SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    Form 10-K
                                   (Mark One)

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

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               (I.R.S. Employer Incorporation
        Jurisdiction of Organization)           or Identification No.)


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

                                 (310) 643-5300
                          Registrant's telephone number

                    Name of each exchange on which registered

                                      None

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

                                      None

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

                                  Common Stock

     Indicate  by check mark  whether the  registrant  (1) has filed all reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during  the  preceding  12 months  (or for such  shorter  period  that the
registrant was required to file such reports),  and (2) has been subject to such
filing requirements for the past 90 days.


                                  Yes [] No [x]



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

     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.

<PAGE>

                                     PART I


ITEM 1.            BUSINESS
================================================================================

A.   Introduction and History
     ------------------------

     Aura  Systems,  Inc.,  a Delaware  corporation,  ("Aura" or the  "Company")
designs, assembles and sells the AuraGen(R), 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(R)  provides cleaner  electricity with
greater reliability and flexibility at a lower cost to the end user. The Company
began  commercializing  the  AuraGen(R) 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(R) 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(R) product.

     The Company continues to hold several patents, in addition to those related
to the AurGen(R),  which it believes provide the basis for  economically  viable
products in addition to the  AuraGen(R),  but sales of the AuraGen(R)  currently
provide substantially all the Company's operating revenues.

B.   The AuraGen(R)
     --------------

     The AuraGen(R) is a patented induction power system that uses the engine of
a vehicle to produce  electrical  energy.  The AuraGen(R)  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(R) 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(R)
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(R) 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(R). 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.

C.   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(R),  which compares favorably to the output of that from a typical power
company electric grid.

D.   Competitive Advantages of the AuraGen(R)
     ----------------------------------------

     The  Company  believes  the  AuraGen(R)  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(R) 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(R)  drops to approximately
$0.28 per kW hour.

     The AuraGen(R) 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(R) is  significantly  cleaner for the environment
than the other generally  available mobile power solutions.  The AuraGen(R) 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(R)  will become  available in the  foreseeable
future.  The  inventions  upon which the  AuraGen(R)  is based are  protected by
patents issued in the U.S. and key foreign countries. Creating and patenting the
AuraGen(R) 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(R).  In  addition,  after  extensive
testing, a number of Federal, state and local government departments,  utilities
and major industrial companies have approved the AuraGen(R) for purchase.

     Thousands  of  AuraGen(R)  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(R)  under severe
conditions.  The VIPER (the name for the military version of the AuraGen(R)) 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.  Elements
of such  registration [? - certification?]  include  manufacturing lot tracking,
documentation  and  configuration  control,  as  well  as  acceptance  test  and
compliance procedures at all manufacturing levels, including suppliers.

     The AuraGen(R)  generator  received UL recognition in July 2002. UL Listing
of the entire  AuraGen(R)  system is in process.  The Company believes that this
process will be completed within several weeks. UL recognition is important - if
not required - in order to be able to sell the  AuraGen(R)  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(R)) 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(R)  system and continue  evaluating the product.  The AuraGen(R) 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(R).

     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(R) 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(R) provides a substantially  better product for the
industry's need.

     Recreational Vehicles ("RVs")

     Electric  power  is  a  critical  need  in  RV's.  The  AuraGen(R)   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(R)  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(R)  in marine
applications. Initial study and limited field experience indicate that this is a
potentially excellent market for the AuraGen(R).

F.   Company Facility, Manufacturing Process and Company Suppliers
     -------------------------------------------------------------

     Aura assembles and tests the AuraGen(R) at the Company's 68,000 square foot
facility  in El  Segundo,  California  with  subassemblies  and parts  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.

     The  Company  chose to  subcontract  part  manufacturing.  This  allows the
Company to control  manufacturing  costs,  maintain  competitiveness and contain
production infrastructure cost and expenses.

     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(R)  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.

G.   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(R)  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 certain 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.

     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 July 25, 2003,  there were
430,923,150  shares of common stock outstanding and 145,107,441 shares of common
stock  reserved or committed for future  issuances  under  outstanding  options,
warrants and rights and upon conversion of Preferred Stock. As of July 25, 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  increase in  authorized  shares or reverse  stock split may  adversely
affect the market for the common stock.

     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.

     Revenues  related to the Company's  current product,  the AuraGen(R),  have
fluctuated  over the last three years.  For a further  discussion  see Item 7. -
Overview.

     The  Securities  and  Exchange  Commission  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  Papazanian.  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 had significant changes in management.

     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  under Item 3. -  Securities  and  Exchange
Commission.

     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.

     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.

     Although  the  changes in  management  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.

     The success of the Company over the  short-term  depends on the  commercial
success of the AuraGen(R)  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(R) product line.

     Risk Factors Relating to the AuraGen(R)

     The market acceptance of the AuraGen(R) is uncertain.

     Aura's  business is  dependent  upon sales  generated  from the  AuraGen(R)
family of products and increasing acceptance of the product. The AuraGen(R) 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(R)
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(R) 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.

     The Company depends on its patented technology.

     The  Company  relies on a number of  patents  and  patent  applications  to
protect  the  AuraGen(R)  products  from  competition,  which  cover  the  basic
mechanical  design of the AuraGen(R)  system and some  components of the control
system.  The Company cannot provide  assurance that the patents pending relating
to the AuraGen(R)  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.

     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(R).  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(R) 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.

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.

J.   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(R),  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(R)  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(R)
product  with the imbedded  magnetic  technology  covered in the two  AuraGen(R)
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(R) product to one significant  customer during
fiscal 2003 for a total of approximately $0.2 million or 22% of net revenues.


ITEM 2.           PROPERTIES
================================================================================

     The Company's  subsidiary,  Aura Realty,  Inc., owns the 47,000 square foot
headquarters facility and adjacent 27,690 square foot manufacturing  facility in
El Segundo,  California that the Company uses for its AuraGen(R) product.  These
properties  are  encumbered  by a deed of trust  securing a note in the original
principal amount of $5.4 million.

     The Company  has partly sold its  interest  in Aura  Realty,  Inc.  See the
discussion under Item 7. - Liquidity and Capital Resources.


ITEM 3.           LEGAL PROCEEDINGS
================================================================================

     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.  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.



     Securities and Exchange Commission

     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 Company  originally  disclosed  the  investigation  by press
release  in  January  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.  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.

    Barovich/Chiau et. al. v. Aura Systems, Inc. et. al. (Case No. CV -95-3295).

     As  previously  reported in its Fiscal 2000 report on Form 10K, the Company
settled  shareholder  litigation  in the  referenced  matter in January 1999. On
November  20,  1999,  the  parties  entered  into  an  Amended   Stipulation  of
Settlement,  providing  that  the  Company  make  payment  of  $2,260,000  (plus
interest) in thirty-six  equal monthly  installments of $70,350.  On October 22,
2002, after the Company had failed to make certain monthly payments,  Plaintiffs
applied  for  and  obtained  a  judgment   against  the  Company  for  $935,350,
representing  the balance due with respect to the original  principal  amount of
$2,260,000.  The Company  has  subsequently  made only two  monthly  payments of
$70,350 each,  reducing the amount owed to $794,650 (plus interest).  Subsequent
to year end, the  Plaintiffs  took further  legal actions to enforce the October
2002  judgment,  culminating  in a lien  on one of the  Company's  smaller  bank
accounts.   The  Company  has  made  appropriate  provisions  in  its  financial
statements to fully reflect this liability.

     Frankston v. Aura Systems, Inc., et. al. (CV 91-6232 LGB).

     In 1991,  Michael  Frankston  brought the  referenced  civil  action in the
United States District Court for the Central District of California  against the
Company,  its  founding  management  members who are no longer  employees of the
Company, and two of its former subsidiaries.  The Company,  following an appeal,
paid to Mr. Frankston its portion of the judgment in full. In December 2002, Mr.
Frankston  received a court order  amending  the  judgments  to make the Company
liable for the  damages  awarded  against the former  subsidiaries.  In February
2003,  the  Company  paid  $212,444  to Mr.  Frankston  representing  the  final
settlement in this matter.


     Waltco Engineering Co. v. Aura Systems, Inc. et. al. (YC045396).

     On December 11, 2002, Plaintiff, Walto Engineering Co. ("Waltco"),  filed a
suit in California  Superior Court for Breach of Written  Agreement  against the
Company and related common counts. Waltco asserted that the Company breached the
terms of a payment  plan.  Waltco  claimed  damages of  $283,296.41.  Settlement
discussions  between  Waltco  and  the  Company  have,  to  date,  been  largely
unsuccessful.  Waltco is  advancing  this  suit in court and a hearing  has been
scheduled for August 2003.  The Company has made  appropriate  provisions in its
financial statements to fully reflect its estimated liability in this case.



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

     No matters were submitted to a vote of  shareholders  in the fourth quarter
of fiscal 2003.

<PAGE>

                                    PART II.


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

     From May 21, 1991, to July 21, 1999,  Aura's common stock was listed on the
NASDAQ National Stock Market.  The shares were delisted from the NASDAQ National
Market as a result of the Company's  failure to meet the minimum $1.00 bid price
and other requirements. On February 1, 2001, the Company's shares were listed on
the OTC Bulletin Board under the symbol "AURA". In June 2003, as a result of its
inability to timely file this Form 10-K, the Company's trading symbol on the OTC
Bulletin  Board was changed to "AURAE",  and the common  stock  continued  to be
listed.  There can be no assurance  that the common stock will continue to trade
on the OTC Bulletin Board.

     Sets forth below are high and low sales prices for the common stock of Aura
for each quarterly  period in the two most recent fiscal years.  Such quotations
reflect inter-dealer prices, without retail mark-up, markdown or commissions and
may not  necessarily  represent  actual  transactions  in the common stock.  The
Company had approximately 9,500 stockholders of record as of July 25, 2003.

Period                                        High                        Low
------                                        -----                      -----

 Fiscal 2002
     First Quarter ended May 31, 2001         $0.775                     $0.370
     Second Quarter ended August 31, 2001     $0.763                     $0.500
     Third Quarter ended November 30, 2001    $0.590                     $0.355
     Fourth Quarter ended February 28, 2002   $0.450                     $0.280

 Fiscal 2003
     First Quarter ended May 31, 2002         $0.399                     $0.195
     Second Quarter ended August 31, 2002     $0.180                     $0.072
     Third Quarter ended November 30, 2002    $0.130                     $0.071
     Fourth Quarter ended February 28, 2003   $0.135                     $0.059

     On July 25, 2003, the reported closing sales price for the Company's common
stock was $0.055.

     Dividend Policy

     The Company has not paid any  dividends on its common  stock and  currently
intends to retain any future earnings for use in its business.  The Company does
not  anticipate  paying any  dividends  on its common  stock in the  foreseeable
future. Subsequent to February 28, 2003, the Company has issued shares of Series
A Convertible  Redeemable Preferred Stock (the "Series A Preferred") (see Item 7
-  Liquidity  and  Capital  Resources).  Series  A  Preferred  earns  cumulative
dividends  at a rate of 5% per  annum  based  on its  stated  $10.00  per  share
liquidation value.  Dividends on Series A Preferred would need to be paid before
dividends could be paid on common stock.

     Changes in Securities and Use of Proceeds

     During the fourth  quarter of fiscal 2003,  the Company issued an aggregate
of $2.0 million  principal  amount of notes  convertible  for 310,417  shares of
Series A  Preferred,  which are  convertible  into  38,802,098  shares of common
stock,  in each case subject to adjustment.  See Item 7. - Liquidity and Capital
Resources. Such issuances were exempt from registration pursuant to section 4(2)
of the  Securities  Act of 1933 as  private  placements  to a limited  number of
accredited investors.


ITEM 6. SELECTED FINANCIAL DATA
================================================================================

     The following  Selected  Financial  Data has been taken or derived from the
audited  consolidated  financial statements of the Company and should be read in
conjunction  with and is  qualified  in its  entirety  by the  full-consolidated
financial  statements,  related notes and other information  included  elsewhere
herein.  The data for fiscal  1999 has been  restated  to  reflect  discontinued
operations.

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


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

                                                    February 28,     February 28,     February 28,   February 29,    February 28,
                                                        2003             2002             2001           2000            1999
                                                    ------------     ------------     ------------   ------------    -------------
Net revenues                                       $   1,103,770    $   3,116,295     $  2,512,508   $  5,788,221    $  53,650,025
Cost of goods sold                                 $     571,099    $   1,480,736     $  1,216,637   $  1,957,854    $  83,344,562
Inventory write down                                           -    $   1,510,871                -              -                -

                                                    ------------    -------------     ------------   ------------    -------------
Gross profit (loss)                                $     532,671    $     124,688     $  1,295,871   $  3,830,367    $ (29,694,537)

Expenses:
   Engineering expenses                            $   3,514,554    $   8,413,427     $  8,214,981   $ 11,466,449    $  47,092,632
   Research and development                        $     442,332    $     810,949     $    547,812   $    148,443    $   1,996,198
   Selling, general and administrative expenses    $   7,374,961    $  10,006,844     $ 12,695,833   $ 10,725,397    $  64,131,074
   Class action litigation & other
      legal settlements                            $     233,259    $  (2,750,000)    $  1,512,769   $    427,091    $   7,717,518
   Adjustment to accounts payable                              -    $    (651,685)    $ (1,046,324)  $  2,350,671                -
   Impairment losses on long-lived assets          $   2,300,000    $   7,661,559                -              -                -
   Severance expense                               $     241,243    $   1,080,525                -              -                -

                                                    ------------    -------------     ------------   ------------    -------------
          Total expenses                           $  14,106,349    $  24,571,619     $ 21,925,071   $ 25,118,051    $ 120,937,422

Loss from operations                               $ (13,573,678)   $ (24,446,931)    $(20,629,200)  $(21,287,684)   $(150,631,959)
Other (income) and expense
   Impairment of investments                       $     818,019    $   1,433,835     $    240,000              -    $   5,838,466
   Loss on sale of minority interest
        in Aura Realty                             $     626,676               -                 -              -                -
   (Gain) loss on disposal of assets               $           -               -                 -              -                -

   (gain) Loss on sale & issuance of subsidiary
   stock and investments                                       -                -                -              -    $   4,877,839
   Equity in losses of unconsolidated
        joint ventures                                         -                -                -              -    $   6,268,384
   Interest expense                                $   2,656,592    $   2,495,551     $  2,263,916   $  4,476,690    $  11,679,701
Other                                              $    (362,096)   $    (535,179)    $   (446,399)  $ (1,454,641)   $           -
Provision (benefit) for taxes                                  -    $  (1,549,882)    $ (2,203,145)  $ (1,361,003)   $     566,635
Minority interest                                  $      14,018                -                -              -    $ (36,934,376)
   Loss in excess of basis of subsidiary                       -                -                -              -    $  (8,080,695)

                                                    ------------     -------------    ------------   ------------    -------------
Loss from continuing operations                    $(17,326,687)    $ (26,826,435)    $(20,929,971)  $(24,403,371)   $(134,866,517)

Discontinued operations:
   Loss from discontinued operations,
        net of income taxes                                    -                -                -   $ (4,131,501)   $ (14,875,065)
Extraordinary Item

   Gain on extinguishment of debt obligations,
   net of income taxes                             $   1,186,014    $   1,889,540                -   $ 19,068,916                -

                                                    ------------     ------------     ------------   ------------    -------------
Net loss                                           $ (16,140,873)   $ (24,936,895)    $(20,929,971)  $ (9,465,956)   $(149,741,582)
Other comprehensive loss, net of taxes                         -                -                -              -    $    (406,574)
                                                    ------------     ------------     ------------   ------------    -------------
Comprehensive loss                                 $ (16,140,873)   $ (24,936,895)    $(20,929,971)  $ (9,465,956)   $(150,148,156)

                                                    ============     ============     ============   ============    =============
Net loss per common share                          $       (0.04)   $       (0.08)    $      (0.08)  $      (0.08)   $       (1.74)
                                                    ============     ============     ============   ============    =============
   Loss from continuing operations per common
   share                                           $       (0.05)   $       (0.08)    $      (0.08)    $    (0.20)   $       (1.57)
                                                    ============     ============     ============   ============    =============
   Loss from discontinued operations per common
   share                                           $           -    $           -     $          -     $    (0.03)   $       (0.17)
                                                    ============     ============     ============   ============    =============
   Extraordinary income per common share           $        0.01    $           -     $          -     $     0.15    $           -
                                                    ============     ============     ============   ============    =============
     Weighted average number of common shares        415,863,637      327,587,590      261,568,346    124,294,051       85,831,688
                                                    ============     ============     ============   ============    =============

Working capital                                    $ (15,626,271)   $  (2,512,553)    $ (5,105,345)   $   826,213    $  (4,869,876)
Total assets                                       $  23,767,866    $  28,761,990     $ 45,278,043    $56,122,538    $  90,143,392
Total debt                                         $  13,345,378    $  10,895,466     $ 38,485,108    $48,756,226    $  34,236,944
Net stockholders' equity (deficit)                 $   4,712,176    $  12,652,733     $  2,045,035    $ 1,516,008    $ (13,653,657)

</TABLE>

<PAGE>




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

Results 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(R) product. These
services were generally training, installation and non-warranty repairs provided
to AuraGen(R)  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.

Engineering

     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.  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(R)  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.

 Legal 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.

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

 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.  Aura makes these assessments based on the
following factors: i) customer-specific  information,  ii) return policies,  and
iii) historical  experience for issues not yet identified.  Management  believes
its estimates for sales returns and allowances are reasonable;  however,  should
actual returns exceed the estimates presented in the financial statements, there
could be a material impact on the financial condition of the Company.

Inventory Valuation and Classification

     Inventories  consist  primarily of components  and completed  units for the
Company's  AuraGen(R)  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. The AuraGen(R)
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.  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.  We make  these  assessments  based on the
following  factors:  i)  existing  orders,  ii) age of the  inventory,  and iii)
historical  experience.  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.


Estimates of Potential Asset Value Impairment

     The Company reviews its assets 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. The
cash flow projections are based on historical  experience,  management's view of
growth  rates  within  the  industry,   and  the  anticipated   future  economic
environment.

     Factors Aura considers important that could trigger a review for impairment
include the following:

     (a)  significant   underperformance  relative  to  expected  historical  or
          projected future operating results,

     (b)  significant changes in the manner of its use of the acquired assets or
          the strategy of its overall business, and

     (c)  significant negative industry or economic trends.

     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. Similar to inventories,  adjustments are made as warranted when
          management's  review of market  conditions and values suggest that the
          current value of an asset is less than its net book value.

     -    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 in
          the value of any  investment  below cost that is other than  temporary
          has occurred and an adjustment to a lower market value is warranted.

     -    Patents and trademarks:  When the Company determines that the carrying
          value of patents and trademarks may not be recoverable  based upon the
          existence of one or more of the above  indicators  of  impairment,  it
          measures  any  impairment  based on a projected  discounted  cash flow
          method  using a  discount  rate  determined  by its  management  to be
          commensurate with the risk inherent in its current business model.

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 May 31, 2003, the Company had cash
of $0.1 million.

     The Company  requires  additional debt or equity  financing to fund ongoing
operations.  The Company is seeking to raise additional capital;  however, there
can be no  assurance  that the  Company  will raise  sufficient  capital to fund
ongoing  operations.  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. The inability to secure additional funding could result in the Company
having to cease operations.

     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 expects to fund any operating  shortfall in the
current  fiscal year from cash on hand,  sales of non-core  assets and  external
financings. Currently, 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.  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.  If  financing  cannot be  arranged in the amounts and at the times
required,  the Company  will cease  operations.  The Company has no bank line of
credit.

     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 2003,  the Company issued  43,360,005  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 and 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.


     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 is required to issue
up to 1.3 million additional shares and up to 5.5 million additional warrants to
Purchasers  because of its failure to register  the shares for resale.  Assuming
the full 1.3 million  additional  shares are required to be issued,  the Company
effectively sold Common Stock for $0.070 per share.


          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
     shares and  warrants  and 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.

     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, 2003, which were valued at $207,692, or $0.225
     per share.

     During  fiscal 2002,  the Company  restructured  $16.2  million of debt and
related accrued interest into 46,112,771  shares of common stock valued at $15.2
million,  resulting in a pre-tax extraordinary gain for the early extinguishment
of debt of $1.0  million.  The  Company  is  obligated  to issue  an  additional
14,714,000   shares  of  common  stock  to  the  debtholders  due  to  repricing
provisions;  such  shares  are  included  in  "committed  common  stock"  on the
Company's  balance  sheet and results in the Common Stock having been sold at an
effective price of $0.351 per share.

     During fiscal 2002, the Company issued 46,151,284 shares of common stock in
private  placements  and for  services in exchange for  consideration  valued at
approximately  $16.3  million,  including  approximately  $13.4  million of cash
funding and  approximately  $3.0 million of satisfaction  of  liabilities.  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.

          --the Company issued 1,743,801 shares of common stock as finder's fees
          for private placements effected during fiscal 2002.

          --the Company  borrowed  $500,000 under two short term loan agreements
          entered into with a member of the Board of Directors, one of which was
          repaid  during  the third  quarter  of  fiscal  2002 and the other was
          repaid in the first quarter of fiscal 2003

          --the  Company  realized  approximately  $28,000  from the exercise of
          warrants and stock options.

<PAGE>


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 March 31, 2003,
558,110  shares  of Series A  Preferred  were  outstanding,  issued as set forth
below.

     On March 31, 2003,  the Company  exchanged the $1.1 million of 8% Notes and
converted  the $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.

     On July 24, 2003,  the Company  received  $305,000 of interim  funding from
Koyah Leverage  Partners,  LLP to meet its immediate cash needs.  The funding is
intended  to be a part of a larger  funding  secured  by  substantially  all the
assets of the Company (with certain exceptions).  There can be no assurance that
additional funding will be obtained.



     Also subsequent to February 28, 2003:

          --the Company  issued 24,090 shares of Series A Preferred in a private
          placement  for net cash  proceeds of $0.1  million.  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   convertible  notes  payable  to  third  party
          investors totaling  $200,000.  The notes bear interest at 5% per annum
          and are due on demand no later  than  August 29,  2003.  The notes are
          convertible  into  Series A Preferred  stock at $10.00 per share.  The
          effective  net  acquisition  price  of  the  shares  of  Common  Stock
          underlying the conversion  feature,  based on the amounts paid for the
          notes, is $0.080 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 is obligated to issue warrants to purchase
          1,000,000 shares of the Company's common stock at an exercise price of
          $0.050,  expiring  on June 7,  2006.  The note is  secured  by 177,777
          shares of one of the Company's long-term investments.  The Company did
          not pay the note when due and is in  default.  The  Company  agreed to
          increase  the warrants to be issued to  3,000,000  to  compensate  the
          holder for this default.  The Company is in negotiations to obtain new
          financing  from a  different  inventor  to replace  this note  payable
          agreement but there can be no assurance  that such  financing  will be
          obtained.




ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
================================================================================

     At February 28, 2003, the Company did not have any  derivative  instruments
which  created  exposure to market risk for  interest  rates,  foreign  currency
rates,  commodity  prices or other market price risks.  The Company's  long term
notes receivable and long term debt obligations all bear interest at fixed rates
and, therefore, have no exposure to interest rate fluctuations.


ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
================================================================================

     See Index to Consolidated Financial Statements at page F-1.


ITEM  9.  CHANGES  IN AND  DISAGREEMENTS  WITH  ACCOUNTANTS  ON  ACCOUNTING  AND
FINANCIAL DISCLOSURE
================================================================================

     None

<PAGE>

                                    PART III


ITEM 10. DIRECTORS AND OFFICERS OF THE COMPANY
================================================================================

     Directors

     The following table sets forth of the Company's  current  Directors,  their
age, and the office they hold with the Company.

Name                                    Age    Title

Neal Meehan..............      62    Chairman, Director, Chief Executive Officer
                                         and President
Carl Albert..............      60    Director
Lawrence Diamant.........      61    Director, Member of Compensation Committee
Salvador Diaz-Verson, Jr.      51    Director, Member of Compensation Committee
John Pincavage...........      58    Director, Member of Audit Committee

     NEAL  MEEHAN  has  served  as  Chairman  of the Board of  Directors,  Chief
Executive  Officer and President  since July 2002. He has been a Director of the
Company since October 2000. Mr. Meehan's  services as Chairman,  Chief Executive
Officer and  President  are provided  under the terms of a Consulting  Agreement
between the Company and  air2ground,  LLC. He is currently  Managing  Partner of
air2ground,  LLC and is involved in business  development and strategic planning
for  start-up  and mature  companies.  Mr.  Meehan's  business  career spans the
transportation and  telecommunications  sectors.  He has served as President and
Chief Executive  Officer of a number of airlines  including New York Air, Midway
Airlines,  Chicago Air and  Continental  Express.  He has also served in various
marketing  and  operations  capacities  for American  Airlines  and  Continental
Airlines.  In addition,  he has served in various senior capacities for a number
of  telecommunications  firms including  In-Flight Phone Corp.,  Iridium LLC and
Hush Communications  USA, Inc., a firm specializing in data encryption.  After a
tour as an officer in the United States Marine  Corps,  Mr. Meehan  received his
MBA from St. Johns  University.  Mr. Meehan is also the recipient of an honorary
Doctorate of Commercial Science from St. Johns University.

     CARL ALBERT is a Director of Company and has served in this capacity  since
July 2001. From March 2002 until July 2002, Mr. Albert served as Chairman of the
Board of Directors.  Mr. Albert was,  until February 2002, a member of the Board
of Directors of Fairchild Dornier  Corporation,  a privately held company in the
business of manufacturing  aircraft.  Mr. Albert held a significant  interest in
Fairchild  Dornier  Corporation  from 1990, when he provided the venture capital
necessary  for  acquiring   ownership  control  of  the  company's   predecessor
corporation,  Fairchild Aircraft, until April 2000 when the majority interest in
the  company  was sold.  From  1996  through  April  2000,  following  Fairchild
Aircraft's  purchase of  Daimler-Benz's  80%  interest  in  Dornier,  he was the
Chairman of the Board of Directors of Fairchild Dornier  Corporation,  its Chief
Executive Officer and the majority  stockholder.  Mr. Albert was the Chairman of
the Board of Directors of Fairchild  Aircraft,  its Chief Executive  Officer and
the majority  stockholder  from 1990 through  1996.  From 1986 through  1989, he
provided  venture  capital and served as the CEO or  President  of a  California
based regional airline, West Wings Airlines, which operated as an American Eagle
franchisee  until  acquired  by the parent of  American  Airlines  in 1988.  Mr.
Albert's business experience  includes 18 years as an attorney,  specializing in
business and  corporate law in Los Angeles,  California.  He also serves and has
served as a Member  of the  Board of  Directors  of a number  of  privately  and
publicly held corporations, including Dr. Pepper Bottling Company of California,
K & K Properties,  Ozark Airlines and Tulip Corporation. Mr. Albert holds a B.A.
from UCLA in political science and an L.L.B. from the UCLA School of Law.


     LAWRENCE  DIAMANT  is a  Director  of the  Company  and has  served in this
capacity  since April 2002. He is a senior  partner of the Los Angeles based law
firm Robinson, Diamant & Wolkowitz, a professional corporation. Mr. Diamant is a
member  of the State  Bar of  California  and of the  American  Bar  Association
Business Law Section  Committees on Banking Law,  Commercial  Financial Services
and Business  Bankruptcy.  He has served as a reporter for its Ethics Task Force
sub-section  and  currently  serves as a  sub-committee  vice  chair on  Courts,
Jurisdiction, Venue and Administration.  Mr. Diamant has also served as Chairman
of the Los Angeles County Bar Association  Executive Committee on Commercial Law
and Bankruptcy and is a member of the Financial Lawyers Conference.  Mr. Diamant
is a graduate from UCLA School of Law.

     SALVADOR  DIAZ-VERSON,  JR. is a Director  of the Company and has served in
this capacity since  September 1997. Mr.  Diaz-Verson is the founder,  and since
1991 has been the Chairman and President,  of Diaz-Verson  Capital  Investments,
Inc.,  an  Investment  Adviser  registered  with  the  Securities  and  Exchange
Commission.  Mr.  Diaz-Verson  served as  President  and  Member of the Board of
Directors  of  American  Family  Corporation  (AFLCAC  Inc.),  a  publicly  held
insurance holding company,  from 1979 until 1991. Mr. Diaz-Verson also served as
Executive Vice President and Chief  Investment  Officer of American  Family Life
Assurance  Company,  subsidiary  of AFLCAC  Inc.,  from 1976 through  1991.  Mr.
Diaz-Verson  is a graduate  of  Florida  State  University.  He is  currently  a
Director of the Board of Miramar Securities, Clemente Capital Inc., Regions Bank
of Georgia and The Philippine Strategic Investment Holding Limited.  Since 1992,
Mr.  Diaz-Verson  has  also  been a  member  of the  Board  of  Trustees  of the
Christopher Columbus Fellowship  Foundation,  appointed by President George Bush
in 1992, and re-appointed by President Clinton in early 2000.

     JOHN  PINCAVAGE is a Director of the Company and has served on the Board of
Directors since March 2002. Mr. Pincavage is a Chartered  Financial Analyst with
many years of experience  on Wall Street.  Since 1999, he has been the President
and founder of Pincavage & Associates,  LLC, a consulting and financial advisory
firm for the aviation industry. From 1995 to 1999, he was the executive director
for equity  research at Warburg Dillon Read,  LLC, a Partner and Director at the
Transportation  Group, LLC heading research efforts from 1989 to 1995, Executive
Vice  President - Research at Paine Webber  Incorporated  from 1975 to 1989, and
Vice  President  -  Research  at Blyth  Eastman  Dillon  from 1971 to 1975.  Mr.
Pincavage  is a member of the New York  Society of  Securities  Analysts and has
served on numerous  boards  including  the Board of  Directors  of the  Virginia
Engineering Foundation.  He holds a Bachelor degree in Aerospace Engineering and
an MBA, both from University of Virginia.

     Officers

     Listed below are the current Executive  Officers of the Company who are not
Directors or nominees, their ages, titles and background information.  Executive
officers serve at the discretion of the Board.


Name                                    Age    Position

Jacob Mail.....................      51    Senior Vice President - Operations
                                              and Chief Operating Officer
David Rescino..................      44    Interim Chief Financial Officer

     JACOB  MAIL is Senior  Vice  President  -  Operations  and Chief  Operating
Officer. He has served in this capacity since May 2003, prior to which he served
as Senior Vice President - Operations  since 1995. Mr. Mail served over 20 years
at  Israeli  Aircraft  Industries.  While at  Aura,  Mr.  Mail  has  identified,
negotiated and contracted all the supply chain  arrangements for the AuraGen(R).
In  addition,  Mr. Mail  implemented  programs to monitor and project  needs for
production  schedules and provide full traceability of all components.  Mr. Mail
is  responsible  for the  implementation  of the  "Call  Home"  programs,  which
provides the Company with a user  database for every  AuraGen(R)  installed in a
vehicle.  In addition to the manufacturing and  infrastructure  implementations,
Mr. Mail is also responsible for all engineering and vehicle integration as well
as  customer  service  and  training.  He  holds  a B.S.  degree  in  Mechanical
Engineering  from the Technion and a Master  degree from the  University  of Tel
Aviv.

     DAVID  RESCINO is Interim  Chief  Financial  Officer of the Company and has
served in this capacity since April 2003.  From November 2002 to April 2003, Mr.
Rescino was Senior Vice President - Finance and Chief  Financial  Officer of the
Company.  He resigned  this full time position in April 2003 and agreed to serve
as Interim Chief Financial  Officer on a part-time basis until a replacement was
named. Mr. Rescino is also currently  providing  consulting services to a number
of other  companies.  From 2001 to 2002,  Mr.  Rescino was the Vice  President -
Finance and Chief Financial Officer of Vanguard Airlines, Inc. ("Vanguard").  He
was  serving in this  capacity in July 2002 when  Vanguard  filed for Chapter 11
bankruptcy  protection.   Mr.  Rescino  has  continuing   responsibilities  with
Vanguard,  including  his  November  2002  appointment  to  Vanguard's  Board of
Directors.  From 1999 to 2001, Mr. Rescino was an aviation consultant in Dallas,
Texas.  From 1995 to 1999,  Mr.  Rescino  was Chief  Financial  Officer of Aspen
Mountain  Air/Lone  Star  Airlines,   which  filed  for  Chapter  11  bankruptcy
protection in August 1998. In addition to prior financial  management  positions
in the  transportation  sector,  Mr.  Rescino has several  years'  experience in
public accounting.  He holds a B.S. degree in Accountancy from the University of
Illinois - Urbana.

     Change in Management

     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  under Item 3. -  Securities  and  Exchange
Commission.

     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.

     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.

Family Relationships

     None.

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Securities  Exchange Act of 1934, as amended (the "Exchange
Act"),  requires the Company's officers and Directors,  and beneficial owners of
more than ten  percent  of the common  stock,  to file with the  Securities  and
Exchange  Commission and the National  Association of Securities  Dealers,  Inc.
reports of ownership  and changes in ownership  of the common  stock.  Copies of
such  reports  are  required  to be  furnished  to the  Company.  The Company is
undertaking a review as to whether such reports were timely filed.



ITEM 11. EXECUTIVE COMPENSATION
================================================================================

     The Company  undertakes  to file an amendment to this Annual Report on Form
10-K to include the information required by Item 11.


ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
================================================================================

     The Company  undertakes  to file an amendment to this Annual Report on Form
10-K to include the information required by Item 12.


ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
================================================================================

     The Company  undertakes  to file an amendment to this Annual Report on Form
10-K to include the information required by Item 13.

<PAGE>

                                     PART IV


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

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

                  (1)      Financial Statements

     See Index to Consolidated Financial Statements at page F-1

                  (2)      Financial Statement Schedules

     See Index to Consolidated Financial Statements at page F-1

                  (3)      Exhibits

     See Exhibit Index

         (b)      Reports on Form 8-K

     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.)


                               INDEX TO EXHIBITS

Description of Documents

3.1   Certificate of Incorporation of Registrant as amended to date. (1)
3.2   Bylaws of Registrant as amended to date. (1)
3.3   Certificate of Designation  of Series A Convertible  Redeemable  Preferred
      Stock.
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
10.18 Form of Convertible Note Term Sheets (4)(10.34)
10.19 Agreementfor Sale and  Leaseback  dated as of  December  1,  2002.  (Aura
      Realty transaction) (5) (10.33.1)
10.20 Lease Agreement  dated as of December 1, 2002.  (Aura Realty  transaction)
      (5)(10.33.2)
10.21 Additional Security  Agreement dated as of December 1, 2002.  (Aura Realty
      transaction) (5)(10.33.3)
10.22 Form of Subscription Agreement (10.33.4)
10.23 Pledge Agreement dated as of December 1, 2002 (10.33.4)
10.24 Promissory  Note dated as of December 1, 2002.(Aura Realty  transaction)
      (5)(10.33.5)
10.25 Form of Warrant and appendix 1 (5)(10.33.6)
10.26 Form of Convertible Demand Note (5% Notes)
10.27 Form of Convertible  Demand Note (5% Discounted  Notes)
21    Subsidiaries of Aura Systems, Inc. (6)
23.1  Consent of Singer Lewak Greenbaum & Goldstein LLP.
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 reference  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  Exhibits to the  Company's  Registration
     Statement on Form S-1 (File No. 33-19531)
(3)  Incorporated  by reference to the  Exhibits to the  Company's  Registration
     Statement on Form S-8 (File No. 33-32993).
(4)  Incorporated by reference to the Exhibits to the Company's Quarterly Report
     on Form 10-Q for the period ended November 30, 2002.
(5)  Incorporated  by reference to the Exhibits to the Company's  Current Report
     on Form 8-K filed December 16, 2002.
(6)  Incorporated by reference to the Exhibits 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.




<PAGE>


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


                               AURA SYSTEMS, INC.

Dated:  July __, 2003   By:
                        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

                           President, Chief Executive Officer,
                           Director and Chairman of the Board
-------------------------  (Principal Executive Officer)          July __, 2003
Neal F. Meehan


                           Interim Chief Financial Officer
-------------------------  (PrincipalFinancial and Accounting Officer)
David A Rescino                                                   July __, 2003

                           Director
-------------------------
Lawrence Diamant                                                  July __, 2003

                           Director
-------------------------
Salvador Diaz-Verson, Jr.                                         July __, 2003

                           Director
-------------------------
Neal F. Meehan                                                    July __, 2003

                           Director
-------------------------
John Pincavage                                                    July __, 2003



<PAGE>

                                  CERTIFICATION

I, Neal F. Meehan,  Chairman and Chief Executive 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 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
                                     July ___, 2003

<PAGE>

                                  CERTIFICATION

I, David A. Rescino,  Chief  Financial  Officer of Aura Systems,  Inc.,  certify
that:

1.   I have reviewed this annual report on Form 10-Q 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.


                               /s/ David A. Rescino
                               --------------------
                                David A. Rescino
                         Interim Chief Financial Officer
                                 July ___, 2003



<PAGE>


EXHIBIT 99.1

     CERTIFICATION  PURSUANT TO 18 U.S.C.  SECTION  1350 AS ADOPTED  PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

     In connection with the Annual Report of Aura Systems,  Inc. (the "Company")
on Form  10-K/A  for the  period  ended  February  28,  2002 as  filed  with the
Securities and Exchange Commission on the date hereof (the "Report"), I, Neal F.
Meehan, Chairman and Chief Executive Officer of the Company,  certify,  pursuant
to  18  U.S.C.  Section  1350,  as  adopted  pursuant  to  Section  906  of  the
Sarbanes-Oxley Act of 2002, to my knowledge:

1.   The Report fully complies with the  requirements  of section 13(a) or 15(d)
     of the Securities Exchange Act of 1934; and

2.   The information  contained in the Report fairly  presents,  in all material
     respects,  the financial condition and results of operations of the Company
     for the periods indicated.


                               /s/ Neal F. Meehan
                               ------------------
                                 Neal F. Meehan
                       Chairman & Chief Executive Officer
                                  July___, 2003



EXHIBIT 99.2

                            CERTIFICATION PURSUANT TO
                             18 U.S.C. SECTION 1350
                             AS ADOPTED PURSUANT TO
                  SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection  with the Annual Report of Aura Systems,  Inc. (the  "Company") on
Form 10-K/A for the period ended  February 28, 2002 as filed with the Securities
and Exchange Commission on the date hereof (the "Report"),  I, David A. Rescino,
Chief Financial Officer of the Company,  certify,  pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the  Sarbanes-Oxley  Act of 2002, to
my knowledge:

1.   The Report fully complies with the  requirements  of section 13(a) or 15(d)
     of the Securities Exchange Act of 1934; and

2.   The information  contained in the Report fairly  presents,  in all material
     respects,  the financial condition and results of operations of the Company
     for the periods indicated.

                              /s/ David A. Rescino
                               ------------------
                                David A. Rescino
                         Interim Chief Financial Officer
                               July ___, 2003




<PAGE>


                       AURA SYSTEMS, INC. AND SUBSIDIARIES

                   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-3 to F-4

     Consolidated  Statements of Operations and Comprehensive
        Loss - Years ended February 28, 2003, 2002 and 2001                 F-5

     Consolidated  Statements of Stockholders' Equity -
        Years ended February 28, 2003, 2002 and 2001                        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-21

     Consolidated  Financial  Statement  Schedule II:
        Valuation and  Qualifying Accounts                         F-22 to F-23


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

<PAGE>
                                             AURA SYSTEMS, INC. AND SUBSIDIARIES
                                               CONSOLIDATED FINANCIAL STATEMENTS
                                                             FOR THE YEARS ENDED
                                               FEBRUARY 28, 2003, 2002, AND 2001
















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                                     <PAGE>


                                             AURA SYSTEMS, INC. AND SUBSIDIARIES
                                                                        CONTENTS
                                                               February 28, 2003

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


                                                                          Page

INDEPENDENT AUDITOR'S REPORT                                              1

CONSOLIDATED FINANCIAL STATEMENTS

     Consolidated Balance Sheets                                         2 - 3

     Consolidated Statements of Operations                                 4

     Consolidated Statements of Stockholders' Equity                     5 - 6

     Consolidated Statements of Cash Flows                               7 - 9

     Notes to Consolidated Financial Statements                         10 - 42

SUPPLEMENTAL INFORMATION

     Independent Auditor's Report on Financial Statement Schedule         43

     Valuation and Qualifying Accounts - Schedule II                      44

                                     <PAGE>
                          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


                                     <PAGE>
<TABLE>
<CAPTION>
                                                                                                AURA SYSTEMS, INC. AND SUBSIDIARIES
                                                                                                        CONSOLIDATED BALANCE SHEETS
                                                                                                                  February 28, 2003
-----------------------------------------------------------------------------------------------------------------------------------


                                                    ASSETS
<S>                                                                             <C>                 <C>

                                                                                         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
Current assets                                                                  ================    ================

</TABLE>

   The accompanying notes are an integral part of these financial statements.
                                      2
                                     <PAGE>
<TABLE>
<CAPTION>
                                                                                                AURA SYSTEMS, INC. AND SUBSIDIARIES
                                                                                                        CONSOLIDATED BALANCE SHEETS
                                                                                                                  February 28, 2003
-----------------------------------------------------------------------------------------------------------------------------------


                                     LIABILITIES AND STOCKHOLDERS' EQUITY

<S>                                                                             <C>                <C>
                                                                                      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
                                                                                ================    ================
</TABLE>

   The accompanying notes are an integral part of these financial statements.
                                      3
                                     <PAGE>
<TABLE>

<CAPTION>
                                                                                                AURA SYSTEMS, INC. AND SUBSIDIARIES
                                                                                              CONSOLIDATED STATEMENTS OF OPERATIONS
                                                                                                                  February 28, 2003
-----------------------------------------------------------------------------------------------------------------------------------



<S>                                                             <C>               <C>              <C>
                                                                      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
                                                                ================  ===============  ================
</TABLE>

   The accompanying notes are an integral part of these financial statements.
                                        4
                                     <PAGE>
<TABLE>
<CAPTION>

                                                                                                AURA SYSTEMS, INC. AND SUBSIDIARIES
                                                                                    CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                                                                                              For the Years Ended February 28, 2003
-----------------------------------------------------------------------------------------------------------------------------------


<S>                                             <C>           <C>           <C>           <C>           <C>            <C>
                                                                            Committed     Additional
                                                Common Stock  Common Stock  Common        Paid-In       Accumulated
                                                Shares        Amount        Stock         Capital       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
</TABLE>

   The accompanying notes are an integral part of these financial statements.
                                        5
                                     <PAGE>
<TABLE>
<CAPTION>

                                                                                                AURA SYSTEMS, INC. AND SUBSIDIARIES
                                                                                    CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                                                                                              For the Years Ended February 28, 2003
-----------------------------------------------------------------------------------------------------------------------------------
                                           AURA SYSTEMS, INC. AND SUBSIDIARIES


<S>                                             <C>           <C>           <C>           <C>           <C>            <C>
                                                                            Committed     Additional
                                                Common Stock  Common Stock  Common        Paid-In       Accumulated
                                                Shares        Amount        Stock         Capital       Deficit        Total
                                                ------------  ------------  ------------  ------------  -------------  ------------
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
                                                ============  ============  ============  ============  =============  ============
</TABLE>
   The accompanying notes are an integral part of these financial statements.
                                        6
                                     <PAGE>
<TABLE>
<CAPTION>

                                                                                                AURA SYSTEMS, INC. AND SUBSIDIARIES
                                                                                    CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                                                                                              For the Years Ended February 28, 2003
-----------------------------------------------------------------------------------------------------------------------------------
<S>                                                             <C>               <C>              <C>
                                                                      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
                                                                ----------------  ---------------  ----------------
</TABLE>

   The accompanying notes are an integral part of these financial statements.
                                        7
                                     <PAGE>
<TABLE>
<CAPTION>

                                                                                                AURA SYSTEMS, INC. AND SUBSIDIARIES
                                                                                              CONSOLIDATED STATEMENTS OF CASH FLOWS
                                                                                              For the Years Ended February 28, 2003
-----------------------------------------------------------------------------------------------------------------------------------


<S>                                                             <C>               <C>              <C>
                                                                      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.

</TABLE>

   The accompanying notes are an integral part of these financial statements.
                                        8
                                     <PAGE>
                                             AURA SYSTEMS, INC. AND SUBSIDIARIES
                                           CONSOLIDATED STATEMENTS OF CASH FLOWS
                                           For the Years Ended February 28, 2003

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


Supplemental schedule of non-cash financing and investing activities (Continued)
During the year ended February 28, 2002, the Company:

-    restructured   $16,179,900  of  debt  and  related  accrued  interest  into
     46,112,771  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.  Due to guaranteed share re-pricing  agreements,  14,714,000 of
     the common shares 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. 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.
                                        9
                                     <PAGE>
                                             AURA SYSTEMS, INC. AND SUBSIDIARIES
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                               February 28, 2003

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

NOTE 1 - ORGANIZATION AND OPERATIONS

     General
     -------

     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.  As a technology leader in
     mobile power,  Aura develops and sells  AuraGen(R)  mobile  induction power
     systems to the industrial,  commercial, and defense mobile power generation
     markets.

     The  Company  (as  defined  in Note 3) has a  unique  and  patented  energy
     solution  that is the only proven,  commercially  available  pure sine wave
     power system that can continuously  provide  thousands of watts of power at
     low engine  speed,  and is fully  integrated  under the vehicle  hood.  The
     AuraGen(R)  is capable of  generating  full power up to 8,500  watts at all
     engine speeds,  including  enhanced engine idle speed for gasoline  engines
     and at idle  speed for  bigger  diesel  engines.  The  AuraGen(R)  combines
     sophisticated mechanical and electronics design, advanced engineering,  and
     break-through  electromagnetic  technology to produce a highly reliable and
     flexible mobile power generating  system that creates  alternating  current
     (AC) and direct current (DC) electricity,  both with and without the engine
     on. Commercial production of the AuraGen(R) commenced in fiscal 1999 and is
     being  distributed  and sold through  dealers,  distributors,  and Original
     Equipment Manufacturers ("OEMs").

     The Company  intends to continue  to focus its  business on the  AuraGen(R)
     line of products. In addition, the Company is entitled to receive royalties
     for its electro-optics  technology ("AMATM") licensed to Daewoo Electronics
     Co., Ltd. ("Daewoo") in 1992 (see Note 6).


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.
     Management is currently seeking or obtaining  additional  sources of funds,
     and  the  Company  has  restructured  a  significant  portion  of its  debt
     obligations.

                                       10
                                     <PAGE>
                                             AURA SYSTEMS, INC. AND SUBSIDIARIES
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                               February 28, 2003

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

NOTE 2 - GOING CONCERN (Continued)

     The Company's  ability to continue as a going concern is dependent upon the
     successful achievement of profitable operations and the ability to generate
     sufficient  cash  from  operations  and  financing   sources  to  meet  the
     restructured  obligations.  The  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.


NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     Principles of Consolidation
     ---------------------------
     The consolidated  financial statements include the accounts of Aura and its
     subsidiaries,  Aura Realty, Inc. and Electrotec  Productions,  Inc.(and its
     wholly owned subsidiary,  Electrotec Europe) (collectively, the "Company").
     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.

     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  provides for estimated  returns and
     allowances  based upon  experience  and the  judgment  of  management.  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.

                                       11
                                     <PAGE>
                                             AURA SYSTEMS, INC. AND SUBSIDIARIES
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                               February 28, 2003

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

NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

     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.

     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.

                                       12
                                     <PAGE>
                                             AURA SYSTEMS, INC. AND SUBSIDIARIES
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                               February 28, 2003

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

NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

     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.

     Impairment 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.  The Company evaluates the recoverability of long-lived
     assets  by  measuring  the  carrying  amounts  of the  assets  against  the
     estimated  undiscounted  cash flows  associated  with these assets.  If the
     future  undiscounted  cash flows are not sufficient to recover the carrying
     value of the assets,  the assets are adjusted to their fair values.  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).

                                       13
                                     <PAGE>
                                             AURA SYSTEMS, INC. AND SUBSIDIARIES
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                               February 28, 2003

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

NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

     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 approximate fair value
     due to their short  maturities  and interest rates that  approximate  those
     current rates offered to the Company.

     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.

     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.

                                       14
                                     <PAGE>
                                             AURA SYSTEMS, INC. AND SUBSIDIARIES
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                               February 28, 2003

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

NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

     Income Taxes (Continued)
     -----------------------
     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:

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

                       As Previously                         Currently
                       Classified         Reclassification   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)
</TABLE>

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

     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.

                                       15
                                     <PAGE>
                                             AURA SYSTEMS, INC. AND SUBSIDIARIES
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                               February 28, 2003

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

NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

     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  which  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.

     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.

                                       16
                                     <PAGE>
                                             AURA SYSTEMS, INC. AND SUBSIDIARIES
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                               February 28, 2003

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

NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

     Recently Issued Accounting Pronouncements (Continued)
     ----------------------------------------------------
     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.

     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.

                                       17
                                     <PAGE>
                                             AURA SYSTEMS, INC. AND SUBSIDIARIES
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                               February 28, 2003

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

NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

     Recently Issued Accounting Pronouncements (Continued)
     ----------------------------------------------------
     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  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.

                                       18
                                     <PAGE>
                                             AURA SYSTEMS, INC. AND SUBSIDIARIES
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                               February 28, 2003

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

NOTE 4 - SALE OF AURA REALTY (Continued)

     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 shares of the Company's  common stock.  The Company is required
     to issue up to 1,300,000  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).

     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. The forbearance agreement states
     that Aura defaulted on payments to the Purchasers.  In order to avoid legal
     proceedings by the Purchasers, the Company is required 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

                                       19
                                     <PAGE>
                                             AURA SYSTEMS, INC. AND SUBSIDIARIES
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                               February 28, 2003

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

NOTE 4 - SALE OF AURA REALTY (Continued)

     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 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:
<TABLE>
        <S>                                                                     <C>
        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)
                                                                               =================
</TABLE>

                                       20
                                     <PAGE>
                                             AURA SYSTEMS, INC. AND SUBSIDIARIES
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                               February 28, 2003

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

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(R) product.

     Management has analyzed its inventories based on its current business plan,
     backlog,   and  pending  proposals  with  perspective   customers  and  has
     determined  that  the  Company  does  not  expect  to  realize  all  of its
     inventories within the next year. Because of this, the Company has assessed
     the net  realizability of these assets,  the proper  classification  of the
     inventory,  and the potential  obsolescence  of inventory for the future if
     sales do not materialize.  In these evaluations,  management has recorded a
     reserve  of  $1,678,000  and  $1,795,411  at  February  28,  2003 and 2002,
     respectively.  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.


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).

                                       21
                                     <PAGE>
                                             AURA SYSTEMS, INC. AND SUBSIDIARIES
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                               February 28, 2003

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


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.  A  comparison  of the  projected  future  cash flows of the
     Company to the carrying value of the assets  indicated that the assets were
     impaired.  The tooling was written down by a total net amount of $4,600,000
     to $0, its estimated  fair value based upon the  discounted  estimated cash
     flows over the remaining asset lives. 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  had  received
     bona-fide  offers which indicated  there was a significant  decrease in the
     market price of the assets. As a result,  the current market value was less
     than the  recorded  net book value.  As a result,  the Company  recorded an
     asset  impairment  charge of  $2,300,000.  The Company  accounted  for this
     charge in accordance  with SFAS No. 144. As such,  the expense was recorded
     as part of the loss from operations.

                                       22
                                     <PAGE>
                                             AURA SYSTEMS, INC. AND SUBSIDIARIES
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                               February 28, 2003

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


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)      1,200,000       (148,652)      1,348,652
        Telemac (c)                      500,000       (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 that is in the process of  developing  and
          marketing its water recreation  vehicle.  Aquajet Corporation has been
          involved in raising  financing  for the past several years in order to
          exploit its business  plan. In relation to this,  Aquajet  Corporation
          has been  marginally  successful and has developed a strong  marketing
          and potential  customer  base, but to date has been unable to generate
          sufficient sales to fund its operations. Management expects to realize
          its asset  through the  eventual  public  offering or  acquisition  of
          Aquajet  Corporation  by a  third  party.  However,  that  exit is not
          believed  to be likely in the near  future.  The  Company  recorded  a
          reserve based on Aura's judgment that Aquajet  Corporation will likely
          not continue its operations as a going concern.

     (b)  During  the  year  ended  February  28,  2003,  Aura  became  aware of
          financial   difficulties   relative   to  its   investment   in   Algo
          Technologies,  Inc. Aura  recognized a $700,000  impairment  charge as
          management  concluded there was an other than temporary decline in the
          value of the  investment.  It is now  recorded  at  management's  best
          estimate of its fair market value of approximately $500,000.

                                     23
                                     <PAGE>
                                             AURA SYSTEMS, INC. AND SUBSIDIARIES
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                               February 28, 2003

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


NOTE 8 - LONG-TERM INVESTMENTS (Continued)

     (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%.

                                       24
                                     <PAGE>
                                             AURA SYSTEMS, INC. AND SUBSIDIARIES
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                               February 28, 2003

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

NOTE 9 - NOTES PAYABLE AND CONVERTIBLE NOTES PAYABLE (Continued)

     (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.

     During the year ended February 28, 2003, the Company settled  $1,456,213 of
          this trade debt for $385,142,  including accrued interest of $198,000.
          The total gain on the  extinguishment of debt of $1,050,995,  which is
          reflected as an extraordinary  item in the  accompanying  consolidated
          financial  statements,  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).

     (e)  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.


     (f)  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.

     (g)  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.

                                       25
                                     <PAGE>
                                             AURA SYSTEMS, INC. AND SUBSIDIARIES
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                               February 28, 2003

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


NOTE 9 - NOTES PAYABLE AND CONVERTIBLE NOTES PAYABLE (Continued)

     (h)  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.

     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
                                              =============       =============

                                       26
                                     <PAGE>
                                             AURA SYSTEMS, INC. AND SUBSIDIARIES
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                               February 28, 2003

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

NOTE 10 - ACCRUED EXPENSES (Continued)

     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 agreements call for a one time
     grant of stock options and warrants  exercisable  at $0.55 per share for an
     aggregate of 22,218,750 shares of the Company's common stock. The number of
     options  granted to each former  employee was based on a formula as defined
     in the agreement and have been  recorded  under the  provisions of SFAS No.
     123,  which  allows for options  issued to  employees to be recorded in the
     financial  statements at their  intrinsic  value and requires the impact of
     the fair value of those  employee  options on the  Company's net loss to be
     disclosed on a pro forma basis (see Note 12).

     In  addition,  each of the former  employees  agreed to be available to the
     Company for a period of one year,  as required by the Company,  in exchange
     for payments  aggregating  85% of their  former  salaries.  Management  has
     assessed its anticipated use of the former employees'  services in order to
     recognize  the  expenses  related  to the  agreements  in  relation  to the
     performance of those  services.  Accordingly,  as of February 28, 2002, the
     Company had recognized $1,080,525 of compensation,  or approximately 75% of
     the value of the contracts,  in the financial statements and recognized the
     remaining  amount in the first quarter of the year ended February 28, 2003.
     The  Company  has not made any  significant  use of the  former  employees'
     services since the first quarter of 2003.

     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 CONTINGENCIES

     Leases
     ------
     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.

                                       27
                                     <PAGE>
                                             AURA SYSTEMS, INC. AND SUBSIDIARIES
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                               February 28, 2003

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


NOTE 11 - COMMITMENTS AND CONTINGENCIES (Continued)

     Litigation
     ----------
     The  Company  has been  informed by the Staff of the SEC that it intends to
     recommend  that the Commission  bring a civil action against Aura,  NewCom,
     Inc. (a former  subsidiary of Aura), Zvi Kurtzman,  Steven Veen, and Gerald
     Papazian for  violations of the antifraud and books and records  provisions
     of the  securities  laws.  This  grew  out  of an  investigation  into  the
     Company's financial statements for various transactions during fiscal years
     1996 through 1999. The Company  originally  disclosed the  investigation by
     press  release in January  1999.  The SEC Staff advised the Company that it
     would  recommend that the SEC seek civil penalties and enjoin the companies
     and the individuals from future violations.

     In addition,  the SEC Staff recommended the SEC impose director and officer
     bars  against  Messrs.  Kurtzman  and Veen and a bar  against  Mr.  Veen to
     prohibit his  practicing  as an  accountant  before the SEC. The Company is
     informed that in order to avoid  potential  lengthy and costly  litigation,
     the  individuals  have  agreed to  propose to settle  with the SEC  without
     admitting  or denying  any of the  Staff's  allegations.  The  Company  has
     engaged in conversations with the Staff of the SEC regarding  settlement of
     the matter,  but the agreements have not yet been reached.  Although Aura's
     management  believes it will reach a  settlement  in a manner that will not
     have a material adverse effect on the Company's business, it cannot predict
     with certainty  when or if such a settlement  will occur or what the actual
     effects of such a settlement  would be. The Audit  Committee will conduct a
     full review of the Company's accounting controls and procedures.

     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(R) product.  Despite requests for payment, it was
     not  received.  Following  service  of the  complaint  and the  defendants'
     failure to file a responsive pleading in the time required,  on January 25,
     2002,  the Company  filed a Request to Enter  Default and  Application  for
     Clerk Judgment.

     However,  on February 7, 2002, the District Court accepted the  defendants'
     answer denying allegations.  On May 7, 2002, following  discussions between
     the parties, the Company entered into a definitive settlement,  whereby the
     defendants  agreed to release or  otherwise  account for all of the product
     shipped  to  the  Company.   The  parties  also  agreed  to  terminate  the
     distributorship  agreement.  The Company has fully accounted for this event
     in the fourth quarter and reversed  revenue of $1,200,000 due to the return
     of the  inventory.  As a result,  revenues in the fourth  quarter of fiscal
     2002 are a negative $928,000.

                                       28
                                     <PAGE>
                                             AURA SYSTEMS, INC. AND SUBSIDIARIES
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                               February 28, 2003

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


NOTE 11 - COMMITMENTS AND CONTINGENCIES (Continued)

     Litigation (Continued)
     ---------------------
     As  previously  reported in its February 29, 2000 report on Form 10-K,  the
     Company  settled  shareholder  litigation in the  Barovich/Chiau  matter in
     January  1999.  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 only 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.

     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.

     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 large  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.

                                       29
                                     <PAGE>
                                             AURA SYSTEMS, INC. AND SUBSIDIARIES
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                               February 28, 2003

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


NOTE 11 - COMMITMENTS AND CONTINGENCIES (Continued)

     Settlements
     -----------
     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 to the original accrual of $1,150,000.

     Under the  agreement,  DFS may not sell more than  5,000,000  shares of the
     Company's  common stock per year during the first two years  following  the
     settlement,  may not sell any shares for the first 120 days  following  the
     settlement,  and may not sell more than 50,000 shares in a single day. Aura
     will retain the right to repurchase unsold shares under certain  conditions
     for a period of two years.  During the first and second years following the
     settlement date, Aura may repurchase unsold shares in the possession of DFS
     at a price of $0.80  per  share in the  first  year and $1 per share in the
     second year.

     In  addition,  as part of the  Settlement,  DFS  will  assign  to Aura  its
     security  interest in assets pledged by NewCom,  Inc.  ("NewCom") to DFS to
     secure NewCom's  indebtedness.  Funds received by DFS, if any, with respect
     to the assets of NewCom, less costs and expenses incurred,  will be held in
     trust by DFS for Aura.  Aura may also  prosecute or pursue a NewCom  claim,
     asset, or entitlement, which is subject to a DFS' lien.

     Aura's  receipt  of any funds is  conditioned  upon the bid price of Aura's
     common stock  reaching  $0.80 per share on the 10 business  days during the
     first  year or $1 per share  during  the second  year.  To the extent  Aura
     recovers any funds, it will hold it in trust for DFS until the bid price of
     Aura  reaches  the above  levels,  or until the  730th  day  following  the
     execution  date of the  settlement  agreement  when  Aura must then pay any
     recovered  funds to DFS if the  minimum bid prices set forth above have not
     been met.

     On November 12, 1999, a lawsuit 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 as an adjustment to the
     original  issuances,  and the $2,000,000 has been recorded as an adjustment
     to legal settlements.

                                       30
                                     <PAGE>
                                             AURA SYSTEMS, INC. AND SUBSIDIARIES
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                               February 28, 2003

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


NOTE 11 - COMMITMENTS AND CONTINGENCIES (Continued)

     Settlements (Continued)
     ----------------------
     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.

NOTE 12 - STOCKHOLDERS' EQUITY

     Series 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.

     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.

                                       31
                                     <PAGE>
                                             AURA SYSTEMS, INC. AND SUBSIDIARIES
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                               February 28, 2003

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


NOTE 12 - STOCKHOLDERS' EQUITY (Continued)

     Common Stock (Continued)
     -------------
     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.

     During the year ended  February 28, 2003, the Company issued 923,077 shares
     of common stock totaling $207,692 from committed stock.

     During the year ended  February  28,  2003,  the Company  cancelled  50,000
     shares of  common  stock  that were  returned  from  vendor  for a total of
     $30,000.

     During  the third  quarter of fiscal  2003,  the  Purchasers  of a minority
     interest in Aura Realty (see Note 4)  subscribed  to purchase  and paid for
     21,366,347  shares  of the  Company's  common  stock for  $1,493,000  at an
     average price of $0.07 per share under the  Agreement.  All of these shares
     were sold during the third  quarter of fiscal 2003.  The Company  agreed to
     file a registration  statement with the SEC within 60 days of acceptance of
     the subscription  agreement and to issue up to 1,300,000  additional shares
     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 shares, but has not yet done so.

     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.

     During  the  year  ended  February  28,  2002,  the  Company   restructured
     $16,179,900 of debt and related accrued interest into 46,112,771  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.  The  original
     agreements  called for the issuance of 29,428,000 shares of common stock in
     exchange   for  the  debt,   which  would  have   resulted  in  a  gain  on
     extinguishment of debt of $4,316,645. However, the former debt holders were
     given  certain  protections  if the Company  were to sell any of its common
     stock subsequent to the settlement at prices less than $0.20 per share.

                                       32
                                     <PAGE>
                                             AURA SYSTEMS, INC. AND SUBSIDIARIES
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                               February 28, 2003

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

NOTE 12 - STOCKHOLDERS' EQUITY (Continued)

     Debt Extinguishments and Settlements for Common Stock (Continued)
     -----------------------------------------------------
     Since the Company  violated  this  agreement,  the former debt holders were
     entitled to receive  additional common shares amounting to 14,714,000.  The
     value of these  shares  was  $3,310,000,  which  has  been  recorded  as an
     adjustment to the gain on extinguishment of debt.

     In addition, under the terms of the agreements, the Company was required to
     file a  registration  statement  within 120 days of the  agreement.  If the
     Company failed to get a registration statement effective within 180 days of
     the  closing of the  agreement,  the  Company  would be  required  to issue
     warrants for common stock equal to 5% multiplied by the aggregate number of
     shares of  registrable  stock (as  defined)  received  by the  former  debt
     holder.  The  exercise  price of these  warrants  is to be $0.20 per share,
     subject  to  adjustment.  The  Company  is  currently  in  default  of this
     requirement.  In addition,  the Company was required to meet certain  other
     covenants related to reserved and unissued shares. The Company is currently
     in default of these covenants as well.

     Due to these  guaranteed  share  re-pricing  agreements,  which  calls  for
     additional  re-pricing  shares upon the issuance of shares at a lower price
     within a 12-month  period,  14,714,000  of the common  shares  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.

     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.

     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.

                                       33
                                     <PAGE>
                                             AURA SYSTEMS, INC. AND SUBSIDIARIES
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                               February 28, 2003

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

NOTE 12 - STOCKHOLDERS' EQUITY (Continued)

     Debt Extinguishments and Settlements for Common Stock (Continued)
     -----------------------------------------------------
     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.

     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:

                                                                    Weighted-
                                                                     Average
                                                          Number     Exercise
                                                        of Shares     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.  Shares  currently under option generally vest ratably over a four-
     to five-year period.

     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.

                                       34
                                     <PAGE>
                                             AURA SYSTEMS, INC. AND SUBSIDIARIES
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                               February 28, 2003

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

NOTE 12 - STOCKHOLDERS' EQUITY (Continued)

     Employee Stock Options (Continued)
     ----------------------
     Activity in the employee stock option plans was as follows:
<TABLE>
<CAPTION>

                                                   1989 Plan                       2000 Plan
                                           ------------------------         ------------------------
        <S>                                <C>        <C>                   <C>         <C>

                                                           Weighted-                       Weighted-
                                                            Average                         Average
                                             Number        Exercise            Number       Exercise
                                           of Shares        Price            of Shares        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
                                           =========                        ===========
</TABLE>

                                       35
                                     <PAGE>
                                             AURA SYSTEMS, INC. AND SUBSIDIARIES
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                               February 28, 2003

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

NOTE 12 - STOCKHOLDERS' EQUITY (Continued)

     Employee Stock Options (Continued)

     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:
<TABLE>

    <S>           <C>           <C>          <C>         <C>         <C>
                                                         Weighted-   Weighted-
                                             Weighted-   Average     Average
                                             Average     Exercise    Exercise
    Range of      Stock         Stock        Remaining   Price of    Price of
    Exercise      Options       Options      Contractual Options     Options
    Prices        Outstanding   Exercisable  Life        Outstanding 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
                  ==========   ===========
</TABLE>

     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.

                                       36
                                     <PAGE>
                                             AURA SYSTEMS, INC. AND SUBSIDIARIES
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                               February 28, 2003

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

NOTE 12 - STOCKHOLDERS' EQUITY (Continued)

     Employee Stock Options (Continued)
     ----------------------
     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.

     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  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.

                                       37
                                     <PAGE>
                                             AURA SYSTEMS, INC. AND SUBSIDIARIES
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                               February 28, 2003

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

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.


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.

                                       38
                                     <PAGE>
                                             AURA SYSTEMS, INC. AND SUBSIDIARIES
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                               February 28, 2003

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

NOTE 14 - EMPLOYEE BENEFIT PLANS (Continued)

     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 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.  The aggregate  number of shares  underlying the options and
     warrants issued under these separation agreements is 22,218,750. The number
     of stock  options for each person was  determined  based on the  underlying
     total compensation due to the employee upon termination under each person's
     existing employment  agreement,  multiplied by two and divided by $0.32 per
     share.

     Each of the officers has agreed to continue as a consultant  to the Company
     for a  period  of one  year  at  85% of  his/her  former  compensation.  In
     addition,  each executive is entitled to receive continued medical benefits
     for three years following termination of employment

                                       39
                                     <PAGE>
                                             AURA SYSTEMS, INC. AND SUBSIDIARIES
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                               February 28, 2003

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


NOTE 15 - RELATED PARTY TRANSACTIONS (Continued)

     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).

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
                                    =============   =============  =============

                                       40
                                     <PAGE>
                                             AURA SYSTEMS, INC. AND SUBSIDIARIES
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                               February 28, 2003

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


NOTE 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:
<TABLE>
<CAPTION>
                                                                  2003
                            ---------------------------------------------------------------------------------------

        <S>                 <C>               <C>              <C>               <C>             <C>
                               First              Second           Third              Fourth           Total
                               Quarter            Quarter          Quarter            Quarter          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)

</TABLE>
<TABLE>
<CAPTION>
                                                                   2002
                            ---------------------------------------------------------------------------------------
        <S>                 <C>               <C>              <C>               <C>             <C>

                               First              Second           Third              Fourth           Total
                               Quarter            Quarter          Quarter            Quarter          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)
</TABLE>
<TABLE>
<CAPTION>
                                                                   2002
                            ---------------------------------------------------------------------------------------
        <S>                 <C>               <C>              <C>               <C>             <C>

                               First              Second           Third              Fourth           Total
                               Quarter            Quarter          Quarter            Quarter          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)
</TABLE>


                                       41
                                     <PAGE>
                                             AURA SYSTEMS, INC. AND SUBSIDIARIES
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                               February 28, 2003

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


NOTE 18 - SUBSEQUENT EVENTS

     Subsequent  to February  28, 2003,  the Company  issued  convertible  notes
     payable  to a group  of  investors,  which  included  five  members  of the
     Company's former management,  totaling $616,500. The notes bore interest at
     5% per annum and were due on demand no later than May 31,  2003.  The notes
     were  convertible  into $10 per  share  face  value  Series A  convertible,
     redeemable  preferred stock (the "Series A Preferred") at a discount.  Each
     $1 of convertible  notes could be converted into $2.20 of the face value of
     the Series A Preferred.

     On March 31, 2003, the Company  converted  $1,192,424 of convertible  notes
     payable,  including the above notes payable and accrued interest of $5,599,
     and  issued  263,565  shares of the  Series A  Preferred  to the  investors
     represented by the company whose  principals  are former  management of the
     Company.  Each share of preferred  stock is convertible  into 125 shares of
     common stock.

     On March 31, 2003, the Company  converted  $2,413,073 of convertible  notes
     payable,  including accrued interest of $66,635,  and issued 270,455 shares
     of the  Series A  Preferred  to a third  party  group of  investors,  which
     included five members of the Company's former management. Each share of the
     preferred stock is convertible into 125 shares of common stock.

     Subsequent  to February 28, 2003,  the Company  issued 24,090 shares of the
     Series A Preferred to various  investors  for cash  totaling  $109,500 in a
     private placement.

     Subsequent  to February  28, 2003,  the Company  issued  convertible  notes
     payable to third party investors totaling $200,000. The notes bear interest
     at 5% per annum and are due on demand no later than  August 29,  2003.  The
     notes are convertible into the Series A Preferred at $10 per share.

     Subsequent  to February 28, 2003,  the Company  entered into a note payable
     agreement for $200,000.  The note payable bears interest at a fixed rate of
     $10,000. The note payable and the $10,000 fixed fee mature on June 7, 2003.
     On the maturity date of the note payable,  the Company will issue  warrants
     to purchase 1,000,000 shares, which was later modified to 3,000,000 shares,
     of the Company's common stock with an exercise price of $0.05,  expiring on
     June 7, 2006.  The warrants are to be included in the next S-1 filing.  The
     note is secured by 177,777 shares of Telemac.  As of July 8, 2003, the note
     was in default. The Company is in negotiations to obtain new financing from
     a different investor to replace this note payable agreement.

     Subsequent  to February  28, 2003,  the Company sold 110,000  shares of its
     Telemac common stock investment for cash totaling $247,500 (see Note 6).

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

                                       42
<PAGE>





                            SUPPLEMENTAL INFORMATION




<PAGE>







               INDEPENDENT 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

<PAGE>

                                             AURA SYSTEMS, INC. AND SUBSIDIARIES
                                 VALUATION AND QUALIFYING ACCOUNTS - SCHEDULE ii
                                          For the Years Ended February 28, 2003

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

<TABLE>
<CAPTION>
<S>                                            <C>              <C>               <C>              <C>
                                                  Balance,        Additions        Deductions          Balance,
                                                 Beginning       Charged to           from               End
                                                  of Year        Operations          Reserve           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
                                              ================  ================  ===============  ================
</TABLE>

   The accompanying notes are an integral part of these financial statements.
                                       44