than-anticipated  level of sales. The Company has also suspended substantially all research and  development activities.
B. The AuraGen®
The AuraGen® is a patented  induction power system that uses the engine of a vehicle to produce electrical  energy. The AuraGen® can generate maximum power at engine RPM's  from enhanced idle to redline for gasoline engines and true idle to redline  for larger diesel engines. The Company believes the AuraGen®  is the only proven, commercialized power system available that can generate  up to 8,500 watts of clean power and is fully integrated under the hood of a  vehicle. While traditional mobile sources of electricity can exhibit voltage  fluctuations, spikes, surges and other inconsistencies, the AuraGen®  delivers pure sine wave (or "clean") power. Clean power is generally  desired and often required to safely and reliably operate highly sensitive digital  equipment, such as computers, communication and computer-controlled equipment.

The AuraGen® is composed  of three basic subsystems. The first subsystem is the generator that is bolted  to, and driven by, the vehicle's engine. The second subsystem is an electronic  control unit, which filters and conditions the electricity to provide clean,  steady voltages for both AC and DC power. The third subsystem is mounting brackets  and supporting components for installation and integration of the generator  with the vehicle engine.

The Company sells two basic models, a  5 Kw and an 8.5 Kw, with a number of options. The models currently available  produce 5,000 watts of continuous power with 7,200 watts peak and 8,000 watts  of continuous power with 9,000 watts peak, respectively. AC output is in the  form of dual 120/240 volts pure sine wave at a frequency of 60 or 50 Hertz.  In addition, both of the above models are available in configurations that divide  the maximum power between AC and DC. The DC available power can be either 14  volts or 28 volts. In fiscal 2002, the Company introduced a new model that generates  power with the vehicle engine either on or off, using auxiliary batteries in  conjunction with the AuraGen®. Aura provides custom engineered  brackets for both the 5 Kw and the 8.5 Kw systems that attach to over 90 different  engine and chassis models. The Company also provides power-take-off (PTO), as  well as hydraulic driven interfaces for bigger trucks that do not involve direct  attachment to the vehicle engine.
Aura 2003      Form 10-K/A4
Table of Contents
Part I, Item 1C. Mobile Power Industry
The mobile power generation market is  large and growing. Vehicles used in the telecommunications, utilities, public  works, construction, catering, and oil and gas industries, and emergency/rescue,  military and recreational vehicles rely heavily on mobile power for their internal  systems. In addition, mobile work sites require on-location electricity to power  equipment ranging from computers to power tools.

Based on studies conducted by the U.S.  government, Business Communications Company, Inc. ("BCC") and others,  the Company estimates the annual gross North American mobile power generation  market is at least $2.5 billion and growing. Worldwide growth is expected to  be fueled by increases in the development and construction of industrial infrastructures,  significant growth in homeland security expenditures, and increased use of sophisticated  electronic equipment in underdeveloped areas where grid-based electricity is  unavailable or unreliable. The Company believes that mobile power has become  increasingly important as backup to electric grid power supply.

The two primary options available to  users of mobile power today are GenSets and inverters. GenSets are relatively  inefficient power generation units which are not incorporated into a vehicle  and require external fuel, either gasoline or diesel, in order to generate electricity.  GenSets are generally noisy and cumbersome to transport because of their weight  and size. GenSet technology has been utilized since the 1930s. Inverters convert  the DC electricity stored in automotive or other batteries to AC electricity,  which is required by a wide range of mobile applications. Due to their low power  output capabilities, inverters are typically used for applications that require  less than 2,500 watts of power. Inverters do not generate their own power and  so the user must rely on batteries and recharge them by connecting into a grid  power source, or through GenSets or other means.

The quality of electricity has become  more important as computers and other technologically advanced products have  become more widely available and utilized. Because GenSets usually do not deliver  pure sine wave electricity, they are not well suited for digital instruments  and sensors. Inverters that produce pure sine wave electricity are available  but are more expensive than standard inverters and relatively uncommon. The  Company has measured a less than 2.4% THD (total harmonic distortion) for the  electrical output from an AuraGen®, which compares favorably  to the output of that from a typical power company electric grid.
Aura 2003      Form 10-K/A5
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Part I, Item 1D. Competitive Advantages of the AuraGen®
The Company believes the AuraGen®  is a superior product due to its convenience, cost efficiency, fuel efficiency,  reliability, flexibility in power output, and the quality of the electricity  generated.

The Company believes the cost to operate  a typical GenSet is approximately $0.92 per kW hour and the cost to operate  a typical inverter is approximately $0.70 per kW hour. The cost to operate a  comparable AuraGen® is approximately $0.46 per kW hour while  a vehicle is stationary. When power is needed while the vehicle is in motion  (e.g., recreational vehicles, ambulances, police vehicles, military vehicles),  the cost to operate the AuraGen® drops to approximately $0.28  per kW hour.

The AuraGen® does not  require scheduled maintenance and is offered with a three year warranty compared  to the typical one year warranty available for a comparable GenSet or inverter.

In addition, the AuraGen®  is significantly cleaner for the environment than the other generally available  mobile power solutions. The AuraGen® uses the automotive engine  which is highly regulated for environmental protection. GenSets use small engines  that produce significantly higher levels of emissions per unit of power output  than the automobile engine.

The Company believes that barriers to  entry make it less likely that a product superior to the AuraGen®  will become available in the foreseeable future. The inventions upon which the  AuraGen® is based are protected by patents issued in the U.S.  and key foreign countries. Creating and patenting the AuraGen®  required over $150 million and 600 man-years of engineering, research and development.  To Aura's knowledge, there are no other patents to this technology. Manufacturers  and end users of mobile power solutions (including the military) typically require  completion of extensive evaluation and approval processes before embracing new  systems. Many large target customers, including GM, Ford and Daimler Chrysler,  have already invested the time and capital required to evaluate and test the  AuraGen®. In addition, after extensive testing, a number of Federal,  state and local government departments, utilities and major industrial companies  have approved the AuraGen® for purchase.

Thousands of AuraGen®  units are currently being used for multiple applications and in all types of  operating environments, providing a good sample set for reliability analysis.  The results show very low failure rates, which the Company is reducing via minor  hardware and software modifications, better assembly procedures and improved  installation training. The U.S. Army has performed its own tests and is continuing  to test the AuraGen® under severe conditions. The VIPER (the  name for the military version of the AuraGen®) now in use by  special operations forces has been air-drop-certified by the Army and has been  successfully deployed in Operation Enduring Freedom and Operation Iraqi Freedom.  In addition to qualification testing, the Company has established a Quality  Management System and has achieved ISO 9001:2000 registration.
Aura 2003      Form 10-K/A6
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Part I, Item 1
The AuraGen® system received  UL recognition in 2002 and 2003. UL recognition is important - if not required  - in order to be able to sell the AuraGen® to the RV and marine  recreational market.
E. Target Markets
The Company has identified the following  target markets:

Military, Homeland Security Administration  and Other Federal Agencies

The Company believes the VIPER (the military  version of the AuraGen®) is a superior mobile power solution  compared with alternatives for numerous military applications. Producing quiet,  clean power from vehicles at low engine speed is important to the military as  the military increases its reliance on sophisticated electronic systems and  strives to enhance its mobility and transportability by shedding weight and  space.
Utilities and Telecommunications
Utilities and the telecommunications  industry regularly use mobile power in their daily activities. Several utilities  in the U.S. have purchased the AuraGen® system and continue evaluating  the product. The AuraGen® is also used by several television  broadcast stations.
Emergency/Rescue
The emergency/rescue market relies heavily  upon mobile power for lights, communications gear, instruments, medical equipment  and digital equipment and tools. As the emergency/rescue market has undergone  a transition to digital equipment and portable computers, it has experienced  constant growth in mobile power needs. Approximately 20 organizations have started  to use the AuraGen®.
Public Works/Construction/Oil and Gas
The public works and construction market  comprises a large number of municipalities and construction companies that use  portable power for their projects. Approximately 35 municipalities are using  the AuraGen® in limited quantities in their service and work  trucks. The oil and gas industry has a substantial need for mobile power and  has traditionally used GenSets. The Company believes the AuraGen®  provides a substantially better product for the industry's need.
Aura 2003      Form 10-K/A7
Table of Contents
Part I, Item 1Recreational Vehicles ("RVs")
Electric power is a critical need in  RV's. The AuraGen® offers significant benefits to RV users. These  benefits include first and foremost the convenience of residential feel (no  need to "shed" loads, no noise, ability to use standard home appliances),  fuel savings (the AuraGen® uses only the RV engine), reduced  maintenance costs (no required scheduled maintenance) and no power derating  due to altitude or temperature.
Marine
The company has begun to explore the  use of the AuraGen® in marine applications. Initial study and  limited field experience indicate that this is a potentially excellent market  for the AuraGen®.
F. Company Facility, Manufacturing Process and Company Suppliers
Aura assembles and tests the AuraGen®  at the Company's 68,000 square foot facility in El Segundo, California with  components which are produced by various suppliers. The Company established  these facilities with a maximum production capacity of 5,000 units per month  per 8 hour operating shift. The facility is currently substantially under-utilized  and the Company is evaluating the possibility of relocating to a smaller facility.

Early in its AuraGen®  program, the Company determined it was most cost-effective to outsource production  of components and subassemblies to volume-oriented manufacturers, rather than  produce these parts in house. As a result of this decision, and based on then  anticipated sales, the Company purchased, prior to fiscal 2001, a substantial  inventory of components at volume prices, most of which was then assembled into  finished AuraGen® units. Since sales did not meet such expectations,  the Company has been selling product from this inventory for several years.  It is important to note that these assembled units and components in inventory  do not deteriorate with age and that even though there have been improvements  and modifications to the AuraGen® product over this period, the  units in inventory require only minor applications of parts and labor to bring  them to current specifications. In fiscal 2002 and fiscal 2003, the Company  has substantially reduced its internal staffing to be more appropriate to the  slower-than-anticipated level of sales. The Company has also suspended substantially  all research and development activities.

To ensure quality the Company uses highly  qualified suppliers, the majority of which are ISO 9002 compliant. The Company  performs qualification testing on the AuraGen® hardware components,  the electronic control unit, all software and on fully installed in-vehicle  systems to ensure reliability in the field.

The Company has partly sold its Aura  Realty, Inc. subsidiary, which owns the El Segundo facility and leases it to  the Company. See the discussion under Item 7. - Liquidity and Capital Resources.
Aura 2003      Form 10-K/A8
Table of Contents
Part I, Item 1G. Distribution and Product Support
Aura provides a turnkey product and service  to support the Company's customers in every area. The Company has performed  all of the development, from basic physics to detailed engineering. The Company  believes its core capabilities provide a solid foundation to resolve technical  issues, develop an ongoing line of new products and to continually enhance the  Company's products.

The Company's vehicle integration team  develops, engineers and supplies all of the brackets, pulleys, idlers, belts,  tensioners and other components that comprise a mounting system. The group also  specifies all of the requirements of the AuraGen® to allow its  use with other mobile drives, such as hydraulic systems and Power Take Off ("PTO").
H. Certain Risk Factors
Risk Factors Relating to the Company

The Company has a history of losses  and the Company may not be profitable in any future period.

In each fiscal year since organization  in 1987, the Company has incurred a loss. The Company has an accumulated deficit  in retained earnings of approximately $303.8 million from its inception through  February 28, 2003. There can be no assurance that the Company will be able to  achieve or maintain profitability or positive cash flow.

The Company requires additional capital,  and there is no assurance that it will be available.

The cash flow generated from the Company's  operations to date has not been sufficient to fund its working capital needs.  Aura has relied upon external sources of financing, principally equity financing  and private and bank indebtedness. The Company does not expect that operating  cash flow will be sufficient to fund its working capital needs in fiscal 2004,  although the Company has recently instituted significant cost reduction measures  intended to reduce its need for capital. Currently, the Company has no commitments  from third parties to provide additional financing. If future financing involves  the issuance of equity securities, existing stockholders may suffer dilution  in net tangible book value per share and such dilution may be significant. See  Item 7. - Liquidity and Capital Resources.

The Company is in default of its financial  obligations.

Due to the Company's acute liquidity  challenges, it has defaulted in payments under many of its financial obligations  (see Item 7. - Liquidity and Capital Resources and Note 9 in the Consolidated  Financial Statements). These defaults effectively render these obligations payable  on demand and the entire principal balance of each obligation has been included  in current liabilities in the accompanying Consolidated Financial Statements.  Actions by the parties to these obligations to enforce their rights to collect  the amounts due could require the Company to cease operations.
Aura 2003      Form 10-K/A9
Table of Contents
Part I, Item 1
The Company must amend its Articles  of Incorporation in order to be able to issue common stock.

The Company's authorized capital consists  of 500,000,000 shares of common stock and 10,000,000 shares of preferred stock.  At December 31, 2003, there were 430,923,150 shares of common stock outstanding  and approximately 195,000,000 shares of common stock reserved or committed for  future issuances under outstanding options, warrants and rights and upon conversion  of Preferred Stock. As of December 31, 2003, 591,110 shares of preferred stock  were outstanding all of which were Series A Convertible Redeemable Preferred.  The Company intends to seek authorization from its shareholders to increase  its authorized common stock and/or to implement a reverse stock split; however,  there can be no assurance that any such proposal will be approved by the Company's  shareholders and effected. For a further discussion see Item 7. - Liquidity  and Capital Resources.

Any issuance of shares may dilute  existing shareholders. 

The issuance of shares of common or preferred  stock will dilute the interests of existing stockholders and may cause a decline  in the net book value of a share of stock. The Company cannot predict the price  at which it may issue additional shares of common stock. Although the Company  will seek to obtain maximum consideration for any issuance of shares, in order  to attract necessary new capital, the Company may sell shares of stock at a  discount to market prices.

The Company has considered implementing  a reverse stock split, which may adversely affect the market for the common  stock.

Although a reverse stock split would  be intended, in part, to increase the trading price of the Company's common  stock, there cannot be any assurance that such price would in fact increase  following a reverse stock split. In order for the value of each shareholder's  proportionate interest in the Company to remain the same following a reverse  split, the price of the stock would need to increase by the mathematical ratio  of the split. (For example, if a one-for-two reverse split is adopted, the trading  price of the stock would need to double in order for the value of each shareholder's  interest to remain constant.) Although a reverse split would be intended to  increase shareholder values over time, companies effecting reverse splits generally  experience a short-term decline in shareholder values, as the stock price does  not immediately increase mathematically proportionate to the ratio of the split.

Aura's revenues have declined significantly  in recent years.

The Company has experienced a significant  decline in operating revenues over the past few years. A significant subsidiary  (NewCom) ceased operations in fiscal 1999 and the Company has sold operating  divisions and subsidiaries to raise cash. The Company's net revenues peaked  at approximately $104 million in the fiscal year ended February 28, 1998. Revenues  declined to $2.5 million for the fiscal year ended February 28, 2001; $3.1 million  for the fiscal year ended February 28, 2002, and $1.1 million for the fiscal  year ended February 28, 2003.
Aura 2003      Form 10-K/A10
Table of Contents
Part I, Item 1
Revenues related to the Company's current  product, the AuraGen®, have fluctuated over the last three years.  For a further discussion see Item 7. -Overview.

The Securities and Exchange Commission  Has Brought an Action Against the Company 

In June 2002, the Securities and Exchange  Commission ("SEC") brought a civil action against the Company, NewCom  (a former subsidiary of Aura), and certain former members of the Company's management  team, including Zvi (Harry) Kurtzman and Steven Veen for violations of the antifraud  and books and records provisions of the securities laws. The complaint relates  to the financial statements for various transactions during fiscal years 1996  through 1999. A related action was brought against Gerald Papazian. Without  admitting or denying the allegations in the complaint, the Company as well as  the former officers filed consents agreeing to settle the case. The Company  consented to a permanent injunction against violations of the securities laws,  with no penalty imposed based on the Company's financial condition. See Item  3. - Securities and Exchange Commission.

The Company has recently changed management.

Although the recent changes in management  discussed below have been intended to improve the Company's performance, there  can be no assurance that such improvement will be realized. The changes in management  can result in a loss of continuity and increased inefficiency thereby adversely  impacting the Company's sales and costs.

In December 2001, the Company and six  former members of the Company's senior management, including Zvi Kurtzman, the  former Chief Executive Officer, Gerald Papazian, the former President and Steven  Veen, the former Chief Financial Officer, entered into agreements providing  for the termination of their employment with the Company effective February  28, 2002. This followed the investigation by the SEC described above.

The Company retained Steven Burdick as  the Company's Chief Financial Officer in January 2002. Mr. Burdick resigned  in October 2002, for reasons unrelated to the SEC action.

Effective March 2002 Mr. Carl Albert  was appointed Chairman and Mr. Joshua Hauser was appointed President and Chief  Executive Officer. In July 2002, Carl Albert stepped down as Chairman, remaining  on the Board, and Mr. Neal Meehan was appointed Chairman. Shortly thereafter,  Mr. Hauser left the Company and Mr.

Meehan was appointed President and Chief  Executive Officer. Mr. Meehan continues to serve as Chairman of the Board, President  and Chief Executive Officer. In November 2002, David Rescino joined the Company  as Senior Vice President - Finance and Chief Financial Officer. Mr. Rescino  resigned his full-time position in April 2003 but continues to serve on a part-time  interim basis until a replacement is named.
Aura 2003      Form 10-K/A11
Table of Contents
Part I, Item 1
Craig Lipus joined the Company in June  2002 as Vice President - Sales and Marketing. Mr. Lipus resigned in January  2003. Michael Froch, Senior Vice President, General Counsel and Secretary of  the Company since 1997 resigned in June 2003. Neither of these positions has  been replaced at this time.

For a further discussion, see Item 10.

The success of the Company over the  short-term depends on the commercial success of the AuraGen®  products, as the Company is not currently engaged in any other line of business.

Because the Company has focused its business  on developing a single product line, rather than on diversifying into other  areas, the Company's success in the foreseeable future will be dependent upon  the commercial success of the AuraGen® product line.

Risk Factors Relating to the AuraGen®

The market acceptance of the AuraGen®  is uncertain.

Aura's business is dependent upon sales  generated from the AuraGen® family of products and increasing  acceptance of the product. The AuraGen® uses new technology and  has only recently been introduced into the marketplace. The Company's financial  condition has limited its ability to promote the AuraGen® and  make potential customers aware of its existence. Because the Company's product  is radically different from the traditional available mobile power solutions,  users may require lengthy evaluation periods in order to gain confidence in  the product. Original equipment manufacturers ("OEMs") and large fleet  users also typically require considerable time to make changes to their planning  and production. Distributors used by the Company may not focus adequate resources  on selling the Company's products or may otherwise be unsuccessful.

There can be no assurances that the Company's  products will achieve broad acceptance in the marketplace.

Aura's business may be adversely affected  by industry competition.

The industry in which the Company operates  is competitive. The primary competition for the AuraGen® is GenSets  and there are approximately 44 GenSet manufacturers in the United States.

Many of the Company's competitors have  greater financial resources, have larger budgets for research, new product development  and marketing and have long-standing customer relationships. The Company must  compete with many larger and more established companies in the hiring and retention  of qualified personnel.
Aura 2003      Form 10-K/A12
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Part I, Item 1
The Company depends on its patented  technology.

The Company relies on a number of patents  and patent applications to protect the AuraGen® products from  competition, which cover the basic mechanical design of the AuraGen®  system and some components of the control system. The Company cannot provide  assurance that the patents pending relating to the AuraGen® system  or future patent applications will be issued or that any issued patents will  not be invalidated, circumvented or challenged. A portion of the Company's proprietary  technology depends upon unpatented trade secrets and know-how.

The Company may not be able to effectively  manage its turnaround and growth.

The Company restructured its operation  during fiscal 2003 and 2004 in order to conserve cash. The Company's workforce  has declined steadily from 101 employees as of February 28, 2002 to 60 at February  28, 2003 to 39 as of July 25, 2003. The Company will need to rehire employees  and rebuild its sales and production infrastructure in order to service any  significant growth in demand for its products, which growth is critical to the  Company's success. There can be no assurance that, with the Company's reduced  staffing, it will be able to effectively respond to significant increases in  product sales.

The Company has depended on the expertise  of key employees.

Because the Company's product depends  on patented and proprietary technology, and must be periodically modified to  adapt the product to changes in engine design and manufacture, the Company depends  on a limited number of key employees with experience in electromagnetic theory  and design. In order to conserve cash, the Company has recently furloughed or  terminated a number of its employees.

The Company depends on third party  manufacturers for certain product components.

The Company relies extensively on subcontracts  with third parties for the manufacture of most components of the AuraGen®.  The use of third party manufacturers increases the risk of delay of shipments  to the Company's customers and increases the risk of higher costs if the Company's  third party manufacturers cannot make components available when required.

Some of these components are currently  available only from a single source or from limited sources. The Company may  experience delays in production of the AuraGen® if it fails to  identify alternate vendors or if any parts supply is interrupted or reduced,  or if there is a significant increase in production costs or decline in component  quality.
Aura 2003      Form 10-K/A13
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Part I, Item 1
The Company will need to renew sources  of supply to meet increases in demand for the AuraGen®.

The Company purchased the basic components  for the AuraGen® units currently being sold under a bulk order  placed prior to fiscal 2001. Due to sales not meeting anticipated levels, the  Company has been selling from this inventory. In order to renew this inventory,  the Company will need to renew contracts with such manufacturers or locate other  suitable manufacturers. Although the Company believes that there are a number  of potential manufacturers of the components, there can be no assurance that  renewed contracts for components can be obtained on favorable terms. Any material  adverse change in such contracts could increase the Company's cost of goods.
I. Aura's Other Technologies
Aura retains significant interest in  two other technology applications, electromagnetic actuators and actuated mirror  array. Although the Company has suspended its prior efforts to develop a commercially  viable product using either of these technologies, the Company intends to revive  such efforts in the future. Significant capital will be required to continue  such efforts; accordingly, the Company cannot predict when its financial condition  will allow such efforts to resume.
Electromagnetic Actuator (EMA(TM))
The Company developed its Electromagnetic  Valve Actuator to fill the performance gap between linear actuators and solenoids.  To date, the principal application of this actuator has been in its Electromagnetic  Valve Actuator System ("EVA(TM)"), a patented electro-magnetically  powered system that opens and closes engine valves at any user specified time  interval. The EVA(TM) can thereby, for instance, replace the mechanical  camshaft on an engine. Computer control of the valve timing has potentially  material benefits to engine performance, fuel economy and emissions.
Light Efficient Displays - Actuated  Mirror Array (AMA(TM))
Aura developed and patented a technology  (a "light valve") for generation of images called the Actuated Mirror  Array (AMA(TM)). 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 believes that 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.

The Company entered into a license and  manufacturing agreement with Daewoo Electronics Co., Ltd. ("Daewoo")  to manufacture televisions and other devices based on AMA(TM) technology.  Daewoo invested substantial funds to commercialize the technology. However,  Daewoo has since ceased operations due to bankruptcy.
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Part I, Item 1J. Research and Development
During the fiscal years ended February  28, 2003, 2002 and 2001, the Company spent approximately $0.4 million, $0.8  million and $ 0.5 million, respectively, on Company research and development  activities. The Company believes that ongoing R&D are important to the success  of the Company's product in order to utilize the most recent technology, to  develop additional products and additional uses for existing products, and to  stay current with changes in vehicle manufacture and design and to maintain  an ongoing advantage over potential competition. The Company's financial condition  does not currently allow significant expenditures on R&D as all costs are  being minimized while the Company seeks to maintain solvency and attain profitability.
K. Patents and Intellectual Property
The U.S. Patent Office has awarded the  Company 29 patents applicable to automotive and industrial applications. Of  the above patents, two are focused directly on the AuraGen®,  nine are for basic magnetic actuation, two are for control systems associated  with controlling the magnetic fields in different configurations and sixteen  are focused on the Electromagnetic Valve Actuator ("EVA(TM)")  application. In addition, the Company has two patent applications pending related  to its AuraGen® technology. The first of Aura's domestic patents  does not expire until 2015. The Company intends to defend its patents vigorously.

There are two ways that electromagnetic  technology can be used for generators, motors and actuators. One method uses  permanent magnets, while the other uses electromagnets. The Company is building  and selling the AuraGen® product with the imbedded magnetic technology  covered in the two AuraGen® patents using electromagnets. The  nine additional basic actuation patents cover designs where rare earth magnets  could potentially be used to build similar machines.

The Company has an additional 18 patents  in electro-optical technology and a number of other patents in other fields.
L. Employees
As of February 28, 2003, the Company  employed 60 persons. As of July 8 2003, the Company employed 39 persons. The  Company has reduced its workforce significantly in the past 18 months to conserve  cash. The Company is not a party to any collective bargaining agreements.
M. Significant Customers
The Company sold its AuraGen®  product to one significant customer during fiscal 2003 for a total of approximately  $0.2 million or 22% of net revenues.
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Part II, Item 7
PART IIITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL  CONDITION AND RESULTS OF OPERATIONS
This Form 10-K report may contain forward-looking  statements which involve risks and uncertainties. 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 the Company's Form 10-K for the period  ended February 28, 2003 and 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 change in the Company's  expectations or any 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. 
Overview
Aura Systems, Inc., a Delaware corporation,  ("Aura" or the "Company") designs, assembles and sells the  AuraGen®, the Company's patented mobile power generator that  uses the engine of a vehicle to generate power. It installs under-the-hood in  many motor vehicles and delivers on-location, plug-in electricity for any end  use including industrial, commercial, recreational and military applications.  The Company began commercializing the AuraGen® in late 1999.  To date, AuraGen® units have been sold to more than 500 customers  in more than 10 industries, including recreational, utilities, telecommunications,  emergency/rescue, public works, catering, oil and gas, transportation, government  and the military. 

The Company was founded in 1987 and,  until 1992, primarily engaged in supplying defense technology to classified  military programs. In 1992 the Company transitioned to being primarily a supplier  of consumer and industrial products and services using its developed technology.  In 1994, the Company founded NewCom, Inc., which sold and distributed computer  communications and sound products such as CD-ROMs and sound cards. In 1997,  the Company acquired MYS Corporation of Japan, a manufacturer of speaker systems.  NewCom ceased operations in 1999 and the Company experienced severe financial  hardship from this and other causes. In fiscal 2000, the Company sold MYS, the  Company's business divisions providing sound products, and other assets, restructured  substantial indebtedness and concentrated its focus on the AuraGen®  product. Sales and support of the AuraGen® currently provide  all the Company's operating revenues.
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Part II, Item 7
Early in its AuraGen®  program, the Company determined it was most cost-effective to outsource production  of components and subassemblies to volume-oriented manufacturers, rather than  produce these parts in house. As a result of this decision, and based on then  anticipated sales, the Company purchased, prior to fiscal 2001, a substantial  inventory of components at volume prices, most of which was then assembled into  finished AuraGen® units. Since sales did not meet such expectations,  the Company has been selling product from this inventory for several years.  These assembled units and components in inventory do not deteriorate with age  and require only minor applications of parts and labor to bring them to current  specifications. In fiscal 2002 and fiscal 2003, the Company has substantially  reduced its internal staffing to be more appropriate to the slower-than-anticipated  level of sales. The Company has also suspended substantially all research and  development activities.

The Company's financial statements have  been prepared on the assumption the Company continues as a going concern, which  contemplates the realization of assets and satisfaction of liabilities in the  normal course of business. However, as a result of the Company's losses from  operations and its default on certain of its obligations (see Note 7), there  is substantial doubt about its ability to continue as a going concern. 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. 

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 Company's obligations. In order to attract additional financing,  the Company expects that payment terms of its obligations will need to be restructured,  including resolution of the current defaults on many of its payment obligations.  The Company is currently seeking to restructure payment terms of its outstanding  obligations in connections with its efforts to raise additional financing through  a private placement. There can be no assurance that such efforts will be successful.

The Company's current level of sales  reflects the Company's efforts to introduce a new product into the marketplace.  Many purchases of the product are being made for evaluation purposes. The Company  seeks to achieve profitable operations by obtaining market acceptance of the  AuraGen as a competitive - if not superior - product providing mobile power,  thereby causing sales to increase dramatically to levels which support a profitable  operation. There can be no assurance that this success will be achieved.

As of October 30, 2003, the Company had  outstanding warrants, options and convertible securities to purchase approximately  100 million shares of common stock. The Company also had commitments to issue  approximately 20 million shares of common Stock without further consideration.  The aggregate number of outstanding options, warrants, and common share equivalents  was in excess of the authorized, but unissued number of shares of the Company's  common stock. Management intends to seek shareholder approval of an increase  in the Company's authorized shares sufficient to satisfy all existing commitments  and create available shares for potential future investments. However, there  can be no assurance that such approval will be obtained.
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Part II, Item 7Results of Operations
The Company's fiscal 2003 net loss was  $16.1 million, and $5.6 million of that loss related to non-cash charges for  depreciation, amortization, asset impairments and beneficial conversion of certain  debt instruments. In fiscal 2002, the net loss was $24.9 million and the similar  non-cash charges were $15.0 million. In fiscal 2001, the net loss was $20.9  million and similar non-cash charges were $7.9 million. Net operating revenues  and gross profit were $1.1 million and $0.5 million, respectively, in fiscal  2003, $3.1 million and $0.1 million, respectively, in fiscal 2002 and $2.5 million  and $1.5 million, respectively, in fiscal 2001.
Revenues
Net revenues in fiscal 2003 declined  65% to $1.1 million due to weakness in sales, which has continued into the first  quarter of 2004. The Company believes that this weakness reflects a combination  of factors. To some extent, sales have been impacted by a general slowdown of  the overall economy and the general economic effect of the war in Iraq. The  Company's weakened financial condition has also impaired its ability to market  effectively and has resulted in deferred commitments from potential long-term  customers. This decrease in net revenues is substantially volume related. The  Company has not engaged in any significant pricing reductions since it believes  that factors other than cost are primarily responsible for reduced sales volumes.

Net revenues in fiscal 2003 included  $0.06 million ($0.05 million in fiscal 2002) of revenues derived from services  related to the AuraGen® product. These services were generally  training, installation and non-warranty repairs provided to AuraGen®  customers. The Company does not consider these services to be a significant  source of revenues.

Net revenues in fiscal 2002 increased  to $3.1 million from $2.5 million in fiscal 2001, an increase of 24%. This increase  was due to expansion of the AuraGen distributor network and increased direct  sales to the U.S. Army during fiscal 2002.
Cost of Goods
Cost of goods decreased to $0.6 million  in fiscal 2003 from $1.5 million in fiscal 2002. This decrease is generally  proportional to the decline in net revenues, although gross margin of 48% in  fiscal 2003 was lower than the 52% gross margin in fiscal 2002, excluding the  impact of the $1.5 million inventory write down recorded in fiscal 2002, largely  due to somewhat higher costs incurred in manufacturing smaller quantities of  units.

Cost of goods increased to $1.5 million  in fiscal 2002 from $1.2 million in fiscal 2001 primarily as a result of the  increase in sales reflected in the increase in revenues. Gross margins were  consistent at 52% and 52% in fiscal 2002 and fiscal 2001, respectively.
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Part II, Item 7Engineering
Engineering expense for fiscal 2003 of  $3.5 million represents a 58% decrease from $8.4 million in fiscal 2002. Approximately  $4.6 million of this decrease was due to the elimination of depreciation expense  resulting from the Company's fourth quarter fiscal 2002 write off of tooling  fixed assets that were impaired under SFAS No. 144. Cost control efforts taken  during fiscal 2003, most significantly a reduction in engineering headcount,  also contributed to the expense reductions in fiscal 2003. Labor and labor related  costs included in engineering expense amounted to $2.7 million in fiscal 2003,  compared to $4.1 million in fiscal 2002.

Engineering expense for fiscal 2002 increased  to $8.4 million from $8.2 million in fiscal 2001 (2%). Included in engineering  expense is $4.9 million in depreciation in fiscal 2002 compared to $4.8 million  in fiscal 2001.
Research and Development
Research and development expense declined  to $0.4 million in fiscal 2003 as the Company reduced its research activities.  Substantially all this expense was labor-related. The Company expects research  and development expense to continue at or below this reduced level in the first  and second quarters of fiscal 2004. Research and development expense for fiscal  2002 increased to $0.8 million from $0.5 million in fiscal 2001 as the Company  increased research and development to expand its line of AuraGen®  products, which currently include the 6kW, 10kW, 25kW, AC/DC versions, and marine  and other applications.
Selling, General and Administrative
Selling, general and administrative ("SG&A")  expenses declined 26% from fiscal 2002 to $7.4 million in fiscal 2003, from  $10.0 million in fiscal 2002, as the Company reduced its management headcount  and reduced its litigation expenses. Labor and labor related costs included  in SG&A expense amounted to $4.2 million in fiscal 2003, compared to $5.3  million in fiscal 2002. A significant portion of this decrease is attributable  to the termination of six senior management persons at February 28, 2002. Several  of these positions were left vacant or eliminated in fiscal 2003, resulting  in lower labor costs for the period.

SG&A expenses were $10.0 million  in fiscal 2002, a decrease of $2.7 million (21%) compared to $12.7 million in  fiscal 2001. The decrease from fiscal 2001 to fiscal 2002 was primarily due  to a reduction in legal costs of approximately $1.2 million and a $1.3 million  bad debt expense realized in fiscal 2001 from discontinued business lines.
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Part II, Item 7Legal Settlements
Legal settlements resulted in expense  of $0.2 million in fiscal 2003, a gain of $2.8 million in fiscal 2002 and expense  of $1.5 million in fiscal 2001. The 2003 expense was related to the final settlement  in the Frankston matter. The 2002 gain resulted from settlements with Excalibur  of $2 million and Deutsche Financial of $1.2 million. These settlement gains  were partially offset by a litigation loss of $400,000 resulting from a NewCom  consumer class action suit. In 2001, the Company recognized losses relative  to various lawsuits which were settled.
Asset Impairment
During fiscal 2003, the Company undertook  efforts to sell the Company's headquarters (discussed below). The Company determined  that the value of these buildings had declined and recorded a $2.3 million asset  impairment charge to reflect a realizable value for assets held for sale less  than net book value. In fiscal 2002, the Company incurred $7.7 million of asset  impairment charges including a charge for obsolescence of engineered tooling  amounting to $4.6 million and for unrealizable advertising trade credits of  $3.1 million. These charges were included in loss from operations under FASB  144.
Severance Expense
Severance expense of $0.2 million in  fiscal 2003 is principally due to the termination of the employment of Mr. Joshua  Hauser. In fiscal 2002, severance expense totaled $1.1 million which was attributable  to the termination of six members of the Company's senior management, including  Zvi Kurtzman and Steven Veen. See Item 10 - Changes in Management.
Non-Operating Income and Expenses
The Company incurred $0.8 million and  $1.4 million of asset impairment charges in fiscal 2003 and fiscal 2002, respectively,  primarily due to a decline in the value of non-core long-term investments. In  fiscal 2001, impairment charges of $0.2 million resulted from a reserve against  a long-term investment.

During fiscal 2003, the Company completed  a sale of a minority interest in its Aura Realty, Inc. subsidiary (see Note  4 in the Company's Consolidated Financial Statements). The Company realized  a $0.6 million loss on this sale.

Interest expense increased to $2.7 million  in fiscal 2003, which included $1.5 million of non-cash charges attributable  to a beneficial conversion feature of convertible notes issued during fiscal  2003. The decrease in interest expense, after excluding the non-cash charges,  was due to reductions in the Company's debt levels. Interest expense increased  slightly from $2.3 million in fiscal 2001 to $2.5 million in fiscal 2002.
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Part II, Item 7
Other income, net amounted to $0.4 million  in fiscal 2003 compared to $1.5 million in fiscal 2002 and $2.2 million in fiscal  2001. In fiscal 2003, this income was primarily attributable to interest income.  In fiscal 2002, the significant components of this account were a gain of $1.3  million relative to a transaction fee and expenses of $1.1 million for severance  obligations to former management.

The Company realized an extraordinary  gain of approximately $1.2 million in fiscal 2003 and $1.9 million in fiscal  2002 from the forgiveness of debt by certain of the Company's creditors.
Critical Accounting Policies and Estimates
The Company's discussion and analysis  of its financial conditions and results of operations are based upon its consolidated  financial statements, which have been prepared in accordance with accounting  principles generally accepted in the United States of America. The preparation  of financial statements requires management to make estimates and disclosures  on the date of the financial statements. On an on-going basis, the Company evaluates  its estimates, including, but not limited to, those related to revenue recognition.  The Company uses authoritative pronouncements, historical experience and other  assumptions as the basis for making judgments. Actual results could differ from  those estimates. The Company believes that the following critical accounting  policies affect its more significant judgments and estimates in the preparation  of its consolidated financial statements.
Revenue Recognition
Aura is required to make judgments based  on historical experience and future expectations, as to the reliability of shipments  made to its customers. These judgments are required to assess the propriety  of the recognition of revenue based on Staff Accounting Bulletin ("SAB")  No. 101, "Revenue Recognition," and related guidance. Because sales  are currently in limited volume and many sales are for evaluative purposes,  the Company has not booked a general reserve for returns. The Company will consider  an appropriate level of reserve for product returns when its sales increase  to commercial levels.
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Part II, Item 7Inventory Valuation and Classification
Inventories consist primarily of components  and completed units for the Company's AuraGen® product. Inventories  are valued at the lower of cost (first-in, first-out) or market. Provision is  made for estimated amounts of current inventories that will ultimately become  obsolete due to changes in the product itself or vehicle engine types that go  out of production. Due to continuing lower than projected sales, the Company  is holding inventories in excess of what it expects to sell in the next fiscal  year. The net inventories which are not expected to be realized within a 12-month  period based on current sales forecasts have been reclassified as long term.  Management believes that existing inventories can, and will, be sold in the  future without significant costs to upgrade it to current models and that the  valuation of the inventories, classified both as current and long-term assets,  accurately reflects the realizable values of these assets. The AuraGen®  product being sold currently is not technologically different from those in  inventory. Existing finished goods inventories can be upgraded to the current  model with only a small amount of materials and manpower. We make these assessments  based on the following factors: i) existing orders, ii) age of the inventory,  iii) historical experience and iv) the Company's expectations as to future sales.  If expected sales volumes do not materialize or if significant discounts from  current pricing levels are granted to generate sales, there would be a material  impact on the Company's financial statements.
Valuation of Long-Lived Assets
Long-lived assets, consisting primarily  of property and equipment, and patents and trademarks, comprise a significant  portion of the Company's total assets. Long-lived assets are reviewed for impairment  whenever events or changes in circumstances indicate that their carrying values  may not be recoverable. Recoverability of assets is measured by a comparison  of the carrying value of an asset to the future net cash flows expected to be  generated by those assets. Net cash flows are estimated based on expectations  as to the realizability of the asset. Factors that could trigger a review include  significant changes in the manner of an asset's use or the Company's overall  strategy.

Specific asset categories are treated  as follows:

Accounts Receivable: The Company records  an allowance for doubtful accounts based on management's expectation of collectibility  of current and past due accounts receivable.

Property, Plant and Equipment: The Company  depreciates its property and equipment over various useful lives ranging from  five to ten years. Adjustments are made as warranted when market conditions  and values indicate that the current value of an asset is less than its net  book value.
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Part II, Item 7
Long-Term Investments: As the Company  does not hold a sufficient interest in its investments to exercise significant  influence and the fair market value of the investments are not readily determinable,  long-term investments have been accounted for under the cost method. Management  reviews financial and other available information pertaining to such investments  to determine if and when a decline, other than temporary, in the value of any  investment has occurred and an adjustment is warranted.

Patents and trademarks: As the Company's  business depends on using new technology to create new products, impairments  in patents can be triggered by changed expectations regarding the foreseeable  commercial production of products underlying such patents.

When the Company determines that an asset  is impaired, it measures any such impairment by discounting an asset's realizable  value to the present using a discount rate appropriate to the perceived risk  in realizing such value. When the Company determines that an impaired asset  has no foreseeable realizable value, it writes such asset down to zero.
Liquidity and Capital Resources
The Company continues to experience acute  liquidity challenges. At February 28, 2003, the Company had cash of $0.2 million  as compared to a cash level of $1.1 million at February 28, 2002, and a working  capital deficit of approximately $11.6 million as compared to a deficit of approximately  $2.5 million at the end of the prior fiscal year. These conditions combined  with the Company's historical operating losses raise substantial doubt as to  the Company ability to continue as a going concern. As of December 31, 2003,  the Company had cash of approximately $0.15 million.

The cash flow generated from the Company's  operations to date has not been sufficient to fund its working capital needs,  and the Company does not expect that operating cash flow will be sufficient  to fund its working capital needs in fiscal 2004. In the past, in order to maintain  liquidity the Company has relied upon external sources of financing, principally  equity financing and private and bank indebtedness. The Company has no bank  line of credit.

The Company requires additional debt  or equity financing to fund ongoing operations. The Company is seeking to raise  additional capital; however, the Company has no firm commitments from third  parties to provide additional financing and there can be no assurance that financing  will be available at the times or in the amounts required. The issuance of additional  shares of equity in connection with such financing could dilute the interests  of existing stockholders of the Company, and such dilution could be substantial.  The Company must increase its authorized shares in order to be able to sell  common equity, and intends to propose to stockholders such action as well as  a reverse stock split of its common shares; there can be no assurance that either  such action will be approved. If financing cannot be arranged in the amounts  and at the times required, the Company will cease operations.
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Part II, Item 7

At February 28, 2003, the Company had  accounts receivable, net of allowance for doubtful accounts, of $0.4 million;  $0.1 million at February 28, 2002. These receivables at February 28, 2003 arose  primarily from sales in the fourth quarter of the fiscal year and the majority  of them had been collected as of May 31, 2003. As of May 31, 2003, the Company  had net accounts receivable of $0.2 million.

From April 1 through June 15, 2003, the  Company has sold a portion of one of its long-term investments realizing net  proceeds of $0.4 million. The Company intends to sell the remainder of this  investment and is actively seeking buyers but has no commitments from any buyers  at this time. In May 2003, the Company borrowed $0.2 million, secured by a portion  of the remainder of this investment. This borrowing will be required to be repaid  from the proceeds of future sales of this investment.

Spending for property and equipment amounted  to less than $0.1 million in fiscal 2003 and $0.3 million in fiscal 2002. The  Company has no material capital project that would require funding. The Company's  current plant and equipment is sufficient to support its current level of sales.

Debt repayments of $1.0 million were  made in fiscal 2003 as compared to debt repayment of $5.1 million in fiscal  2002, including $2.0 million on the Company's bank line of credit.

The Company leases warehouse space located  in Rancho Dominguez, California. Minimum monthly rent under the lease approximates  $3,900. Rent expense was approximately $0.1 million for fiscal 2003, $0.1 million  for fiscal 2002 and $0.1 million for fiscal 2001. The Company is currently in  default of this lease and is negotiating a schedule of payments to remedy this  default. The status of the Company's lease of its headquarters and manufacturing  facility is discussed below. Due to the Company's acute liquidity challenges,  it has defaulted in payments under many of its financial obligations (see Note  9 in the Consolidated Financial Statements). These defaults effectively render  these obligations payable on demand and the entire principal balance of each  obligation has been included in current liabilities in the accompanying Consolidated  Financial

Statements. Actions by the parties to  these obligations to enforce their rights to collect the amounts due could require  the Company to cease operations.
Capital Transactions During Fiscal 2002
During fiscal 2002, the Company restructured  $16.2 million of debt and related accrued interest into 31,398,771 shares of  common stock with an intended market value of $15.2 million, resulting in a  pre-tax extraordinary gain for the early extinguishments of debt of $1.0 million.  The Company issued an additional 923,077 shares in fiscal 2003 pursuant to repricing  provisions and is obligated to issue an additional 13,790,923 shares of common  stock to the debt holders due to such provisions; such shares are included in  "committed common stock" on the Company's balance sheet.

During fiscal 2002, the Company issued  46,151,584 shares of common stock in private placements and for services in  exchange for consideration valued at approximately $16.4 million, including  approximately $13.4 million of cash funding and approximately $3.0 million of  satisfaction of liabilities.
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Part II, Item 7
Also during fiscal 2002:

 -           the Company issued 10,000,000 shares of common stock valued at $4 million  ($0.40 per share) as partial settlement of litigation.

 -           the Company issued 8,947,631 shares of common stock pursuant to the  repricing provisions of a prior year's private placement.
Capital Transactions During Fiscal 2003
During fiscal 2003, the Company issued  42,360,005 shares of common stock (the "2003 Subtotal Shares") in  private placements and for services in exchange for consideration valued at  approximately $5.9 million, including approximately $5.7 million of cash funding  and approximately $0.2 million in satisfaction of liabilities. During fiscal  2003, the Company issued $3.75 million of notes as follows:

 -           $1.75 million of convertible term notes, bearing annual interest of  8%, for net cash proceeds of $1.75 million (the "8% Notes"). The 8%  Notes are convertible into common stock at prices ranging from $0.071 to $0.110  per share. $1.13 million of 8% Notes were exchanged for Series A Preferred as  discussed below. $0.62 million of 8% Notes remain outstanding; however, the  stated terms of these notes expired in January through March 2003 and they are  now payable upon demand.

 -           $1.1 million of convertible term notes, bearing interest at 5% per annum,  for net cash proceeds of $1.1 million (the "5% Notes"). The 5% Notes  were convertible into Series A Preferred stock, which is convertible into 125  shares of common stock, at $10.00 per share (effective price per common share  at conversion is $0.080). All of the 5% Notes were converted into Series A Preferred  subsequent to year end as discussed below.

 -           $0.9 million of convertible term notes, bearing interest at 5% per annum,  for net cash proceeds of $0.9 million (the "5% Discounted Notes").  The 5% Discounted Notes were convertible into Series A Preferred stock, which  is convertible into 125 shares of common stock, at an effective conversion price  of $4.55 per share (effective price per common share at conversion is $0.036).  All of these notes were converted into Series A Preferred subsequent to year-end  as discussed below.
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Part II, Item 7
During fiscal 2003, the Company agreed  to sell its Aura Realty, Inc. subsidiary ("Aura Realty") to a group  of individuals, including five members of the Company's former management including  Zvi Kurtzman and Steve Veen, (the "Purchasers") and to lease back  the Company's headquarters facility, which is owned by Aura Realty. The purchase  price of $7,350,000 was to be paid by assumption or refinancing of the current  mortgage on the property (which had a principal balance of approximately $5.1  million). Net of this mortgage, $0.6 million of security deposits and prepayments  paid to the Purchasers to secure the Company's performance, $0.1 million of  past due amounts owed to certain of the Purchasers and $0.1 million of fees  to Purchasers, the Company received approximately $1.5 million, of which $0.9  million was advanced to the Company by the Purchasers prior to closing and $0.6  million was transferred to the Company at the initial closing on December 1,  2002. Also on December 1, 2002, the Company transferred 49.9% of the common  stock of Aura Realty to the Purchasers, issued to Purchasers a $1.0 million  term note and granted Purchasers a security interest in a note receivable to  secure the Company's performance under the agreement. The Purchasers also received  warrants to purchase 15,000,000 shares of common stock, exercisable through  November 30, 2007, at exercise prices ranging from $0.15 to $0.25 per share.  The value of the warrant was calculated at $0.7 million using the Black-Scholes  method of valuation. The Purchasers also purchased 21,366,347 shares of the  Company's common stock for $1.5 million, which is included in the 2003 Subtotal  Shares. The Company may be required to issue approximately 6.9 million additional  shares and 5.5 million additional warrants to Purchasers because of its failure  to register the shares for resale. 

The holder of the mortgage did not consent  to the transfer of the Company's remaining 51.1% interest in Aura Realty and  the Company failed to make certain payments to the Purchasers as required under  the agreement. During June 2003, the Company entered into a forbearance agreement  with the Purchasers, whereby the Company agreed to issue the additional warrants  required under the agreements for failure to file a stock registration, register  the previously issued shares and the shares underlying the warrants for resale  to the public, assign the receivable (a note issued by Alpha Ceramic) to the  Purchasers, promptly engage an exclusive listing agent for the sale of the property  and pay certain amounts in default on the mortgage. The Company is currently  in negotiations with the Purchasers and the holder of the mortgage relative  to these matters. The Company originally recorded and reported the Aura Realty  transaction as a sale of 100% of its Aura Realty subsidiary. The events subsequent  to year-end raise significant doubt that the remainder of the transaction contemplated  by the agreement will ever be completed. As a result, the transaction has been  recorded at February 28, 2003 as a sale of a minority interest in Aura Realty.

On or about September 25, 2003, the Company  was notified that the mortgagor holding a deed of trust on the Company's headquarters  facility had begun foreclosure proceedings for nonpayment of the mortgage. The  notice states that the mortgagor may sell the property if the Company does not  pay all past due payments plus permitted costs, which the notice states totaled  $479,828.31 as of September 8, 2003. The Company has taken steps toward  curing these defaults and continues to negotiate with the mortgage note holder  and the Purchasers. Actions by the parties to these obligations to enforce their  rights to collect the amounts due could require the Company to cease operations.
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Part II, Item 7
Also during fiscal 2003:

 -           the Company settled approximately $1.5 million of trade debt liabilities  representing a portion of a long-term restructuring for a total amount of $0.4  million, resulting in an extraordinary gain on extinguishments of debt of $1.1  million.

 -           the Company issued 923,077 shares of common stock that were committed  as of February 28, 2002, which were valued at $207,692, or $0.225 per share.
Capital Transactions Subsequent to February  28, 2003
In March 2003, the Company issued $0.4  million of additional "5% Discounted Notes". All of these notes were  converted into Series A Preferred subsequent to year-end as discussed below.

On March 25, 2003, the Company designated  1,500,000 shares of its authorized preferred stock as Series A Convertible Redeemable  Preferred Stock (the "Series A Preferred"). Each share of Series A  Preferred has a par value of $.005, a liquidation preference of $10.00 plus  accrued unpaid dividends and is convertible into common stock at $.080 per share,  based on the liquidation preference. Dividends accrue on each share at the rate  of 5% of the liquidation preference per annum. The Company may call the Series  A Preferred for redemption on or after March 31, 2004 subject to certain conditions.  As of November 25, 2003, 591,110 shares of Series A Preferred were outstanding,  issued as set forth below.

On March 31, 2003, the Company exchanged  $1.1 million of 8% Notes and converted $1.1 million of 5% Notes and the $1.2  million of 5% Discounted Notes, plus accrued interest in all cases, into 534,020  shares of Series A Preferred. The average effective net acquisition price of  the shares of Common Stock underlying the conversion feature, based on the amounts  paid for the notes, is $0.054 per share.

Between May 29 and November 30, 2003,  the Company received $3,972,242 of interim funding from Koyah Leverage Partners,  LLP to meet its immediate cash needs. These amounts are evidenced by secured  notes payable (the "Secured Notes") on March 31, 2004. The Secured Notes bear  interest at 10% per annum and are convertible at the option of the holder into  new debt or equity securities at of the Company at a 20% discount to the best  terms by which such new debt or equity is sold to any new investor. The Secured  Notes may be prepaid on notice at a 20% premium. Repayment of the Secured  Notes is secured by substantially all the assets of the Company (with limited  exceptions). 

From December 1, 2003 through January  9, 2004, the Company has received an additional $680,000****of interim funding  evidenced by additional Secured Notes. In connection with this financing, the  Company agreed to issue warrants to purchase an aggregate of 3,200,000 shares  of common stock at a price per share of $0.11, exercisable through January 7,  2011, as an inducement to the lender to continue providing funding and in resolution  of a prior commitment of the Company. Although the Company is in discussions  with the investor with regard to further financing, there can be no assurance  that additional financing will be obtained.
Aura 2003      Form 10-K/A27
Table of Contents
Part II, Item 7
Also during fiscal 2004:

the Company issued 57,090 shares of Series  A Preferred in a private placement for net cash proceeds of $259,500. The effective  net acquisition price of the shares of Common Stock underlying the conversion  feature, based on the amounts paid for the preferred stock is $0.036 per share.  

the Company issued a $200,000 note in  exchange for a loan. The note and $10,000 fixed fee interest became due on June  7, 2003. As part of this borrowing, the Company issued warrants to purchase  3,000,000 shares of common stock at $0.050 per share. The Company paid this  note in full in August 2003.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Index to Consolidated Financial Statements  at page F-1.
Aura 2003      Form 10-K/A28
Table of Contents
Part IV, Item 14
PART IVITEM 14. FINANCIAL STATEMENTS, SCHEDULES, REPORTS ON FORM  8-K AND EXHIBITS- Documents filed as part of this Form    10-K/A:
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
- Reports on Form 8-K

The Company filed Reports on Form 8-K  on December 16, 2002 and February 14, 2003, reporting the sale and leaseback  transaction involving Aura Realty and including pro forma financial information  (unaudited pro forma consolidated balance sheet as of November 30, 2002; unaudited  pro forma condensed consolidated statements of operations for the nine months  ended November 30, 2002 and the year ended February 28, 2002.)
****Aura 2003      Form 10-K/A29

Table of Contents

INDEX TO EXHIBITS

Description of Documents

3.1

Restated Certificate of Incorporation        of Registrant. 

3.2 

Bylaws of Registrant as amended        to date. (1)

3.3 

Certificate of Designation of Series        A Convertible Redeemable Preferred (8)(filed as 99.3)

10.1 

Aura Systems, Inc. 1987 Stock Option        Plan for Non-Employee Directors. (2)

10.2 

Form of Aura Systems, Inc. Non-Statutory        Stock Option Agreement. (2)

10.3 

Aura Systems, Inc. 1989 Stock Option        Plan. (3)

10.4 

Aura Systems, Inc. 2000 Stock Option        Plan (7)

10.5 

Form of Aura Systems, Inc., Director        Indemnification Agreement dated as of July 10, 2001. (1)(10.15)

10.6 

Form of Agreement Regarding Termination        of Employment dated as of December 21, 2001. (1)(10.16)

10.7 

Escrow Agreement dated as of February        27, 2002, by and among Aura Systems, Inc. and Robinson, Diamant &        Wolkowitz, a Professional Corporation, by Lawrence A. Diamant and Purchasers        (1)(10.22)

10.8 

Assignment and Transfer of Notes        and Security Documents dated as of February 26, 2002, executed by Aura        Systems, Inc. and Infinity Investors Limited, et al., in favor of Lawrence        A. Diamant, as Agent for various investors. (1)(10.23)

10.9 

Assignment and Transfer of Notes        and Security Documents dated as of February 26, 2002, executed by Aura        Systems, Inc. and GSS/Array Technology Public Company, Ltd. in favor of        Lawrence A. Diamant, as Agent for various investors. (1)(10.24)

10.10 

Settlement Agreement and Mutual        Release of All Claims dated as of February 26, 2002, by between Aura Systems        Inc., and Infinity Investors Limited, et al. (1)(10.25)

10.11 

Settlement Agreement and Mutual        Release of All Claims dated as of February 26, 2002, by between Aura Systems        Inc., and GSS/Array Technology, Inc., et al. (1)(10.26)

10.12 

Form of Aura Systems, Inc. Subscription        Agreement of May 2002 (1)(10.27)

10.13 

Form of Aura Systems, Inc. Registration        Rights Agreement of May 2002 (1)(10.28)

10.14 

Settlement Agreement and Release        dated as of May 7, 2002, by and between Aura Systems, Inc. and CRS Emergency        Vehicles, Co. (1)(10.29)

10.15 

Term Sheet dated as of February        12, 2002 (1)(10.30)

10.16 

Employment Letter to Joshua Hauser        dated February 26, 2002 (1)(10.31)

10.17 

Severance agreement with Hauser        (filed as 99.4)

10.18 

Form of Convertible Note Term Sheets        (4)(10.34)

10.19 

Agreement for Sale and Leaseback        dated as of December 1, 2002. (Aura Realty transaction) (5) (10.33.1,        filed as 99.3, 99.4 and 99.5)

10.20 

Lease Agreement dated as of December        1, 2002. (Aura Realty transaction) (5)(10.33.2, filed as 99.6)

10.21 

Additional Security Agreement dated        as of December 1, 2002. (Aura Realty transaction) (5)(10.33.3, filed as        99.8)

10.22 

Form of Subscription Agreement        and Registration Rights Agreement (5) (10.33.4, filed as 99.9 and 99.10)

10.23 

Pledge Agreement dated as of December        1, 2002 (5)(10.33.4)(filed as 99.11)

10.24 

Promissory Note dated as of December        1, 2002. (Aura Realty transaction) (5)(10.33.5,filed as 99.12)

10.25 

Form of Warrant and Registration        Rights Agreement (5)(10.33.6, filed as 99.13 and 99.14)

10.26 

Form of Convertible Demand Note        (5% Notes)(8)(10.26)(filed as 99.5)

10.27 

Form of Convertible Demand Note        (5% Discounted Notes) (8)(10.27)(filed as 99.6)

21 

Subsidiaries of Aura Systems, Inc.        (6)

23.1 

Consent of Singer Lewak Greenbaum        & Goldstein LLP. (1)

99.1 

CEO Certification pursuant to Section        906 of the Sarbanes-Oxley Act of 2002

99.2 

CFO Certification pursuant to Section        906 of the Sarbanes-Oxley Act of 2002
  
(1) 

Incorporated by reference to the        referenced exhibit to the Company's Annual Report on Form 10-K for the        fiscal year ended February 28, 2002.

(2)

Incorporated by reference to the        referenced exhibit to the Company's Registration Statement on Form S-1        (File No. 33-19531)

(3)

Incorporated by reference to the        referenced exhibit to the Company's Registration Statement on Form S-8        (File No. 33-32993).

(4)

Incorporated by reference to the        referenced exhibit to the Company's Quarterly Report on Form 10-Q for        the period ended November 30, 2002.

(5)

Incorporated by reference to the        referenced exhibit to the Company's Current Report on Form 8-K filed December        16, 2002.

(6) 

Incorporated by reference to the        referenced exhibit to the Company's Annual Report on Form 10-K for the        fiscal year ended February 28, 2001.

(7)

Incorporated by reference to the        Appendix "A" to the Company's Form 14A Proxy Statement filed        as of February 22, 2000.

(8)

Incorporated by reference to the        referenced exhibit to the Company's Annual Report on Form 10-K for the        fiscal year ended February 28, 2003.
Aura 2003      Form 10-K/A30
Table of Contents
Signatures
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: 

January 9, 2004
    
By:

/s/ Neal F. Meehan
  
Neal F. Meehan
  
President and 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.

Signatures

Title

Date

/s/ Neal F. Meehan

President, Chief Executive Officer,          Director and Chairman of the Board (Principal Executive Officer)

January 9, 2004

Neal F. Meehan 
      
/s/ David A Rescino

Interim Chief Financial Officer          (Principal Financial and Accounting Officer)

January 9, 2004

David A Rescino
      
/s/ Lawrence Diamant*

Director

January 9, 2004

Lawrence Diamant
      
/s/ Salvador Diaz-Verson, Jr.*

Director

January 9, 2004

Salvador Diaz-Verson, Jr. 
      
/s/ Neal F. Meehan

Director

January 9, 2004

Neal F. Meehan
      
/s/ John Pincavage*

Director

January 9, 2004

John Pincavage
      
/s/ James S. Harrington*

Director

January 9, 2004

James S. Harrington
      
/s/ Lt. General Harry E. Soyster*

Director

January 9, 2004

Lt. General Harry E. Soyster

  * By: __/s/ Neal F. Meehan____

Neal F. Meehan, attorney-in-fact
Aura 2003      Form 10-K/A31
Table of Contents
Certification**CERTIFICATION**
I, Neal F. Meehan, Chairman and Chief  Executive Officer of Aura Systems, Inc., certify that:

I have reviewed this annual report on  Form 10-K of Aura Systems, Inc. and,

Based on my knowledge, this annual report  does not contain any untrue statement of a material fact or omit to state a  material fact necessary to make the statements made, in light of the circumstances  under which such statements were made, not misleading with respect to the period  covered by this annual report;

Based on my knowledge, the financial  statements, and other financial information included in this annual report,  fairly present in all material respects the financial condition, results of  operations and cash flows of the registrant as of, and for, the periods presented  in this annual report;

The registrant's other certifying officers  and I are responsible for establishing and maintaining disclosure controls and  procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant  and we have:

Designed such disclosure controls and  procedures to ensure that material information relating to the registrant, including  its consolidated subsidiaries, is made known to us by others within those entities,  particularly during the period in which this report is being prepared;

Evaluated the effectiveness of the registrant's  disclosure controls and procedures as of a date within 90 days prior to the  filing date of this annual report (the "Evaluation Date"); and

Presented in this annual report our conclusions  about the effectiveness of the disclosure controls and procedures based on our  evaluation as of the Evaluation Date;

The registrant's other certifying officers  and I have disclosed, based on our most recent evaluation, to the registrant's  auditors and the audit committee of the registrant's board of directors (or  persons performing the equivalent function):

All significant deficiencies in the design  or operation of internal controls which could adversely affect the registrant's  ability to record, process, summarize and report financial data and have identified  for the registrant's auditors any material weaknesses in internal controls;  and

Any fraud, whether or not material, that  involves management or other employees who have a significant role in the registrant's  internal controls; and

The registrant's other certifying officers  and I have indicated in this annual report whether or not there were significant  changes in internal controls or in other factors that could significantly affect  internal controls subsequent to the date of our most recent evaluation, including  any corrective actions with regard to significant deficiencies and material  weaknesses.

By:

/s/ Neal F. Meehan
  
Neal F. Meehan
  
Chairman and Chief Executive Officer
  
January 9, 2004
Aura 2003      Form 10-K/A32
Table of Contents
Certification
CERTIFICATION
I, David A. Rescino, Chief Financial  Officer of Aura Systems, Inc., certify that:

 1.      I have  reviewed this annual report on Form 10-K of Aura Systems, Inc. and,

 2.      Based  on my knowledge, this annual report does not contain any untrue statement of  a material fact or omit to state a material fact necessary to make the statements  made, in light of the circumstances under which such statements were made, not  misleading with respect to the period covered by this annual report;

 3.      Based  on my knowledge, the financial statements, and other financial information included  in this annual report, fairly present in all material respects the financial  condition, results of operations and cash flows of the registrant as of, and  for, the periods presented in this annual report;

 4.      The  registrant's other certifying officers and I are responsible for establishing  and maintaining disclosure controls and procedures (as defined in Exchange Act  Rules 13a-14 and 15d-14) for the registrant and we have:

 a.        Designed such disclosure controls and procedures to ensure that material information  relating to the registrant, including its consolidated subsidiaries, is made  known to us by others within those entities, particularly during the period  in which this report is being prepared;

 b.      Evaluated  the effectiveness of the registrant's disclosure controls and procedures as  of a date within 90 days prior to the filing date of this annual report (the  "Evaluation Date"); and

 c.        Presented in this annual report our conclusions about the effectiveness of the  disclosure controls and procedures based on our evaluation as of the Evaluation  Date;

 5.      The  registrant's other certifying officers and I have disclosed, based on our most  recent evaluation, to the registrant's auditors and the audit committee of the  registrant's board of directors (or persons performing the equivalent function):

 a.        All significant deficiencies in the design or operation of internal controls  which could adversely affect the registrant's ability to record, process, summarize  and report financial data and have identified for the registrant's auditors  any material weaknesses in internal controls; and

 b.      Any  fraud, whether or not material, that involves management or other employees  who have a significant role in the registrant's internal controls; and

 6.      The  registrant's other certifying officers and I have indicated in this report whether  or not there were significant changes in internal controls or in other factors  that could significantly affect internal controls subsequent to the date of  our most recent evaluation, including any corrective actions with regard to  significant deficiencies and material weaknesses.

By:

/s/ David A. Rescino
  
David A. Rescino
  
Interim Chief Financial Officer
  
January 9, 2004
Aura 2003      Form 10-K/A33
Table of Contents
Aura Systems Inc.  and Subsidiaries Consolidated Financial Statements for the Years Ended February  28, 2003, 2002, and 2001
Index  to Consolidated Financial Statements
Independent        Auditors' Reports on Consolidated Financial Statements and Financial Statement        Schedule

F-1
    
Consolidated Financial Statements        of Aura Systems, Inc. and Subsidiaries:
      
Consolidated        Balance Sheets - February 28, 2003 and 2002

F-2
Liabilities and Stockholders'      Equity - Years ended February 28,      2003 and 2002F-3
Consolidated        Statements of Operations and Comprehensive Loss - Years ended February        28, 2003, 2002 and 2001

F-4

Consolidated        Statements of Stockholders' Equity - Years ended February 28, 2003, 2002        and 2001

F-5 to F-6

Consolidated        Statements of Cash Flows - Years ended February 28, 2003, 2002 and 2001

F-7 to F-8

Notes to        Consolidated Financial Statements

F-9 to F-42
Supplemental InformationF-43
Consolidated        Financial Statement Schedule II: Valuation and Qualifying Accounts

F-44

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.
Aura 2003      Form 10-K/A34
Table of Contents
Aura Systems Inc.  and Subsidiaries Consolidated Financial Statements for the Years Ended February  28, 2003, 2002, and 2001
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Stockholders  Aura Systems, Inc. and subsidiaries

We have audited the accompanying consolidated  balance sheets of Aura Systems, Inc. (a Delaware corporation) and subsidiaries  as of February 28, 2003 and 2002, and the related consolidated statements of  operations, stockholders' equity, and cash flows for each of the three years  in the period ended February 28, 2003. These financial statements are the responsibility  of the Company's management. Our responsibility is to express an opinion on  these financial statements based on our audits.

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

In our opinion, the consolidated financial  statements referred to above present fairly, in all material respects, the financial  position of Aura Systems, Inc. and subsidiaries as of February 28, 2003 and  2002, and the results of their operations and their cash flows for each of the  three years in the period ended February 28, 2003 in conformity with accounting  principles generally accepted in the United States of America.

The accompanying consolidated financial  statements have been prepared assuming that the Company will continue as a going  concern. As discussed in Note 2 to the consolidated financial statements, the  Company has generated significant losses from operations and defaulted on certain  debt obligations. These factors raise substantial doubt about the Company's  ability to continue as a going concern. Management's plans in regard to these  matters are also described in Note 2. The consolidated financial statements  do not include any adjustments that might result from the outcome of this uncertainty.

SINGER LEWAK GREENBAUM & GOLDSTEIN  LLP

Los Angeles, California July 8, 2003

*The accompanying notes are an integral part of these financial statements.*
Aura 2003      Form 10-K/A35 F-1
Table of Contents
Aura Systems Inc.  and Subsidiaries Consolidated Financial Statements for the Years Ended February  28, 2003, 2002, and 2001
CONSOLIDATED BALANCE SHEETSASSETS    
**2003**
  
**2002**

Current assets
    
Cash and cash equivalents
  
$ 163,693
  
$ 1,143,396

Accounts receivable, net of allowance          for doubtful accounts of $244,310 and $150,000
  
410,717
  
67,491

Current inventories, net of allowance          for obsolete inventories of $1,678,000 and $1,795,411 
  
1,414,500
  
5,006,424

Current portion of notes receivable
  
210,272
  
168,792

Other current assets
  
166,589
  
228,758
   
Total current assets
  
2,365,771
  
6,614,861
          
Property, plant, and equipment,          net
  
7,343,511
  
10,374,481

Non-current inventories
  
7,573,225
  
4,500,000

Long-term investments, net
  
1,000,000
  
1,700,000

Notes receivable, net of current          portion
  
2,006,121
  
2,347,346

Patents and trademarks, net
  
2,753,603
  
3,061,932

Other assets
  
725,635
  
163,370
   
Total assets
  
$ 23,767,866
  
$ 28,761,990
   
*The accompanying notes are an integral part of these financial statements.*
Aura 2003      Form 10-K/A36 F-2
Table of Contents
Aura Systems Inc.  and Subsidiaries Consolidated Financial Statements for the Years Ended February  28, 2003, 2002, and 2001
LIABILITIES AND STOCKHOLDERS' EQUITY    
2003
  
2002
      
Current liabilities
        
Accounts payable
  
$ 2,753,503
  
$ 3,032,134

Current portion of notes payable          (including $1,000,000 and $250,000 to related parties)
  
9,542,786
  
3,913,623 

Convertible notes payable
  
3,762,317 
  
- 

Accrued expenses 
  
1,772,936 
  
2,181,657 

Deferred income 
  
160,500 
  
-
      
Total current liabilities
  
17,992,042 
  
9,127,414
          
Notes payable, net of current          portion
  
40,275 
  
6,981,843
      
Total liabilities
  
18,032,317 
  
16,109,257
          
Minority interest in consolidated          subsidiary 
  
1,023,373 
  
-
      
Commitments and contingencies
                  
Stockholders' equity
                  
Common stock, $0.005 par value          500,000,000 shares authorized 430,923,150 and 387,690,068 shares issued          and outstanding
  
2,154,544 
  
1,938,379

Committed common stock
  
3,102,958
  
3,310,650

Additional paid-in capital
  
303,275,271 
  
295,083,428

Accumulated deficit
  
(303,820,597)
  
(287,679,724)
   
Total stockholders'          equity
  
4,712,176 
  
12,652,733 
      
Total liabilities and stockholders'          equity
  
$ 23,767,866
  
$ 28,761,990
   
*The accompanying notes are an integral part of these financial statements.*
Aura 2003      Form 10-K/A37 F-3
Table of ContentsAura Systems Inc.and Subsidiaries Consolidated Financial Statements for the Years Ended February28, 2003, 2002, and 2001**CONSOLIDATED STATEMENTS OF OPERATIONS**    
2003
  
2002
  
2001

Net revenues 
  
$ 1,103,770 
  
$ 3,116,295 
  
$ 2,512,508

Cost of goods sold 
  
571,099 
  
1,480,736 
  
1,216,637

Inventory write down 
  
-
  
1,510,871 
  
-
        
Gross profit 
  
532,671 
  
124,688 
  
1,295,871 
        
Operating expenses
            
Engineering 
  
3,514,554 
  
8,413,427 
  
8,214,981

Research and development 
  
442,332 
  
810,949 
  
547,812

Selling, general, and administrative        
  
7,374,961 
  
10,006,844 
  
12,695,833

Legal settlements 
  
233,259 
  
(2,750,000)
  
1,512,769

Adjustment to accounts payable        
  
-
  
(651,685)
  
(1,046,324)

Impairment losses on long-lived        assets 
  
2,300,000 
  
7,661,559 
  
-

Severance expense 
  
241,243 
  
1,080,525 
  
-
        
Total operating expenses
  
14,106,349 
  
24,571,619 
  
21,925,071 
        
Loss from operations 
  
(13,573,678) 
  
(24,446,931) 
  
(20,629,200)
        
Other income (expense)
            
Impairment of investments
  
(818,019)
  
(1,433,835)
  
(240,000)

Minority interest in net income        of consolidated subsidiary 
  
(14,018) 
  
- 
  
-

Loss on sale of minority interest        in Aura Realty
  
(626,676) 
  
-
  
-

Interest expense
  
(2,656,592) 
  
(2,495,551)
  
(2,263,916)

Other income, net 
  
362,096 
  
1,549,882 
  
2,203,145
        
Total other income (expense) 
  
(3,753,209) 
  
(2,379,504) 
  
(300,771)
        
Loss before extraordinary item        
  
(17,326,887) 
  
(26,826,435) 
  
(20,929,971)

Extraordinary item
      
Gain on extinguishment of debt,        net of income taxes of $0
  
1,186,014 
  
1,889,540 
  
-
        
Net loss 
  
$ (16,140,873) 
  
$ (24,936,895)
  
$ (20,929,971)
        
Basic and diluted loss per share
            
Before extraordinary item
  
$ (0.05) 
  
$ (0.09) 
  
$ (0.08)

Extraordinary item
  
0.01 
  
0.01 
  
- 
        
Total basic and diluted loss per        share
  
$ (0.04) 
  
$ (0.08) 
  
$ (0.08)
        
Weighted-average shares outstanding
  
415,863,637 
  
327,587,590 
  
261,568,346
        *The accompanying notes are an integral part      of these financial statements.*Aura 2003      Form 10-K/A38 F-4
Table of ContentsAura Systems Inc.and Subsidiaries Consolidated Financial Statements for the Years Ended February28, 2003, 2002, and 2001** CONSOLIDATED STATEMENTS OF STOCKHOLDERS'EQUITY**  
Common Stock Shares
  
Common Stock Amount
  
Committed Common Stock
  
Additional Paid-In        Capitol
  
Accumulated Deficit        
  
Total
            
Balance, February 28, 2000

196,975,392 
  
$ 984,875 
  
$ 9,132,774 
  
$ 233,211,21 
  
$(241,812,858) 
  
$ 1,516,008

Issuance of common stock 
                      
in private placements

40,721,909 
  
203,610 
      
12,231,830 
      
12,435,440

for conversion of notes payable

7,324,191
  
36,621
      
2,912,744
      
2,949,365

to satisfy liabilities

11,642,627 
  
58,160 
      
6,093,135 
      
6,151,295

Offering costs
            
(77,102)
      
(77,102) 

Committed common stock issued

34,425,463 
  
172,128 
  
(9,132,774)
  
8,960,646 
      
-

Net loss
                
(20,929,971)
  
(20,929,971)
            
Balance, February 28, 2001

291,089,582 
  
1,455,394 
  
- 
  
263,332,470 
  
(262,742,829) 
  
2,045,035

Issuance of common stock
                      
in private placements

37,650,782
  
188,237
      
13,215,876
      
13,404,113

for conversion of notes payable        

31,398,771 
  
156,994 
      
11,706,261 
      
11,863,255

to satisfy liabilities 

18,500,802 
  
92,504 
      
6,921,208 
      
7,013,712

for exercise of stock options        and warrants 

102,500 
  
512 
      
27,263 
      
27,775

for re-pricing requirements 

8,947,631 
  
44,738 
      
(44,738)
      
-

Offering costs
            
(74,912)
      
(74,912)

Committed common stock recorded        under re-pricing agreements
        
3,310,650
          
3,310,650

Net loss
            
(24,936,895)
      
(24,936,895)
            
Balance, February 28, 2002

387,690,068 
  
1,938,379 
  
3,310,650 
  
295,083,428 
  
(287,679,724) 
  
12,652,733

Issuance of common stock
                      
in private placements 

41,700,830 
  
208,504 
      
5,485,497 
      
5,694,001

from committed stock 

923,077
  
4,615
  
(207,692) 
  
203,077 
      
-

to satisfy liabilities 

659,175 
  
3,296 
      
166,444 
      
169,740
                        
Common stock returned 

(50,000)
  
$ (250) 
  
$
  
$ (29,750) 

$
  
$ (30,000)

Beneficial conversion feature on        convertible notes payable
            
1,484,837
      
1,484,837

Issuance of stock options
                      
as compensation expense
            
53,076
      
53,076

as consulting expense
            
192,404 
      
192,404 

Issuance of warrants
            
659,321
      
659,321

Offering costs
            
(23,063)
      
(23,063)

Net loss
                
(16,140,873)
  
(16,140,873)
            
Balance, February 28, 2003 

430,923,150 
  
$ 2,154,544 
  
$ 3,102,958
  
$303,275,271 
  
$(303,820,597) 
  
$ 4,712,176
            *The accompanying notes are an integral part      of these financial statements.*Aura 2003      Form 10-K/A39 F-5
Table of Contents
Aura Systems Inc.  and Subsidiaries Consolidated Financial Statements for the Years Ended February  28, 2003, 2002, and 2001
    
2003
  
2002
  
2001

Cash flows from operating activities
      
Net loss
  
$ (16,140,873)
  
$ (24,936,895)
  
$ (20,929,971)

Adjustments to reconcile net loss        to net cash used in operating activities
            
Depreciation and amortization 
  
966,852 
  
5,868,089 
  
7,619,979 

(Gain) loss on disposition of assets        
  
21,348 
  
65,823 
  
(1,756,746) 

Loss on sale of minority interest        Aura Realty 
  
626,676 
  
- 
  
- 

Change in allowance for doubtful        accounts 
  
94,310 
  
- 
  
- 

Change in reserve for inventory        obsolescence 
  
(117,411) 
  
1,510,871
  
-

Impairment of long-lived assets        and investments 
  
3,118,019 
  
9,095,394 
  
240,000

Gain on extinguishment of debt        
  
(1,186,014) 
  
(1,889,540) 
  
-

Minority interest in net income        of consolidated subsidiary 
  
14,018 
  
- 
  
-

Stock options issued as compensation        expense 
  
53,075 
  
- 
  
- 

Stock options issued as consulting        expense 
  
192,404 
  
- 
  
- 

Beneficial conversion feature on        convertible debt 
  
1,484,837 
  
- 
  
- 

Adjustment to accounts payable        
  
- 
  
(651,685) 
  
(1,046,324) 

Adjustments to legal settlements        
  
- 
  
(750,000) 
  
- 

Operating expenses satisfied with        stock 
  
169,740 
  
278,801 
  
903,935 

(Increase) decrease in
            
Accounts receivable 
  
(437,534) 
  
965,700 
  
1,397,159 

Inventories 
  
636,110
  
(1,260,896) 
  
1,432,828 

Other current assets 
  
62,169 
  
224,182 
  
(92,763) 

Other assets 
  
(562,265) 
  
(4,300) 
  
3,821 

Increase (decrease) in
            
Accounts payable and accrued expenses,        net of effect of settlements and sale of Aura Realty
  
1,063,477 
  
2,744,148 
  
(1,102,404) 

Deferred income
  
160,500 
  
- 
  
-
        
Net cash used in operating activities        
  
(9,780,562) 
  
(8,740,308) 
  
(13,330,486) 
        
Cash flows from investing activities
            
Payments received on notes receivable
  
181,725 
  
155,857 
  
3,784,681

Purchase of property, plant, and        equipment
  
(6,491) 
  
(255,733) 
  
(38,200)

Proceeds from disposal of property,        plant, and equipment
  
57,591 
  
- 
  
-

Proceeds from sale of minority        interest in Aura Realty
  
1,463,000 
  
- 
  
-
    
Net cash provided by (used in)        investing activities
  
1,695,825 
  
(99,876) 
  
3,746,481
    
*The accompanying notes are an integral part of these financial statements.*
Aura 2003      Form 10-K/A40 F-6
Table of Contents
Aura Systems Inc.  and Subsidiaries Consolidated Financial Statements for the Years Ended February  28, 2003, 2002, and 2001
CONSOLIDATED STATEMENTS OF CASH  FLOWS  
2003
  
2002
  
2001

Cash flows from financing activities
    
Proceeds from notes payable and        convertible notes payable

$ 2,510,746 
  
$ 500,000 
  
$ -

Payments on notes payable

(1,046,650) 
  
(5,139,308) 
  
(1,768,859)

Net proceeds from issuance of common        stock 

5,640,938 
  
13,329,201 
  
12,358,339

Proceeds from exercise of stock        options

- 
  
775 
  
-

Net proceeds from exercise of warrants

- 
  
27,000 
  
-
   
Net cash provided by financing        activities

7,105,034 
  
8,717,668 
  
10,589,480 
   
Net increase (decrease) in cash        and cash equivalents 

(979,703)
  
(122,516) 
  
1,005,475

Cash and cash equivalents, beginning        of year

1,143,396 
  
1,265,912 
  
260,437 
   
Cash and cash equivalents, end        of year

$ 163,693 
  
$ 1,143,396 
  
$ 1,265,912
   
Supplemental disclosures of cash        flow information
          
Interest paid

$ 621,047 
  
$ 1,081,122 
  
$ 1,977,239
   
Income taxes paid 

$ - 
  
$ - 
  
$ -
   
Supplemental schedule of non-cash financing  and investing activities

During the year ended February 28, 2003,  the Company:

 -           issued 659,175 shares of common stock in satisfaction of $169,740 in  liabilities and contractual obligations.

 -           issued 923,077 shares of common stock that were committed at February  28, 2002 valued at $207,692.

*The accompanying notes are an integral part of these financial statements.*
Aura 2003      Form 10-K/A41 F-7
Table of Contents
Aura Systems Inc.  and Subsidiaries Consolidated Financial Statements for the Years Ended February  28, 2003, 2002, and 2001

During the year ended February 28, 2002,  the Company:

 -           restructured $16,179,900 of debt and related accrued interest into 31,398,771shares  of common stock valued at $15,173,905, resulting in a pre-tax extraordinary  gain for the early extinguishment of debt of $1,005,995. An additional 14,714,000  of the common shares (related to guaranteed share re-pricing agreements), with  a value totaling $3,310,650 were not issued as of February 28, 2002 and have  been reflected on the consolidated Statement of Stockholders' equity as committed  common stock (923,077 of such shares were issued in fiscal 2003). The gain,  in addition to a $883,846 gain resulting from a creditor's forgiveness of the  remaining balance of an unsecured note payable plus accrued interest, has been  reflected as an extraordinary item in the accompanying consolidated financial  statements.

 -           issued 8,500,502 shares of common stock in satisfaction of $278,801  in operating expenses and $2,734,613 of liabilities, of which $1,416,364 was  long-term trade debt included in notes payable and other liabilities; 10,000,000  shares of common stock valued at $4,000,000 as partial settlement with Deutsche  Financial Services (see Note 10); 8,947,631 shares of common stock for re-pricing  a prior year private placement, and 1,743,801 shares of common stock as a finder's  fee for a current year private placement. The finder's fee and re-pricing did  not have any effect on total stockholders' equity.

During the year ended February 28, 2001,  the Company:

 -           converted $2,949,365 of notes payable and accrued interest into 7,324,191  shares of common stock.

 -           issued 11,642,627 shares of common stock in satisfaction of $6,151,295  of liabilities, of which $3,748,384 was long term trade debt included in notes  payable and other liabilities.

 -           issued shares of common stock which were recorded as a component of  stockholder's equity (committed common stock) at February 29, 2000. The common  stock could not be issued in fiscal 2000 due to the limitation on the number  of shares authorized.

 -           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 valued at $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.

 -           issued 2,400,000 shares of common stock as a finder's fee for the Company's  private placements and 1,775,824 shares of common stock for re-pricing a prior  private placement of the Company. The finder's fee and re-pricing had no effect  on total stockholders' equity.*The accompanying notes are an integral  part of these financial statements.*
Aura 2003      Form 10-K/A42 F-8
Table of Contents
Aura Systems Inc.  and Subsidiaries Consolidated Financial Statements for the Years Ended February  28, 2003, 2002, and 2001
******NOTES TO CONSOLIDATED FINANCIALSTATEMENTS**NOTE  1 - ORGANIZATION AND OPERATIONSGeneral
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.  Aura develops and sells AuraGen® mobile induction power systems  to the industrial, commercial, and defense mobile power generation markets.  In addition, the Company holds patents for other technologies that have not  been commercially exploited. 
NOTE  2 - 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  in the normal course of business. However, as a result of the Company's losses  from operations and its default on certain of its obligations (see Note 9),  there is substantial doubt about its ability to continue as a going concern.  The Company requires additional debt or equity financing to fund ongoing operations.  The Company is seeking to raise additional capital and to restructure its liabilities.  Failure to obtain such financing in the near term could require the Company  to cease operations. 

The Company's long-term 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 the Company's obligations. 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. The Company's consolidation and reduction of the  scope of its operations has resulted in writedowns of assets. Further writedowns  may occur and would occur were the Company to cease operations. 
NOTE  3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIESPrinciples  of Consolidation
The consolidated financial statements  include the accounts of Aura and subsidiary, Aura Realty, Inc. See Note 4. Investments  in affiliated companies are accounted for by the equity or cost method, as appropriate.  Significant inter-company amounts and transactions have been eliminated in consolidation.

*The  accompanying notes are an integral part of these financial statements.*
Aura 2003      Form 10-K/A43 F-9
Table of Contents
Aura Systems Inc.  and Subsidiaries Consolidated Financial Statements for the Years Ended February  28, 2003, 2002, and 2001
Revenue  Recognition
The Company recognizes revenue for product  sales upon shipment and when title is transferred to the customer. When Aura  performs the installation of the product, revenue and cost of sales are recognized  when the installation is complete. The Company has in the past earned a portion  of its revenues from license fees and recorded those fees as income when the  Company fulfilled its obligations under the particular agreement.
Comprehensive  Income
The Company utilizes Statement of Financial  Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive  Income." This statement establishes standards for reporting comprehensive  income and its components in a financial statement. Comprehensive income as  defined includes all changes in equity (net assets) during a period from non-owner  sources. Examples of items to be included in comprehensive income, which are  excluded from net income, include foreign currency translation adjustments and  unrealized gains and losses on available-for-sale securities. Comprehensive  income is not presented in the Company's financial statements since the Company  did not have any of the items of comprehensive income in any period presented.
Cash  and Cash Equivalents
Cash and cash equivalents consist of  cash on hand and in banks. The Company maintains its cash deposits at several  banks located throughout the United States. Deposits at each bank are insured  by the Federal Deposit Insurance Corporation up to $100,000. As of February  28, 2003 and 2002, uninsured portions of the balances at those banks aggregated  to $28,999 and $1,091,281, respectively. The Company has not experienced any  losses in such accounts and believes it is not exposed to any significant risk  on cash and cash equivalents.
Accounts  Receivable
Accounts receivable consist primarily  of amounts due from customers. The Company has provided for an allowance for  doubtful accounts, which management believes to be sufficient to account for  all uncollectible amounts.
Inventories
Inventories are valued at the lower of  cost (first-in, first-out) or market. Due to continuing lower than projected  sales, the Company is holding inventories in excess of what it expects to sell  in the next fiscal year. As of February 28, 2003 and 2002, $3,552,000 and $4,500,000,  respectively, of inventories have been classified as long-term assets. See Note  5.

*The accompanying notes are an integral part of these financial statements.*
Aura 2003      Form 10-K/A44 F-10
Table of Contents
Aura Systems Inc.  and Subsidiaries Consolidated Financial Statements for the Years Ended February  28, 2003, 2002, and 2001
Property,  Plant, and Equipment
Property, plant, and equipment, including  leasehold improvements, are recorded at cost, less accumulated depreciation  and amortization. Depreciation is provided using the straight-line method over  the estimated useful lives of the respective assets as follows:

Buildings

40 years 

Machinery and equipment

5 to 10 years 

Furniture and fixtures

7 years

Improvements to leased property are amortized  over the lesser of the life of the lease or the life of the improvements. Amortization  expense on assets acquired under capital leases is included with depreciation  and amortization expense on owned assets.

Maintenance and minor replacements are  charged to expense as incurred. Gains and losses on disposals are included in  the results of operations.
Long-Term  Investments
The Company accounts for all investments  where it holds less than a 20% voting interest, cannot exercise significant  influence, and where the fair market value of those securities is not readily  determinable under the cost basis. Investments in voting interests between 20%  and 50% where the Company can exercise significant influence are accounted for  under the equity method of accounting, and investments greater than 50% are  generally consolidated for the purposes of financial reporting As the Company  does not hold a sufficient interest in its investments to exercise significant  influence and the fair market value of the investments are not readily determinable,  long-term investments have been accounted for under the cost method. A decline  in the value of any investment below cost that is deemed other than temporary  is charged to earnings.
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. Amortization expense was $308,329, $308,329, and  $308,329 for the years ended February 28, 2003, 2002, and 2001, respectively.  Accumulated amortization was $2,272,787 and $1,964,458 as of February 28, 2003  and 2002, respectively. If a patent or trademark is rejected, abandoned, or  otherwise invalidated, the unamortized cost is expensed in that period. The  Company expects to recognize $308,329 of amortization expense on these patents  for each of the next five years. See Note 18.

*The accompanying notes are an integral part of these financial statements.*
Aura 2003      Form 10-K/A45 F-11
Table of Contents
Aura Systems Inc.  and Subsidiaries Consolidated Financial Statements for the Years Ended February  28, 2003, 2002, and 2001
Valuation  of Long-Lived Assets
The Company reviews long-lived assets  and identifiable intangibles in accordance with SFAS No. 144, "Accounting  for the Impairment or Disposal of Long-Lived Assets," on at least an annual  basis or whenever events or circumstances indicate that the carrying amount  of such assets may not be fully recoverable. During the years ended February  28, 2003 and 2002, the Company recorded asset impairment charges on certain  of its long-lived assets (see Note 7 and Note 18).
Stock-Based  Compensation
SFAS No. 123, "Accounting for Stock-Based  Compensation," establishes and encourages the use of the fair value based  method of accounting for stock-based compensation arrangements under which compensation  cost is determined using the fair value of stock-based compensation determined  as of the date of grant and is recognized over the periods in which the related  services are rendered. The statement also permits companies to elect to continue  using the current implicit value accounting method specified in Accounting Principles  Board ("APB") Opinion No. 25, "Accounting for Stock Issued to  Employees," to account for stock-based compensation. The Company has elected  to use the implicit value based method and has disclosed the pro forma effect  of using the fair value based method to account for its stock-based compensation.
Fair  Value of Financial Instruments
The Company's financial instruments include  cash and cash equivalents, accounts receivable, notes receivable, long-term  investments, accounts payable, and accrued expenses. The carrying amounts of  these instruments approximate their fair value due to their short maturities.
Minority  Interest
Minority interest represents the proportionate  share of the equity of the consolidated subsidiary owned by the Company's minority  stockholders in that subsidiary.
Advertising  Expense
Advertising costs are charged to expense  as incurred and were immaterial for the years ended February 28, 2003, 2002,  and 2001.
Research  and Development
Research and development costs are expensed  as incurred.

*The accompanying notes are an integral part of these financial statements.*
Aura 2003      Form 10-K/A46 F-12
Table of Contents
Aura Systems Inc.  and Subsidiaries Consolidated Financial Statements for the Years Ended February  28, 2003, 2002, and 2001
Income  Taxes
The Company utilizes SFAS No. 109, "Accounting  for Income Taxes," which requires the recognition of deferred tax assets  and liabilities for the expected future tax consequences of events that have  been included in the financial statements or tax returns. Under this method,  deferred income taxes are recognized for the tax consequences in future years  of differences between the tax bases of assets and liabilities and their financial  reporting amounts at each period end based on enacted tax laws and statutory  tax rates applicable to the periods in which the differences are expected to  affect taxable income. Valuation allowances are established, when necessary,  to reduce deferred tax assets to the amount expected to be realized.

The Company has significant income tax  net operating losses; however, due to the uncertainty of the realizability of  the related deferred tax asset, a reserve equal to the amount of deferred income  taxes has been established at February 28, 2003 and 2002.
Loss  per Share
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.
Reclassifications
Certain amounts included in the prior  years' financial statements have been reclassified to conform with the current  year presentation. In order to comply with SFAS No. 144, "Accounting for  the Impairment or Disposal of Long-Lived Assets," the Company has reclassified  non-cash impairments of its advertising credits and tooling costs, aggregating  $7,661,559, to operating expenses from other income. In order to comply with  regulations promulgated by the Securities and Exchange Commission ("SEC"),  the Company has reclassified severance expense of $1,080,525 from other expense  to operating expenses. In addition, the Company has reclassified inventory write-down  costs, aggregating $1,510,871, from engineering costs to cost of sales.

A summary of the effect these reclassifications  for the year ended February 28, 2002 is as follows:
  
As Previously Classified        

Reclassification 

Currently Classified

Gross profit 

$ 1,635,559 

$ 1,510,871 

$ 124,688

Loss from operations 

$ (15,704,847) 

$ 8,742,084 

$ (24,446,931)

Other income (expense)

$ (11,121,588) 

$ (8,742,084) 

$ (2,379,504)

Such reclassifications did not have any  effect on reported net loss.

*The accompanying notes are an integral part of these financial statements.*
Aura 2003      Form 10-K/A47 F-13
Table of Contents
Aura Systems Inc.  and Subsidiaries Consolidated Financial Statements for the Years Ended February  28, 2003, 2002, and 2001
Estimates
The preparation of financial statements  requires management to make estimates and assumptions that affect the reported  amounts of assets and liabilities and disclosure of contingent assets and liabilities  at the date of the financial statements and the reported amounts of revenue  and expenses during the reporting period. Actual results could differ from those  estimates.
Major  Customers
During the year ended February 28, 2003,  the Company conducted business with one customer whose sales comprised of 22%  of net sales. As of February 28, 2003, three customers accounted for 61% of  total accounts receivable. During the year ended February 28, 2002, the Company  conducted business with four customers whose sales comprised of 77% of net sales.  As of February 28, 2002, one customer accounted for 86% of total accounts Receivable.  
Recently  Issued Accounting Pronouncements
In August 2001, the Financial Accounting  Standards Board ("FASB") issued SFAS No. 144. This statement addresses  financial accounting and reporting for the impairment or disposal of long-lived  assets. This statement replaces SFAS No. 121, "Accounting for the Impairment  of Long-Lived Assets and for Long-Lived Assets to be Disposed of," the  accounting and reporting provisions of 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,"  for the disposal of a segment of a business, and amends Accounting Research  Bulletin No. 51, "Consolidated Financial Statements," to eliminate  the exception to consolidation for a subsidiary for which control is likely  to be temporary. Management does not expect adoption of SFAS No. 144 to have  a material impact, if any, on the Company's financial position or results of  operations.

*The accompanying notes are an integral part of these financial statements.*
Aura 2003      Form 10-K/A48 F-14
Table of Contents
Aura Systems Inc.  and Subsidiaries Consolidated Financial Statements for the Years Ended February  28, 2003, 2002, and 2001

In April 2002, the FASB issued SFAS No.  145, "Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB  Statement No. 13, and Technical Corrections." SFAS No. 145 updates, clarifies,  and simplifies existing accounting pronouncements. This statement rescinds SFAS  No. 4, which required all gains and losses from extinguishment of debt to be  aggregated and, if material, classified as an extraordinary item, net of related  income tax effect. As a result, the criteria in Accounting Principles Board  No. 30 will now be used to classify those gains and losses. SFAS No. 64 amended  SFAS No. 4 and is no longer necessary as SFAS No. 4 has been rescinded. SFAS  No. 44 has been rescinded as it is no longer necessary. SFAS No. 145 amends  SFAS No. 13 to require that certain lease modifications that have economic effects  similar to sale-leaseback transactions be accounted for in the same manner as  sale-lease transactions. This statement also makes technical corrections to  existing pronouncements. While those corrections are not substantive in nature,  in some instances, they may change accounting practice. Management does not  expect adoption of SFAS No. 145 to have a material impact, if any, on the Company's  financial position or results of operations. However, as the Company has a history  of debt adjustments and settlements at rates beneficial to the Company, forgiveness  of the Company's debt may not qualify for extraordinary treatment. These debt  forgiveness amounts have previously been classified as extraordinary. Under  SFAS No. 145, future amounts of debt extinguishment gains may not qualify for  treatment as extraordinary gains.

In June 2002, the FASB issued SFAS No.  146, "Accounting for Costs Associated with Exit or Disposal Activities."  This statement addresses financial accounting and reporting for costs associated  with exit or disposal activities and nullifies Emerging Issues Task Force ("EITF")  Issue No. 94-3, "Liability Recognition for Certain Employee Termination  Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred  in a Restructuring)." This statement requires that a liability for a cost  associated with an exit or disposal activity be recognized when the liability  is incurred. Under EITF Issue 94-3, a liability for an exit cost, as defined,  was recognized at the date of an entity's commitment to an exit plan. The provisions  of this statement are effective for exit or disposal activities that are initiated  after December 31, 2002 with earlier application encouraged. Management does  not expect adoption of SFAS No. 146 to have a material impact, if any, on the  Company's financial position or results of operations.

In October 2002, the FASB issued SFAS  No. 147, "Acquisitions of Certain Financial Institutions." SFAS No.  147 removes the requirement in SFAS No. 72 and Interpretation 9 thereto, to  recognize and amortize any excess of the fair value of liabilities assumed over  the fair value of tangible and identifiable intangible assets acquired as an  unidentifiable intangible asset. This statement requires that those transactions  be accounted for in accordance with SFAS No. 141, "Business Combinations,"  and SFAS No. 142, "Goodwill and Other Intangible Assets." In addition,  this statement amends SFAS No. 144, "Accounting for the Impairment or Disposal  of Long-Lived Assets," to include certain financial institution-related  intangible assets. Management does not expect adoption of SFAS No. 147 to have  a material impact, if any, on the Company's financial position or results of  operations.

*The accompanying notes are an integral part of these financial statements.*
Aura 2003      Form 10-K/A49 F-15
Table of Contents
Aura Systems Inc.  and Subsidiaries Consolidated Financial Statements for the Years Ended February  28, 2003, 2002, and 2001

In December 2002, the FASB issued SFAS  No. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure,"  an amendment of SFAS No. 123. SFAS No. 148 provides alternative methods of transition  for a voluntary change to the fair value based method of accounting for stock-based  employee compensation. In addition, SFAS No. 148 amends the disclosure requirements  of SFAS No. 123 to require more prominent and more frequent disclosures in financial  statements about the effects of stock-based compensation. This statement is  effective for financial statements for fiscal years ending after December 15,  2002. SFAS No. 148 will not have any impact on the Company's financial statements  as management does not have any intention to change to the fair value method.

In April 2003, the FASB issued SFAS No.  149, "Amendment of Statement 133 on Derivative Instruments and Hedging  Activities." SFAS No. 149 amends and clarifies accounting and reporting  for derivative instruments and hedging activities under SFAS No. 133, "Accounting  for Derivative Instruments and Hedging Activities." SFAS No. 149 is effective  for derivative instruments and hedging activities entered into or modified after  June 30, 2003, except for certain forward purchase and sale securities. For  these forward purchase and sale securities, SFAS No. 149 is effective for both  new and existing securities after June 30, 2003. Management does not expect  adoption of SFAS No. 149 to have a material impact on the Company's statements  of earnings, financial position, or cash flows.

In May 2003, the FASB issued SFAS No.  150, "Accounting for Certain Financial Instruments with Characteristics  of both Liabilities and Equity." SFAS No. 150 establishes standards for  how an issuer classifies and measures in its statement of financial position  certain financial instruments with characteristics of both liabilities and equity.  In accordance with the standard, financial instruments that embody obligations  for the issuer are required to be classified as liabilities. SFAS No. 150 will  be effective for financial instruments entered into or modified after May 31,  2003 and otherwise will be effective at the beginning of the first interim period  beginning after June 15, 2003. Upon adoption of SFAS No. 150, the Company will  classify any outstanding redeemable preferred stock to liabilities.
NOTE  4 - SALE OF AURA REALTY
On December 1, 2002, the Company consummated  the initial closing under an Agreement for Sale and Leaseback, (together with  the agreements contemplated thereby, the "Agreement") with a group  of individuals (the "Purchasers") pursuant to which the Company agreed  to sell its Aura Realty, Inc. ("Aura Realty") subsidiary to the Purchasers  and enter into a new 10-year lease of the properties owned by Aura Realty (the  "Lease").

*The accompanying notes are an integral part of these financial statements.*
Aura 2003      Form 10-K/A50 F-16
Table of Contents
Aura Systems Inc.  and Subsidiaries Consolidated Financial Statements for the Years Ended February  28, 2003, 2002, and 2001

The Agreement provides for the $7,350,000  purchase price for the Aura Realty stock, arrived at in arm's length negotiations,  to be partially funded by Purchasers' assumption or refinancing of the current  mortgage note secured by the properties. Net of the principal balance of this  mortgage note of approximately $5,083,000, certain security deposits and prepayments  totaling $564,000, the partial payment of past due amounts owed to certain of  the individual purchasers, as described below, of approximately $135,000, and  Purchasers' fees of $105,000, the Company received approximately $1,463,000.  $878,750 of this amount was advanced to the Company by the Purchasers prior  to the December 1, 2002 closing under the Agreement.

At the December 1, 2002 closing under  the Agreement, the Company transferred 49.9% of its stock in Aura Realty to  the Purchasers, delivered a $1,000,000 note payable to the Purchasers, and granted  the Purchasers a security interest in one of the Company's notes receivable  to secure certain aspects of its performance under the Agreement and the Lease  A second closing was to occur after the current mortgage note holder consented  to transfer the stock to the Purchasers and executed the Lease.

At that time, the Company was to deliver  its remaining Aura Realty stock to the Purchasers in exchange for the return  and cancellation of the Company's $1,000,000 note payable. If the current mortgage  note holder did not consent to the transfer of the stock to the Purchasers and  execution of the Lease, The Purchasers were to obtain a substitute mortgage  note through a refinancing. In the event that such a refinancing is required,  the Company would be required to pay certain additional costs.

In connection with the sale, the Purchasers  also received warrants to purchase 15,000,000 shares of common stock of the  Company within five years from December 1, 2002 at exercise prices ranging from  $0.15 to $0.25 per share. The value of the warrants were calculated at $659,321  using the Black-Scholes method of valuation. In addition, the Purchasers subscribed  to purchase 21,366,347 shares of the Company's common stock for $1.5 million.  The Company may be required to issue up to 6,826,745 additional shares of common  stock and warrants to purchase up to 5,500,000 shares of common stock to the  Purchasers because of its failure to register the shares for resale.

Of the 16 Purchasers, five were members  of the Company's former management, who separated from the Company at the end  of February 2002 (the "Former Management"). The Company paid a fee  of $50,000 to the Former Management in connection with the Agreement. The Company  also paid to the Former Management approximately $135,000 from the funds it  received at closing, representing a portion of unpaid severance contractually  due at December 1, 2002 per the Former Management's separation agreements (see  Note 15).

*The accompanying notes are an integral part of these financial statements.*
Aura 2003      Form 10-K/A51 F-17
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Aura Systems Inc.  and Subsidiaries Consolidated Financial Statements for the Years Ended February  28, 2003, 2002, and 2001

Subsequent to February 28, 2003, the  Mortgagor had not consented to the transaction, and Aura failed to make certain  payments to the Purchasers as required under the Agreement. During June 2003,  the Company entered into a forbearance agreement with the Purchasers which requires  the Company to:

1. Register all previously issued warrants  to the Purchasers per the Sale Leaseback Agreement

2. Execute an assignment of all its proceeds  from the Alpha Ceramic note receivable (see Note 6) to the Purchasers

3. Enter into an exclusive listing agreement  for the sale of it real estate property

4. Pay all defaulted mortgage payments  to the Purchasers and make timely payments of $46,613 to the Purchasers thereon

The Company is currently in negotiations  with the Purchasers and the Mortgagor related to these matters.

The assets and liabilities of Aura Realty  at February 28, 2003 and 2002 consisted of the following:
  
2003
  
2002
  
Current assets 

$ 26,112 
  
$ 25,177 
    
Property and equipment, net

6,892,692 
  
9,412,356 

Other assets

133,617 
  
159,069 
  
Total assets 

$ 7,052,421 
  
$ 9,596,602 
  
Total liabilities 

$ 4,952,357 
  
$ 5,058,774 
  
Total equity 

$ 2,100,064 
  
$ 4,537,828 
  
*The accompanying notes are an integral part of these financial statements.*
Aura 2003      Form 10-K/A52 F-18
Table of ContentsAura Systems Inc.and Subsidiaries Consolidated Financial Statements for the Years Ended February28, 2003, 2002, and 2001
The Company originally recorded and reported  this transaction as a sale of 100% of its Aura Realty subsidiary. The events  subsequent to February 28, 2003 raise significant doubt that the remainder of  the transaction contemplated by the Agreement will ever be completed. As a result,  the Company has effectively sold a 49.9% interest in Aura Realty. The Purchasers'  interest in Aura Realty has been recorded as minority interest in consolidated  subsidiary, and the minority interest in net income of consolidated subsidiary  has been classified as such on the accompanying statement of operations for  the period applicable.

The loss on the sale of the subsidiary  is calculated as follows:

Net cash received 

$ 1,463,000 

Deposits held back by the Purchasers

564,000 

Fees 

105,000 

Less execution of note payable

(1,000,000)
 
Total sale price 

1,132,000

Value of warrants issued

(659,321) 

Net book value of minority interest          in Aura Realty at date of sale 

(1,099,355)
 
Loss on sale of minority interest          in Aura Realty 

$ (626,676)
 NOTE  5 - INVENTORIES
Inventories at February 28, 2003 and  2002 consisted of the following:
  
2003
  
2002
  
Raw materials

$ 3,846,439 
  
$ 4,043,697

Finished goods

6,819,286 
  
7,258,138 
    
10,665,725 
  
11,301,835

Reserve for potential product          obsolescence 

1,678,000 
  
1,795,411 
    
8,987,725
  
9,506,424

Non-current portion

7,573,225
  
4,500,000
  
Current portion

$ 1,414,500
  
$ 5,006,424
  
Inventories consist primarily of components  and completed units for the Company's AuraGen® product.

*The accompanying notes are an integral  part of these financial statements.*
Aura 2003      Form 10-K/A53 F-19
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Aura Systems Inc.  and Subsidiaries Consolidated Financial Statements for the Years Ended February  28, 2003, 2002, and 2001

Early in its AuraGen®  program, the Company determined it was most cost-effective to outsource production  of components and subassemblies to volume-oriented manufacturers, rather than  produce these parts in house. As a result of this decision, and based on then  anticipated sales, the Company purchased, prior to fiscal 2001, a substantial  inventory of components at volume prices, most of which was then assembled into  finished AuraGen® units. Since sales did not meet such expectations,  the Company has been selling product from this inventory for several years.  Management has analyzed its inventories based on its current business plan,  current orders for future delivery, and pending proposals with prospective customers  and has determined that the Company does not expect to realize all of its inventories  within the next year. The net inventories as of February 28, 2003 and 2002 which  are not expected to be realized within a 12-month period have been reclassified  as long term. 

The Company has also assessed the net  realizability of these assets, and the potential obsolescence of inventory.  In accordance with this assessment, management has recorded a reserve of $1,678,000  and $1,795,411 at February 28, 2003 and 2002, respectively. 

NOTE  6 - NOTES RECEIVABLE
In March 2000, the Company sold its ceramics  facility to the former President of the Alpha Ceramic, Inc. division for cash  and a note receivable in the amount of $2,500,000 (the "Alpha Ceramic Note").  The note receivable required a $100,000 down payment, bears interest at 8% per  annum, requires a monthly payment of $30,332, and matures on October 1, 2007.

On December 1, 2002, the Company entered  into the Agreement (see Note 4) with a group of individuals. As part of the  closing under the agreement, the Company granted the Purchasers a security interest  in the Alpha Ceramic Note and assigned its monthly payments to the Purchasers  in lieu of rent expense. As of February 28, 2003, $90,996 was paid to the Purchasers  and recorded as rent expense. Subsequent to February 28, 2003, the Company assigned  its interest in the Alpha Ceramic Note to the Purchasers under a forbearance  agreement (see Note 4).

*The accompanying notes are an integral part of these financial statements.*
Aura 2003      Form 10-K/A54 F-20
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Aura Systems Inc.  and Subsidiaries Consolidated Financial Statements for the Years Ended February  28, 2003, 2002, and 2001
NOTE  7 - PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment at February  28, 2003 and 2002 consisted of the following:

2003 
  
2002 
  
Land 

$ 3,187,997 
  
$ 3,187,997 

Buildings 

6,408,796 
  
8,708,796 

Machinery and equipment 

1,798,600 
  
1,969,206 

Furniture and fixtures 

2,308,023 
  
2,308,022

Leasehold improvements 

135,935 
  
135,935 
    
16,839,351 
  
16,309,956

Less accumulated depreciation          and amortization 

6,495,840 
  
5,935,475
  
Total 

$ 7,343,511 
  
$ 10,374,481
  
Depreciation and amortization expense  was $658,523, $5,868,089, and $7,619,979 for the years ended February 28, 2003,  2002, and 2001, respectively.

In the fourth quarter of fiscal 2002,  the Company determined that the tooling fixed assets were impaired based upon  the requirements set forth in SFAS No. 144. Due to the Company's inventory surplus  (see Note 5), and concerns regarding the usefulness of the tooling assets, future  utilization of these assets was determined to be sufficiently uncertain to warrant  their total impairment. This amount is included in impairment of long-lived  assets on the accompanying consolidated statement of operations.

In the second quarter of Fiscal 2003,  the Company's Board of Directors approved a plan to sell the land and buildings  which are currently used as Aura's headquarters and operating location. The  Company's analysis of market conditions for the sale of such real estate indicated  the current market value of this real estate was less than its recorded net  book value. As a result, the Company recorded an asset impairment charge of  $2,300,000 in accordance with SFAS No. 144, as part of the loss from operations.

*The accompanying notes are an integral part of these financial statements.*
Aura 2003      Form 10-K/A55 F-21
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Aura Systems Inc.  and Subsidiaries Consolidated Financial Statements for the Years Ended February  28, 2003, 2002, and 2001
NOTE  8 - LONG-TERM INVESTMENTS
Long-term investments and their related  loss reserves at February 28, 2003 and 2002 consisted of the following:
 2003    
Net Book Value
  
Reserve 
  
Book Value

Aquajet Corporation (a) 

$ - 
  
$ (923,835) 
  
$ 923,835 

Algo Technology, Inc. (b) 

500,000 
  
(848,652) 
  
1,348,652 

Telemac (c) 

500,000 
  
(750,000) 
  
1,250,000 
   
Total 

$ 1,000,000 
  
$(2,522,487) 
  
$ 3,522,487
    2002    
Net Book Value
  
Reserve 
  
Book Value

Aquajet Corporation (a) 

- 
  
(923,835) 
  
923,835 

Algo Technology, Inc. (b) 

1200,000
  
148,652) 
  
1,348,652 

Telemac (c) 

50,000 
  
750,000) 
  
1,250,000 
   
Total 

1,700,000 
  
(1,822,487) 
  
3,522,487
   
The above investments consist solely  of common stock and constitute approximately 4.2% of the outstanding shares  of Aquajet Corporation, 2.9% of the outstanding shares of Algo Technology, Inc.,  and less than 1% of the outstanding shares of Telemac.

 (a)      The Company maintains an investment in Aquajet Corporation, a development  stage company developing a water recreation vehicle. In fiscal 2002, the Company  recorded a total impairment of this investment because, on reviewing Aquajet's  lack of progress, management determined it was unlikely to realize any value  on this investment.

 (b)     During the year ended February 28, 2003, Aura recognized a $700,000 impairment  charge in its investment in Algo Technologies as management concluded that Algo's  financial condition made it unlikely that the Company could sell the investment  without a substantial discount from its carrying value. It is now recorded at  management's best estimate of its fair market value of approximately $500,000.

*The accompanying notes are  an integral part of these financial statements.*
Aura 2003      Form 10-K/A56 F-22
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Aura Systems Inc.  and Subsidiaries Consolidated Financial Statements for the Years Ended February  28, 2003, 2002, and 2001

(c)      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 $2,500,000 note receivable from Telemac. The final  payment on the note of $1,250,000, plus interest accrued at 8% per annum, was  due in February 2002. Per the terms of the agreement, Telemac elected to pay  Aura in Telemac common shares at an exchange price of $5 per share rather than  in cash. Aura received 313,232 common shares in exchange for the final payment  (see Note 8). During the year ended February 28, 2002, the Company recorded  an impairment on this investment of $750,000 as it expected an other-than-temporary  decrease in the value to an estimated $500,000, or $0.60 per share. Subsequent  to February 28, 2003, the Company sold a portion of its shares of Telemac's  common stock for $2.25 per share (see Note 18).
NOTE  9 - NOTES PAYABLE AND CONVERTIBLE NOTES PAYABLE
Notes payable and convertible notes payable  at February 28, 2003 and 2002 consisted of the following:
  
2003
  
2002
  
Litigation payable (a) 

$ 2,201,604 
  
$ 2,327,300 

Notes payable - equipment (b)          

14,147 
  
20,371 

Notes payable - buildings (c)          

5,058,774 
  
5,157,138 

Trade debt (d) 

1,308,533 
  
3,140,657 

Convertible notes payable (e)          

1,750,000 
  
- 

Note payable - related party          (f) 

- 
  
250,000 

Note payable - related party          (g) 

1,000,000 
  
- 

Convertible notes payable (h)          

2,012,320 
  
- 
  
13,345,378
  
10,895,466

Less current portion 

13,305,103 
  
3,913,623 
  
Long-term portion

$ 40,275 
  
$ 6,981,843

 (a)      The litigation payable represents the legal settlements entered into  by Aura with various parties. These settlements call for payment terms with  8% interest rate to the plaintiffs through fiscal 2004.

 (b)     Notes payable - equipment consists of a note maturing in February 2005 with  an interest rate of 8.45%.

*The accompanying notes are an integral  part of these financial statements.*
Aura 2003      Form 10-K/A57 F-23
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Aura Systems Inc.  and Subsidiaries Consolidated Financial Statements for the Years Ended February  28, 2003, 2002, and 2001

(c)      Notes payable - buildings consists of a 1st Trust Deed on two buildings  in California bearing interest at 7.625% per annum. A final balloon payment  is due in fiscal 2009. Subsequent to February 28, 2003, the Company defaulted  on these notes payable. As such, as of February 28, 2003, these notes payable  were classified as current liabilities.

(d)     Restructured trade debt with payment terms over a three-year period with interest  at 8% per annum commencing in January 2000.

(e)      During the year ended February 28, 2003, the Company settled $1,456,213  of this trade debt, including accrued interest of $198,000, for $385,142. The  total gain on the extinguishment of debt of $1,050,995 is reflected as an extraordinary  item in the accompanying consolidated financial statements and resulted in extraordinary  income per share of less than $0.01. In addition, as part of the transaction,  the Company entered into a convertible note payable agreement with a group of  investors for $307,862. This note was converted into Series A convertible preferred  stock subsequent to February 28, 2003 (see Note 18).

(f)       Convertible notes payable carry a 8% interest rate and are convertible  into common stock at various conversion rates. Subsequent to February 28, 2003,  the notes were adjusted to be convertible into shares of convertible, redeemable  preferred stock, and such conversion was completed (see Note 18). The Company  recorded interest expense of $316,619 related to the conversion feature on the  debt.

 (g)      In the fourth quarter of fiscal 2002, the Company entered into a short-term  loan agreement with a member of the Board of Directors for $250,000. The note  accrued interest at 10% per annum and was repaid in March 2002.

 (h)      Note payable - related party consisted of a $1,000,000 note payable,  which was entered into in connection with the sale of a minority interest in  Aura Realty (see Note 4). The note payable bears interest at 12.3% per annum  and is secured by a security interest in the Alpha Ceramic Note (see Note 6).  The Company is required to make interest payments for the first 17 months of  the term, and the remaining $1,000,000 principal is due on May 31, 2004. 

 (i)        The convertible notes payable were entered into with investors. The  notes payable bear interest at 5% per annum, mature at various dates, and are  convertible into shares of the Company's convertible, redeemable preferred stock  at a rate of $1 for each $2.20 of convertible, redeemable preferred shares.  The Company evaluated the notes for beneficial conversion features below the  market price of the Company's common shares and recorded $1,168,218 of interest  expense. Subsequent to February 28, 2003, the Company completed the conversion  of these notes into preferred stock.

*The accompanying notes are an integral  part of these financial statements.*
Aura 2003      Form 10-K/A58 F-24
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Aura Systems Inc.  and Subsidiaries Consolidated Financial Statements for the Years Ended February  28, 2003, 2002, and 2001

Future maturities of notes payable at  February 28, 2003 were as follows:

Year Ending February,
  
2004

$ 13,305,103 

2005

7,375 

2006

- 

2007

- 

2008

32,900 
 
Total 

$ 13,345,378
 NOTE  10 - ACCRUED EXPENSES
Accrued expenses at February 28, 2003  and 2002 consisted of the following:
  
2003 
  
2002 
  
Accrued payroll and related expenses        

$ 431,579 
  
$ 794,481 

Accrued interest

422,339 
  
76,848 

Accrued severance

554,288 
  
1,080,525 

Other 

364,726 
  
229,803 
  
Total 

$ 1,772,932 
  
$ 2,181,657
  Separation  Agreements
In December 2001, the Company and six  former members of the Company's senior management ("former employees")  entered into certain separation agreements, effective February 28, 2002. The  former employees received warrants and options exercisable at $0.55 per share  for an aggregate of 22,218,750 shares of the Company's common stock. Under the  provisions of SFAS No. 123, the warrants and options have been recorded in the  financial statements at their intrinsic value and the pro forma impact on the  Company's net loss of recording the warrants and options at fair value is set  forth in Note 12.

Each of the former employees agreed to  be available to the Company for a period of one year, and was entitled to payments  aggregating 85% of their former salaries. Because management considered such  payment more in the nature of severance than consulting fees, the Company recognized  $1,080,525 of compensation expense as of February 28, 2002, (approximately 75%  of the value of the contracts) and recognized the remaining amount in the first  quarter of the year ended February 28, 2003. 

*The accompanying notes are an integral  part of these financial statements.*
Aura 2003      Form 10-K/A59 F-25
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Aura Systems Inc.  and Subsidiaries Consolidated Financial Statements for the Years Ended February  28, 2003, 2002, and 2001
Adjustment  to Accounts Payable
During the years ended February 28, 2003  and 2002, the Company adjusted certain of its accrual and accounts payable accounts.  These adjustments reflect primarily reductions in amounts previously estimated  and limited contractual adjustments to amounts payable under certain trade payable  agreements. These amounts have been recorded as an adjustment to operating expenses  as they generally represent changes in estimates recorded by the Company in  previous periods. 
NOTE  11 - COMMITMENTS AND CONTINGENCIESLeases
At February 28, 2003, the Company did  not have any significant long-term operating leases. Rent expense charged to  operations amounted to $956,951, $868,236, and $930,689 for the years ended  February 28, 2003, 2002, and 2001, respectively.
Litigation
Due to the Company's acute liquidity  challenges, it has defaulted in payments under many of its financial obligations.  These defaults effectively render these obligations payable on demand and the  entire principal balance of each obligation has been included in current liabilities  in the accompanying Condensed Consolidated Financial Statements. The Company  is engaged in numerous legal actions by creditors seeking payment of sums owed.  Actions by the parties to these obligations to enforce their rights to collect  the amounts due could require the Company to cease operations.

In  June 2002, the Securities and Exchange Commission ("SEC") brought  a civil action against the Company, NewCom (a former subsidiary of Aura), and  certain former members of the Company's management team, including Zvi (Harry)  Kurtzman (the Company's former Chief Executive Officer) and Steven Veen (the  Company's former Chief Financial Officer) for violations of the antifraud and  books and records provisions of the securities laws. The complaint relates to  the financial statements for various transactions during fiscal years 1996 through  1999. The SEC brought a related action against Gerald Papazian (the Company's  former President). Without admitting or denying the allegations in the complaint,  the Company as well as the former officers filed consents agreeing to settle  the case. *(continued)*

*The accompanying notes are an integral  part of these financial statements.*
Aura 2003      Form 10-K/A60 F-26
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Aura Systems Inc.  and Subsidiaries Consolidated Financial Statements for the Years Ended February  28, 2003, 2002, and 2001

*(continued)*  The Company consented to a permanent injunction against violations of specified  sections of the securities laws, with no penalty imposed based on the Company's  financial condition. Mr. Kurtzman consented to a permanent injunction against  violations of specified sections of the securities laws, a $75,000 civil penalty  and a permanent bar from serving as an officer or director of a publicly-traded  company. Mr. Veen consented to a permanent injunction against violations of  specified sections of the securities laws, a $50,000 civil penalty and a five-year  suspension from appearing or practicing before the SEC. Mr. Papazian consented  to a permanent injunction against violations of specified sections of the securities  laws and a $25,000 civil penalty. In September 2002, a federal grand jury indicted  three officers of NewCom, including Mr. Veen, on various conspiracy and fraud  charges related to NewCom's financial statements.

In January 1999, the Company settled  shareholder litigation in the Barovich/Chiau matter. On November 20, 1999, the  parties entered into an Amended Stipulation of Settlement, which required the  Company to pay $2,260,000, plus interest, in monthly installments of $70,350.  On October 22, 2002, after the Company had failed to make certain monthly payments,  the plaintiffs applied for and obtained a judgment against the Company for $935,530,  which represents the balance due with respect to the original principal amount.  The Company has subsequently made two monthly payments, thereby reducing the  amount owed to $794,650, plus interest. Subsequent to February 28, 2003, the  plaintiff took further legal action to enforce the October 2002 judgment, culminating  in a lien on one of the Company's smaller bank accounts. The Company has recorded  this liability in full in the accompanying financial statements.

On December 11, 2002, one of the Company's  former vendors filed suit against the Company, alleging the Company breached  the terms of a payment plan for $283,296. The settlement discussions between  the two parties have been largely unsuccessful. The plaintiff is advancing this  suit through the court system, and a hearing has been scheduled for August 2003.  The Company has recorded this liability in full in the accompanying financial  statements.

The Company is involved in certain legal  proceedings and claims which arise in the normal course of business. Management  does not believe that the outcome of these matters will have a material effect  on the Company's financial position or results of operations.

*The accompanying notes are an integral  part of these financial statements.*
Aura 2003      Form 10-K/A61 F-27
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Aura Systems Inc.  and Subsidiaries Consolidated Financial Statements for the Years Ended February  28, 2003, 2002, and 2001
Settlements  in Fiscal 2003
On December 11, 2001, the Company filed  a complaint in the United States District Court, Central District of California,  against CRS Emergency Vehicles Co., Custom Coaches International, and C. Ray  Smith for Breach of Contract, Conversion, Bad Faith, Fraud, and Injunctive Relief.  The action arose out of a sale to defendant distributors of approximately $1,200,000  of the Company's AuraGen® product. On May 7, 2002, the Company  entered a settlement of this case whereby the defendants agreed to release or  otherwise account for all of the product shipped to the Company and terminate  their distributorship agreement. The Company accounted for this event in the  fourth quarter of fiscal 2002 and reversed revenue of $1,200,000 due to the  return of the inventory.

In 1991, one of the Company's former  shareholders filed a civil action against the Company, its founding management  members, who are no longer employees of the Company, and two of the Company's  former shareholders. Following an appeal, the Company paid its portion of the  judgment in full to the defendant. In December 2002, the defendant received  a court order, requiring the Company to be liable for the damages awarded against  the former shareholders. In February 2003, the Company paid $212,444 to the  defendant, which represented the final settlement in this matter.
Settlements  in Fiscal 2002
In June 1999, a lawsuit naming Aura was  filed by Deutsche Financial Services ("DFS") regarding the termination  of DFS' credit facility. The Company entered into a definitive Settlement and  Mutual Release Agreement effective March 12, 2001, providing for the settlement  of litigation. Under the terms of the settlement, DFS received cash payments  totaling $350,000 and 10,000,000 shares of Aura's common stock in exchange for  mutual releases. The Company had previously recorded an estimated liability  of $5,500,000, which was carried in notes payable on the accompanying consolidated  financial statements. The aggregate value of the settlement was $4,350,000 based  on the Company's common stock price at the settlement date, resulting in an  adjustment in fiscal 2002 to the original accrual of $1,150,000.

On November 12, 1999, a lawsuit (Excalibur)  was filed by three investors against Aura and others, arising out of two NewCom  financings consummated in December 1998. As part of the settlement, Aura received  $2,000,000. The plaintiffs received re-pricing shares sought as part of their  underlying contract claims. The re-pricing shares have been recorded in fiscal  2002 as an adjustment to the original issuances, and the $2,000,000 has been  recorded as an adjustment to legal settlements.

*The accompanying notes are an integral  part of these financial statements.*
Aura 2003      Form 10-K/A62 F-28
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Aura Systems Inc.  and Subsidiaries Consolidated Financial Statements for the Years Ended February  28, 2003, 2002, and 2001

In December 1999, a lawsuit was filed  against NewCom, which, as amended, also included Aura and others. The plaintiff's  sixth amended complaint purported to be a class action on behalf of a class  alleged to consist of approximately 200,000 people who purchased a NewCom, aka  Atlas Peripherals, computer product from various retail stores. In August 2001,  the Company entered into a settlement Memorandum of Understanding, which limited  the total Aura portion of the litigation to $400,000, payable in monthly installments  of $10,000 to the plaintiffs. The parties have since entered into a definitive  Settlement Agreement incorporating the terms of the Memorandum, which received  final approval of the trial court in December 2001.
Settlements  in Fiscal 2001
The Company realized $1.5 million of  expense in fiscal 2001 for litigation settlements, including the initial settlement  of the Excalibur matter referred to above.
NOTE  12 - STOCKHOLDERS' EQUITYSeries  A Convertible, Redeemable Preferred Stock
The Board of Directors is authorized  to issue from time to time up to 10,000,000 shares of preferred stock, in one  or more series, and the Board of Directors is authorized to fix the dividend  rates, any conversion rights or rights of exchange, any voting right, any rights  and terms of redemption (including sinking fund provisions), the redemption  price, liquidation preferences and any other rights, preferences, privileges  and restrictions of any series of preferred stock. No amounts were outstanding  as of February 28, 2002 and 2001.

On March 25, 2003, the Board of Directors  of the Company authorized 1,500,000 shares of Series A convertible, redeemable  preferred stock (the "Series A") with a par value of $0.005. Each  Series A share is convertible into common stock at $0.08 per share. The Series  A can be converted at the option of the holder provided that the Company does  not exercise the mandatory conversion on any date on or after March 31, 2004.  The Company may exercise its right to mandatory conversion provided that the  current market value of the Company's common stock equal or exceeds 120% of  the then prevailing conversion price.

The Series A has liquidation preference  of $10 per share. In addition, the holders of the Series A are entitled to receive  cumulative dividends at a rate of 5% per annum. Dividends are payable in arrears  on the first day of each quarter, commencing on September 1, 2003. The shares  can be redeemed on or after March 31, 2004 in whole or in part at a redemption  price equal to $10 per share, plus the amount of any accumulated and unpaid  dividends. As of March 31, 2003, the Company has 558,110 shares of Series A  issued and outstanding.

*The accompanying notes are an integral  part of these financial statements.*
Aura 2003      Form 10-K/A63 F-29
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Aura Systems Inc.  and Subsidiaries Consolidated Financial Statements for the Years Ended February  28, 2003, 2002, and 2001
Common  Stock
At February 28, 2003 and 2002, the Company  had 500,000,000 shares of $0.005 par value common stock authorized for issuance.

As described below, as of February 28,  2003, the Company has commitments to issue, in exchange for consideration already  received, approximately 20 million shares of common stock. This is in addition  to outstanding stock options, warrants and convertible securities.

During the year ended February 28, 2003,  the Company issued 41,700,830 shares of common stock for cash totaling $5,694,001  in private offerings to various third party investors and issued 923,077 shares  of common stock totaling $207,692 from committed stock.

During the year ended February 28, 2003,  the Purchasers of a minority interest in Aura Realty (see Note 4) purchased  21,366,347 shares of the Company's common stock for $1,493,000 at an average  price of $0.07 per share. The Company may be required to issue up to 6,826,745  additional shares to the Purchasers as a result of the Company's failure to  timely file a registration statement covering such shares. 

During the year ended February 28, 2002,  the Company issued 35,906,981 shares of common stock in private placements.

During the year ended February 28, 2001,  the Company issued shares of common stock which were recorded as a component  of stockholder's equity (committed common stock) at February 29, 2000. The common  stock could not be issued in fiscal 2000 due to the limitation on the number  of shares authorized. During the year ended February 28, 2001, the Company issued  2,400,000 shares of common stock as a finder's fee for the Company's private  placements and 1,775,824 shares of common stock for re-pricing a prior private  placement of the Company. The finder's fee and re-pricing did not have any effect  on total stockholders' equity.
Debt  Extinguishments and Settlements for Common Stock
During the year ended February 28, 2003,  the Company issued 659,175 shares of common stock in satisfaction of $169,740  in liabilities and contractual obligations.

*The accompanying notes are an integral  part of these financial statements.*
Aura 2003      Form 10-K/A64 F-30
Table of Contents
Aura Systems Inc.  and Subsidiaries Consolidated Financial Statements for the Years Ended February  28, 2003, 2002, and 2001

During the year ended February 28, 2002,  the Company restructured $16,179,900 of debt and related accrued interest into31,398,771  shares of common stock valued at $15,173,905, resulting in a pre-tax extraordinary  gain for the early extinguishment of debt of $1,005,995. This was originally  recorded as a gain on extinguishment of debt of $4,316,645. However, due to  price protection commitments, the former debt holders may be entitled to receive  an additional 14,714,000 common shares (of which 923,077 shares were issued  in fiscal 2003) resulting in an $3,310,000 adjustment to the gain on extinguishment  of debt. The gain, in addition to a $883,545 gain resulting from a creditor's  forgiveness of the remaining balance of an unsecured note payable plus accrued  interest, has been reflected as an extraordinary item in the accompanying consolidated  financial statements.

As of February 28, 2002, and February  28, 2003, 14,714,000 common shares and 13,790,924 common shares, respectively,  with a value totaling $3,310,650, and $3,102,958, respectively, are reflected  on the consolidated statement of stockholders' equity as committed common stock.  

During the year ended February 28, 2002,  the Company issued 8,500,502 shares of common stock in satisfaction of $278,801  in operating expenses and $2,734,613 of liabilities, of which $1,416,364 was  long-term trade debt included in notes payable and other liabilities; 10,000,000  shares of common stock valued at $4,000,000 as partial settlement with Deutsche  Financial Services; 8,947,631 shares of common stock for re-pricing a prior  year private placement, and 1,743,801 shares of common stock as a finder's fee  for a current year private placement. The finder's fee and re-pricing did not  have any effect on total stockholders' equity.

During the year ended February 28, 2001,  the Company converted $2,949,365 of notes payable and accrued interest into  7,324,191 shares of common stock.

During the year ended February 28, 2001,  the Company issued 11,642,627 shares of common stock in satisfaction of $6,151,295  of liabilities, of which $3,748,384 was long-term trade debt included in notes  payable and other liabilities.

During the year ended February 28, 2001,  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 valued at $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.

*The accompanying notes are an integral  part of these financial statements.*
Aura 2003      Form 10-K/A65 F-31
Table of Contents
Aura Systems Inc.  and Subsidiaries Consolidated Financial Statements for the Years Ended February  28, 2003, 2002, and 2001
Director  Stock Options
The Company has granted nonqualified  stock options to certain directors. Options were granted at fair market value  at the date of grant, vested immediately, and were exercisable at any time within  a 10-year period from the date of grant.

A summary of the Company's outstanding  options and activity under the director's plan is as follows:

Number of Shares
  
Weighted-Average          Exercise Price
  
Outstanding, February 28, 2000          and 2001 

500,000 
  
$ 2.06 - 2.30 

Expired 

(50,000) 
  
$ 2.06 - 2.30

Outstanding, February 28, 2002          and 2003 

450,000 
  
$ 2.06 - 2.30
    
Exercisable, February 28, 2003          

450,000 
  
$ 2.06 - 2.30
   Employee  Stock Options
The 1989 Stock Option Plan has granted  the maximum allowable number of options authorized. In March 2000, the Company's  Board of Directors adopted the 2000 Stock Option Plan, a non-qualified plan  which was subsequently approved by the stockholders. The 2000 Stock Option Plan  authorizes the grant of options to purchase up to 10% of the Company's outstanding  common shares. 

During the year ended February 28, 2003,  the Company issued stock options to employees to purchase 11,026,000 of the  Company's common stock and recorded $53,075 of compensation expense.

During the year ended February 28, 2003,  the Company issued stock options to various Board members and consultants to  purchase 2,575,400 of the Company's common stock and recorded $192,208 and $196  of compensation and consulting expense, respectively.

*The accompanying notes are an integral  part of these financial statements.*
Aura 2003      Form 10-K/A66 F-32
Table of Contents
Aura Systems Inc.  and Subsidiaries Consolidated Financial Statements for the Years Ended February  28, 2003, 2002, and 2001

Activity in the employee stock option  plans was as follows:
  
1989 Plan

2000 Plan
  
Number of Shares

Weighted-Average Exercise        Price

Number of Shares

Weighted-Average Exercise        Price

Outstanding, February 29, 2000        

5,867,000 

$ 1.44 - 7.31 

- 

$ - 

Granted 

- 

$ - 

17,565,500 

$ 0.31- 0.60 

Canceled 

(5,000) 

$ 3.00 

(132,500) 

$ 0.31 

Expired 

(431,000) 

$ 0.44 

- 

$ -

Outstanding, February 28, 2001        

5,431,000 

$ 1.79 - 7.31 

17,433,000 

$ 0.31 - 0.60 

Granted 

- 

$ - 

18,849,001 

$ 0.45 - 0.64 

Canceled 

(20,000) 

$ 3.00 

(428,250) 

$ 0.31 - 0.45 

Expired 

(6,000) 

$ 7.25 

- 

$ - 

Outstanding, February 28, 2002        

5,405,000 

$ 1.79 - 7.31 

35,853,751 

$ 0.31 - 0.64 

Granted 

- 

$ - 

13,601,400 

$ 0.24 

Expired 

- 

$ - 

(15,049,750) 

$ 0.32

Outstanding, February 28, 2003        

5,405,000 

$ 1.79 - 7.31 

34,405,401 

$ 0.31 - 0.64

Exercisable, February 28, 2003        

5,405,000 

$ 1.79 - 7.31 

24,288,272 

$ 3.31

The weighted-average remaining contractual  life of the employee options outstanding at February 28, 2003 was 8.34 years.  The exercise prices for the options outstanding at February 28, 2003 ranged  from $0.07 to $7.31, and information relating to these options is as follows:

Range of Exercise Prices
  
Stock Options Outstanding
  
Stock Options Exercisable
  
Weighted-Average Remaining Contractual        Life
  
Weighted-Average Exercise Price        of Options Outstanding
  
Weighted-Average Exercise Price        of Options Exercisable
     
$0.07 - 0.35 
  
13,519,400 
  
8,473,229 
  
8.76 years 
  
$0.19 
  
$0.22

$0.36 - 3.00 
  
23,385,001 
  
18,894,043 
  
8.45 years 
  
$0.70 
  
$0.74

$3.01 - 7.31 
  
2,906,000 
  
2,326,000 
  
5.39 years 
  
$3.31 
  
$3.31 
                 
39,810,401
  
29,693,272
                     
*The accompanying notes are an integral  part of these financial statements.*
Aura 2003      Form 10-K/A67 F-33
Table of Contents
Aura Systems Inc.  and Subsidiaries Consolidated Financial Statements for the Years Ended February  28, 2003, 2002, and 2001

The Company has adopted only the disclosure  provisions of SFAS No. 123. It applies APB Opinion No. 25 and related interpretations  in accounting for its plans and does not recognize compensation expense for  its stock-based compensation plans other than for restricted stock and options  issued to outside third parties. If the Company had elected to recognize compensation  expense based upon the fair value at the grant date for awards under this plan  consistent with the methodology prescribed by SFAS No. 123, the Company's net  loss and loss per share would be reduced to the pro forma amounts indicated  below for the years ended February 28, 2003, 2002, and 2001: 
  
2003 
  
2002 
  
2001
   
Net loss As reported 

$(16,140,873) 
  
$(24,936,895) 
  
$(20,929,971) 

Pro forma 

$(18,311,899) 
  
$(26,368,716) 
  
$(22,114,397) 

Basic loss per common share As        reported 

$ (0.04) 
  
$ (0.08) 
  
$ (0.08) 

Pro forma 

$ (0.04) 
  
$ (0.08) 
  
$ (0.08)

For purposes of computing the pro forma  disclosures required by SFAS No. 123, the fair value of each option granted  to employees and directors is estimated using the Black-Scholes option-pricing  model with the following weighted-average assumptions for the years ended February  28, 2003, 2002, and 2001: dividend yields of 0%, 0%, and 0%, respectively; expected  volatility of 98%, 70%, and 50%, respectively; risk-free interest rates of 2.3%,  4.9%, and 6%, respectively; and expected lives of two, 2.14, and 1.5 years,  respectively.

The weighted-average fair value of these  options was $0.09, and the weighted-average exercise price was $0.06.

The Black-Scholes option valuation model  was developed for use in estimating the fair value of traded options which do  not have vesting restrictions and are fully transferable. In addition, option  valuation models require the input of highly subjective assumptions, including  the expected stock price volatility. Because the Company's employee stock options  have characteristics significantly different from those of traded options, and  because changes in the subjective input assumptions can materially affect the  fair value estimate, in management's opinion, the existing models do not necessarily  provide a reliable single measure of the fair value of its employee stock options.

*The accompanying notes are an integral  part of these financial statements.*
Aura 2003      Form 10-K/A68 F-34
Table of Contents
Aura Systems Inc.  and Subsidiaries Consolidated Financial Statements for the Years Ended February  28, 2003, 2002, and 2001
Warrants
During the year ended February 28, 2003  and in relation to the Agreement entered into on December 1, 2002 (see Note  4), the Company issued warrants to purchase 15,000,000 shares of the Company's  common stock as incentive for the Purchasers to enter into the Agreement.

Per the Agreement, the warrants expire  in five years, and the exercise prices are as follows:

 -           $0.15 per share during the first 24 months after closing - $0.20 per  share from the 25th month after closing

 -           $0.25 per share from the 37th month after closing

The Company agreed to file a registration  statement with the SEC within 60 days of closing under the Agreement and to  issue up to 5,500,000 additional warrants to the Purchasers if it failed to  do so. The Company has not filed the required registration statement and will  be obligated to issue the additional warrants, but has not yet done so.

At February 28, 2003 and 2002, there  were warrants outstanding to purchase 48,956,727 and 33,956,727 shares, respectively,  of the Company's common stock, exercisable at an average price of $0.20 and  $0.71, respectively, per share. As of February 28, 2003, the Company also was  obligated to issue warrants to purchase, in the aggregate, an additional 5,500,000  shares to the purchasers of the minority interest of Aura Realty (see Note 4)  due to the Company's failure to timely file a registration statement covering  the common stock underlying these warrants.

*The accompanying notes are an integral  part of these financial statements.*
Aura 2003      Form 10-K/A69 F-35
Table of Contents
Aura Systems Inc.  and Subsidiaries Consolidated Financial Statements for the Years Ended February  28, 2003, 2002, and 2001

As of February 28, 2003, the aggregate  number of outstanding options, warrants, and common share equivalents was significantly  in excess of the authorized, but unissued number of shares of the Company's  common stock. Management intends to seek shareholder approval of an increase  in the Company's authorized shares sufficient to satisfy all existing commitments  and create available shares for potential future investments. However, such  approval is not guaranteed.

 Activity in issued and outstanding  warrants was as follows:

Number of Shares

Exercise Prices

Outstanding, February 29, 2000

1,750,000

$ 0.27 - 0.38 

Issued 

21,050,515

$ 0.38 - 2.25

Exercised 

- 

$ - 

Expired 

- 

$ -

Outstanding, February 28, 2001

22,800,515

$ 0.27 - 2.25 

Issued

14,904,812

$ 0.20 - 0.55 

Exercised

(100,000)

$ 0.27 

Expired

-

$ -

Outstanding, February 28, 2002        

37,605,327

$ 0.20 - 2.25 

Issued

15,000,000

$ 0.15 

Exercised

- 

$ -

Expired

- 

$ -

Outstanding, February 28, 2003

52,605,327

$ 0.15 - 2.25 

As of November 25, 2003, the Company  has issued an additional 8,600,000 warrants to purchase common stock at per  share prices ranging from $0.05 to $0.15 and 16,726,765 previously issued warrants  to purchase common stock at per share prices ranging from $0.34 to $0.48 expired  unexercised.

*The accompanying notes are an integral  part of these financial statements.*
Aura 2003      Form 10-K/A70 F-36
Table of Contents
Aura Systems Inc.  and Subsidiaries Consolidated Financial Statements for the Years Ended February  28, 2003, 2002, and 2001
NOTE  13 - INCOME TAXES
The Company has not incurred any income  tax expense since inception. The actual tax benefit differs from the expected  tax benefit computed by applying the United States federal corporate tax rate  of 34% to loss before income taxes as follows for the years ended February 28,  2003, 2002 and 2001:
  
2003 
  
2002 
  
2001
   
Expected tax benefit 

34.0% 
  
34.0% 
  
34.0%

State income taxes, net of federal          benefit 

6.0 
  
6.0 
  
6.0

Changes in valuation allowance          

(40.0) 
  
(40.0) 
  
(40.0)

Total

- % 
  
- % 
  
- %

The following table summarizes the significant  components of the Company's deferred tax asset at February 28, 2003 and 2002:
  
2003 
  
2002 
  
Deferred tax asset 
      
Property, plant, and equipment          and other 

$ 4,800,000 
  
$ 3,600,000 

Net operating loss carryforward          

104,800,000 
  
99,000,000 

Valuation allowance 

(109,600,000) 
  
(102,600,000)

Net deferred tax asset 

$ - 
  
$ -

The Company recorded an allowance of  100% for its net operating loss carryforward due to the uncertainty of its realization.

A provision for income taxes has not  been provided in these financial statements due to the net loss. At December  31, 2002, the Company had operating loss carryforwards of approximately $262,000,000,  which expire through 2023.

*The accompanying notes are an integral  part of these financial statements.*
Aura 2003      Form 10-K/A71 F-37
Table of Contents
Aura Systems Inc.  and Subsidiaries Consolidated Financial Statements for the Years Ended February  28, 2003, 2002, and 2001
NOTE  14 - EMPLOYEE BENEFIT PLANS
The Company sponsored two employee benefit  plans: The Employee Stock Ownership Plan (the "ESOP") and a 401(k)  plan. In addition, the options granted under the 1989 and 2000 Stock Option  Plans are valid and subject to exercise.

The ESOP is a qualified discretionary  employee stock ownership plan that covers substantially all employees. The Company  did not make any contributions to the ESOP during the years ended February 28,  2003, 2002, and 2001.

The Company sponsors a voluntary, defined,  contribution 401(k) plan. The plan provides for salary reduction contributions  by employees and matching contributions by the Company of 20% of the first 7%  of the employees' pre-tax contributions. The matching contributions by the Company  included in selling, general, and administrative expenses were $44,720, $58,025,  and $49,152 for the years ended February 28, 2003, 2002, and 2001, respectively.
NOTE  15 - RELATED PARTY TRANSACTIONS
During the year ended February 28, 2002,  the Company entered into a short-term loan agreement with a member of the Board  of Directors for $250,000, bearing interest at 10% per annum. The note payable,  including accrued interest of $2,500, was repaid within the third quarter.

In December 2001, following deliberations  by the Compensation Committee and the Board of Directors in consultation with  independent consultants and after concluding discussions with the affected members  of the management, team the Company entered into separation agreements with  Messrs. Kurtzman, Papazian, Schwartz, Kaufman, and Veen and Ms. Kurtzman Lavut,  terminating their existing employment contracts and restructuring their severance  benefits. Pursuant to these separation agreements, these individuals terminated  their employment relationship with the Company effective February 28, 2002.

Under the terms of the separation agreements,  the departing officers relinquished their rights to any multi-year, cash, severance  benefits in exchange for a one time grant of stock options and warrants, exercisable  at $0.55 per share, which vest over a period of 18 months from the termination  of employment and salary continuation (in the form of consulting agreements)  at 85% of former salaries for a period of one year. The aggregate number of  shares underlying the options and warrants issued under these separation agreements  is 22,218,750. 

*The accompanying notes are an integral  part of these financial statements.*
Aura 2003      Form 10-K/A72 F-38
Table of Contents
Aura Systems Inc.  and Subsidiaries Consolidated Financial Statements for the Years Ended February  28, 2003, 2002, and 2001

In addition, each executive is entitled  to receive continued medical benefits for three years following termination  of employment.

On December 1, 2002, the Company entered  into a Sale and Leaseback Agreement with a group of individuals, including five  individuals who were members of the Company's former management, who separated  from the Company at the end of February 2002, pursuant to which the Company  agreed to sell Aura Realty to the Purchasers and enter into a 10-year lease  of the properties owned by Aura Realty (see Note 4).

In February 2003, the Company entered  into convertible notes payable agreements with a group of investors, which included  five members of the Company's former management. The notes payable bear interest  at 8% per annum, mature at various dates, and are convertible into shares of  the Company's convertible, redeemable preferred stock at a rate of $1 for each  $2.20 of convertible, redeemable preferred shares (see Note 9 and Note 18).
NOTE  16 - SEGMENT INFORMATION
The Company is a United States based  company providing advanced technology products to various industries. The principal  markets for the Company's products are North America, Europe, and Asia. All  of the Company's operating long-lived assets are located in the United States.  The Company operates in one segment.

Total net revenues from customer geographical  segments are as follows for the years ended February 28, 2003, 2002, and 2001:

2003 
  
2002 
  
2001 
   
United States 

$ 997,000 
  
$ 2,792,000 
  
$ 2,464,000 

Canada 

27,000 
  
39,000 
  
31,000 

Europe 

21,000 
  
218,000 
  
- 

Asia 

59,000 
  
67,000 
  
18,000 
   
Total 

$ 1,104,000 
  
$ 3,116,000 
  
$ 2,513,000 
   
 

*The accompanying notes are an integral  part of these financial statements.*
Aura 2003      Form 10-K/A73 F-39
Table of ContentsAura Systems Inc.and Subsidiaries Consolidated Financial Statements for the Years Ended February28, 2003, 2002, and 2001NOTE  17 - QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
The following tables list the Company's  quarterly financial information for the years ended February 28, 2003, 2002,  and 2001:

2003
  
First         Quarter
  
Second Quarter 
  
Third         Quarter 
  
Fourth Quarter 
  
Total         Year
     
Net revenues 

$ 183,739 
  
$ 272,978 
  
$ 423,066 
  
$ 223,987 
  
$ 1,103,770 

Gross profit 

$ 102,753 
  
$ 127,858 
  
$ 223,912 
  
$ 78,148 
  
$ 532,671 

Loss from operations 

$ (3,290,539) 
  
$ (5,219,668) 
  
$ (2,238,263) 
  
$ (2,825,208) 
  
$ (13,573,678) 

Net loss 

$ (3,958,201) 
  
$ (5,694,039) 
  
$ (2,334,550) 
  
$ (4,154,083) 
  
$ (16,140,873) 

Basic and diluted loss per share        

$ (0.01) 
  
$ (0.01) 
  
$ - 
  
$ (0.01) 
  
$ (0.04)

2002
  
First         Quarter
  
Second Quarter 
  
Third         Quarter 
  
Fourth Quarter 
  
Total         Year
     
Net revenues 

$ 2,874,569 
  
$ 863,773 
  
$ 306,126 
  
$ (928,173) 
  
$ 3,116,295 

Gross profit (loss)

$ 1,433,946 
  
$ 550,099 
  
$ 137,252 
  
$ (1,996,609) 
  
$ 124,688 

Loss from operations 

$ (3,393,606) 
  
$ (5,248,819) 
  
$ (3,871,227) 
  
$ (11,933,279) 
  
$ (24,446,931) 

Net loss 

$ (2,105,698) 
  
$ (6,034,811) 
  
$ (1,094,577) 
  
$ (15,701,809) 
  
$ (24,936,895) 

Basic and diluted loss per share        

$ (0.01) 
  
$ (0.02) 
  
$ - 
  
$ (0.05) 
  
$ (0.08)

2001
  
First         Quarter
  
Second Quarter 
  
Third         Quarter 
  
Fourth Quarter 
  
Total         Year
     
Net revenues

$ 381,521
  
$ 386,885 
  
$ 501,802 
  
$ 1,242,300 
  
$ 2,512,508

Gross profit (loss)

$ (2,132,836) 
  
$ (2,169,177) 
  
$ (1,880,860) 
  
$ 7,478,744
  
$ 1,295,871

Loss from operations 

$ (4,368,400)
  
$ (5,865,853) 
  
$ (3,755,452) 
  
$ (6,639,495)
  
$ (20,629,200)

Net loss 

$ (2,610,266) 
  
$ (6,726,320) 
  
$ (4,653,019) 
  
$ (6,940,366) 
  
$ (20,929,971)

Basic and diluted loss per share        

$ (0.01) 
  
$ (0.03) 
  
$ (0.02)
  
$ (0.02) 
  
$ (0.08)

*The accompanying notes are an integral  part of these financial statements.*
Aura 2003      Form 10-K/A74 F-40
Table of Contents
Aura Systems Inc.  and Subsidiaries Consolidated Financial Statements for the Years Ended February  28, 2003, 2002, and 2001
NOTE  18 - SUBSEQUENT EVENTS
In March 2003, the Company issued $0.4  million of additional "5% Discounted Notes". All of these notes were  converted into Series A Preferred subsequent to year-end as discussed below.

On March 25, 2003, the Company designated  1,500,000 shares of its authorized preferred stock as Series A Convertible Redeemable  Preferred Stock (the "Series A Preferred"). Each share of Series A  Preferred has a par value of $.005, a liquidation preference of $10.00 plus  accrued unpaid dividends and is convertible into common stock at $.080 per share,  based on the liquidation preference. Dividends accrue on each share at the rate  of 5% of the liquidation preference per annum. The Company may call the Series  A Preferred for redemption on or after March 31, 2004 subject to certain conditions.  As of November 25, 2003, 591,110 shares of Series A Preferred were outstanding,  issued as set forth below.

On March 31, 2003, the Company exchanged  $1.1 million of 8% Notes and converted $1.1 million of 5% Notes and the $1.2  million of 5% Discounted Notes, plus accrued interest in all cases, into 534,020  shares of Series A Preferred. The average effective net acquisition price of  the shares of Common Stock underlying the conversion feature, based on the amounts  paid for the notes, is $0.054 per share.

Between May 29 and November 30, 2003,  the Company received $3,972,242 of interim funding from Koyah Leverage Partners,  LLP to meet its immediate cash needs. These amounts are evidenced by secured  notes payable (the "Secured Notes") on March 31, 2004. The Secured Notes bear  interest at 10% per annum and are convertible at the option of the holder into  new debt or equity securities at of the Company at a 20% discount to the best  terms by which such new debt or equity is sold to any new investor. The Secured  Notes may be prepaid on notice at a 20% premium. Repayment of the Secured  Notes is secured by substantially all the assets of the Company (with limited  exceptions).

*The accompanying notes are an integral  part of these financial statements.*
Aura 2003      Form 10-K/A75 F-41
Table of Contents
Aura Systems Inc.  and Subsidiaries Consolidated Financial Statements for the Years Ended February  28, 2003, 2002, and 2001

Subsequent to February 28, 2003, the  Company settled $56,000 of various trade payables for $14,000.

From December 1, 2003 through January  9, 2004, the Company has received an additional $680,000****of interim funding  evidenced by additional Secured Notes. In connection with this financing, the  Company agreed to issue warrants to purchase an aggregate of 3,200,000 shares  of common stock at a price per share of $0.11, exercisable through January 7,  2011, as an inducement to the lender to continue providing funding and in resolution  of a prior commitment of the Company. Although the Company is in discussions  with the investor with regard to further financing, there can be no assurance  that additional financing will be obtained.

-            the Company issued 57,090  shares of Series A Preferred in a private placement for net cash proceeds of  $259,500. The effective net acquisition price of the shares of Common Stock  underlying the conversion feature, based on the amounts paid for the preferred  stock is $0.036 per share. 

-            the Company issued a $200,000  note in exchange for a loan. The note and $10,000 fixed fee interest became  due on June 7, 2003. As part of this borrowing, the Company issued warrants  to purchase 3,000,000 shares of common stock at $0.050 per share. The Company  paid this note in full in August 2003.

In the Second Quarter of fiscal 2004,  the Company recorded a $1,956,338 long-lived asset impairment charge resulting  from the write off of some of the Company's patents and trademarks. During the  Second Quarter FY2004, the Company reevaluated its intentions with regard to  its patents and trademarks related to products outside its core businessAnd  wrote-off the carrying value of patents not related to products in production.

Since February 28, 2003, as of December  31, 2003, the Company has committed stock options and warrants to officers,  members of the Board of Directors, employees and consultants to purchase an  aggregate of 16,650,000 shares of common stock.

*The accompanying notes are an integral  part of these financial statements.*
Aura 2003      Form 10-K/A76 F-42
Table of Contents
Aura Systems Inc.  and Subsidiaries Consolidated Financial Statements for the Years Ended February  28, 2003, 2002, and 2001
****SUPPLEMENTAL INFORMATIONINDEPENDENT AUDITOR'S REPORT ON FINANCIAL STATEMENT SCHEDULE
  To the Board of Directors and Stockholders Aura Systems, Inc. and subsidiaries

Our audits were made for the purpose  of forming an opinion on the basic consolidated financial statements taken as  a whole. The consolidated supplemental schedule II is presented for purposes  of complying with the Securities and Exchange Commission's rules and is not  a part of the basic consolidated financial statements. This schedule has been  subjected to the auditing procedures applied in the audits of the basic consolidated  financial statements and, in our opinion, is fairly stated in all material respects  in relation to the basic consolidated financial statements taken as a whole.

Our report covering the basic financial  statements indicates that there is substantial doubt as to the Company's ability  to continue as a going concern, the outcome of which cannot presently be determined  and that the financial statements do not include any adjustments that might  result from the outcome of this uncertainty.

SINGER LEWAK GREENBAUM & GOLDSTEIN  LLP

Los Angeles, California

July 8, 2003

*The accompanying notes are an integral  part of these financial statements.*
Aura 2003      Form 10-K/A77 F-43
Table of Contents
Aura Systems Inc.  and Subsidiaries Consolidated Financial Statements for the Years Ended February  28, 2003, 2002, and 2001
VALUATION AND QUALIFYING ACCOUNTS  - SCHEDULE ii  
**Balance, Beginning        of Year**

**Additions charged        to Operations**

**Deductions         from         Reserve**

**Balance,         End of         Year**

**Reserve for doubtful accounts**

February 28, 2003

$ 150,000

$ 94,310 

$ - 

$ 244,310 

February 28, 2002

$ 160,000

$ - 

$ (10,000) 

$ 150,000

February 28, 2001

$ 7,673,217

$ 1,339,696

$ (8,852,913)

$ 160,000 

**Reserve for obsolete inventories**

February 28, 2003

$ 1,795,411 

$ - 

$ (117,411) 

$ 1,678,000 

February 28, 2002

$ 291,404 

$ 1,510,871 

$ (6,864) 

$ 1,795,411

February 28, 2001

$ 326,936 

$ - 

$ (35,532) 

$ 291,404

**Reserve for investment**

February 28, 2003

$ 1,822,487 

$ 700,000 

$ - 

$ 2,522,487

February 28, 2002

$ 388,652 

$ 1,433,835 

$ - 

$ 1,822,487

February 28, 2001

$ 148,652 

$ 240,000 

$ - 

$ 388,652

*The accompanying notes are an integral  part of these financial statements.*
Aura 2003      Form 10-K/A78 F-44