SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    Form 10-K


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

 For the fiscal year ended................................February 28, 2002

                                       OR

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


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


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

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

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

                                 (310) 643-5300
                          Registrant's telephone number

                              Name of each exchange
                               on which registered
                                      None

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

                                      None

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

                                  Common Stock

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

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

       On May 24, 2002 the  aggregate  market  value of the voting stock held by
non-affiliates of the Registrant was $94,121,000. The aggregate market value has
been  computed by reference  to the last  trading  price of the stock on May 24,
2002.  On such date the  Registrant  had  408,782,576  shares  of  common  stock
outstanding.

<PAGE>

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

                                     PART I


ITEM 1   BUSINESS


A.       INTRODUCTION

     Aura Systems,  Inc., a Delaware corporation,  ("Aura" or the "Company") was
founded in 1987. Aura designs, assembles and sells the AuraGen(R), the Company's
patented  mobile power generator that uses the engine of the 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) uniquely
and  conveniently  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  DaimlerChrysler  models and numerous others made by  Caterpillar,  Detroit
Diesel,  Cummins,  Freightliner  and  Navistar,  among other  chassis and engine
manufacturers.

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) is the only
proven,  commercialized  power  system  available  that can generate up to 8,500
watts of pure  sine  wave  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. Pure sine wave power is generally desired and
often  required  to  safely  and  reliably  operate  highly  sensitive   digital
equipment, such as computers or surveillance equipment.

         The  AuraGen(R)  is  composed  of three  basic  subsystems.  The  first
subsystem  is a  mechanical  device  that is bolted to the vehicle  engine.  The
mechanical  subsystem  generates  electricity  when it is rotated by the vehicle
engine in a manner similar to a conventional  alternator.  Unlike an alternator,
however,  the  induction  generator is able to 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 second subsystem is an electronic control
unit that can be mounted  anywhere in the  vehicle  except  under the hood.  The
electronic control unit filters and conditions the electricity to provide clean,
steady  voltages  for both AC and DC  power  at all  engine  speeds.  The  third
subsystem is comprised of a set of mounting  brackets and supporting  components
for integration under the hood.

         The Company sells two basic models 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 continuous 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 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  began to offer a new model
that  generates up to 6,000 watts of power with the vehicle  engine either on or
off.  Whether the engine is on or off is totally  transparent to the user.  This
new model uses  auxiliary  batteries as a power source in  conjunction  with the
AuraGen(R)  system to generate  pure sine wave AC power while the engine is off.
As soon as the  engine is turned  on, the  system  switches  automatically  from
generating AC power from the batteries to generating AC power from the induction
power source attached to the vehicle  engine.  This process occurs up to without
any dips or spikes,  and at the same time the  AuraGen(R)  starts  charging  the
auxiliary batteries at the maximum safe charging speed of 125 amps.

         Aura provides  custom  engineered  brackets for both the 5,000 watt and
8,500 watt systems that attach to over 90 different engine models.  The brackets
are designed to fit most General Motors  gasoline and diesel engines from 4.8 to
7.4  liters,  Ford  gasoline  and  diesel  engines  from 4.2 to 7.3  liters  and
DaimlerChrysler  5.2 to 5.9 liter engines.  In addition the Company has designed
custom  engineered  brackets for numerous diesel engines provided by AM General,
Cummins,  Detroit Diesel,  Navistar,  Caterpillar and Freightliner.  The Company
also provides  power-take-off  (PTO), as well as hydraulic driven interfaces for
the bigger trucks that do not involve direct attachment to the vehicle engine.



<PAGE>



C.  Mobile Power Industry

         The  mobile  power  generation  market is large and  growing.  Based on
studies conducted by the U.S. government,  Business Communications Company, Inc.
("BCC") and others,  the Company  estimates  there are at least $2.5  billion in
revenues from the North  American  mobile power  generation  market in 1999 (not
including gensets used in welding machines),  an increase of 8.8% from 1998. The
Company  projects North American market revenues will reach over $3.9 billion in
2006 and estimate the worldwide  market to be twice the North  American  market.
Based on these studies,  the Company  estimates that the worldwide  mobile power
market will grow between 4% and 5% per annum over the next few years.  Worldwide
growth is expected to be fueled by increases in the development and construction
of industrial  infrastructures,  adoption of new mobile power  applications  and
increased use of electronic  sensors and  instruments  in less  developed  areas
where grid-based electricity is unavailable or unreliable.

         Vehicles used in the telecommunications,  utilities,  catering,  public
works,  construction,  oil and gas  industries,  emergency/rescue,  military and
recreational  vehicles rely heavily on mobile  power.  Mobile work sites require
on-location  electricity  to power  equipment  ranging  from  computers to power
tools. Buses require supplemental power to run fare meters and air conditioners.
Military  and  police  vehicles  require  clean  mobile  power to run  sensitive
computers and surveillance  equipment.  Emergency vehicles require supplementary
power to operate numerous monitoring devices.  Construction and utility vehicles
require  on-location  electricity  to run power  tools and  lights.  Oil and gas
vehicles require on-site power to run surveying equipment,  as well as computers
and numerous sensors and instruments. Recreational vehicles require supplemental
power to run  televisions,  refrigerators  and other  appliances.  Mobile backup
power has become increasingly important as electric grid system overcrowding and
degradation has  compromised the quality and reliability of traditional  sources
of electricity.

         The two primary  options  available  to users of mobile power today are
gensets and inverters. Gensets are large, heavy and inefficient power generation
units which are not  incorporated  into the 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 and has evolved little since
that time.  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. As
an inverter  does not generate  power,  the user must rely entirely on the power
stored in the  batteries  for mobile power needs.  As the batteries are drained,
the user must  recharge them by  connecting  into a grid power source,  which is
known as "shore power," or through gensets or other means.

D.       Competitive Advantages

         Superior Product

         More Convenient.  The AuraGen(R) is  significantly  smaller and lighter
than a conventional genset and more powerful than an inverter,  making it a more
convenient  mobile power solution.  Most gensets are large and weigh hundreds of
pounds while the AuraGen(R)  mechanical  system weighs  approximately 65 lbs and
fits under the hood of a vehicle.  Because the AuraGen(R) is installed  directly
in  the  vehicle,   many  hassles  associated  with  gensets  (e.g.,   locating,
transporting,  positioning  and  hooking  it up) are  eliminated,  and the units
themselves are less  vulnerable to theft.  Inverters  require  battery banks for
power  generation.  These  batteries are capable of delivering  large amounts of
electricity  for short periods of time,  but must be charged  frequently,  which
normally requires overnight charging via shore power.

         More Cost  Effective.  For the same output,  the  AuraGen(R)  uses less
power and is less expensive to operate than the other currently available mobile
power  solutions.  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 the 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.

         More  Reliable.  Compared  to the other  mobile  power  solutions,  the
Company  believes the  AuraGen(R) is more  reliable.  The AuraGen(R) has a three
year  warranty  compared  to the  typical  one  year  warranty  available  for a
comparable genset or inverter.  The AuraGen(R) warranty imposes no limitation on
mileage or hour usage for the end user. Additionally, there are few moving parts
in the AuraGen(R) which minimizes repair and replacement  costs  attributable to
normal use.

         More Flexible.  The AuraGen(R) can deliver 120V AC, 240V AC, 12V DC and
24V DC electricity.  Other DC voltages can be programmed (such as 42V),  thereby
making the AuraGen(R) compatible with a wider range of electrical equipment. The
AuraGen(R)  Inverter  Charger  System (ICS) unit delivers  power with the engine
both on and off.  This  flexibility  also allows the  AuraGen(R)  to satisfy the
power generation needs of most end users.

         Higher Quality Electricity.  The quality of electricity has become more
important as computers and other  technologically  advanced products have become
more widely available and utilized.  This type of equipment  generally  requires
"clean" or pure sine wave  electricity.  Because  gensets usually do not deliver
pure sine wave electricity, they are not well-suited for digital instruments and
sensors.  Gensets  occasionally  deliver power spikes that can damage  sensitive
instruments.  The AuraGen(R)  produces pure sine wave electricity which is safer
for sensitive  equipment.  Inverters that produce pure sine wave electricity are
available but more  expensive than standard  inverters and relatively  uncommon.
The Company has measured a 2% 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. The Company  believes the voltage produced
by the AuraGen(R) is more stable than the voltage produced by the grid,  without
expensive filters,  due to dips in voltage on grid power that result from sudden
load increases.

         Safer for the  Environment.  The AuraGen(R) is  considerably  more fuel
efficient  than the  other  currently  available  mobile  power  solutions.  The
AuraGen(R)  uses the automotive  engine which is the most efficient  gasoline or
diesel engine  available and is highly regulated for  environmental  protection.
Gensets use small  engines  without the  numerous  smog  controls  available  on
vehicles.


         Significant Barriers to Entry

     Patents.  The inventions upon which the AuraGen(R)is based are protected by
patents  issued  in the U.S.  and key  foreign  countries.  The  first of Aura's
domestic  patents does not expire until 2015. The Company  intends to defend its
patents vigorously.

         Capital and Time Intensive Research and Development Required.  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.  The mobile power technology in existence today was
developed approximately 70 years ago and has changed little since then. Research
and  development  in  electric  motor and power  generation  is  extremely  time
intensive and has recently been an  underdeveloped  field of study.  The Company
believes  that it would  require a  significant  capital and time  investment to
develop a "next generation" technology.

         Lengthy  and  Demanding  Evaluation  and  Approval  Process  Imposed by
Manufacturers  and End  Users.  Manufacturers  and end  users  of  mobile  power
solutions  (including the military)  typically  require  completion of extensive
evaluation and approval  processes before embracing new systems.  The process by
which vehicle  manufacturers,  fleet  purchasers  and the military  evaluate and
adopt new  components to be included in their vehicles is lengthy and demanding.
In fact,  this process can last several  years as  manufacturers  and  lobbyists
debate  specifications  with  regulators  and end users.  The Company's  largest
target customers, including GM, Ford and DaimlerChrysler,  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.  Any new competing  product would need to initiate the
same lengthy and demanding evaluation process.

E.       Target Markets

         Based on studies conducted by the U.S. government,  BCC and others, the
Company estimates that in 1999 the North American market produced revenues of at
least $2.5 billion  increasing 8.8% from 1998. Based on these same studies,  the
Company  estimates that the worldwide  market in 1999 produced over $5.0 billion
in  revenues  and will grow  between 4% and 5% per annum  over the next  several
years.  The  following  discussion  outlines  the target  markets that are being
pursued by the Company.

         Recreational Vehicles ("RVs")

         Currently,  8.6 million households own an RV, according to a University
of Michigan  study.  In 1999,  RV  manufacturers  shipped over 320,000  units of
various  configurations.  The study also  projects  that the number of RV-owning
households  will grow to 10.4 million by the year 2010.  The  AuraGen(R)  offers
significant benefits to RV users who need electric power. These benefits include
fuel savings (the AuraGen(R) uses only the RV engine), reduced maintenance costs
(no  required  scheduled  maintenance),  no power  derating  due to  altitude or
temperature,  and the  ability to use the system in  campgrounds  without  noise
(using the "engine  off"  mode).  The  Company's  system  significantly  reduces
pollution compared to the existing gensets. In addition, since the AuraGen(R) is
located under the hood, the AuraGen(R) system frees up additional space that can
be used for storage.  Also,  the AuraGen(R) is competitive in price with gensets
used in the RV industry.

         Military and Other Federal Agencies

         The  United  States  Military  is an  important  target  market for the
AuraGen(R), code named "VIPER" (Vehicle Integrated Primary Electrical Resource).
The Company believes the AuraGen(R) is a superior mobile power solution compared
with  alternatives  for virtually all military  applications.  Producing  quiet,
clean power from  vehicles at low engine speed is critical as the U.S. Army adds
digital applications with numerous sophisticated  electronics and sensors to its
war fighting  capabilities.  Aura is currently working with the Army to evaluate
the use of the  AuraGen(R)  in multiple  vehicle  types.  Aura is also  pursuing
discussions  with  other  Federal  agencies,  including  the  Federal  Bureau of
Investigation   (FBI),  Border  Patrol,  U.S.  Postal  Service,   Department  of
Transportation (DOT) and Department of Energy (DOE).

         Telecommunications

         The  telecommunications  industry is an important target market for the
AuraGen(R)  because  the  industry  regularly  uses  mobile  power in its  daily
activities. This industry requires reliable, clean mobile power that can be used
for sensitive instruments while providing brute power for compressors and tools.
In addition,  the industry  needs a user  friendly  integrated  solution so that
employees can focus on the job-at-hand rather than on operating the mobile power
unit.  Currently the AuraGen(R) is used in limited numbers by several television
broadcasting  stations in mobile news vehicles,  as well as by a number of cable
and telephone companies for numerous applications.

         Utilities

         Utilities  present  another  major  target  market  for the  AuraGen(R)
because  the  industry  is  heavily  dependent  on the use of  mobile  power  in
maintenance and service activities.  The technical  advantages of the AuraGen(R)
have generated a high level of interest from utility companies across the United
States.  In addition,  the Company believes that for many existing traffic light
systems, for which utilities are responsible,  the AuraGen(R) is the only mobile
power system  available  which provides the required clean power at constant 120
volts that is needed to power the lights when power  company  electric  power is
interrupted.  Power interruption can be caused by many events, including,  among
others, damage to power lines caused by accidents or weather. Numerous utilities
in the U.S. have  purchased the  AuraGen(R)  system and continue  evaluating the
product for their applications to better meet their requirements.

         Emergency/Rescue

         The emergency/rescue market consists of fire trucks, ambulances, police
vehicles and vehicles from other  organizations  used during  emergencies.  This
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.
The  AuraGen(R)  provides an effective  solution to the needs of this  industry.
Approximately 20 organizations have already started to use the AuraGen(R).

         Catering

         The mobile food industry,  in addition to  traditional  party and event
catering,  delivers  perishable food to remote  locations.  Some of the catering
trucks  still  use  ice  for  their   refrigeration   needs,  while  others  use
compressors.  New  health  department  regulations  in some  jurisdictions  will
require  fans in  trucks  that  are  used  for  cooking.  The  need  for  mobile
electricity  for  refrigeration,  microwaves and other  appliances is constantly
growing,  fueled by regulation and customer  demand.  The  AuraGen(R),  with its
ability  to  produce  electric  power  whether  the  engine is on or off,  is an
excellent and cost effective solution to this industry's needs.

         Public Works/Construction

         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 already using the AuraGen(R) in
limited  quantities  in their  service and work  trucks.  The  Company  provides
significant  cost  savings  when  total  life-cycle  costs are  calculated.  The
AuraGen(R)  does  not  require   scheduled   maintenance,   thereby   increasing
availability.  The public works and  construction  industry is changing with the
introduction  of computers and other sensitive  digital  equipment in the field.
These  changes  require  clean,  pure  sine  wave  power in  order  to  function
efficiently at job sites.

         Oil and Gas

         The  Company  has  targeted  the  field  applications  of oil  and  gas
companies  as a market  because  the nature of the oil and gas  industry is such
that many  gensets are  purchased  every year.  Reliability  and clean power are
critical in this industry where "down time" or damage to sensitive equipment can
result in large losses.  A typical  application  in an oil or gas field requires
the use of mobile power many hours per day, an  environment in which gensets are
prone to failure,  and causing high maintenance costs.  Additionally,  a typical
field site uses digital  equipment that requires the clean power  available from
the AuraGen(R) for numerous  measurements and data processing.  This is an ideal
environment for the AuraGen(R), since life cycle costs are such that payback can
be measured in months,  and the AuraGen(R) is reliable and produces high quality
power.  Currently,  the Company has numerous  units being  evaluated and used in
locations across the country.

F.       COMPANY STRENGTHS

         Aura's unique position in under-the-hood  mobile power generation stems
from approximately ten years of innovative research and development. This effort
has culminated in the Company's unique, patented, fully-integrated products that
are totally  transparent  to the users and provide clean pure sine wave power to
industrial, commercial and military users through their vehicles.

         Technology Leadership

         Aura  has  an  engineering  department  with  extensive  experience  in
mechanical,  electrical,  software,  manufacturing  and system  engineering.  In
addition,  the Company has a strong  dedicated team that  continuously  develops
engine  mount  systems  for  new   applications.   All  engineering,   including
specifications,  acceptance  test  criteria,  packaging  and  documentation,  is
performed in-house.

         The  Company's  technology  allows  for the  manufacture  of  induction
machines with a one-half to two-thirds reduction in weight and size for the same
output.  The machine itself does not use any exotic materials (e.g., high energy
permanent magnets), and the components are relatively simple to manufacture with
conventional  tooling.  In addition to these mechanical  advantages,  the system
uses a proprietary  control  system that  optimizes  efficiency as a function of
required load.  While the technology  has widespread  applications  over a large
range of  horsepower,  the Company's  products are best utilized for machines in
the range of 1.5 to 50  horsepower  (1,000 watts is  approximately  equal to 1.5
horsepower).

         Quality, Reliability and Safety

         The  Company  grew out of the  aerospace  and defense  industry.  Thus,
quality and  reliability are an integral part of Aura's  business  culture.  The
AuraGen(R) is designed for quality,  reliability and safety in heavy industrial,
commercial and military usage.

         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 qualification  testing includes:  1) in-house endurance  testing,  2)
in-house  parametric  thermal testing,  3) in-house power quality testing and 4)
laboratory  environmental  testing. Also, field failure analysis is performed on
any failed units.

         In addition to  qualification  testing,  the Company has  established a
Quality  Management  system  and is  pursuing  ISO 9001  registration.  Elements
include a  controlled  manufacturing  lot  tracking  system,  documentation  and
configuration  control  system,  as  well  as  acceptance  test  and  compliance
procedures at all manufacturing  levels,  including suppliers.  The Company also
uses Statistical Process Control ("SPC"),  in-process  inspection and functional
tests on its AuraGen(R) assembly line.

         The  Company  designed  the  AuraGen(R)  system,  both  mechanical  and
electronic components, for durability.  Units under test are continuously cycled
through demanding endurance  operating  environments.  In addition,  the Company
performed laboratory destructive testing to determine when the system would fail
in order to establish  performance  limits. The Company sets  specifications and
designed  the  system  to be well  below the  performance  limits.  Besides  the
laboratory tests, the Company has conducted  extensive testing of the AuraGen(R)
in the field. There are thousands of units 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 are
constantly  being  reduced via minor  hardware  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.  In
particular,  the AuraGen(R) has been  air-drop-certified  by the Army. The VIPER
(the Army name for the AuraGen(R)) is now in use by special operations forces.

         The  AuraGen(R)  system was designed  for safety by including  built-in
protection for the user and the machine. There are multiple user safety features
that include  over-voltage and over-current  shutdown,  GFI plugs and super fast
circuit breakers, and over-RPM shutdown. In addition, all the high voltage lines
are encased in grounded  metal  conduit and any fault causes the idle control to
mechanically  disengage.  In order to protect  the system the  Company  designed
automatic  shut downs for  short-circuits,  overheating,  battery  voltage  line
interruption  and idle control  failure.  The battery lines are  protected  with
re-settable fuses.

         Product Support

         Aura is a system house that  provides a turnkey  product and service to
support the Company's  customers in every area. The Company  performs all of the
development,  from basic  physics to  detailed  engineering.  This range of core
capabilities provides a solid foundation to resolve technical issues, develop an
ongoing line of new products and to continually  enhance the Company's products.
The Company has fully developed  training  materials and provides several levels
of training to installers  nationwide.  The Company also provides  field support
through  regional  resident  field  engineers.  The Company  provides  technical
information  via  installation  manuals,  catalogs  and service  bulletins.  The
Company's installation software includes a "Call Home" feature that allows those
with the proper access to get software upgrades automatically, along with remote
diagnostic capability. The Company has a mechanism in place to track performance
and field failures to enhance  product  reliability  and to maintain and improve
customer satisfaction.

         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").

         The Company provides a three-year  standard  warranty for its products.
The warranty can be extended for another two years for an additional cost.

         Strong Management Team

         The  Company  has a  strong  management  team in  place  with  in-depth
experience  covering all  principal  functional  areas.  This team has extensive
experience in applying new  technologies to develop  advanced new products.  The
team is  particularly  strong in  transforming  technology into high quality and
high  reliability  industrial  products,  along with the  ability  to  establish
effective sales and distribution channels.

G.       GROWTH STRATEGY

The  Company  believes  it is  experiencing  a  paradigm  shift in mobile  power
delivery and distribution  caused by the development and growing adoption of the
AuraGen(R).  By capitalizing  on patented  technology to deliver a revolutionary
mobile power solution,  the Company expects to generate  increasing  revenue and
cash flow.  Based on the large and expanding market for mobile power, as well as
the technological superiority and cost advantages of the AuraGen(R), the Company
expects sales to increase. To date, AuraGen(R) units have been sold to more than
100 customers in more than 10  industries,  including  recreational,  utilities,
telecommunications,  emergency/rescue,  public  works,  catering,  oil and  gas,
transportation  and the military.  The Company's  objective is to be the leading
developer and supplier of fully  integrated  mobile electric power systems.  The
key elements of the Company's strategy are:

         Market Positioning

         The Company has been  positioning  the  AuraGen(R) as a turnkey  mobile
power  solution  that is more  reliable,  more  convenient,  higher  quality and
available  at a lower  total  life cycle  cost.  Aura's  solution  is also safer
because:  1) there  is no need to carry  fuel in a  container,  2) there  are no
exposed hot  components  to  touch/start,  3) there is nothing heavy to lift, 4)
there is no pull-start required,  and 5) power outlets are located away from hot
components.

         Aura  provides  users of mobile  power with value.  When the total life
cycle  cost  is  considered,  the  AuraGen(R)  delivers  savings  and  increases
productivity.

         Outsource Manufacturing

         Aura realizes that there are many quality  manufacturers  with both the
capacity and capability who can  economically  build parts and components to the
Company's  specifications and drawings. Thus, the Company decided to have others
custom  build the  different  sub-assemblies  for the  AuraGen(R).  The  Company
receives  the  sub-assemblies  and  assembles  them into  finished  goods on its
assembly  line.  This strategy  ensures that the Company does what it knows best
without  committing a large capital  investment  for plants and  equipment.  The
Company also retains full control over the end product and its quality.

         Aggressively Protect The Company's Intellectual Property

         Aura  believes  that a policy  of  actively  protecting  the  Company's
patents and  know-how is an  important  component  of its strategy to retain the
unique position in  under-the-hood  mobile power  generation and that the active
patent  protection  will  provide  the  Company  with  a long  term  competitive
advantage. See "Business - Patents and Intellectual Property."

         Develop Long Term Market Opportunity

         Aura expects that business relationships with the major automotive OEMs
such as General Motors, Ford and  DaimlerChrysler  will develop more slowly than
our the term market  opportunities  as discussed  above.  The Company is working
with General Motors and Ford on a number of activities that may develop into OEM
relationships.   The   Company   has  started   preliminary   discussions   with
DaimlerChrysler.

         The Company is working closely with numerous U.S. Army organizations to
include  the Vehicle  Integrated  Primary  Electrical  Resource  ("VIPER"),  the
Company's military version of the AuraGen(R), in their requirements documents, a
key step in making the VIPER  available  for Army-wide  purchasing.  Early VIPER
adopters  in the  Army,  such as  Special  Forces  and the 82nd  Airborne,  have
reported very favorably on the usefulness and  performance of their VIPER units.
The Company intends to target new business related to various Army  applications
through numerous ongoing and new activities.

         Broaden and Enhance the Product Line

         Aura believes that research and development is essential to improve its
product and develop  additional  versions in order to  establish  and solidify a
leadership position in the power generation  industry.  The Company has a strong
team dedicated to product  improvements that will involve  incorporating  Aura's
magnetic  technology  into  different  power  levels with various  options.  The
AuraGen(R)  technology  is  scalable  and  future  plans  include  12kW and 25kW
machines  in a somewhat  larger  package  and a 3kW to 5kW  machine in a smaller
package.

         Marketing Strategy

     Aura will continue to build brand  awareness and consumer  demand through a
combination   of  industry   specific   tradeshows,   technical   presentations,
advertising and other promotional activities. Two sales channels are utilized in
North  America.  Large OEM  applications  are served  directly by Aura and other
applications  are  served  through  the  distributor  network.  Aura  sales  and
marketing resources support both of these channels. The distributor network is a
vital part of the product delivery and support system.  The  distributors'  role
includes  the finding and  development  of sales  opportunities,  as well as the
installation  and warranty  support of  AuraGen(R)  systems.  This  requires the
distributor to have certified  installers and  maintenance  technicians on staff
and to maintain adequate inventory levels.  Large OEM's have the option of using
their own  facilities  to install and  maintain  AuraGen(R)  units.  Longer term
marketing  plans include the  adaptation of the product line for foreign  market
distribution  where  electrical  configurations,  as  well as  vehicle  mounting
requirements are different from those found in the North America market.


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 not
made a profit.  The Company has an accumulated  deficit in retained  earnings of
approximately  $288 million from its inception  through February 28, 2002. These
losses  reflect a number of events  over the past  fourteen  years.  First,  the
majority of the Company's  revenues during the five years ended February 28,1999
were  derived from the  Company's  NewCom  subsidiary,  which was engaged in the
computer peripherals business until it ceased operations in the first quarter of
1999.  NewCom's business was severely impacted by an industry-wide  slump in the
computer  peripherals  business in 1998.  Second, the Company was established in
1987 to develop  technology  used  primarily  in military  applications  and new
commercial and consumer  applications.  These  development  activities  required
significant   capital   expenditures   over   the   years  to   develop   Aura's
electro-magnetic  technology and to identify and  commercialize new applications
for this technology.  None of these activities achieved commercial success.  The
Company cannot assure that it will be able to achieve or maintain  profitability
or positive cash flow in the future on a quarterly or annual basis.


         The Company will require 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 the working  capital  needs and the  Company  does not
expect that operating  cash flow will be sufficient to fund the working  capital
needs in fiscal  2003.  In the past,  in order to  maintain  liquidity  Aura 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  and  third  party
financings.  Aura will be required to obtain external sources of capital such as
debt and equity financings in order to maintain the operations.  Currently,  the
Company has no commitments from third parties to provide  additional  financing.
We have no assurances that third party funding 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.  The  limited  availability  of funds  could have a material  adverse
effect on the Company's  financial  statements,  results of  operations  and the
ability to continue or expand the Company's operations.

         There are  currently a limited  number of  authorized  shares of common
stock available for sale by the Company.

         The Company's  authorized  capital  consists of  500,000,000  shares of
common stock and 10,000,000  shares of preferred  stock. At May 24, 2002,  there
were  408,782,576  shares of common stock  outstanding and 77,413,000  shares of
common stock reserved for future issuances under outstanding  options,  warrants
or rights.  No shares of preferred stock were outstanding.  Accordingly,  unless
and until the Company  increases its  authorized  common  stock,  only a limited
number of shares of common  stock are  available.  In this  regard,  the Company
intends to seek  authorization  from its shareholders to increase its authorized
common stock.  However,  there are no assurances that such authorization will be
obtained.

         The success of the business will depend  entirely  upon the  commercial
success of the AuraGen(R)  products,  as the Company is not currently engaged in
any other line of business.

         In 1999, the Company  implemented a business  restructuring in which it
focused  all  of  its  resources  on  the  successful  commercialization  of the
AuraGen(R) product. The Company simultaneously  discontinued or sold most of its
then ongoing operations,  including the computer peripherals, sound and ceramics
operations.  Because the Company has focused its business on developing a single
product  line,  rather than on  diversifying  into other  areas,  the  Company's
success will be dependent upon the commercial  success of the AuraGen(R) product
line.

         Aura's limited  operating history in its current line of business makes
it difficult to predict how its business will develop and what future  operating
results will be.

         Aura has a limited  operating  history in the current line of business,
which is centered on the  development,  manufacture  and sale of the  AuraGen(R)
family of  products.  The  Company  faced  many of the  risks and  uncertainties
encountered  by early stage  companies  introducing  new products  into a mature
market.  Therefore,  it is difficult to predict how the business will develop in
the future.

         Aura's revenues have declined significantly in recent years.

         The Company has experienced a significant decline in operating revenues
over the past few years. 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.  Revenues in fiscal 2002
were $3.1 million.  The decline in revenues is due primarily to the cessation of
operations of the computer  peripherals  subsidiary,  NewCom, Inc., in the first
quarter of fiscal year 1999, and the sale of the AuraSound  speaker division and
ceramics operations. All of the operating revenues are now derived from the sale
of the  Company's  AuraGen(R)  products.  The  Company  expects  that all of its
operating  revenues  will  continue to be derived from  AuraGen(R)  sales in the
foreseeable future.

         The SEC may pursue a civil action  against the Company,  which may lead
to monetary penalties and other potential liabilities.

         Aura has been  informed  by the staff of the  Securities  and  Exchange
Commission  ("SEC")  that it  intends  to  recommend  that the SEC bring a civil
action against the Company,  NewCom (a former  subsidiary of Aura),  and certain
former members of the Company's  management team for violations of the antifraud
and books and records  provisions of the securities  laws. The potential  action
grew  out  of  an  investigation  into  the  financial  statements  for  various
transactions  during  fiscal  years 1996  through  1999.  The staff  advised the
Company that it would recommend that the SEC seek civil penalties and enjoin the
companies and the individuals from future violations. The Company has engaged in
conversations with the staff of the SEC regarding  settlement of the matter, but
no agreements  have yet been reached.  The Company cannot predict with certainty
when or if such a  settlement  will occur or what the  actual  effects of such a
settlement would be.


         RISK FACTORS RELATING TO THE COMPANY'S BUSINESS

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

         Aura's  business is dependent upon sales  generated from the AuraGen(R)
family of products.  This product uses new technology and has only recently been
introduced  into  the  marketplace.  The  Company  is  dependent  on  the  broad
acceptance by businesses  and consumers of the Company's  products.  Because the
Company  seeks to introduce new products  into a mature  market,  its success in
penetrating this market and the timing of its development cannot be predicted. A
mass market may fail to develop or it may  develop  more slowly than the Company
anticipates.  The AuraGen(R), while a new unique product with limited history in
the marketplace,  addresses a multi-billion  dollar market for mobile generators
in the 3,000 to 15,000  watt  range.  There  can be no  assurances  that any new
product will succeed in the marketplace.

         Market  acceptance  of the  AuraGen(R)  may be  delayed  due to lengthy
evaluation periods.

         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. In addition, OEMs
and large fleet users  typically  require  considerable  time to make changes to
their  planning  and  production,  and  further  delays  can be  caused by prior
commitments  and  schedules.  No  assurances  can be  given as to when or if the
Company's  product will be integrated  into some of these potential large fleets
and OEM users.

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

         The industry in which the Company operates is competitive.  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.  Furthermore,  the Company must compete with many larger and more
established  companies  in the  hiring and  retention  of  qualified  personnel.
Although the Company believes it has significant  technological  advantages over
its competitors,  realizing and maintaining such advantages will require Aura to
develop customer  relationships and will also depend on market acceptance of the
Company's  products.  The Company faces  substantial  competition from companies
that have been offering  traditional  solutions  such as gensets for the last 50
years,  creating an environment of well-entrenched  suppliers and users that are
not  accustomed  to change.  In addition,  the Company  faces  competition  from
companies  that have  offered  inverters  for the last 20 years.  The  Company's
future  revenues  and  profits  will  be  largely  dependent  on the  successful
introduction  of new products.  These  competitive  pressures could limit market
acceptance  of its products.  The Company may not have the financial  resources,
technical   expertise  or  marketing   and  support   capabilities   to  compete
successfully in the future.

         The Company depends upon its intellectual property to make its products
competitive,  and if the Company is unable to protect its intellectual property,
its business will suffer.

         The Company  protects  its  proprietary  technology  by means of patent
protection,  trade secrets and unpatented  proprietary  know-how. In particular,
the Company is relying 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.
Without patent  protection  the Company would be vulnerable to competition  from
third parties who could develop competing products through reverse  engineering.
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.  Also, where the Company does not have patent protection,  competitors
may independently develop substantially  equivalent technology or otherwise gain
access to Aura's trade secrets, know-how or other proprietary information.

         Aura's  future  growth  could be  impaired  if the Company is unable to
increase its sales and marketing efforts.

         Aura's  future  revenue  growth  will  depend,  in large  part,  on the
Company's ability to successfully expand the sales efforts.  The Company may not
be able to successfully  manage the expansion of this function or to recruit and
train  additional  direct sales support  personnel.  If the Company is unable to
hire and retain  additional  highly skilled sales and marketing  personnel,  the
Company  may not be able to  increase  its  revenue to the extent  necessary  to
achieve  profitability.  If the Company is unable to hire highly trained support
personnel,  the  Company  may be unable to meet  customer  demands.  Even if the
Company is successful in expanding the sales  capability,  the expansion may not
result in revenue growth or profitability.

         The  Company may not be able to  establish  an  effective  distribution
network  or  strategic  OEM  relationships,  in which  case its  sales  will not
increase as expected.

         The Company is in the process of developing a distribution  network and
establishing strategic relationships with OEM customers.  The Company may not be
able to expand its  distribution  sales or identify  OEM  customers  on a timely
basis. The  distributors  with which the Company partners may not focus adequate
resources on selling the Company's  products or may otherwise be unsuccessful in
selling them. In addition,  the Company cannot provide assurance that it will be
able to establish OEM  relationships  on favorable  terms or at all. The lack of
success of distributors or OEM customers in marketing the Company's products may
adversely affect the financial condition and results of operations.

         The Company  may not be able to  effectively  manage its growth,  which
would impair its profitability.

         If the Company is  successful  in  executing  the  business  plan,  the
Company will  experience  growth in the business  that could place a significant
strain on its management and other  resources.  Its ability to manage the growth
will  require  Aura to  continue  to  improve  the  operational,  financial  and
management  information  systems,  to implement  new systems and to motivate and
effectively manage the employees.  It cannot be assured that the management team
will be able to effectively manage this growth.

         The Company may  experience  delays in product  shipments and increased
product  costs  because it  depends on third  party  manufacturers  for  certain
product components.

         The Company currently has limited capability to manufacture most of the
AuraGen(R)  components  on a commercial  scale.  Therefore,  the Company  relies
extensively on subcontracts with third party  manufacturers for such components.
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.

         Aura's  suppliers and  manufacturers  may not supply the Company with a
sufficient quantity of components or components of adequate quality, which would
delay production of the Company's product.

         Although  the  Company  generally  attempts to use  standard  parts and
components for its products, some of its components are currently available only
from a single source or from limited sources. Also, the Company cannot guarantee
that the parts or components that it purchases will be of adequate quality.  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.  Each of these factors
could have a material adverse affect on the Company's business and operations.

I.       HISTORICAL SUMMARY

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

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

         In 1994,  the  Company  founded  NewCom,  Inc.  ("NewCom"),  a Delaware
corporation,   which  engaged  in  the  manufacture,   packaging,   selling  and
distribution of  computer-related  communications  and  sound-related  products,
including modems, CD-ROMs, sound cards, speaker systems and multimedia products.
In September 1997,  NewCom  completed an initial public  offering,  and over the
next year and a half Aura's  ownership  decreased  and by  February  1999 Aura's
ownership dropped to a minority position of approximately 41%. During the second
half of fiscal 1999, NewCom's business suffered from adverse industry conditions
resulting from increased incorporation of computer peripherals at the OEM level.
These  conditions  resulted  in heavy  losses  to  NewCom  and its  competitors.
NewCom's  business  reached a critical  juncture in the fourth quarter of fiscal
1999 when Deutsche Financial Services, which maintained NewCom's working capital
line,  announced that it was unwilling to continue to advance working capital to
NewCom under its credit facility and subsequently seized NewCom's assets. NewCom
ceased operations in early fiscal 2000.

         In 1996,  the Company  acquired 100% of the  outstanding  shares of MYS
Corporation  of Japan  ("MYS")  to expand  the range of its sound  products  and
speaker  distribution  network.  MYS  engaged  in the  manufacture  and  sale of
speakers and speaker systems for home,  entertainment  and computers.  In fiscal
2000,  the Company  sold MYS back to the original  owners,  who were part of MYS
management.

         Aura anticipated that its working capital needs in fiscal 1999 would be
met from a number of sources, including the repayment by NewCom of approximately
$20 million of indebtedness,  which was due in September 1998, and proceeds from
external debt and equity financing.  Due to NewCom's financial condition, it was
unable to meet its obligations to Aura in September 1998,  ultimately creating a
significant cash shortfall to Aura. This required Aura beginning in January 1999
to refocus its operations by shutting down certain operating divisions,  selling
its MYS subsidiary, selling proprietary AuraSound speaker technology and assets,
and leasing its Electrotec concert touring sound equipment. The Company sold the
assets of its  ceramics  facility  effective  March 1, 2000.  The  Company  also
temporarily  suspended  the  further  development  of  certain   electromagnetic
projects,  including  the  electromagnetic  valve  actuator  (see "Aura's  Other
Technologies").

         In fiscal 2000, the Company entered into  agreements  providing for the
restructuring  of more than $85 million of debt and contingent  liabilities.  Of
this amount, over $37 million was either converted into equity or forgiven.  The
Company is continuing to focus on debt reduction through  payments,  settlements
and conversion  into equity.  By the end of February 2002 the Company's debt has
declined to approximately  $10.8 million of which  approximately $5.2 million is
the mortgage on the real estate property.

J.       AURA'S OTHER TECHNOLOGIES

         Historically,   Aura  developed   electromagnetic  and  electro-optical
technologies  with broad  applications  for industrial,  commercial and consumer
use. These technologies were transformed into specific applications.  During the
Company's refocus and restructure in 1999 and 2000 most of the applications were
sold or  discontinued.  While the  Company's  involvement  has been  temporarily
suspended,  Aura retains  significant  interest in two technology  applications,
electromagnetic  actuators and actuated mirror array. At some time in the future
the Company believes it will revive the activities in these two areas.

         Electromagnetic Actuator (EMA(TM))

         During fiscal 1995, the Company developed, built and demonstrated a new
type of  actuator,  called  the  Electromagnetic  Valve  Actuator.  The  Company
developed the 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.

         EVA(TM) is an  electromagnetic  actuator capable of opening and closing
internal  combustion  engine  valves,  replacing the  mechanical  camshaft on an
engine.  Two major benefits  arise from the EVA(TM)'s  ability to open and close
the  valve  electro-magnetically:  1) the  camshaft  and  associated  mechanical
hardware  can be  eliminated;  and 2) the  opening and closing of the intake and
exhaust valves can be commanded by the engine computer.  Computer control of the
valve  timing has  potentially  material  benefits to engine  performance,  fuel
economy and emissions.

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

         In  fiscal  1999  as  part  of its  refocus,  the  Company  temporarily
suspended its activities on further EVA(TM) development and commercialization to
focus  its  resources  on the  AuraGen(R).  The  Company  is  however,  pursuing
licensing of this technology to third parties.  The Company has not entered into
any discussions for a licensing agreement for EVA(TM).

         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.

         Although  there can be no  assurances,  the Company  believes  that the
AMA(TM) can be  manufactured  at a competitive  cost in large  quantities,  thus
making it  commercially  feasible.  Thus,  AMA(TM) based devices are expected to
potentially   offer  the  combination  of  increased   display  intensity  at  a
competitive  production cost. The Company  believes that the AMA(TM)  technology
has a technical  advantage over other technologies in achieving higher contrast,
more intensity and longer-lived elements.

         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,  prior to fiscal 2001 a number of crises
have caused Daewoo to be taken over by its creditors. The Company is negotiating
with Daewoo about the future of the AMA(TM) technology.

K.       COMPETITION

         The Company believes that the AuraGen(R)  enhances the  competitiveness
of the  Company  by giving it the  ability  to market  technologically  advanced
products  capable of adapting  rapidly to  changing  market  conditions.  Aura's
ability to compete  will also  depend on the  continued  ability to attract  and
retain skilled and  experienced  personnel and the ability to secure  sufficient
capital  resources  for  the  often-substantial   time  period  between  initial
introduction and full market acceptance of the Company's product.

         The  competition  is fierce in the auxiliary  power market from gensets
and  inverters.  Gensets  provide the  strongest  competition  across the widest
marketplace for auxiliary power.  Gensets are large, heavy and inefficient power
generation units that require external fuel, either gasoline or diesel, in order
to  generate  electricity.   Gensets  are  generally  noisy  and  cumbersome  to
transport.  Genset  technology has been utilized since the 1930s and has evolved
little since that time.  Millions of portable  gensets are sold  worldwide  each
year to meet market  demands for 1,000 watts to 10,000 watts of power.  Products
that achieve these power levels address the commercial,  leisure and residential
markets. The market for these products can be divided into two broad categories:
1) higher  power,  higher  quality and higher  price level  units;  and 2) lower
power, lower quality and lower price level units.  Cummins,  Inc. (d/b/a Cummins
Onan),  American Honda Motor Co. (Honda Power Equipment division) and Kohler Co.
(Kohler Generators  division),  among others, are well established and respected
brand  names  in the  genset  market  for  higher  reliability  auxiliary  power
generation.  There are approximately 44 registered  genset  manufacturers in the
United States.

         Inverters  convert  the  DC  electricity  stored  in  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. Since an inverter does
not  generate  power,  the user must rely  entirely  on the power  stored in the
batteries for mobile power needs.  As the  batteries are drained,  the user must
recharge them by connecting  into a grid power source,  which is known as "shore
power,"  or  through  gensets  or  other  means.  Vanner  Incorporated  and Hart
Industries of America, Inc., among others, are leading suppliers in the inverter
market.

         The Company  believes that its ability to compete in the marketplace is
based on the total economic  value the AuraGen(R)  delivers to the end user. The
value the AuraGen(R) delivers is in its convenience, efficiency, flexibility and
reliability.

         The Company believes that the total life cycle cost of an AuraGen(R) is
lower than that of comparable  gensets or  inverters.  Compared to a genset on a
per kW (1,000  watts)  basis,  initial costs of purchasing a unit and fuel usage
requirements are comparable. The most important difference is that an AuraGen(R)
uses the engine of your vehicle while a genset has a separate  engine of its own
that will wear out and need to be  replaced.  Since  gensets  typically  carry a
1-year warranty  (compared with the standard 3-year  AuraGen(R)  warranty),  the
Company  believes  that genset  engines will need to be replaced in a relatively
short time and will  result in a higher  total life cycle cost.  Inverters  have
comparable  initial and operating costs to an AuraGen(R),  but inverters require
constant recharging of batteries to provide electric power. These batteries have
a short life span and the user may need to buy 9 to 12 additional batteries over
a  36-month  period.  As a result,  the  Company  believes  that the  AuraGen(R)
provides the lowest total life cycle cost mobile power solution.

L.       MANUFACTURING

         Aura assembles and tests the AuraGen(R) at the Company's  27,690 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  assembly  line  utilized  has not been used to its  capacity.  The  Company
expects that the facility utilization will increase significantly in fiscal 2003
due to  increasing  sales.  The Company  does not  forecast any need to increase
capacity in 2003.

M.       PRODUCT DEVELOPMENT EXPENDITURES

         During the fiscal years ended February 28, 2002, February 28, 2001, and
February 29, 2000 the Company spent  approximately  $0.8 million,  $ 0.5 million
and $0.1 million,  respectively, on Company research and development activities.
The Company  plans to continue its research and may incur  substantial  costs in
doing so. All of the  Company's  R & D is  currently  focused  on  technological
enhancements and product developments for the AuraGen(R).

N.       PATENTS AND INTELLECTUAL PROPERTY

         Aura's  intellectual  property  consists  of  patents,  trademarks  and
proprietary information in two technical areas:  electromagnetic  technology and
electro-optical technology.

         In the  electromagnetic  technology  area,  the Company  has  developed
numerous  magnetic systems and designs that result in a significant  increase of
magnetic  field density per unit volume that can be converted  into useful power
energy. This field density is increased by a factor of three to four which, when
incorporated into mechanical devices, could result in a significant reduction in
size and cost for the same performance.

         The  applications  of these  technological  advances are in  mechanical
machines used daily by industrial and commercial  users. The Company has applied
the above  technology to numerous  applications  in industrial  machines such as
generators, motors and actuators.

         The U.S.  Patent  Office  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.

         Each of the above  patents  provides  the  Company  with a  competitive
advantage  in the  control of magnetic  fields for  different  applications  and
different configurations. 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.  These  patents  provide the Company with a significant
advantage  in the use of either  electromagnets  or  rare-earth  magnets for the
various  applications.  The two  control  patents  provide  the  Company  with a
competitive  advantage  in specific  techniques  that can be used to control the
magnetic  energy.  These  types of control  techniques,  while wide in scope and
applicable to many different  configurations,  are imbedded in the software used
to run the AuraGen(R).

         The sixteen patents associated with EVA(TM) cover the implementation of
a  controlled  magnetic  field as  applied  to linear  motors.  Many of the same
techniques are implemented in the AuraGen(R)  control system, in particular,  in
the control of the high power board used in the new AuraGen(R)  inverter module.
Currently, the EVA(TM) system is not being developed further.  However, numerous
industrial  and  automotive  organizations  have shown  interest  in the EVA(TM)
system. The Company believes this technology is potentially licensable.

         The Company has an additional 18 patents in electro-optical  technology
and a number of other patents in other fields.  These patents are not related to
any activity that the Company is currently pursuing.

O.       EMPLOYEES

         As of February 28, 2002,  the Company  employed 109 persons.  As of May
29,  2002,  the  Company  employed 76 persons.  The  Company  believes  that its
relationship  with its  employees  is good.  The  Company  is not a party to any
collective bargaining agreements.

P.       PRINCIPAL SOURCES OF REVENUES

         For the years ended  February 28, 2002 and 2001,  virtually  all of the
Company's revenues were AuraGen(R) related.  For the year end February 29, 2000,
ceramics  products were the largest  single source of revenue on a  consolidated
basis, constituting  approximately $2.9 million or 50% of net revenues.  License
fees for sound related patents constituted $1.5 million, or 25.9% of revenues.

Q.       SIGNIFICANT CUSTOMERS

         The Company sold its AuraGen(R)  product to four significant  customers
during  fiscal  2002 for a total of  approximately  $2.4  million  or 77% of net
revenues.  The Company expects significant increases in revenues for fiscal 2003
because of more effective  sales and marketing  efforts,  as well as an expanded
distribution  network that will include numerous other  customers.  In addition,
the Company expects to have other OEM customers in fiscal 2003.


ITEM 2.  PROPERTIES

         The Company  owns a 47,000  square foot  headquarters  facility  and an
adjacent 27,690 square foot manufacturing facility in El Segundo, California 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.

ITEM 3.  LEGAL PROCEEDINGS

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

     Aura  Systems  Inc.  v.  CRS  Emergency   Vehicles,   Co.,  Custom  Coaches
International and C. Ray Smith.

     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 (Case No. 01-10612DDP).  The
action  arose out of a sale to  defendant  distributors  of  approximately  $1.2
million of the Company's  AuraGen(R)  product.  Despite requests for payment, no
payment was received. Following service of the complaint and defendant's failure
to file a  responsive  pleading  in the time  required,  on January 25, 2002 the
Company filed its Request to Enter Default and  Application  for Clerk Judgment.
On February 7, 2002,  however,  the District Court accepted  defendant's  answer
denying  the  allegations.  On May 7, 2002,  following  discussions  between the
parties,  the Company  entered into a  definitive  settlement,  with  defendants
agreeing to release or otherwise  account for all of the product  shipped to the
Company. The parties also agreed to terminate the distributorship agreement.

         Securities and Exchange Commission

         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
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 would  recommend  that 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 no agreements have yet
been reached. Although Aura believes that 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 of the
Board  will  conduct a full  review of the  Company's  accounting  controls  and
procedures.

         Other Legal Actions

         The Company is also engaged in other legal  actions.  In the opinion of
management,  the ultimate  resolution  of these matters will not have a material
adverse effect on financial conditions, results of operations or cash flow.



<PAGE>


ITEM 4.  Submission of Matters to a vote of Security Holders
<TABLE>
<CAPTION>

         The Company's 2001 Annual Meeting of  Shareholders  was held on October
2, 2001. At the annual  meeting each of the  Company's  nominees were elected to
serve as Directors of the Company. The election results are as follows:


                                                        For                 Withheld                Abstain
                                                    ----------             ---------                -------

            <S>                                     <C>                    <C>                      <C>
            Zvi (Harry) Kurtzman                    223,220,767            23,628,732               729,361

            Stephen  Talesnick                      246,731,136              88,363                 729,361

            Carl Albert                             246,107,715              711,784                729,361

            Harvey Cohen                            245,872,673              946,826                729,361

            Salvador Diaz-Verson, Jr.               246,032,122              787,377                729,361

            Harry Haisfield                         246,111,275              708,224                729,361

            Neal Meehan                             246,105,732              713,767                729,361

            Norman Reitman                          245,906,085              913,414                729,361

            William Richbourg                       246,115,296              704,203                729,361
</TABLE>


<PAGE>


                                     PART II


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

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

         On July 21,  1999,  the  Company's  shares  were  delisted  from Nasdaq
National Market.  This action was taken as a result of the Company's  failure to
meet the minimum $1.00 bid price and other  requirements as stated in the Market
Place Rules.  On February 1, 2001,  the Company's  shares were listed on the OTC
Bulletin Board under the symbol "AURA".

         Set forth below are high and low sales  prices for the common  stock of
Aura for each quarterly period in each of the two most recent fiscal years. Such
quotations  reflect  inter-dealer  prices,  without retail mark-up,  markdown or
commissions and may not necessarily  represent actual transactions in the common
stock. The Company had approximately  9,600 stockholders of record as of May 24,
2002.
<TABLE>
<CAPTION>

   Period                                                                                  High                    Low
                                                                                          -----                   -----
      Fiscal 2001
         <S>                                                                              <C>                     <C>
         First Quarter ended May 31, 2000                                                 $0.64                   $0.24
         Second Quarter ended August 31, 2000                                             $0.52                   $0.20
         Third Quarter ended November 30, 2000                                            $1.19                   $0.34
         Fourth Quarter ended February 28, 2001                                           $0.53                   $0.29

   Period                                                                                  High                    Low
                                                                                          -----                   -----
      Fiscal 2002
         First Quarter ended May 31, 2001                                                 $0.78                   $0.37
         Second Quarter ended August 31, 2001                                             $0.76                   $0.50
         Third Quarter ended November 30, 2001                                            $0.59                   $0.36
         Fourth Quarter ended February 28, 2002                                           $0.45                   $0.28
</TABLE>

       On May 24,  2002,  the  reported  closing  sales price for the  Company's
common stock was $0.235.

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

         Changes in Securities and Use of Proceeds
         During the fourth  quarter of fiscal 2002,  9,309,744  shares of common
stock were issued in  connection  with a private  placement to three  investors,
resulting in aggregate proceeds of approximately $2,744,800.

         During the  fourth  quarter of fiscal  2002,  687,178  shares of common
stock were issued as finder's fees for private placements.

         During the fourth quarter of fiscal 2002, 48,993,780 shares were issued
to satisfy liabilities in the amount of $16,751,606.

         All  of  the  foregoing  transactions  were  exempt  from  registration
pursuant  to  section  4(2)  of the  Securities  Act of  1933  as  amended  (the
"Securities Act") as these offerings were private placements to a limited number
of "accredited investors" (as defined in the Securities Act).


<PAGE>


ITEM 6.       SELECTED FINANCIAL DATA

     The following  Selected  Financial  Data has been taken or derived from the
audited  consolidated  financial statements of the Company and should be read in
conjunction  with and is  qualified  in its  entirety  by the full  consolidated
financial  statements,  related notes and other information  included  elsewhere
herein.  The  data for  fiscal  1999 and  1998  has  been  restated  to  reflect
discontinued operations.
<TABLE>
<CAPTION>

                       AURA SYSTEMS, INC. AND SUBSIDIARIES


                                                      February 28,     February 28,     February 29,    February 28,   February 28,
                                                          2002             2001             2000            1999           1998
                                                      ------------     ------------     ------------    ------------   ------------
<S>                                                    <C>              <C>               <C>            <C>           <C>
Net revenues                                            $3,116,295       $2,512,508       $5,788,221     $53,650,025   $103,939,641
Cost of goods sold                                       1,480,736        1,216,637        1,957,854      83,344,562     58,045,370
                                                        ----------        ---------        ---------      ----------     ----------
Gross profit (loss)                                      1,635,559        1,295,871         3,830,367    (29,694,537)    45,894,271


Expenses:
   Engineering expenses                                  9,924,298        8,214,981        11,466,449      47,092,632    13,729,152
   Research and development                                810,949          547,812           148,443       1,996,198       475,992
   Selling, general and administrative expenses         10,006,844       12,695,833        10,725,397      64,131,074    35,266,048
   Class action litigation & other legal settlements    (2,750,000)       1,512,769           427,091       7,717,518     1,700,000
   Settlement on accounts payable                         (651,685)      (1,046,324)        2,350,671              --            --
                                                        -----------      -----------        ----------     ----------     ---------
         Total expenses                                 17,340,406       21,925,071        25,118,051     120,937,422    51,171,192
                                                        ----------       ----------        ----------     -----------    ----------

Loss from operations                                   (15,704,847)     (20,629,200)      (21,287,684)   (150,631,959)   (5,276,921)
Other (income) and expense
   Interest expense                                      2,495,551        2,263,916         4,476,690       11,679,701    6,450,741
   Impairment of long-lived assets                       9,095,393          240,000                --        5,838,466           --
   Termination of license agreements                            --               --                --               --    3,113,030
   (Gain) loss on disposal of assets                        65,823       (1,756,746)           93,638          925,525           --
   (Gain) loss on sale & issuance of subsidiary
       stock and investments                                    --               --                --       4,877,839   (12,632,265)
   Equity in losses of unconsolidated joint ventures            --               --                --       6,268,384     1,937,747
   Other                                                  (535,179)        (446,399)       (1,454,641)       (906,921)     (220,291)
Provision (benefit) for taxes                                   --               --                --         566,635    (1,275,555)
Minority interest                                               --               --                --     (36,934,376)      946,405
 Loss in excess of basis of subsidiary                          --               --                --      (8,080,695)           --
                                                         ----------      -----------       ----------      -----------    ----------
Loss from continuing operations                        (26,826,435)      (20,929,971)     (24,403,371)   (134,866,517)   (3,596,733)

Discontinued operations:
   Loss from discontinued operations, net of income
     taxes                                                      --               --        (4,131,501)    (14,875,065)   (8,038,807)
Extraordinary Item
   Gain on extinguishment of debt obligations, net of
    income taxes                                           1,889,540             --        19,068,916              --            --
                                                          ----------      ----------       -----------    -------------   ----------
Net loss                                               $ (24,936,895)   $(20,929,971)    $ (9,465,956)  $(149,741,582) $(11,635,540)
Other comprehensive loss, net of taxes                            --              --               --        (406,574)           --
                                                          ----------      ----------       -----------    ------------    ----------
Comprehensive loss                                     $ (24,936,895)   $(20,929,971)    $ (9,465,956)  $(150,148,156) $(11,635,540)
                                                       ==============   =============    =============  =============   ============

Net loss per common share                                 $    (0.08)     $    (0.08)      $    (0.08)     $    (1.74)    $   (0.15)
                                                         ===========      ===========      ===========     ===========   ===========
 Loss from continuing operations per common share         $    (0.08)     $    (0.08)      $    (0.20)     $    (1.57)    $   (0.05)
                                                         ===========      ===========      ===========     ===========    ==========
 Loss from discontinued operations per common share         $     --       $      --       $    (0.03)     $    (0.17)    $   (0.10)
                                                         ===========      ===========      ===========     ===========    ==========
 Extraordinary income per common share                      $     --       $      --       $     0.15      $       --     $      --
                                                         ===========      ===========      ===========     ===========    ==========

   Weighted average number of common shares              327,587,590      261,568,346      124,294,051      85,831,688   79,045,290
                                                         ===========      ===========      ===========     ===========    ==========
Working capital                                           (2,512,553)      (5,105,345)         826,213      (4,869,876)  78,143,895
Total assets                                              28,761,990       45,278,043       56,122,538      90,143,392  227,302,629
Total debt                                                10,895,466       38,485,108       48,756,226      34,236,944   33,968,393
Net stockholders' equity (deficit)                        12,652,733        2,045,035        1,516,008     (13,653,657) 116,901,868

</TABLE>


<PAGE>



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

Forward  Looking  Statements

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

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

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

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

Results of Operations Fiscal 2002 as Compared to Fiscal 2001

     Revenues

     Net revenues in fiscal 2002  increased to $3.1 million from $2.5 million in
fiscal 2001, an increase of 24%.  Virtually all sales related to the  AuraGen(R)
product  and  related  services.  The  increase  in revenue was due to a greater
acceptance of the AuraGen(R) in the marketplace as well as the increasing  sales
activity through the Company's distributors.

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

     Cost of Goods

     Cost of goods  increased  to $1.5  million  from $1.2  million in the prior
fiscal year  primarily as a result of the increase in AuraGen(R)  revenues.  The
gross margin in each year was  approximately  52%.  The Company  expects a gross
margin of at least 50% in fiscal 2003.

     Engineering Expense

     Engineering  expense for fiscal 2002  increased  to $9.9  million from $8.2
million in the prior fiscal year. Labor and labor related costs amounted to $4.1
million in fiscal 2002,  an increase of $1.5 million from $2.6 million in fiscal
2001. Included in engineering  expense is $4.9 million in depreciation  compared
to $4.8 million in the prior  fiscal year.  Aura  anticipates  that  engineering
expenses  will  decrease  substantially  in  fiscal  2003  due to  ongoing  cost
reduction measures taken by the Company's management.

     Research and Development

     Research and development  expense for fiscal 2002 increased to $0.8 million
from $0.5 million in fiscal 2001.  This is a result of the Company  focusing its
efforts on developing  commercial  applications  in order to market and sell the
AuraGen(R).  The Company, in the latter part of fiscal 2001, began to once again
expand its research and  development  activities  in order to expand its line of
AuraGen(R)  products.  The Company  expects these expenses to remain constant as
the Company  focuses its  attention on developing  more  variations of the basic
AuraGen(R),  including, but not limited to, the 6kW, 10kW, 25kW, AC/DC versions,
and marine and other applications.

     Selling, General and Administrative

     Selling,  general and administrative  expenses were $10.0 million in fiscal
2002. This was a decrease of $2.7 million (21%) compared to the expense of $12.7
million in fiscal 2001.  The decrease was  primarily due to a reduction in legal
costs of approximately $1.2 million. Also included in the prior year costs was a
$1.3 million bad debt charge  associated  with  non-AuraGen(R)  business  lines,
which the Company has discontinued.  Sales and marketing  expenses were slightly
lower in 2002  compared to 2001.  Aura  expects  the general and  administrative
expenses to decrease in 2003 as a result of the ongoing cost reduction  measures
in place.  However,  these  savings will be offset by  substantially  more costs
incurred for sales and marketing expenses.

         Impairment Charges

     Impairment  charges increased by $8.9 million,  from $0.2 million in fiscal
2001 to $9.1 million in 2002. It is the Company's  practice  under  Statement of
Financial Accounting Standards No. 144 to review the valuation of its long-lived
assets at least  annually.  Certain  events  occurred  in the fourth  quarter of
fiscal 2002 which  impacted the financial  statements.  The increase in the 2002
expense  recognized was primarily due to non-cash charges  incurred  relative to
the  impairment  of certain  long-lived  assets.  In fiscal  2002,  these  asset
impairment  charges included  non-core  investments of $1.4 million,  engineered
tooling for Aura products  amounting to $4.6 million,  and trade credits of $3.1
million.  In 2001,  a  reserve  against  a long  term  investment  was  recorded
amounting to $0.2 million.

         Settlements, Net

     Legal settlements  resulted in a gain of $2.8 million in 2002 compared to a
loss of $1.5  million in 2001.  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.  The Company  recognized a gain
in 2002 on settlement of accounts payable  amounting to $0.7 million compared to
a gain of $1.0 million in 2001.

         Interest Expense

     Interest  expense  increased  slightly  from $2.3 million in fiscal 2001 to
$2.5 million in fiscal 2002. Due to the  elimination of a significant  amount of
Aura's interest bearing debt, the interest  expense will decrease  significantly
in fiscal 2003.

         Other Income (Expense), Net

     Other income,  net amounted to $0.5 million in fiscal 2002 compared to $0.4
million in fiscal 2001.  The increase of $0.1  million was  primarily  due to an
increase in other  income for a gain of $1.3 million  relative to a  transaction
fee,  partially  offset by an increase in other expenses of $1.1 million for the
liability recognized on future severance payments to the former management.

         Extraordinary Item

         The extraordinary gain resulted from the forgiveness of debt by certain
of the Company's  creditors in the third quarter for approximately  $0.9 million
and  in  the  fourth  quarter  for  approximately  $1.0  million.   For  further
information regarding this item, see "Liquidity and Capital Resources," and Note
23 to the Company's  Consolidated  Financial Statements,  appearing elsewhere in
this Report.

         Fiscal 2001 as Compared to Fiscal 2000

     Revenues

         Net  revenues  in fiscal  2001  totaled  $2.5  million.  In fiscal 2001
virtually all sales were AuraGen(R)  related, up from $0.8 million in AuraGen(R)
related  sales in fiscal 2000.  Overall net revenues  declined in 2001 from $5.8
million in fiscal  2000 as  approximately  $2.9  million,  or 50% of fiscal 2000
revenues  were derived  from the  ceramics  facility,  with an  additional  $1.5
million, or 25.9% derived from license fees pertaining to sound related patents.
The assets of the ceramics facility were sold effective March 1, 2000.

         Cost of Goods

         Cost of goods for the year ended  February  28, 2001 was $1.2  million,
applicable  almost  entirely to the  AuraGen(R)  product,  resulting  in a gross
margin of  approximately  52%. Cost of goods in the prior year was $2.0 million,
resulting  in a gross  margin of 54%,  after  excluding  the effects of the $1.5
million license fee noted above.

     Engineering Expense

         Engineering   expenses  for  fiscal  2001  declined  to  $8.2  million,
including $4.8 million of depreciation,  from $11.5 million, which included $4.9
million in depreciation, in the prior fiscal year. The sale of the assets of the
ceramics  facility account for a reduction of approximately  $1.6 million,  with
cost reduction efforts and facility consolidations accounting for the balance.

     In fiscal  2001,  the  Company  reclassified  certain  costs  that had been
characterized as overhead costs and included in cost of sales.  These items were
primarily  engineering  and  facility  related and have now been  classified  as
engineering  expenses in the operating expense  category.  This was done to more
accurately  reflect  the actual  cost of the  product  sold and  provide a gross
profit  presentation based on the sale of the product itself.  This has resulted
in a change in the reported gross margins for fiscal 2000 from a negative 131.9%
to a positive 66.2%.

     Research and Development

     Research and development expenses increased from approximately $0.1 million
in fiscal 2000 to approximately $0.5 million in fiscal 2001. The Company, in the
latter  part of  fiscal  2001,  began to once  again  expand  its  research  and
development  activities in order to expand its line of AuraGen(R) products.  The
Company  expects these  expenses to continue to grow as the Company  focuses its
attention in developing more variations of the basic 5kW AuraGen(R),  including,
but not limited to, the 6kW, 8.5kW,  10kW,  25kW,  AC/DC versions,  inverter and
battery charger versions, and marine and other applications.


<PAGE>


     Selling, General and Administrative

     Selling,  general and administrative  expenses were $12.7 million in fiscal
2001.  The increase in these  expenses  from $10.7 million in the prior year was
primarily a result of an increase in legal costs of approximately  $1.2 million,
and an increase in depreciation and  amortization of approximately  $1.1 million
partially offset by a decrease of $600,000 as a result of the sale of the assets
of the ceramics  facility.  Also  included in the fiscal year 2001 expenses is a
bad debt charge of $1.3 million associated with non-AuraGen(R)  related lines of
business  the Company is no longer  engaged  in.  This  compares to bad debts of
$163,000 in the prior  fiscal year.  Additionally,  in the latter part of fiscal
2001,  the  Company  began to  increase  its sales  staff  and  other  sales and
marketing expenses.

     Other Income and Expense

     In fiscal 2001, other income and expense  primarily  consisted of a gain of
$1,756,746  recorded on the sale of the assets of the ceramics  facility and net
interest  expense  of  $2,263,916.  In fiscal  2000  other  income  and  expense
primarily  consisted  of $93,638 in net losses on disposal  of assets,  interest
expense of $4,476,690, interest income of $357,014 and rent income of $700,513.

     Liquidity and Capital Resources

     Working  capital was a negative  $2.5 million at February 28, 2002 compared
to a negative $5.1 million at February 28, 2001. The negative working capital at
February 2002 was a result of the  reclassification of inventory from current to
long-term for that portion not expected to be used within one year. The negative
working  capital  at  February  28,  2001 was  primarily  the result of the $5.5
million  litigation  liability  with DFS  which  was  reclassified  to a current
liability due to a settlement reached subsequent to year end. This liability was
satisfied in the first  quarter of fiscal 2002 with the  issuance of  10,000,000
shares of Aura common stock valued at $4,000,000  and the payment of $350,000 in
cash, resulting in a gain of $1.2 million.

     The  Company's  cash and cash  equivalents  balance  was  $1.1  million  at
February 28, 2002  compared to $1.3  million at February 28, 2001.  The net cash
used by operating  activities  in fiscal 2002  decreased by  approximately  $4.6
million  from the prior year.  The fiscal 2002 net loss was $24.9  million,  and
$15.0  million  of that loss  related  to  non-cash  charges  for  depreciation,
amortization  and asset  impairments.  Whereas in fiscal 2001,  the net loss was
$20.9 million and the similar non-cash charges were $7.9 million.

     In fiscal 2002, net cash of $0.1 million was used for investing  activities
that included $0.3 million  spent for  property,  plant and equipment  partially
offset by $0.2 million cash received on the Alpha Ceramics note  receivable from
the sale of the  Company's  ceramics  facility in fiscal  2001.  In fiscal 2001,
investing  activities  provided  $3.8 million of net cash  primarily  due to the
payment of the MYS and Algo notes receivable.

     During fiscal 2002, the Company received net proceeds of $13.3 million from
the sale of its  common  stock  through  private  placements  compared  to $12.4
million in the prior year.  Current  year  financing  activities  also  included
proceeds of $500,000  from 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 March 2002, and approximately
$28,000 from the exercise of warrants and stock options. Debt repayments of $5.1
million, including $2.0 million on the line of credit, were made in fiscal 2002,
an increase over the $1.8 million of debt paid down in the prior year.

     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 million.  An  indeterminate  number of  additional  shares will be
issuable  in the future as a result of  guaranteed  share  repricing  agreements
should  the  Company  sell  common  stock at less than  $0.20 per share  through
February  2003.

     At February 28, 2001, the Company was in violation of its loan covenants on
its line of  credit.  The  Company  received  a waiver  from the bank for  these
violations and paid the remaining balance when due in July 2001.

     Spending for property  and  equipment  amounted to $255,733 in fiscal 2002,
$38,200 in fiscal 2001,  and $16,103 in fiscal 2000.  The  additions  are due to
purchases  of equipment  which are  necessary in  connection  with  research and
development  activities,  services  performed  under  various  subcontracts  and
manufacturing requirements.

     Current  fixed  monthly   expenses   company  wide  average   approximately
$1,000,000 principally for labor, materials,  overhead,  travel and professional
fees.

     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 2002,  $0.1 million for fiscal 2001,  and
$0.9 million for fiscal 2000.

     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 2003. 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 and third party  financings  in order to
continue its operations.  Currently,  the Company has no commitments  from third
parties to provide  additional  financing.  The Company has no  assurances  that
third party  funding 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.  The
limited  availability  of funds  could  have a  material  adverse  effect on the
Company's  financial  statements,  results  of  operations  and the  ability  to
continue or expand operations.

     Recent Developments and Outlook

     Results of  operations  in the fourth  quarter of 2002 reflect  weakness in
sales,  which has continued into the first quarter of 2003. 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 events of September 11, 2001. The economic  downturn has
had  a  significant  impact  on  the  telecommunications  industry,  which  is a
significant target market for the AuraGen(R) products. In addition,  the Company
also believes that the recent management transition has had an impact on results
of operations  during the past few months.  In particular,  the Company's former
Vice  President  of Sales and  Marketing  since  August 2000 left the Company in
December 2001. In addition,  in December 2001 Aura and six former members of the
Company's senior management,  including the Chief Executive Officer,  President,
and  Chief  Financial  Officer,   entered  into  agreements  providing  for  the
termination of their  employment with the Company  effective  February 28, 2002.
The  Company  believes  that  the  disruption  of  continuity  attendant  to the
transition  process has  adversely  affected the  day-to-day  operations  of the
Company in recent months.

     Effective  March 2002, the Company  retained Joshua Hauser as the Company's
President and Chief Executive  Officer and Steven Burdick as the Company's Chief
Financial Officer.  Both Messrs.  Hauser and Burdick bring a wealth of knowledge
and  experience  to the  Company  which is  expected  to benefit  the  Company's
operations going forward in Fiscal 2003 and beyond. In addition, the Company has
retained  Craig  B.  Lipus as the  Company's  new Vice  President  of Sales  and
Marketing effective June 2002, filling the vacancy created in December 2001. The
Company  believes that with a new and  experienced  management  team in place it
will be able to more effectively  exploit the  commercialization  of the AuraGen
family of products.

     Since March 1, 2002,  in order to fund working  capital  requirements,  the
Company has raised  approximately  $4.2  million  through the sale of its common
stock in private placements to existing  shareholders of the Company,  including
two  members of the  Company's  Board of  Directors.  As  discussed  above under
"Liquidity and Capital Resources," the Company anticipates that it will continue
to be dependent on third party  financing  through at least the remainder of the
Fiscal year in order to maintain  operations and to finance  future growth.  The
ability of the Company to execute its business plan will depend, in part, on the
availability of adequate  working capital.  With adequate  working capital,  the
Company  expects that  AuraGen(R)  sales and revenues  should increase in fiscal
2003 compared with the prior fiscal year.

     ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

         At  February  28,  2002,  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

     On August 23, 2000, the Company  received a notice of resignation  from its
independent  auditors,  Pannell Kerr Forster,  Certified Public  Accountants,  a
Professional  Corporation  ("PKF").  The Company  had been  informed by PKF that
their  decision  was  solely  due to  business  reasons.  Having  served  as the
independent  auditors  of the  Company  since  1992,  PKF  never had nor does it
currently  have any  disagreements  with the Company on any matter of accounting
principles or  practices,  financial  statement  disclosure,  auditing  scope or
procedure or any  reportable  events.  The  auditor's  reports on the  financial
statements  during its entire  engagement  period did not  contain  any  adverse
opinion or disclaimer  of opinion and have not been  qualified or modified as to
uncertainty,  audit scope or accounting  principles except for fiscal years 1999
and 2000 when the audit reports were modified with a going concern uncertainty.

     PKF fully  cooperated  with the auditor  selection and transition  process,
which was  completed on January 9, 2001 when the firm Singer  Lewak  Greenbaum &
Goldstein LLP was engaged by the Company's Board of Directors.

     Unrelated  to  its   decision  and  pursuant  to  SEC  rules,   under  Item
304(a)(1)(v)(C)(1)(i)  of Regulation S-K, PKF also advised that  information had
come to its attention which, if further investigated,  may materially impact the
fairness or  reliability  of previously  issued audit reports or the  underlying
financial  statements of Aura Systems,  Inc. and  Subsidiaries.  The information
concerning  officer  loans,  which took place in fiscal 1997,  was  contained in
court  filings  of  the  SEC  in  regards  to  the  Staff's  response  to an SEC
investigation, reported publicly by the Company in a press release dated January
20, 1999.

     The Company does not believe that the matters referred to above will have a
material  effect on the  Company's  future  financial  condition  or  results of
operations.



<PAGE>


                                    PART III


     ITEM 10. DIRECTORS AND OFFICERS OF THE COMPANY

     Directors

     The following table sets forth all of the current Directors, their age, and
the office they hold with the Company.  All Directors hold office until the next
annual meeting of  stockholders  of the Company and until their  successors have
been duly elected and qualified.

<TABLE>
<CAPTION>

    Name Age Title
    <S>                                  <C>
    Carl Albert......................... 60 Chairman, Board of Directors
    Stephen Talesnick................... 52 Vice Chairman, Board of Directors, Member of Compensation Committee
    Harvey Cohen........................ 68 Director, Member of Audit Committee
    Lawrence Diamant.................... 60 Director, Member of Compensation Committee
    Salvador Diaz-Verson, Jr............ 49 Director, Member of Compensation Committee
    Neal Meehan......................... 60 Director, Member of Audit Committee
    John Pincavage...................... 58 Director, Member of Audit Committee
    Norman Reitman...................... 77 Director, Member of Audit Committee

</TABLE>

     CARL ALBERT is the  Chairman of the Board of Directors  effective  March 1,
2002. He has been a Director of the Company since July 10, 2001. 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.

     STEPHEN TALESNICK is Vice Chairman of the Board of Directors and has served
in this capacity since January 2001. He originally joined the Board of Directors
in September 1999. Mr. Talesnick has owned and maintained a private law practice
since  1977,  which is  presently  located in  Beverly  Hills,  California.  Mr.
Talesnick  specializes  in business and  financial  transactions  in addition to
entertainment  industry related matters. He originally practiced as an associate
in the New  York  law firm of White & Case.  In  1992,  Mr.  Talesnick  became a
financial advisor in the financial  services industry and is registered with the
Securities and Exchange  Commission.  Mr. Talesnick is a graduate of The Wharton
School of Finance and Commerce at the  University of  Pennsylvania  and received
his Juris Doctor degree from Columbia University School of Law.

     HARVEY  COHEN is a Director of the Company and has served in this  capacity
since August 1993. Mr. Cohen is President of Margate  Advisory  Group,  Inc., an
investment advisor registered with the Securities and Exchange Commission, and a
management  consultant  since August  1981.  Mr.  Cohen has  consulted  with the
Company on various  operating and growth strategies since June 1989 and assisted
in the sale of certain of the Company's  securities.  From December 1979 through
July 1981,  he was  President and Chief  Operating  Officer of Silicon  Systems,
Inc., a custom  integrated  circuit  manufacturer  which made its initial public
offering in February 1981 after having  raised $4 million in venture  capital in
1980.  From 1975 until 1979,  Mr. Cohen served as President and Chief  Executive
Officer of International Communication Sciences, Inc., a communications computer
manufacturing  start-up company for which he raised over $7.5 million in venture
capital.  From 1966 through  1975,  Mr. Cohen was  employed by  Scientific  Data
Systems, Inc. ("S.D.S."),  a computer  manufacturing and service company,  which
became Xerox Data Systems,  Inc.  ("X.D.S.")  after its  acquisition by Xerox in
1969. During that time, he held several senior management  positions,  including
Vice  President-Systems  Division of S.D.S.  and Senior Vice  President-Advanced
Systems  Operating of the Business  Planning Group.  Mr. Cohen received his B.S.
(Honors) in Electrical Engineering in 1955 and an MBA from Harvard University in
1957.

     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.

     NEAL MEEHAN is a Director  of the  Company and has served in this  capacity
since  October  2000  following  appointment  by  resolution  of  the  Board  of
Directors,  pursuant to the Bylaws of the  Corporation.  Mr.  Meehan's  business
career spans the transportation and telecommunications  sectors. He is currently
Managing Partner of air2ground,  LLC and is involved in business development and
strategic planning for start-up and mature companies. 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 successful  career 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  from St.  Johns  University  in  Commercial
Science.

     JOHN  PINCAVAGE is a Director of the Company and has served on the Board of
Directors since March 1, 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.

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

         Officers

         Listed  below  are  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.
<TABLE>
<CAPTION>

        Name                                  Age   Position
        <S>                                  <C>    <C>
        Joshua Hauser.......................  56    President and Chief Executive Officer
        Steven Burdick......................  38    Senior Vice President, Chief Financial Officer
        Michael Froch.......................  40    Senior Vice President, General Counsel and Secretary
        Jacob Mail..........................  51    Senior Vice President, AuraGen(R)Operations
</TABLE>

     JOSHUA  HAUSER  is the  Company's  President  and Chief  Executive  Officer
effective March 1, 2002. He is a senior executive with  demonstrated  success in
business/product development for both domestic and international operations. Mr.
Hauser is a  goal-oriented  leader with a record of  positioning  companies  for
growth  and  expansion.  He has over 30 years  experience  in the power  control
systems industry. From 1999 through 2002, he was a management consultant.  Prior
to that, he was President of Siebe Power Controls, a division of Siebe plc, with
full  profit  and  loss  responsibility  for a  global  power  systems  business
employing  6,500 people in 13  locations.  Mr.  Hauser  holds both  Bachelor and
Master degrees in Electrical Engineering, both from Columbia University.

     STEVEN BURDICK is the Company's  Senior Vice President and Chief  Financial
Officer  effective March 1, 2002. He is a CPA and a senior  financial  executive
with  experience  working with both publicly traded and private  companies.  Mr.
Burdick was most  recently  Chief  Financial  Officer of TRW Ventures  from 2000
through  2002,  and prior to that was a Senior  Manager at Ernst & Young LLP. He
received a BS in Accounting from Santa Clara University.

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

     JACOB MAIL is Senior Vice President AuraGen(R)Operations.  He has served in
this  capacity  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.

         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.

     Effective  March 2002, the Company  retained Joshua Hauser as the Company's
President and Chief Executive  Officer and Steven Burdick as the Company's Chief
Financial Officer.  Both Messrs.  Hauser and Burdick bring a wealth of knowledge
and  experience  to the  Company  which is  expected  to benefit  the  Company's
operations going forward in fiscal 2003 and beyond. In addition, the Company has
retained  Craig  B.  Lipus as the  Company's  new Vice  President  of Sales  and
Marketing effective June 2002, filling the vacancy created in December 2001. The
Company  believes that with a new and  experienced  management  team in place it
will be able to more effectively exploit the commercialization of the AuraGen(R)
family of products.

     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.  Based solely on its
review of the  copies of such  reports  furnished  to the  Company,  or  written
representations that no reports were required, the Company believes that for the
fiscal year ended February 28, 2002, all filing  requirements  applicable to its
officers,  directors,  and ten percent  beneficial  owners were satisfied except
that Messrs.  Cohen and Diaz-Verson did not timely file a single Form 5 with two
transaction acquisitions reported.




<PAGE>



ITEM 11.        EXECUTIVE COMPENSATION

     Cash Compensation For Executives

     The following table summarizes all compensation paid to the Company's Chief
Executive Officer, and to the four most highly compensated executive officers of
the Company  other than the Chief  Executive  Officer  whose total  compensation
exceeded  $100,000  during the fiscal year ended February 28, 2002.  Each of the
individuals  named in the table ceased to be  executive  officers as of February
28, 2002.
<TABLE>
<CAPTION>

                           SUMMARY COMPENSATION TABLE

                                                  Annual                       Long Term                 All Other
                                              Compensation(1)              Compensation Awards         Compensation(2)
                                               --------------               ------------------         ---------------
<S>                                   <C>             <C>                    <C>                                  <C>
Name and Principal Position           Year            Salary                   Options/SARs
                                      ----            ------                    -----------
  Zvi (Harry) Kurtzman (1)            2002            $385,000                    7,718,750                         $0
  Chief Executive Officer             2001             385,000                    4,500,000                          0
                                      2000             386,232                        0                              0

  Gerald S. Papazian (1)              2002            $210,000                    2,268,750                         $0
  President and Chief Operating       2001             210,000                    1,000,000                      2,029
  Officer                             2000             217,777                        0                              0

  Arthur J. Schwartz (1)              2002            $205,000                    4,143,750                         $0
  Executive Vice President            2001             205,000                    1,000,000                          0
                                      2000             210,192                        0                              0

  Steven C. Veen (1)                  2002            $200,000                    2,175,000                         $0
  Senior Vice President and           2001             200,000                    1,000,000                      2,100
  Chief Financial Officer             2000             205,469                        0                              0

  Cipora Kurtzman Lavut (1)           2002            $195,000                    3,956,250                         $0
  Senior Vice President               2001             195,000                    1,000,000                          0
                                      2000             203,942                        0                              0
</TABLE>

     (1) The amounts shown are the amounts  actually paid to the named  officers
during the respective fiscal years. Because of the timing of the payments, these
amounts do not always  represent the actual salary  accrued for each  individual
during  the  period.  The actual  salary  rate for these  individuals  which was
accrued during the fiscal year ended February 2002, 2001 and 2000, respectively,
were as follows: Zvi (Harry) Kurtzman - $385,000,  $385,000, $385,000; Gerald S.
Papazian  -  $210,000,  $210,000,  $210,000;  Arthur  J.  Schwartz  -  $205,000,
$205,000,  $205,000;  Steven  C. Veen -  $200,000,  $200,000,  $200,000;  Cipora
Kurtzman  Lavut - $195,000,  $195,000,  $195,000.  Of the  compensation  paid in
fiscal 2001, $100,427,  $53,140,  $50,254, $35,301, $38,027 was paid in the form
of  315,361,  166,869,  157,807,  110,851,  119,414  shares,  respectively,   of
restricted  common  stock of the  Company to Mr.  Kurtzman,  Mr.  Papazian,  Mr.
Schwartz,  Mr. Veen and Ms. Kurtzman Lavut,  respectively.  Of the  compensation
paid in fiscal 2000, $144,561, $34,781, $78,201, $44,918 and $58,520 was paid in
the  form  of  535,413,   128,818,   289,632,   166,363,   and  216,742  shares,
respectively,  of restricted common stock of the Company,  valued as of the date
of issuance,  to Mr.  Kurtzman,  Mr. Papazian,  Mr.  Schwartz,  Mr. Veen and Ms.
Kurtzman Lavut, respectively.

     (2) Such compensation  consisted of total Company contributions made to the
plan account of each individual  pursuant to the Company's  Employee  Retirement
Savings Plan during the fiscal year ended February 28, 2002.

     No cash  bonuses  or  restricted  stock  awards  were  granted to the above
individuals during the fiscal years ended February 28, 2002,  February 28, 2001,
and February 29, 2000.  Effective  fiscal 2002,  each  non-employee  Director is
entitled to receive  100,000  stock  options per year for serving as a Director,
and an additional  25,000 stock options per year for each Director who serves on
the Audit  Committee.  Effective  fiscal  2002,  new  Directors  are entitled to
receive an initial membership grant of 250,000 stock options.  The above options
vest six months  plus one day from the date of grant and the  exercise  price is
set at or above market as of the date of grant.



<PAGE>


     The following table summarizes certain information  regarding option grants
to purchase common stock of the Company to the Chief Executive Officer and those
other  executive  officers named in the Summary  Compensation  Table (the "Named
Executive Officers"). OPTIONS/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>

                                                                                                     Potential
                                                                                                Realizable Value at
                                                                                                   Assumed Annual
                                                                                                Rates of Stock Price
                                                                                                    Appreciation
                                           Individual Grants                                      For Option Term*
-----------------------------------------------------------------------------------------------------------------------
                                      Number of        % of
                                     Securities       Total
                                       Under-        Options/
                                        lying          SARs
                                       Options/      Granted to    Exercise
                                        SARs         Employees      Or Base
                                       Granted      In fiscal        Price       Expiration
      Name                               (#)           Year          ($/Sh)         Date        5% ($)      10% ($)
-----------------------------------------------------------------------------------------------------------------------
      <S>                             <C>             <C>             <C>         <C>            <C>         <C>
      Zvi (Harry) Kurtzman            7,718,750       36.8%           0.55        12/21/11       385,938     3,164,687
      Gerald Papazian                 2,268,750       10.8%           0.55        12/21/11       113,438     1,043,625
      Arthur J. Schwartz              4,143,750       19.8%           0.55        12/21/11       207,188     1,698,938
      Steven C. Veen                  2,175,000       10.4%           0.55        12/21/11       108,750       891,750
      Cipora Kurtzman Lavut           3,956,250       18.9%           0.55        12/21/11       197,813     1,622,063
</TABLE>


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

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

                                           Number of Unexercised                        Value of Unexercised
                                           Options/SARs at fiscal                       In-the-Money Options/
       Name                                      Year End                              SARs at fiscal Year End*
      -----                             ----------------------------                   ------------------------
                                        Exercisable          Unexercisable        Exercisable           Unexercisable
                                        -----------          -------------        -----------           -------------
      <S>                                 <C>                  <C>                 <C>                 <C>
      Zvi (Harry) Kurtzman                6,734,583            6,804,167           $   180,000         $      90,000
      Gerald S. Papazian                  1,653,917            1,840,833           $    40,000         $      20,000
      Arthur J. Schwartz                  2,717,917            3,170,833           $    40,000         $      20,000
      Steven C. Veen                      1,821,670            1,778,333           $    40,000         $      20,000
      Cipora Kurtzman Lavut               2,655,417            3,045,833           $    40,000         $      20,000
</TABLE>

     * Based on the average high and low reported prices of the Company's common
stock on the last day of the fiscal year ended February 28, 2002.

     No options were exercised by the above  individuals  during the fiscal year
ended February 28, 2002.


<PAGE>



     Compensation Committee Report

     The  Company   maintains  a  Compensation   Committee  (the   "Committee"),
consisting entirely of outside,  disinterested,  Directors who are not employees
or former employees of the Company.  The Committee  recommends  salary practices
for  executive  officers of the Company,  with all  compensation  determinations
ultimately made by a majority of the outside, disinterested Directors.

     Compensation Philosophy

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

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

     Termination of Certain Employment Contracts

     The Company offers  employment  contracts to key executives only when it is
in the best interest of the Company and its  stockholders  to attract and retain
such key  executives  and to ensure  continuity  and  stability  of  management.
Effective as of March 1998, the Company entered into  employment  agreements and
severance agreements with Messrs.  Kurtzman,  Schwartz,  Papazian,  Veen, Froch,
Kaufman,  and Ms.  Kurtzman  Lavut and entered into  severance  agreements  with
Messrs.  Goldstein,  Mail, and Stuart.  The Committee reviewed and approved such
agreements  unanimously after consulting with a nationally  recognized  employee
benefits firm and  determining  that such  agreements were necessary in order to
retain highly qualified executives whose abilities are critical to the long term
success and competitiveness of the Company.

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

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

     In March  2000,  Mr.  Kurtzman  proposed  to the  Board of  Directors  that
consideration be given to restructuring  employment and severance  agreements to
allow the Company the flexibility to implement an orderly management transition,
if and when deemed  advisable  by the Board.  Certain  members of the  Company's
senior management believed that at some time in the future, as market acceptance
of the AuraGen(R) accelerated and manufacturing operations expanded, it might be
desirable to replace all or part of the senior  members of the  management  team
with  individuals  having focused  experience in large scale  manufacturing  and
sales operation.

     Subsequently,  the Company's  Board of Directors  entered into  discussions
with certain members of senior management with a view towards  restructuring the
employment  and  severance  agreements.  The  Board of  Directors,  through  its
Compensation Committee,  retained independent outside consultants to formulate a
proposal  whereby the existing  employment and severance  agreements with senior
management  would  be  modified  to  allow  for the  possibility  of an  orderly
management transition in the future if and when deemed advisable by the Board.

     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 Mssrs.  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 right to
any multi-year cash severance benefits in exchange for a one time grant of stock
options and warrants exercisable at a price of $.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  their  former
compensation.  In  addition,  each  executive  is entitled to receive  continued
medical benefits for three years following termination of employment.

     Section 162(m) Policy

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


                                Committee Members

         Salvador Diaz-Verson, Jr., Stephen Talesnick, Lawrence Diamant

     Compensation Committee Interlocks and Insider Participation

     The  Compensation  Committee  for the fiscal year ended  February  28, 2002
comprised Salvador  Diaz-Verson,  Jr., Stephen  Talesnick,  and Harry Haisfield.
Decisions regarding compensation of executive officers for the fiscal year ended
February 28, 2002 were made unanimously by the outside,  disinterested Directors
of the Board of Directors,  after reviewing  recommendations of the Compensation
Committee.

     Audit Committee Fraud Detection Program

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



<PAGE>


     ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The following table sets forth certain information  regarding the Company's
common  stock owned as of May 17, 2002 1) by each person who is known by Aura to
be the beneficial owner of more than five percent (5%) of its outstanding common
stock,  2) by each of the  Company's  Directors,  3) the former Chief  Executive
Officer and the other four most highly compensated executive officers other than
the CEO during the fiscal year ended  February  28,  2002 (the "Named  Executive
Officers"), and 4) by all current executive officers and Directors as a group:
<TABLE>
<CAPTION>

                                                                                          Number of Shares of    Percent of Common
      Beneficial Owner                                                                       Common Stock              Stock
      ----------------                                                                       ------------              -----
      <S>                                                                                     <C>                       <C>
      Gardner Lewis Asset Management L.P. (1)..............................................   23,212,336                6.5%
      ICM Asset Management Inc. (2)........................................................   23,499,933                6.6%
      James M. Simmons (3) ................................................................   24,980,042                6.6%
      Harvey Cohen (4)  ...................................................................      803,287                   *
      Lawrence Diamant (5).................................................................      769,727                   *
      Salvador Diaz-Verson, Jr. (6)........................................................    2,695,128                   *
      Stephen Talesnick (7)................................................................    3,317,698                   *
      Norman Reitman (8)...................................................................      842,142                   *
      Neal Meehan (9)......................................................................      440,625                   *
      Carl Albert(10)......................................................................    1,470,893                   *
      John Pincavage.......................................................................            0                   *
      Neal Kaufman (11)....................................................................    4,041,455                   *
      Zvi Kurtzman (12)....................................................................    9,571,258                2.3%
      Cipora Kurtzman Lavut (13)...........................................................    4,134,343                1.0%
      Gerald Papazian (14).................................................................    2,098,596                   *
      Arthur Schwartz (15).................................................................    4,905,562                1.2%
      Steven Veen (16).....................................................................    2,377,281                   *
      All current executive officers and Directors as a group
      (12 persons).........................................................................   13,190,017                3.2%

</TABLE>

*    Less than 1% of outstanding shares.

(1)  Based upon information contained in Schedule 13G/A dated February 14, 2002,
     as  filed  with the SEC by  Gardner  Lewis  Asset  Management  Inc.  Of the
     23,212,336  shares   beneficially   owned  by  this  person,  it  has  sole
     dispositive  power with respect to all of these  shares,  sole voting power
     with respect to 22,345,736  shares, and shared voting power with respect to
     338,700 shares.

(2)  Based upon  information  contained in Schedule 13G dated February 14, 2002,
     as filed with the SEC by ICM Asset  Management,  Inc. ICM Asset Management,
     Inc. is a registered  investment  advisor  whose  clients have the right to
     receive  or the power to direct  the  receipt  of  dividends  from,  or the
     proceeds  from the sale of, the stock.  Such person has neither sole voting
     nor sole  dispositive  power with respect to any of the  23,499,933  shares
     reported as being beneficially owned. Of the 23,499,933 shares beneficially
     owned by ICM Asset  Management,  Inc. it has shared  dispositive power with
     respect to all of these  shares,  and shared  voting  power with respect to
     22,562,390  shares.  James  M.  Simmons  is  the  President  of  ICM  Asset
     Management,  Inc, and is also the beneficial  owner of these shares in such
     capacity.  Accordingly,  these  shares  are  also  included  in the  shares
     reflected as being beneficially owned by James M. Simmons.

(3)  Based upon  information  contained in Schedule 13G dated February 14, 2002,
     as  filed  with  the  SEC by  James  M.  Simmons.  Included  in the  shares
     beneficially  owned by Mr.  Simmons are  23,499,933  shares  shown as being
     beneficially owned by ICM Asset Management,  Inc., a registered  investment
     advisor  whose clients have the right to receive or the power to direct the
     receipt of dividends  from,  or the  proceeds  from the sale of, the stock.
     James M.  Simmons is the  President  of ICM Asset  Management,  Inc, and is
     therefore also the beneficial  owner of these shares in such capacity.  Mr.
     Simmons has neither sole voting nor sole dispositive  power with respect to
     any of the 24,980,042 shares reported as being  beneficially  owned by him.
     Of the 24,980,042 shares  beneficially owned by Mr. Simmons,  he has shared
     dispositive  power with respect to all of these  shares,  and shared voting
     power with respect to 24,042,499 shares.

(4)  Includes 31,250 shares  beneficially owned, and 600,000 shares which may be
     purchased pursuant to options within 60 days of May 17, 2002.

(5)  Includes  340,989  shares  which are held by the firm  Robinson,  Diamant &
     Wolkowitz  where Mr. Diamant is a senior  partner.  Mr.  Diamant  disclaims
     beneficial ownership of these shares.

(6)  Includes  780,000  shares  which  may  be  purchased  pursuant  to  options
     exercisable within 60 days of May 17, 2002.

(7)  Includes  530,000  shares  which  may  be  purchased  pursuant  to  options
     exercisable within 60 days of May 17, 2002.

(8)  Includes  600,000  shares  which  may  be  purchased  pursuant  to  options
     exercisable  within 60 days of May 17, 2002 and 12,500  shares owned by Mr.
     Reitman's  wife,  as to which  12,500  shares he disclaims  any  beneficial
     ownership.  (9) Includes 296,875 shares which may be purchased  pursuant to
     options and warrants exercisable within 60 days of May 17, 2002.

(10)  Includes  250,000  shares which may be  purchased  pursuant to options and
      warrants exercisable within 60 days of May 17, 2002.

(11) Includes  175,000  shares  beneficially  owned  which are held of record by
     Advanced  Integrated  Systems,  Inc.,  and  2,224,819  shares  which may be
     purchased pursuant to options within 60 days of May 17, 2002.

(12) Includes  175,000  shares  beneficially  owned  which are held of record by
     Advanced  Integrated  Systems,  Inc.,  and  5,973,274  shares  which may be
     purchased pursuant to options within 60 days of May 17, 2002.

(13) Includes  2,269,819  shares  which may be  purchased  pursuant  to  options
     exercisable within 60 days of May 17, 2002

(14) Includes  1,446,287  shares  which may be  purchased  pursuant  to  options
     exercisable within 60 days of May 17, 2002

(15) Includes  175,000  shares  beneficially  owned  which are held of record by
     Advanced  Integrated  Systems,  Inc.,  and  2,312,545  shares  which may be
     purchased pursuant to options within 60 days of May 17, 2002.

(16) Includes 20,000 shares  beneficially  owned, and 2,377,281 shares which may
     be purchased pursuant to options within 60 days of May 17, 2002.

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

The mailing  address for ICM Asset  Management,  Inc. and James M. Simmons is W.
601 Main Avenue, Suite 600, Spokane, WA 99201.

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


     ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS


         Related Party Transactions

     In the third quarter of fiscal 2002, the Company  entered into a short term
loan  agreement  with  Carl  Albert,  a member of the  Board of  Directors,  for
$250,000,  bearing  interest  at a rate  of 10%.  The  note,  including  accrued
interest of $2,500,  was repaid within the third quarter.  In the fourth quarter
of fiscal 2002,  the Company  entered into a short term loan agreement with Carl
Albert for another $250,000,  bearing interest at a rate of 10%. The note, which
is included in current notes payable at February 28, 2002, and accrued  interest
of $4,400, was repaid in March 2002. The Company incurred  approximately $15,000
in legal fees to Mr.  Albert's  counsel  pursuant  to the loan  agreements.  The
Company also entered into security agreements,  respectively,  whereby the loans
were secured by Company receivables.

     In May 2002,  Mr. Albert  acquired  500,000 shares of common stock from the
Company for $100,000 in connection with a private  placement by the Company to a
number of third party investors.

     During  fiscal  2002,  the law  firm of  Robinson,  Diamant  and  Wolkowitz
received $50,000 and 483,846 shares of Aura common stock valued at approximately
$159,000  in  consideration  of  legal  services  rendered  by the firm to Aura.
Lawrence Diamant, a Director of the Company, is a member of this law firm.



<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

       In a report  filed on Form 8-K  dated  December  26,  2001,  the  Company
reported  that it had entered into  agreements  with the former  Chairman of the
Board and Chief  Executive  Officer  and five  other  former  members  of senior
management  to  terminate  their  employment  contracts  and  restructure  their
severance benefits.





<PAGE>

<TABLE>
<CAPTION>

INDEX TO EXHIBITS
                            Description of Documents

        <S>         <C>
        3.1         Certificate of Incorporation of Registrant as amended to date.
        3.2         Bylaws of Registrant as amended to date.
       10.1(1)      Aura Systems, Inc. 1987 Stock Option Plan for Non-Employee Directors.
       10.2(1)      Form of Aura Systems, Inc. Non-Statutory Stock Option Agreement.
       10.3(2)      1989 Stock Option Plan.
       10.4(3)      Joint  Development  and License  Agreement,  dated August 24, 1992,  between the Registrant and
                    Daewoo Electronics Co., Ltd.
       10.5(4)      Dedicated  Supplier  Agreement,  dated  December  2, 1993,  between the  Registrant  and Daewoo
                    Electronics Co., Ltd.
       10.6(5)      Form of 7% Secured Convertible Non-Recourse Note due 2002.
       10.7(6)      Asset Purchase  Agreement dated December 1, 1999 among  AuraSound,  Inc.,  Aura Systems,  Inc.,
                    AlgoSound, Inc., and Algo Technology, Inc.
       10.8(6)      Amendment dated December 22, 1999 to Asset Purchase Agreement dated December 1, 1999.
       10.9(6)      Assignment  and License  Agreement as of July 15, 1999 between  Speaker  Acquisition  Sub, Algo
                    Technology, Inc., Aura Systems, Inc., AuraSound Inc.
       10.10(6)     Stock Purchase Warrant issued to RGC International Investors, LDC by Aura System's Inc.
       10.11(6)     Payment  Agreement by and between Credit  Managers  Association of California and Aura Systems,
                    Inc.
       10.12(7)     Subscription Agreement from Isosceles Fund Limited to Aura Systems, Inc.
       10.13(7)     Stock Purchase Warrant of Aura Systems, Inc. issued to Isosceles Fund Limited.
       10.14(8)     Settlement  Agreement  and Mutual  Release  dated as of March 12, 2001,  between Aura  Systems,
                    Inc. and  Deutsche Financial Services Corporation.
       10.15        Form of Aura Systems, Inc., Director Indemnification Agreement dated as of July 10, 2001.
       10.16        Form of Agreement Regarding Termination of Employment dated as of December 21, 2001.
       10.17        From of Employment Agreement dated as of March 5, 1998.
       10.18        Aura Systems,  Inc.  Secured  Promissory  Note dated  September 4, 2001,  between Aura Systems,
                    Inc. and The Carl Albert Trust dated July 7, 1991, Carl Albert, Trustee.
       10.19        Aura Systems,  Inc. Security Agreement dated September 4, 2001, between Aura Systems,  Inc. and
                    The Carl Albert Trust dated July 7, 1991, Carl Albert, Trustee.
       10.20        Aura Systems,  Inc. Secured Promissory Note dated January 23, 2002, between Aura Systems,  Inc.
                    and The Carl Albert Trust dated July 7, 1991, Carl Albert, Trustee.
       10.21        Aura Systems,  Inc. Security Agreement dated January 23, 2002,  between Aura Systems,  Inc. and
                    The Carl Albert Trust dated July 7, 1991, Carl Albert, Trustee.
       10.22        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
       10.23        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.
       10.24        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.
       10.25        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.
       10.26        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.
       10.27        Form of Aura Systems, Inc. Subscription Agreement of May 2002
       10.28        Form of Aura Systems, Inc. Registration Rights Agreement of May 2002
       10.29        Settlement  Agreement and Release  dated as of May 7, 2002,  by and between Aura Systems,  Inc.
                    and CRS Emergency Vehicles, Co.
       10.30        Term Sheet dated as of February 12, 2002
       10.31        Term Sheet dated as of February 22, 2002
       10.32        Employment Letter to Joshua Hauser dated February 26, 2002
       21(8)        Subsidiaries of Aura Systems, Inc.
       23.1         Consent of PKF
       23.2         Consent of Singer Lewak Greenbaum & Goldstein LLP.
</TABLE>

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

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

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

(3)  Incorporated by reference to the Exhibit to the Company's Statement on Form
     S-1 (File No. 35-57 454).

(4)  Incorporated  by reference to the  Exhibits to the  Company's  Registration
     Statement on Form S-1 (File No.-33-57454).

(5)  Incorporated  by reference to the Exhibits to the  Company's  Annual Report
     Form 10-K for the fiscal year ended February 28, 1994 (File No. 0-17249).

(6)  Incorporated  by reference to the Company's  Annual Report on Form 10-K for
     the fiscal year ended February 28, 1999 (File No. 0-17249).

(7)  Incorporated  by reference to the Company's  Annual Report on Form 10-K for
     the fiscal year ended February 29, 2000 (File No. 0-17249).

(8)  Incorporated  by reference to the Company's  Annual Report on Form 10-K for
     the fiscal year ended February 28, 2001 (File No. 0-17249).


<PAGE>



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

                                     AURA SYSTEMS, INC.

Dated:   May 29, 2002
                                     By: /s/ Joshua Hauser
                                        ----------------------------------
                                        Joshua Hauser
                                        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.
<TABLE>
<CAPTION>

         Signatures                              Title                                                      Date

        <S>                                      <C>                                                     <C>
        /s/Joshua Hauser                         President and Chief Executive Officer                   May 29, 2002
        ---------------------------------
        Joshua Hauser                            (Principal Executive Officer)

        /s/Steve Burdick                         Senior Vice President, Chief Financial Officer          May 29, 2002
        ---------------------------------
        Steve Burdick                            (Principal Financial and Accounting Officer)

        /s/Carl Albert                           Chairman of the Board                                   May 29, 2002
        ---------------------------------
        Carl Albert

        /s/ Stephen Talesnick                    Vice Chairman of the Board                              May 29, 2002
        ---------------------------------
        Stephen Talesnick

        /s/Harvey Cohen                          Director                                                May 29, 2002
        ---------------------------------
        Harvey Cohen

        /s/Lawrence Diamant                      Director                                                May 29, 2002
        ---------------------------------
        Lawrence Diamant

        /s/Salvador Diaz-Verson, Jr.             Director                                                May 29, 2002
        ---------------------------------
        Salvador Diaz-Verson, Jr.

        /s/Neal Meehan                           Director                                                May 29, 2002
        ---------------------------------
        Neal Meehan

        /s/John Pincavage                        Director                                                May 29, 2002
        ---------------------------------
        John Pincavage

        /s/Norman Reitman                        Director                                                May 29, 2002
        ---------------------------------
        Norman Reitman
</TABLE>





<PAGE>



                                      F-1


                               AURA SYSTEMS, INC.
                                AND SUBSIDIARIES


                   Index to Consolidated Financial Statements


<TABLE>
<CAPTION>

<S>                                                                                                           <C>
    Independent Auditors' Reports on Consolidated Financial Statements and
            Financial Statement Schedule                                                                      F-2 to F-3

    Consolidated Financial Statements of Aura Systems, Inc. and Subsidiaries:

        Consolidated Balance Sheets-February 28, 2002 and February 28, 2001                                   F-4 to F-5

        Consolidated Statements of Operations and Comprehensive Loss-
              Years ended February 28, 2002, February 28, 2001 and February 29, 2000                              F-6

        Consolidated Statements of Stockholders' Equity -
              Years ended February 28, 2002, February 28, 2001 and February 29, 2000                              F-7

        Consolidated Statements of Cash Flows-
              Years ended February 28, 2002, February 28, 2001 and February 29, 2000                          F-8 to F-9


    Notes to Consolidated Financial Statements                                                               F-10 to F-22

    Consolidated Financial Statement Schedule:
      II      Valuation and Qualifying Accounts                                                              F-23 to F-24

</TABLE>

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


<PAGE>


                          INDEPENDENT AUDITOR'S REPORT




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


We have audited the  accompanying  consolidated  balance sheets of Aura Systems,
Inc.  and  subsidiaries  as of  February  28,  2002 and  2001,  and the  related
consolidated  statements of operations  and  comprehensive  loss,  stockholders'
equity, and cash flows for the years then ended.  These  consolidated  financial
statements   are  the   responsibility   of  the   Company's   management.   Our
responsibility  is  to  express  an  opinion  on  these  consolidated  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,  2002 and 2001,  and the results of their
operations  and their cash flows for the years then ended,  in  conformity  with
accounting principles generally accepted in the United States of America.

The  accompanying  financial  statements  have been  prepared  assuming that the
Company  will  continue  as a  going  concern.  As  discussed  in  Note 1 to the
consolidated financial statements,  the Company has generated significant losses
from  operations.  Therefore,  there is  substantial  doubt about its ability to
continue as a going concern.  Management's  plans in regard to these matters are
also  described  in  Note  1.  The  financial  statements  do  not  include  any
adjustments that might result from the outcome of this uncertainty.




/s/ SINGER LEWAK GREENBAUM & GOLDSTEIN LLP

Los Angeles, California
April 30, 2002, except for Note 22, as to which the date is May 24, 2002


<PAGE>


                          INDEPENDENT AUDITOR'S REPORT


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


We audited the  consolidated  statements of operations and  comprehensive  loss,
stockholders'  equity, and cash flows of Aura Systems, Inc. and subsidiaries for
the year ended February 29, 2000 and the related  financial  statement  schedule
listed  in the  accompanying  Index at Item  14.  These  consolidated  financial
statements  and  financial  statement  schedule  are the  responsibility  of the
Company's  management.  Our  responsibility  is to  express  an opinion on these
consolidated  financial statements and financial statement schedule based on our
audit.

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

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material  respects,  the results of the operations and their cash
flows of Aura Systems,  Inc. and  subsidiaries  for the year ended  February 29,
2000, and the financial  statement  schedule  presents  fairly,  in all material
respects,  the information  set forth therein,  all in conformity with generally
accepted accounting principles.

The accompanying  financial  statements have been prepared  assuming the Company
will  continue as a going  concern.  As discussed in note 1 to the  consolidated
financial  statements,   the  Company  has  generated  significant  losses  from
operations  and is  involved  with  significant  litigation.  As the Company has
suffered recurring losses from operations,  there is substantial doubt about its
ability to continue as a going  concern.  Management's  plans in regard to these
matters are  described in note 1. The  financial  statements  do not include any
adjustments that might result from the outcome of this uncertainty.



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

Los Angeles, California  90017
June 12, 2000



<PAGE>



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

                           Consolidated Balance Sheets



           ASSETS                                                           February 28,         February 28,
                                                                                2002                 2001
                                                                            -----------          ------------
           <S>                                                              <C>                 <C>
           CURRENT ASSETS:
              Cash and cash equivalents                                     $   1,143,396       $    1,265,912
              Receivables, net                                                     67,491            1,062,041
              Inventories, net                                                  5,006,424            9,756,399
              Other current assets                                                228,758              452,940
              Note receivable                                                     168,792            1,405,857
                                                                            -------------       --------------

                    Total current assets                                        6,614,861           13,943,149

           -----------------------------------------------------------
           PROPERTY, PLANT AND EQUIPMENT, AT COST                              16,309,956           41,289,011
              Less accumulated depreciation and amortization                   (5,935,475)         (20,966,852)
                                                                            --------------      ---------------
                    Net property, plant and equipment                          10,374,481           20,322,159

           LONG TERM INVESTMENTS                                                1,700,000            1,883,835
           LONG TERM RECEIVABLES                                                2,347,346            2,516,139
           NON-CURRENT INVENTORIES                                              4,500,000                   --
           PATENTS AND TRADEMARKS, NET                                          3,061,932            3,370,263
           OTHER ASSETS                                                           163,370            3,242,498
                                                                            -------------       --------------
                    Total                                                   $  28,761,990       $   45,278,043
                                                                            =============       ==============
</TABLE>


           See accompanying notes to consolidated financial statements


<PAGE>

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

                           Consolidated Balance Sheets


                                                                             February 28,        February 28,
          LIABILITIES AND STOCKHOLDERS' EQUITY                                  2002                 2001
                                                                         ------------------  -------------------
          <S>                                                               <C>                 <C>
          CURRENT LIABILITIES:
             Accounts payable                                               $     3,032,134     $     3,463,146
             Notes payable                                                        3,913,623          14,300,594
             Accrued expenses                                                     2,181,657           1,284,754
                                                                              -------------       -------------
                   Total current liabilities                                      9,127,414          19,048,494


          NOTES PAYABLE AND OTHER LIABILITIES                                     6,981,843          24,184,514

          COMMITMENTS AND CONTINGENCIES
          STOCKHOLDERS' EQUITY:

              Common stock, par value $.005 per share, and additional paid
              in  capital.   Authorized  500,000,000  shares;  issued  and
              outstanding 387,690,068 shares in 2002 and
              291,089,582 shares in 2001.                                       300,332,457          264,787,864

              Accumulated deficit                                              (287,679,724)       (262,742,829)
                                                                                -----------         ------------

                   Total stockholders' equity                                    12,652,733            2,045,035
                                                                              -------------        -------------
                   Total                                                     $   28,761,990      $    45,278,043
                                                                             ==============        =============
</TABLE>


                See accompanying notes to consolidated financial statements.


<PAGE>

<TABLE>
<CAPTION>
                       AURA SYSTEMS, INC AND SUBSIDIARIES
                    Consolidated Statements of Operations and
           Comprehensive Loss Years ended February 28, 2002, February
                         28, 2001 and February 29, 2000


                                                                        2002                   2001                2000
                                                                   -------------         -------------        -------------
<S>                                                                <C>                   <C>                  <C>
     NET REVENUES FROM SALE OF PRODUCT                             $   3,116,295         $   2,512,508        $   4,288,221
     PATENT ASSIGNMENT FEES                                                   --                    --            1,500,000
                                                                   -------------         -------------        -------------
     TOTAL NET REVENUES                                                3,116,295             2,512,508            5,788,221
     Cost of GOODS                                                     1,480,736             1,216,637            1,957,854
                                                                   -------------         -------------        -------------

     GROSS PROFIT                                                      1,635,559             1,295,871            3,830,367

     OPERATING EXPENSES:
        Engineering expenses                                           9,924,298             8,214,981           11,466,449
        Research and development                                         810,949               547,812              148,443
        Selling, general and administrative expenses                  10,006,844            12,695,833           10,725,397
        Legal settlements                                             (2,750,000)            1,512,769              427,091
        Settlement on accounts payable                                  (651,685)           (1,046,324)           2,350,671
                                                                   --------------        --------------       -------------
              Total operating expenses                                17,340,406            21,925,071           25,118,051
                                                                   -------------         -------------        -------------

     LOSS FROM OPERATIONS                                            (15,704,847)          (20,629,200)         (21,287,684)
     IMPAIRMENT OF LONG-LIVED ASSETS                                  (9,095,393)             (240,000)                  --
     OTHER INCOME AND (EXPENSE), NET                                  (2,026,195)              (60,771)          (3,115,687)
                                                                   --------------   -------------------  -------------------

     LOSS BEFORE INCOME TAXES AND OTHER ITEMS                        (26,826,435)          (20,929,971)         (24,403,371)
        Provision for taxes                                                   --                    --                   --
                                                                   -------------    ------------------   ------------------
     Loss from continuing operations                                 (26,826,435)          (20,929,971)         (24,403,371)
     Discontinued Operations:
          Loss from discontinued operations, net of
          taxes of $0                                                         --                    --           (1,433,859)
          Loss on disposal, net of taxes of $0                                --                    --           (3,063,574)
                                                                  --------------        --------------       ---------------
     Loss from discontinued operations                                        --                    --           (4,497,433)
                                                                  --------------        --------------       ---------------
     Loss before extraordinary item                                  (26,826,435)          (20,929,971)         (28,900,804)
     Extraordinary item
          Gain on extinguishment of debt obligations,  net of
          income taxes of $0                                           1,889,540                    --           19,068,916
                                                                  --------------        --------------       --------------
     NET LOSS                                                        (24,936,895)          (20,929,971)          (9,831,888)

     Other comprehensive income, net of taxes                                --                    --              365,932
                                                                  --------------        --------------       --------------
     COMPREHENSIVE LOSS                                           $  (24,936,895)       $  (20,929,971)      $   (9,465,956)
                                                                  ===============       ===============      ===============

     NET LOSS PER COMMON SHARE                                    $        (0.08)       $        (0.08)      $        (0.08)
                                                                  ===============       ===============      ===============
     Loss from continuing operations per common share             $        (0.08)       $        (0.08)      $        (0.20)
                                                                  ===============       ===============      ===============
     Loss from discontinued operations per common share           $           --        $           --       $        (0.03)
                                                                  ==============        ==============       ===============
     Extraordinary income per common share                        $           --        $           --       $         0.15
                                                                  ==============        ==============       ==============

     WEIGHTED AVERAGE NUMBER OF
        COMMON SHARES                                                327,587,590            261,568,346         124,294,051
                                                                  ==============         ==============        =============
</TABLE>


                See accompanying notes to consolidated financial statements.


<PAGE>

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

                    Consolidated Statements of Stockholders'
             Equity Years ended February 28, 2002, February 28, 2001
                              and February 29, 2000


                                                                                                          Accumulated
                                                                                                             Other
                                          Common Stock          Additional     Committed                  Comprehensive
                                                                 Paid-in     Common Stock  Accumulated    (CTA) Income

                                      Shares       Amount        Capital                     Deficit         (Loss)        Total
                                      ------       ------        -------                     -------         ------        -----

<S>                               <C>            <C>         <C>              <C>       <C>              <C>           <C>
Balance at February 28, 1999     107,752,042    $ 538,759   $218,154,486      $    --   $(231,980,970)   $(365,932)    $(13,653,657)

Notes payable converted           68,534,445      342,672     10,036,430           --             --             --      10,379,102
Exercise of warrants                 120,000          600         44,200           --             --             --          44,800
Stock issued to satisfy
  liabilities                      2,907,275       14,536        770,429           --             --             --         784,965
Private placements                17,661,630       88,308      4,400,692           --             --             --       4,489,000
Expenses of issuances                     --           --       (195,020)          --             --             --        (195,020)
Common stock not issued                   --           --             --    9,132,774             --             --       9,132,774
 Other comprehensive income               --           --             --           --             --        365,932         365,932

Net loss                                  --           --             --           --    (9,831,888)             --      (9,831,888)
                                  -----------     --------     ----------   ---------    ----------         --------      ----------
Balance at February 29, 2000     196,975,392      984,875    233,211,217    9,132,774   (241,812,858)            --       1,516,008

Notes payable converted            7,324,191       36,621      2,912,744           --             --             --       2,949,365
Stock issued to satisfy
  liabilities                     11,642,627       58,160      6,093,135           --             --             --       6,151,295
Private placements                40,721,909      203,610     12,231,830           --             --             --      12,435,440
Stock issued for prior year       34,425,463      172,128      8,960,646   (9,132,774)            --             --              --
Expenses of issuances                     --           --        (77,102)          --             --             --         (77,102)

Net loss                                  --           --             --           --   (20,929,971)             --     (20,929,971)
                                 -----------   ----------   -----------    -----------  -----------          ----------  -----------

Balance at February 28, 2001     291,089,582    1,455,394    263,332,470           --   (262,742,829)            --       2,045,035

Notes payable converted           31,398,771      156,994     11,706,261           --             --             --      11,863,255
Stock issued to satisfy
  liabilities                     18,500,802       92,504      6,921,208           --             --             --       7,013,712
Exercise of stock options
  & warrants                         102,500          512         27,263           --             --             --          27,775
Stock issued repricing
  requirements                     8,947,631       44,738        (44,738)          --             --             --              --
Private placements                37,650,782      188,237     13,215,876           --             --             --      13,404,113
Expenses of issuances                     --           --        (74,912)          --             --             --         (74,912)
Shares issuable under repricing
agreements                                --           --             --    3,310,650             --             --       3,310,650

Net loss                                  --           --             --           --    (24,936,895)             --    (24,936,895)
                                 -----------   ------------   ----------    ---------   -------------      --------      -----------
Balance at February 28, 2002     387,690,068   $1,938,379   $295,083,428   $3,310,650   $(287,679,724)     $     --    $ 12,652,733
                                 ===========   ==========   ============   ==========   ==============     ========    ============


</TABLE>


                See accompanying notes to consolidated financial statements.


<PAGE>

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

                      Consolidated Statements of Cash Flows
              Years ended February 28, 2002, February 28, 2001 and
                                February 29, 2000

                                                                         2002              2001             2000
                                                                        ------            ------           ------
     <S>                                                             <C>               <C>               <C>
     Cash flows from operating activities:
        Net loss                                                     $(24,936,895)     $(20,929,971)      $(9,465,956)
        Adjustments to reconcile net loss to net

          Cash used by operating activities:
          Depreciation and amortization                                 5,868,089         7,619,979         6,853,924
          Provision for environmental cleanup                                  --                --            48,812
          (Gain) loss on disposition of assets                             65,823        (1,756,746)           93,638
          Impairment of long-lived assets                               9,095,393           240,000                --
          Gain on extinguishment of debt                               (1,889,540)               --       (19,068,916)
          Settlement on accounts payable                                 (651,685)       (1,046,324)        2,350,671
          Legal settlements                                              (750,000)               --                --
          Operating expenses satisfied with stock                         278,801           903,935                --
          Loss on disposal of discontinued operations                          --                --         2,697,642
          Changes in operating assets and liabilities:
            Receivables                                                   965,700         1,397,159           462,541
            Inventories                                                   249,975         1,432,828         4,019,810
            Other current assets                                          224,182           (92,763)        1,515,787
            Accounts payable                                            1,587,763          (752,858)       (3,721,845)
            Accrued expenses                                            1,156,386          (349,546)       (1,577,248)
            Litigation and other liabilities                                   --                --           222,223
                                                                        ---------        ----------       -----------
            Net cash used by operating activities                      (8,736,008)      (13,334,307)      (15,568,917)
     Cash flows from investing activities:
        Payments from notes receivable                                    155,857         3,784,681         5,674,828
        Proceeds from sale of assets                                           --                --           327,109
        Purchase of property, plant and equipment                        (255,733)          (38,200)         (16,103)
        Other assets                                                       (4,300)            3,821                --
                                                                        ---------         ---------         ---------
            Net cash provided (used) by investing activities             (104,176)        3,750,302         5,985,834
     Cash flows from financing activities:
        Net proceeds from borrowings                                      500,000                --           251,101
        Repayment of notes payable                                     (5,139,308)       (1,768,859)       (1,218,571)
        Proceeds from exercise of options                                     775                --                --
        Net proceeds from issuance of common stock                     13,329,201        12,358,339         7,393,980
        Net proceeds from exercise of warrants                             27,000                --            24,800
        Repayment of convertible notes                                         --                --          (430,000)
                                                                        ---------         ---------         ---------
            Net cash provided by financing activities                   8,717,668        10,589,480         6,021,310
                                                                        ---------         ---------         ---------
            Net increase (decrease) in cash and equivalents              (122,516)        1,005,475        (3,561,773)
     Cash and cash equivalents at beginning of year                     1,265,912           260,437         3,822,210
                                                                        ---------         ---------        ----------
     Cash and cash equivalents at end of year                          $1,143,396        $1,265,912         $ 260,437
                                                                       ==========       ===========       ===========
     Supplemental disclosures of cash flow information:
        Cash paid during the year for:
            Interest                                                   $1,081,122        $1,977,239         $ 922,708
                                                                        =========        ==========        ==========
            Income taxes                                                  $    --           $    --           $    --
                                                                        =========        ==========        ==========

</TABLE>


                See accompanying notes to consolidated financial statements.


<PAGE>


     Supplemental  disclosures of non-cash  investing and financing  activities:

     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
repricing  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.  During  fiscal 2002,  the Company also 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 9
of Notes to Consolidated Financial Statements); 8,947,631 shares of common stock
for repricing 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 repricing had no effect on total stockholders' equity.

     During the year ended  February 28, 2001,  $2,949,365  of notes payable and
accrued  interest was  converted  into  7,324,191  shares of common  stock.  The
Company  also  issued  11,642,627  shares of  common  stock in  satisfaction  of
$6,151,295 of liabilities, of which $3,748,384 was long term trade debt included
in notes payable and other liabilities. During the year ended February 28, 2001,
the  Company  also  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. The Company issued 2,520,000 shares of common stock
for the  conversion of notes payable and accrued  interest of $686,524;  541,667
shares of common stock in  settlement of accrued and unpaid  director's  fees of
$146,250; 12,500,000 shares of common stock, in the amount of $3,100,000 for the
Company's private placement,  and 14,687,972 shares of common stock with a value
of  $5,200,000  to satisfy  the  liability  for a class  action  settlement.  In
addition, 2,400,000 shares of common stock were issued as a finder's fee for the
Company's private  placements and 1,775,824 shares of common stock for repricing
a prior private placement of the Company.  The finder's fee and repricing had no
effect on total  stockholders'  equity.  The above items total 34,425,463 shares
and $9,132,774, which is included in the Consolidated Statement of Stockholders'
Equity as  Committed  common  stock at February  28,  2000,  and Common Stock at
February 28, 2001.

     During the year ended  February  29,  2000,  the Company  restructured  its
convertible notes payable  obligations (most of which were in default) primarily
through  debt  forgiveness  and equity  conversion.  With the debt  restructure,
$11,009,102 of convertible  notes was converted  into  71,054,445  shares of the
Company's  common stock, of which 2,520,000  shares were not reflected as issued
and  outstanding as of February 29, 2000. The Company also redeemed  $430,000 of
convertible  notes,  and  $12,535,898  in  convertible  notes and  $5,850,168 in
accrued  interest  were  forgiven  along with  $682,852 in accounts  payable and
accrued expenses.  The remaining balance of the notes became non-convertible and
was  included in secured  notes  payable for the year ended  February  29, 2000.
Total debt forgiveness of $19,068,918 is reflected as an  extraordinary  item in
the accompanying consolidated financial statements and resulted in extraordinary
income per share of $0.15. A majority of the restructure  was  accomplished by a
single  unrelated party acquiring  $21,345,000 of the convertible  notes payable
and subsequently  converting  $9,224,102 into 65,034,445 shares of the Company's
common stock and debt forgiveness of $12,120,898.  Additionally,  liabilities of
$20,000 were satisfied by the exercise of 40,000 warrants with an exercise price
of $.50 per  share;  1,020,890  shares of common  stock  were  issued as fees in
connection with a private  placement,  and 2,907,275 shares of common stock were
issued in settlement of accrued and unpaid management  compensation of $784,965.
Included  in net  proceeds  from  issuance of common  stock in the  Consolidated
Statement  of Cash  Flows is $3.1  million  which is  included  in the line item
Common stock not Issued in the Consolidated  Statement of Stockholders'  Equity.

     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,  resulting in
a gain  recognized of  approximately  $850,000.  The final payment of $1,250,000
plus  interest  accrued  at 8% 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 in cash.  Aura  received  313,232  common shares in
exchange for the final  payment.  During the year ended  February 28, 2001,  the
Company sold the assets of the ceramics facility for $3.5 million in the form of
a note  receivable  of $2.5  million  plus  $800,000  paid to third  parties  in
satisfaction  of liabilities  and payments of $200,000 to Aura.  During the year
ended February 29, 2000, the Company sold its MYS subsidiary for a total of $4.2
million  consisting  of a $1 million down payment and a note  receivable of $3.2
million.  The  Company  also sold the  assets of its  AuraSound  subsidiary  for
approximately  $2.4 million  consisting of a down payment of $100,000 and a note
receivable of approximately $2.3 million.


          See accompanying notes to consolidated financial statements.


<PAGE>


                               AURA SYSTEMS, INC.
                                AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
              Years ended February 28, 2002, February 28, 2001 and
                                February 29, 2000


          (1) Business and Summary of Significant  Accounting  Policies
Business

     Aura Systems, Inc. ("Aura" or the "Company"),  a Delaware corporation,  was
founded to engage in the development,  commercialization  and sales of products,
systems and components  using its patented and proprietary  electromagnetic  and
electro-optical  technology.  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's unique and
patented  energy solution 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 5).

     In  1994,  the  Company  founded  NewCom,  Inc.   ("NewCom"),   a  Delaware
corporation,   which  engaged  in  the  manufacture,   packaging,   selling  and
distribution of  computer-related  communications  and  sound-related  products,
including modems, CD-ROMs, sound cards, speaker systems and multimedia products.
During the second half of fiscal 1999  NewCom's  business  suffered from adverse
industry  conditions,  including  increased  price  reductions  and a decline in
demand resulting from increased incorporation of computer peripherals at the OEM
level. NewCom ceased operations in early fiscal 2000.

     In  1996,  the  Company  acquired  100% of the  outstanding  shares  of MYS
Corporation  of Japan  ("MYS")  to expand  the range of its sound  products  and
speaker  distribution  network.  MYS  engaged  in the  manufacture  and  sale of
speakers and speaker systems for home,  entertainment  and computers.  In fiscal
2000, the Company sold MYS to MYS management.  AuraSound  manufactured  and sold
professional and consumer sound system components and products.  In fiscal 2000,
the Company entered into an agreement for the sale of the assets of AuraSound.

     Basis of Presentation and Going Concern

     Certain  amounts in the prior year  financial  statements and related notes
have been reclassified to conform to the fiscal 2002 presentation.

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

     Principles of Consolidation

     The  financial  statements  include  the  accounts  of the  Company and its
subsidiaries.  Investments  in  affiliated  companies  are  accounted for by the
equity or cost method,  as appropriate.  Intercompany  accounts and transactions
with Aura Realty, Inc. have been eliminated.


<PAGE>


     For  the  years  ended  February  28,  2001  and  February  29,  2000,  the
consolidated financial statements include accounts of the Company and its wholly
owned subsidiaries Aura Ceramics, Inc. and Electrotec Productions, Inc. (and its
wholly owned subsidiary  Electrotec Europe).  During the year ended February 29,
2000,  the Company  divested its AuraSound  segment (see Note 20). The AuraSound
segment included the Company's wholly owned subsidiaries AuraSound, Inc. and MYS
and its subsidiaries  Audio-MYS,  MYS America and MYS U.S.A. During fiscal 2001,
the Company sold its interest in Aura Ceramics, Inc. to management (see Note 3),
and the Company divested the Electrotec Productions, Inc. business.

     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 is  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.  The
Company  recognized  $1.5  million in  revenue  from the  assignment  of patents
related to Aura Sound products in fiscal 2000. All revenue other than the patent
fees is related to the AuraGen(R).

     Comprehensive Income

     The Company's other  comprehensive  loss in fiscal 1999 consists of foreign
currency translations.

     Cash and Cash Equivalents

     The Company  considers  all highly  liquid  assets,  which have an original
maturity of less than three months when purchased,  to be cash  equivalents.  At
February 28, 2002 and February 28, 2001,  the Company's  uninsured cash balances
totaled $1,091,281 and $1,158,980, respectively.

     Use of Estimates

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

     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
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.

     Per Share Information

     The consolidated net loss per common share is based on the weighted average
number of common shares  outstanding  during the year.  Common share equivalents
have been  excluded  since  inclusion  would dilute the reported loss per share.
Such common stock  equivalents  amount to 75,212,978  common shares for warrants
and options at February 28, 2002, 64,612,015 common shares at February 28, 2001,
and 11,709,000 common shares at February 29, 2000.

     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.
The  accumulated  amortization  was  $1,964,458  as of  February  28,  2002  and
$1,656,128  as of February  28,  2001.  If a patent or  trademark  is  rejected,
abandoned,  or otherwise  invalidated the  unamortized  cost is expensed in that
period.

     Impairment of long-lived assets

     The Company  reviews  long-lived  assets and  identifiable  intangibles  in
accordance with Statement of Financial  Standards ("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.



<PAGE>



     Research and Development

     Research and development costs are expensed as incurred.

     Advertising Costs

     Advertising  costs are expensed as incurred.  Advertising  costs charged to
expense were not material in fiscal 2002, 2001 and 2000.

     Depreciation

     Property,  plant and  equipment  are  depreciated  using the  straight-line
method over their estimated useful lives as follows:

                      Buildings                                   40 years
                      Machinery and equipment                   5-10 years
                      Furniture and fixtures                       7 years

     Depreciation   and  amortization   expense  of  buildings,   machinery  and
equipment,  and furniture and fixtures  approximated $5.5 million, $6.3 million,
and $6.5 million for fiscal 2002,  2001 and 2000,  respectively.  See Note 8 for
further description of the asset impairment charge of $4.6 million in 2002.

     (2) Accounts Receivable

     Accounts receivable consist of the following:
<TABLE>
<CAPTION>

                                                                                         2002             2001
                                                                                       -------           -------
                  <S>                                                                <C>             <C>
                  Accounts receivable                                                 $ 217,491       $ 1,222,041
                  Less allowance for uncollectible receivables                         (150,000)         (160,000)
                                                                                       ---------        ---------
                                                                                       $ 67,491       $ 1,062,041
                                                                                       ========       ===========
</TABLE>

Bad debt  expense  was $0 in fiscal  2002 and  approximately  $1.3  million  and
$456,000 in fiscal 2001 and 2000, respectively.


(3)      Notes Receivable
                Notes receivable consist of the following:
<TABLE>
<CAPTION>

                                                               2002                        2001
                                                             -------                      -------
                  <S>                                        <C>                       <C>
                   Telemac                                      $   --                  $1,250,000
                   Alpha Ceramics                            2,516,138                   2,671,996
                                                             ---------                 -----------
                                                             2,516,138                   3,921,996
                   Less current portion                        168,792                   1,405,857
                                                               -------                 -----------
                                                           $ 2,347,346                  $2,516,139
                                                           ===========                  ==========
</TABLE>

     During  fiscal  1999,  the Company  sold a portion of its shares in Telemac
Cellular  Corp.  ("Telemac")  back to Telemac.  The Company  then entered into a
cancellation  of shares  agreement  whereby it tendered the remaining  shares to
Telemac in exchange for a $2,500,000 note receivable from Telemac,  resulting in
a gain  recognized of  approximately  $850,000.  The final payment of $1,250,000
plus  interest  accrued  at 8% 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 4).

     In March 2000, the Company sold the assets of its ceramics  facility to the
president and  management  of the facility for $3.5 million  resulting in a gain
recognized of $1,756,746.  The terms of the sale called for a note in the amount
of $2.5 million with interest at 8%, a down payment of $100,000 and a payment at
closing of $100,000 plus  payments to third  parties of $800,000.  This facility
accounted for $2.9 million or 50% of revenues in fiscal 2000.

<PAGE>

     (4) Long Term Investments

     Long term investments consist of the following:
<TABLE>
<CAPTION>

                                                              2002                     2001
                                                             ------                   ------
                   <S>                                      <C>                    <C>
                   Aquajet Corporation                      $ 923,835              $  923,835
                   Algo Technology, Inc.                    1,348,652               1,348,652
                   Telemac                                  1,250,000                      --
                                                            ---------               ---------
                       Subtotal                             3,522,487               2,272,487
                   Reserve                                 (1,822,487)               (388,652)
                                                           ----------               ---------
                   Total, net                              $1,700,000             $ 1,883,835
                                                           ==========             ===========
</TABLE>


     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.

     The Company  maintains an investment in Aquajet,  Inc., a development stage
company that is in the process of developing and marketing its water  recreation
vehicle.  Aquajet has been  involved in raising  financing  for the past several
years in order to exploit their business plan. In relation to this,  Aquajet 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.  The Company  expects to realize its asset through the eventual
public offering or acquisition of Aquajet 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 will likely not continue its operations as
a going concern.

     The investment in Algo  Technology,  Inc. has been recorded at its net fair
value based upon the estimated  share value,  after giving  consideration  to an
other than temporary decline in the value. The Telemac  investment was issued to
Aura in  lieu  of  cash at $5 per  share  as  described  in  Note 3  above.  The
investment  has been  recorded  at its  estimated  net fair value based upon the
estimated common stock price on the date of the transaction.

(5)      Joint Ventures and Other Agreements

         Aura-Dewan Joint Venture

     In 1995,  the Company  entered into an agreement  with K&K  Enterprises  of
India  ("K&K") for the  formation  of a joint  venture to  manufacture  and sell
speakers using Aura's proprietary technology.  In 1995, the Company also entered
into an agreement  with K&K for the formation of a joint venture to  manufacture
Aura's Bass  Shaker(TM).  In fiscal 1999, the joint venture was terminated and a
total of $534,911 in joint  venture  losses and  write-offs  were  recorded.  In
fiscal 2000, the Company's remaining investment in property of the joint venture
was disposed of and certain claims and  liabilities  were  satisfied.  A loss on
disposal of assets in the amount of $800,000 was  recorded in fiscal  2000.  The
$800,000  loss is  included  in other  income and  expense on the  statement  of
operations  and is disclosed in Note 18 where it is included in the gain or loss
on disposal of assets.

         Daewoo Agreement

     In  1992,  the  Company  entered  into a joint  development  and  licensing
agreement  with Daewoo to develop and  commercialize  televisions  using  Aura's
AMA(TM) display  technology.  Aura was to receive a fixed royalty  (depending on
television  size), for each television set manufactured by Daewoo or licensed by
Daewoo to a third party.  Daewoo was taken over by its  creditors  during fiscal
1999.  No  assurances  can  be  given  as to the  future  plans  of the  AMA(TM)
technology at Daewoo.

(6)      Related Party Transactions

     In the third quarter of fiscal 2002, the Company  entered into a short term
loan  agreement  with a member of the Board of Directors for  $250,000,  bearing
interest at a rate of 10%. The note,  including  accrued  interest of $2,500 was
repaid within the third quarter.

     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 another  $250,000,
bearing  interest at a rate of 10%. The note, which is included in current notes
payable at February 28, 2002, and accrued interest of $4,400 was repaid in March
2002.  Related  accrued  interest of $2,400 at February  28, 2002 is reported in
accrued expenses.

<PAGE>


(7)      Inventories

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

                                                                       2002                  2001
                                                                      ------                ------
         <S>                                                         <C>                   <C>
         Raw materials                                               $ 4,043,697           $ 3,516,826
         Finished goods                                                7,258,138             6,530,977
         Reserve for potential product obsolescence                   (1,795,411)             (291,404)
                                                               ------------------    ------------------
                                                                     $ 9,506,424           $ 9,756,399
                                                               =================     =================
</TABLE>

     Inventories  consist  primarily of components  and completed  units for the
Company's  AuraGen(R) product. The net inventories as of February 28, 2002 which
are not expected to be realized within a 12 month period during fiscal 2003 have
been reclassified as long term.


(8)      Property, Plant and Equipment

     Property, plant and equipment, at cost, is comprised as follows:
<TABLE>
<CAPTION>

                                                                                   2002                    2001
                                                                                 -------                 -------
                   <S>                                                       <C>                     <C>
                   Land                                                      $   3,187,997           $  3,187,997
                   Buildings                                                     8,708,796              8,708,796
                   Machinery and equipment                                       1,969,206             26,840,274
                   Furniture, fixtures and leasehold improvements                2,443,957              2,551,944
                                                                         -----------------          -------------
                                                                              $ 16,309,956           $ 41,289,011
                                                                              ============           ============
</TABLE>


     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 $4.6  million  to $0,  its
estimated  fair value based upon the  discounted  estimated  cash flows over the
remaining asset lives.

(9)      Notes Payable and Other Liabilities

     Notes payable and other liabilities consist of the following:
<TABLE>
<CAPTION>

                                                       2002            2001
                                                      ------          ------
<S>                                                 <C>            <C>
Litigation payable (a)                              $2,327,300     $   3,030,800
Line of credit (b)                                          --         1,984,000
Notes payable-equipment (c)                             20,371            26,093
Notes payable-buildings (d)                          5,157,138         5,248,205
Unsecured notes payable (e)                                 --         7,443,321
Trade debt (f)                                       3,140,657         7,960,027
Secured notes payable (g)                                   --        12,792,662
Related party note payable (h)                         250,000                --
                                                --------------     -------------

                                                    10,895,466        38,485,108
Less: current portion                                3,913,623        14,300,594
                                                --------------    --------------
Long-term portion                                 $  6,981,843     $  24,184,514
                                                  ============     =============
</TABLE>


(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.  See  Note 16 for
     additional information.

(b)  The line of credit  consisted  of a single  credit line in the amount of $3
     million,  bearing an interest rate of 12% and secured by a general security
     interest  in the  assets  of the  Company.  The line  called  for a monthly
     principal payment of $100,000 plus accrued interest,  and did not allow for
     any additional  draws. The Company was in violation of substantially all of
     the original terms of this  agreement,  for which it received a waiver from
     the bank effective through June 30, 2001. The line of credit was repaid and
     eliminated in fiscal 2002.

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

(d)  Notes  payable-buildings  consists of a 1st Trust Deed on two  buildings in
     California  bearing interest at the rate of 7.625%. A final balloon payment
     is due in fiscal 2009.

(e)  Unsecured  notes payable at February 28, 2001 consisted of one note bearing
     interest at a rate of 8% and an accrued liability of $5,500,000 to Deutsche
     Financial  Services  (DFS) as a result  of a  written  guarantee  of NewCom
     debt.The  amount due to DFS was  classified  as a current  liability on the
     balance  sheet as a result of a settlement  reached with DFS  subsequent to
     the end of fiscal 2001. Following the terms of the settlement, in the first
     quarter of fiscal 2002 a cash payment of $350,000  was made and  10,000,000
     shares of Aura  common  stock  valued  at  $4,000,000  were  issued to DFS,
     resulting  in a  gain  on  the  settlement  of the  recorded  liability  of
     $1,150,000.  During the third quarter of fiscal 2002, the remaining balance
     of the unsecured  note plus accrued  interest was forgiven by the creditor,
     resulting in an extraordinary pre-tax gain for early extinguishment of debt
     of approximately $900,000 (see Note 23).

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

(g)  Secured notes  payable at February 28, 2001  consisted of two notes bearing
     interest at a rate of 8%.  During fiscal 2002,  the remaining  balance plus
     accrued interest of one secured note was converted into 1,970,771 shares of
     the Company's common stock. Additionally,  the Company converted the second
     secured note plus accrued  interest into  44,142,000  shares of Aura common
     stock,  resulting in an extraordinary  pre-tax gain of  approximately  $1.0
     million (See Note 23).

(h)  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 a rate of 10% and was repaid in March 2002.

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


                            Fiscal Year Amount
                                      2003                    $3,913,623
                                      2004                     1,872,903
                                      2005                       270,035
                                      2006                       123,856
                                      2007                       133,778
                                      thereafter               4,581,271
                                                           -------------
                                                             $10,895,466

(10)     Accrued Expenses

     Accrued expenses consist of the following:

                                                        2002              2001
                                                      -------            -------
Accrued payroll and related expenses               $   794,481       $   680,524
Accrued interest                                        76,848           280,228
Accrued severance                                    1,080,525                --
Other                                                  229,803           324,002
                                                   -----------       -----------
                                                   $ 2,181,657       $ 1,284,754
                                                   ===========       ===========

          In the fourth quarter of fiscal 2002, the Company recorded a liability
     for  future  severance  payments  to the former  management.  Aura does not
     intend to utilize the consulting  services of the former  management beyond
     the first quarter of fiscal 2003.

          The Company has settled various trade payables and accrued liabilities
     with its vendors as a result of  renegotiating  the  ultimate  payment due.
     These  negotiations  have  resulted  in gains and losses as reported in the
     statements of operations for fiscal 2002, 2001 and 2000.

(11)     Income Taxes

          Deferred  income  taxes  reflect  the net  tax  effects  of  temporary
     differences  between the  carrying  amounts of assets and  liabilities  for
     financial reporting purposes and the amounts used for income tax purposes.

          At  February   28,   2002,   the  Company  had  net   operating   loss
     carry-forwards  for Federal and state income tax purposes of  approximately
     $249.5 million and $93.8 million  respectively,  which expire through 2022.
     Under SFAS No. 109, "Accounting for Income Taxes", the Company utilizes the
     liability method of accounting for income taxes.  Accordingly,  the Company
     has  recorded a  non-current  deferred  tax benefit of  approximately  $120
     million for fiscal 2002 and $105 million for fiscal  2001.  The Company has
     also recorded a full valuation reserve to fully offset the deferred benefit
     due to the uncertainty of the realization of this benefit. The deferred tax
     benefit   consists  solely  of  the  benefit  of  the  net  operating  loss
     carry-forward.


<PAGE>


               The effective income tax rate reconciliation is:
<TABLE>
<CAPTION>

                                                                  2002                   2001                     2000
                                                                -------                -------                   -------
                 <S>                                               <C>                    <C>                     <C>
                 U.S. Statutory income tax rate                      40%                    40%                     40%
                 Valuation allowance                                (40%)                  (40%)                   (40%)
                                                                   -----                   -----                    -----
                                                                      0%                     0%                      0%
                                                               ===========            ===========              ===========
</TABLE>


(12)     Common Stock, Stock Options and Warrants

          At February 28, 2002 and 2001, the Company had  500,000,000  shares of
     $.005 par value  common  stock  authorized  for  issuance.  The Company had
     387,690,390  shares of common stock issued and  outstanding at February 28,
     2002.  The Company  issued  common  stock in the fourth  quarter 2002 which
     calls for  additional  repricing  shares  upon the  issuance of shares at a
     lower  price  within  a twelve  month  period.  See Note 23 for  additional
     information.

          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.

          At  February  28,  2002 there were  warrants  outstanding  to purchase
     33,956,727  shares of the Company's common stock  exercisable at an average
     price of $0.71 per share.

          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 ten-year
     period from the date of grant.

          A summary of activity in the Directors stock option plan follows:

<TABLE>
<CAPTION>

                                                                                  Shares        Exercise Price
                                                                                ----------     ---------------
                       <S>                                                         <C>            <C>
                       Options outstanding at February 28,1999                     560,000        $  2.06-4.75
                       Expired                                                     (60,000)       $  3.00-4.75
                                                                                   --------     --------------
                       Options outstanding at February 29, 2000                    500,000        $  2.06-2.30
                                                                                   -------      --------------
                       Options outstanding at February 28, 2001                    500,000        $  2.06-2.30
                       Expired                                                     (50,000)       $  2.06-2.30
                                                                                  ---------     --------------
                       Options outstanding at February 28, 2002                    450,000        $  2.06-2.30
                                                                                   =======
</TABLE>


The following table summarizes information about director stock options at
February 28, 2002:
<TABLE>
<CAPTION>

                                         Number             Average                                   Number
                   Range of          Outstanding at     Remaining Life     Weighted Average         Exercisable
                Exercise Price          2/28/02            in Years          Exercise Price        as of 2/28/02
                --------------          -------            --------          --------------        -------------
                    <S>                  <C>                 <C>                 <C>                  <C>
                     $2.06               450,000             5.36                 $2.06                 400,000
                     $2.30                50,000             5.13                 $2.30                  50,000

</TABLE>

(13)     Employee Benefit Plans

          The Company  sponsored two employee  benefit plans: The Employee Stock
     Ownership Plan (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. This plan was formally approved by
     the  Board  of  Directors   during   fiscal  1990.   The  Company  made  no
     contributions to the ESOP in fiscal 2002, 2001 and 2000.

          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  employee's  pre-tax
     contributions.  The matching  contributions by the Company included in SG&A
     expenses are $58,025,  $49,152, and $52,565 in fiscal 2002, 2001, and 2000,
     respectively.

          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  shareholders.  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.


<PAGE>


          In October 1995,  the Financial  Accounting  Standards  Board ("FASB")
     issued SFAS No.  123,  "Accounting  for  Stock-Based  Compensation,"  which
     contains a fair  value-based  method for valuing  stock-based  compensation
     that entities may use, which measures  compensation  cost at the grant date
     based on the fair value of the award.  Compensation is then recognized over
     the service period, which is usually the vesting period. Alternatively, the
     standard permits entities to continue  accounting for employee stock option
     and similar equity  instruments  under Accounting  Principles Board ("APB")
     Opinion No. 25, "Accounting for Stock Issued to Employees." 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 stock
     issuances to employees and does not recognize  compensation expense for its
     stock-based compensation other than for restricted stock and options issued
     to outside third parties.

          The  Black-Scholes  option  valuation  model was  developed for use in
     estimating  the  fair  value  of  traded  options  which  have  no  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.

          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:

Net loss                                       2002                    2001
                                              ------                  -------
 As reported                             $ (24,936,895)           $ (20,929,971)
 Pro forma                               $ (26,368,716)           $ (22,114,397)

Basic loss per common share
As reported                                    $ (0.08)                 $ (0.08)
 Pro forma                                     $ (0.08)                 $ (0.08)

          For the year ended  February  29,  2000 pro forma  amounts  related to
     option grants were not material.

          For the 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  assumptions:  dividend yield of 0%,  expected  volatility of
     70%, risk-free interest rates of 4.9% to 6.0%, and expected life of 1.5 and
     3.0 years.

          The  weighted-average  fair value of options granted during the period
     ended  February  28, 2002 for which the  exercise  price  equals the market
     price on the grant date was $0.09, and the weighted-average  exercise price
     was $0.32. The weighted-average fair value of options granted for which the
     exercise  price was  greater  than the  market  price on the grant date was
     $0.07, and the  weighted-average  exercise price was $0.36. No options were
     granted for which the exercise  price was less than the market price on the
     grant date.

          The  weighted-average   remaining  contractual  life  of  the  options
     outstanding at February 28, 2002 is 8.5 years.  The exercise  prices of the
     options  outstanding  at February 28, 2002 ranged from $0.31 to $7.31,  and
     information relating to these options is as follows:

<TABLE>
<CAPTION>

                                                                      1989 Plan                             2000 Plan
                                                        ----------------------------------      ----------------------------------
                                                              Shares         Exercise Price         Shares          Exercise Price
                                                        ----------------  -----------------     -------------     ----------------

         <S>                                                  <C>                <C>              <C>                <C>
         Options outstanding at February 28, 1999             6,453,300          $1.44-7.31                --                   --

         Cancellations                                         (454,500)          2.06-7.31                --                   --
         Expired                                               (131,800)          3.06-4.12
                                                               ---------         -----------      -----------        -------------
         Options outstanding at February 29, 2000             5,867,000           1.44-7.31                --                   --

         Grants                                                      --                  --        17,565,500           $0.31-0.60
         Cancellations                                           (5,000)               3.00          (132,500)                0.31
         Expired                                               (431,000)                .44                --                   --
                                                               ---------         -----------      -----------        -------------
         Options outstanding at February 28, 2001             5,431,000           1.79-7.31        17,433,000            0.31-0.60

         Grants                                                      --                  --        18,849,001            0.45-0.64
         Cancellations                                          (20,000)               3.00          (428,250)           0.31-0.45
         Exercises                                                   --                  --            (2,500)                0.31
         Expired                                                 (6,000)              7.25                 --                   --
                                                               ---------         -----------      -----------        -------------
         Options outstanding at February 28, 2002              5,405,000         $1.79-7.31        35,851,251          $ 0.31-0.64
                                                               =========         ==========        ==========         ============
</TABLE>


         The following table summarizes information about employee stock options
at February 28, 2002:
<TABLE>
<CAPTION>

                                         Number             Average             Weighted              Number
                   Range of          Outstanding at     Remaining Life      Average Exercise      Exercisable As
                Exercise Prices         2/28/02            in Years              Price              of 2/28/02
                ---------------         -------            --------              -----              ----------

<S>               <C>                 <C>                    <C>                  <C>                 <C>
                  $0.31-0.64          35,854,251             8.70                 $0.39               7,240,000
                  $0.65-2.15           2,481,000             5.42                 $2.04               2,481,000
                  $2.16-3.00              15,000             0.62                 $3.00                  15,000
                  $3.01-3.31           2,900,000             6.05                 $3.30               1,960,000
                  $3.32-7.31               6,000             1.60                 $7.31                   6,000
</TABLE>


(14)     Leases

          At  February  28,  2002,  the  Company  has no  significant  long term
     operating  leases.  Rental expense charged to operations  approximated $0.1
     million,  $0.1  million,  and $0.9 million in fiscal  2002,  2001 and 2000,
     respectively.

(15)     Significant Customers

          The Company sold its AuraGen(R) product to four significant  customers
     during fiscal 2002 for a total of approximately  $2.4 million or 77% of net
     revenues.  These four customers  included Inland Detroit Diesel,  Stewart &
     Stevenson Services, Williams Diesel, and the U.S. Army.

          The Company sold its AuraGen(R)  product to six significant  customers
     during fiscal 2001 for a total of  approximately  $1.35 million or 53.8% of
     net  revenues.  Five of these  companies  are Stewart & Stevenson  Services
     entities and account for approximately  $1.0 million or 40% of net revenues
     with  Americas  Body  Company   accounting  for  an  additional   13.6%  or
     approximately $340,000 of net revenues.

          The Company sold ceramics related  products to Honeywell,  Inc. during
     fiscal  2000  for a total of  approximately  $2.1  million  or 36.3% of net
     revenues.

(16)     Commitments and Contingencies

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

          Deutsche Financial Services v. Aura (Settled)

          In June 1999,  a lawsuit  naming  Aura was filed in the United  States
     District Court for the Central District of California,  Deutsche  Financial
     Services  ("DFS") v. Aura (Case No.  99-03551  GHK (BQRx)).  The  complaint
     followed DFS' termination of its credit facility with NewCom of $11,000,000
     and seizure of substantially  all of NewCom's  collateral in April 1999. It
     alleged,  among  other  things,  that Aura was  liable to DFS for  NewCom's
     indebtedness  under the secured credit facility  purportedly  guaranteed by
     Aura in 1996, well prior to the NewCom initial public offering of September
     1997.  Aura  responded,  denying  DFS' claims and  asserted in its defense,
     among  other  things,  that  the  guarantee,  if any,  was  discharged.  In
     addition, Aura through its counsel,  asserted cross-claims for, among other
     things, tortuous lender liability,  alleging that DFS wrongfully terminated
     the NewCom credit  facility,  wrongfully  seized the NewCom  collateral and
     wrongfully  foreclosed  upon NewCom  collateral,  acting in a  commercially
     unreasonably manner.

          The Company  entered into a definitive  Settlement  and Mutual Release
     Agreement  effective  March 12, 2001 (the  "Settlement")  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. DFS may not sell more than 5,000,000
     shares 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, Aura
     may  repurchase  unsold shares in the  possession of DFS at a price of $.80
     per share in the first year and $1.00 per share in the second year. As part
     of the Settlement,  DFS will assign to Aura its security interest in assets
     pledged  by  NewCom,  Inc.  to DFS to secure  NewCom's  indebtedness.  Aura
     believes that DFS has already foreclosed upon all known assets,  claims, or
     entitlements, which include inventory and receivables. Going forward, 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 DFS' lien. Aura's receipt of any funds is conditioned upon the bid price
     of Aura common stock  reaching  $0.80 per share on ten business days during
     the first year or $1.00 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,  respectively,  or until the 730th
     day following the execution date of the Settlement, when Aura must then pay
     any  recovered  funds to DFS if the minimum bid prices set forth above have
     not been met.

          Excalibur v. Aura (Settled)

          On November 12, 1999, a lawsuit was filed by three  investors  against
     Aura and others,  in Los Angeles Superior Court entitled  Excalibur Limited
     Partnership v. Aura Systems,  Inc. (Case No. BC220054),  arising out of two
     NewCom, Inc. financings consummated in December 1998. The NewCom financings
     comprised  (1) a $3 million  investment  into NewCom in exchange for NewCom
     common  stock,  warrants for NewCom common  stock,  and certain  "repricing
     rights"  which  entitled the investors to receive  additional  shares under
     certain  circumstances,  and (2) a loan to NewCom of $1 million in exchange
     for a promissory  note and warrants to purchase  NewCom common  stock.  The
     Plaintiffs alleged in their complaint that Aura breached its agreements and
     sought  damages of not less than $4.5  million.  Aura alleged  cross-claims
     against  the  Plaintiffs,   contending   that  Plaintiffs   violated  their
     contractual  obligations  to Aura by engaging in unlawful  "short sales" of
     NewCom stock. Aura also has asserted claims against  Plaintiffs for damages
     based on alleged  breaches of Plaintiffs'  contractual  obligations to Aura
     and on Plaintiffs' alleged  misrepresentations to Aura. On October 2, 2001,
     the  parties  entered  into a  General  Release  and  Settlement  Agreement
     ("Settlement"),  finally  resolving  the  entire  matter.  As  part  of the
     Settlement,  Aura received  $2,000,000.  The Plaintiffs  received repricing
     shares sought as part of its underlying contract claims.

          Kerry Morgan, et. al. v. NewCom, Inc. (Settled)

          In December 1999, a lawsuit was filed against  NewCom,  Inc. which, as
     amended,  also included Aura Systems,  Inc., Steven Veen, Sultan Khan, Asif
     Khan, Zvi Kurtzman,  Deutsche Financial Services, Inc., Best Buy Co., Inc.,
     Circuit City Stores,  Inc.  a/k/a Compusa,  the Computer  Super Store,  and
     Staples,  Inc., in the Circuit Court for the County of Wayne Michigan (Case
     No. 98-838563 CP). The plaintiff's sixth amended complaint  purported to be
     a class action on behalf of a class alleged to consist of approximately two
     hundred   thousand  persons  who  purchased  a  NewCom  Inc.,  a/k/a  Atlas
     Peripherals  computer product from Best Buy Co., Inc., Circuit City Stores,
     Inc.,  Computer  City,  and/or  Staples,  Inc. The  complaint  alleged that
     plaintiffs  did not receive a rebate of between  twenty to fifty dollars on
     NewCom  products,  as advertised and promoted by the above mass  retailers.
     Plaintiffs   further   alleged  that  the  mass   retailers,   without  any
     justification,  failed to pay NewCom for  product  received  and sold.  The
     plaintiffs  sought,  among  other  remedies,  to recover all or part of the
     amount  that  the  retailers  failed  to pay.  Circuit  City  and  Deutsche
     Financial  Services filed  cross-complaints.  In August 2001, all litigants
     entered into a settlement  Memorandum  of  Understanding  which limited the
     total Aura defendants portion 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.

          Securities and Exchange Commission

          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 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 would
     recommend  that 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 no agreements have
     yet been reached. Although Aura believes that 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 of the Board will  conduct a full review of the  Company's
     accounting controls and procedures.

          Other Legal Actions

          The Company is also engaged in other legal actions.  In the opinion of
     management  the  ultimate  resolution  of  these  matters  will  not have a
     material adverse effect on financial  conditions,  results of operations or
     cash flow.

          (17) Financial Instruments

          Financial  instruments  that subject the Company to  concentration  of
     credit  risk  are  cash  and cash  equivalents,  trade  receivables,  notes
     receivable,  trade payables and notes payable.  The carrying value of these
     financial  instruments  approximate  their fair value at February 28, 2002.
     Cash and cash  equivalents  consist  principally of short term money market
     funds; these instruments are short term in nature and bear minimal risk.


<PAGE>


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

          The fair  value of debt  instruments  are  estimated  based on  quoted
     market prices or, where quoted prices are not  available,  estimated  based
     upon borrowing  rates for similar debt  instruments or on estimated  prices
     based on current yields for debt issues of similar  quality and terms.  The
     Company does not have any unused borrowing capacity and is therefore unable
     to determine an applicable  incremental borrowing rate. As a result, a fair
     market value for the debt, other than carrying value, is not determinable.

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

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

(18)     Other Income and (Expenses)
         ---------------------------
               Other income and (expenses) consist of:
<TABLE>
<CAPTION>

                                                            2002                 2001                2000
                                                          -------              -------              -------
               <S>                                       <C>                 <C>                   <C>
               Gain (loss) on disposal of assets         $  (65,823)         $ 1,756,746            $ (93,638)
               Accrued severance                         (1,080,525)                 --                    --
               Debt transaction fee                       1,295,835                  --                    --
               Other income                                  80,156               14,381            1,097,627
               Interest income                              239,713              432,018              357,014
               Interest expense                          (2,495,551)          (2,263,916)          (4,476,690)
                                                          -----------         -----------          -----------
                                                        $(2,026,195)          $  (60,771)        $ (3,115,687)
                                                         ============         ===========        =============
</TABLE>


          (19) Segment Reporting

          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
     (in thousands):
<TABLE>
<CAPTION>


                                                     2002                        2001                      2000
                                                ------------------       ---------------------      ---------------------
               <S>                             <C>            <C>        <C>              <C>       <C>             <C>
               U.S.                            $2,792         89.6%      $ 2,464          98.1%     $ 5,757         99.4%
               Canada                              39         1.3             31          1.2            10           0.2
               Europe                             218         7.0             --           --            --            --
               Asia                                67         2.1             18          0.7            21           0.4
                                              -------- -----------       --------  -----------    ---------   -----------
                                               $3,116        100.0%      $ 2,513         100.0%     $ 5,788        100.0%
                                               ======   ===========      =======    ===========     =======    ==========
</TABLE>


          (20) Discontinued Operations

          In June 1999 and March 1999,  the  Company  divested  its  interest in
     AuraSound,  Inc. and the MYS group of entities,  respectively.  Pursuant to
     APB Opinion No. 30,  "Reporting  the  Results of  Operations-Reporting  the
     Effects of Disposal of a Segment of a Business and  Extraordinary,  Unusual
     and  Infrequently  Occurring  Events and  Transactions,"  the  consolidated
     financial  statements of the Company have been  reclassified to reflect the
     disposition  of the  AuraSound  segment as a  discontinued  operation.  Net
     operating  revenues for discontinued  operations for fiscal 2002, 2001 were
     $0 and 2000 was $1,037,000.

          (21) Recently Issued Accounting Pronouncements

          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", which eliminates the requirement that all gains and
     losses from  extinguishment of debt were to be aggregated and, if material,
     classified as an extraordinary item, net of related income tax effect. As a
     result,  gains and losses from  extinguishment of debt should be classified
     as  extraordinary  items only if they meet the  requirements of APB Opinion
     No. 30.  Applying  the  provisions  of APB Opinion No. 30 will  distinguish
     transactions that are part of an entity's  recurring  operations from those
     that are unusual or infrequent or that meet the criteria for classification
     as an  extraordinary  item.  Management  believes  that the adoption of the
     provisions of SFAS No. 145 will not have a material effect on the Company's
     results of operations and financial position.


<PAGE>


          In October  2001,  the FASB issued SAFS No. 144,  "Accounting  for the
     Impairment or Disposal of Long-Lived  Assets",  which  supercedes  SFAS No.
     121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
     Assets to be Disposed Of" and the  accounting  and reporting  provisions of
     APB Opinion  No. 30  relative  to the  disposal of a segment of a business.
     While SFAS No. 144 retains the requirements of SFAS No. 121 to recognize an
     impairment  loss  if the  carrying  amount  of a  long-lived  asset  is not
     recoverable  from its  undiscounted  cash  flows,  it expands  the scope of
     discontinued  operations  to include all  distinguishable  components of an
     entity  rather than just a segment of a business.  This  statement  becomes
     effective for financial  statements issued for fiscal years beginning after
     December 15, 2001;  however,  the Company has adopted the provisions of the
     statement in its fiscal year ended February 28, 2002 (see Notes 1 and 8).

          In June 2001,  the FASB  issued SFAS No.  143,  "Accounting  for Asset
     Retirement Obligations", which addresses financial accounting and reporting
     for  obligations  associated  with the  retirement  of tangible  long-lived
     assets and the associated asset retirement  costs.  This statement  becomes
     effective for financial  statements issued for fiscal years beginning after
     June 15,  2002.  Management  is  currently  evaluating  the effect that the
     adoption of this standard will have on the Company's  results of operations
     and financial position.


          (22) Subsequent Events

          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 $1.2
     million of the Company's AuraGen(R) product.  Despite requests for payment,
     no payment was received. Following service of the complaint and defendant's
     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.  On  February  7, 2002,  however,  the  District  Court  accepted
     defendant's  answer  denying   allegations.   On  May  7,  2002,  following
     discussions  between the  parties,  the Company  entered  into a definitive
     settlement,  with defendants  agreeing 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 $1.2 million
     due to the return of the  inventory.  As a result,  revenues  in the fourth
     quarter are a negative $928,000.

          On February 28, 2002, Aura retired approximately $15.3 million of debt
     and accrued  interest.  In the first  quarter of fiscal  2003,  the Company
     raised $4.2 million  through the  placement  of 20.8 million  shares of its
     common stock.  Several of these same investors  participated in the funding
     to retire the $15.3 million in debt.  The original  subscription  agreement
     included  terms and  conditions  requiring  more common shares be issued to
     participants  in the debt  restructuring  as a result  of price  protection
     clauses.  The net financial  impact in the fourth quarter was such that the
     Company  recognized  other income of $1.3 million for the  transaction  fee
     paid to Aura and an extraordinary  gain on  extinguishment  of debt of $1.0
     million,  which reflects the commitment to issue  additional  shares due to
     these price protection clauses.

          (23) Extinguishment of Debt

          In the fourth  quarter of fiscal 2002 the Company  restructured  $15.3
     million of debt and accrued  interest into 44,142,000 of Aura common stock,
     resulting in an extraordinary  gain of approximately  $1.0 million.  Due to
     guaranteed  share  pricing  agreements,  14,714,000  of the  common  shares
     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".  Additionally,  in the third  quarter of fiscal
     2002,  the  remaining  balance of an  unsecured  note  payable plus accrued
     interest was forgiven by the creditor,  resulting in an extraordinary  gain
     on  extinguishment  of debt of  approximately  $900,000.  The total gain on
     extinguishment   of  debt  of   $1,899,540,   which  is   reflected  as  an
     extraordinary item in the accompanying  consolidated  financial statements,
     resulted in extraordinary income per share of less than $0.01. At the start
     of fiscal 2000, the Company had  $38,481,782 in convertible  notes payable,
     of which most were in default.  During fiscal 2000 the Company restructured
     much of its convertible notes payable  obligation  through debt forgiveness
     and  equity   conversion.   With  the  debt  restructure,   $11,009,102  of
     convertible  notes was converted  into  71,054,445  shares of the Company's
     common stock, of which  2,520,000  shares were not reflected as outstanding
     as of February 29, 2000. The Company also redeemed  $430,000 of convertible
     notes,  and  $12,535,898  in  convertible  notes and  $5,850,168 in accrued
     interest were forgiven. The balance of these notes became  non-convertible.
     A majority of the restructure was  accomplished by a single unrelated party
     acquiring  $21,345,000 of the  convertible  notes payable and  subsequently
     converting  $9,224,102 into 65,034,445 shares of the Company's common stock
     and debt  forgiveness  of  $12,120,898.  In addition,  $682,852 in accounts
     payable and accrued  expenses was also forgiven.  Total debt forgiveness of
     $19,068,918  is  reflected  as an  extraordinary  item in the  accompanying
     consolidated  financial statements and resulted in extraordinary income per
     share of $0.15.


<PAGE>



          (24) Asset Impairment

          The asset impairment charge consisted of the following:
<TABLE>
<CAPTION>

                                                                      2002                 2001                 2000
                                                                    --------             --------              --------
         <S>                                                       <C>                    <C>                  <C>
         Equipment-tooling                                         $4,603,582                $  --                $  --
         Advertising credits                                        3,057,976                   --                   --
         Long term investments                                      1,433,835              240,000                   --
                                                                    ---------              -------              -------
                                                                   $9,095,393             $240,000                $  --
                                                                   ==========             ========                =====
</TABLE>


          In the fourth quarter of fiscal 2002, the Company  determined that the
     media credit asset was impaired based upon the requirement of 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
     asset was  written  down to $0, its  estimated  fair  value  based upon the
     discounted  estimated cash flows over the remaining asset lives. See Note 8
     for   equipment-tooling   disclosure.   See  Note  4  regarding  long  term
     investments.

          (25) Selected Quarterly Financial Data (unaudited)
          (amounts in thousands, except per share data)
<TABLE>
<CAPTION>

                                                                           2002
                                        ---------------------------------------------------------------------------
                                        First           Second           Third             Fourth         Full Year
                                        -----           ------           -----             ------         ---------
<S>                                      <C>              <C>             <C>               <C>            <C>
 Net revenues                            $2,875           $ 863           $  306            $ (928)        $ 3,116
                                         ======           =====           ======            =======        =======
 Gross profit                            $1,434           $ 550           $  137            $ (485)        $ 1,636
                                         ======           =====           ======            =======        =======
 Loss before extraordinary item         $(2,106)       $(6,035)          $(2,627)         $(16,058)       $(26,826)
                                        ========       ========          ========         =========       =========
 Net loss                               $(2,106)       $(6,035)          $(1,095)         $(15,701)       $(24,937)
                                        ========       ========          ========         =========       =========

 Net loss per common share               $ (.01)        $ (.02)          $  (.00)          $  (.05)        $  (.08)
                                         =======        =======          ========          ========        ========
</TABLE>


<TABLE>
<CAPTION>


                                                                          2001
                                        ---------------------------------------------------------------------------
                                        First           Second           Third            Fourth          Full Year
                                        -----           ------           -----            ------          ---------
<S>                                      <C>              <C>             <C>              <C>             <C>
Net revenues                             $ 382           $ 387             $ 502           $1,242          $ 2,513
                                         =====           =====             =====           ======          =======
Gross profit:
  As reported on Form 10Q             $ (2,133)       $ (2,169)          $(1,881)           $ 679          $(5,504)
  Adjustment                             2,319           2,347             2,134               --            6,800
                                         -----           -----             -----          --------     -----------
  Adjusted report                        $ 186           $ 178             $ 253            $ 679          $ 1,296
                                         =====           =====             =====            =====          =======

Net loss                              $ (2,610)       $ (6,726)         $ (4,653)         $(6,941)        $(20,930)
                                      =========       =========         =========         ========        =========
Net loss per common share               $ (.01)         $ (.03)           $ (.02)          $ (.02)         $  (.08)
                                        =======         =======           =======          =======         ========
</TABLE>


      The net loss per common  share  aggregated  relative to the four  quarters
does not  necessarily  sum to the full year amount  since the  computations  are
based on the weighted  average number of common shares  outstanding  during each
period.
      In the  fourth  quarter  of fiscal  2002,  the  Company  recorded  various
adjustments as recorded in the financial  position and operating  results of the
Company. As a result, the Company reversed revenues (see Note 22), reserved slow
moving and obsolete inventory (see Note 7), recognized losses on impaired assets
(see Notes 4, 8 and 24),  recorded a liability for future severance  payments to
the former  management (see Note 10), and  restructured a significant  amount of
the debt (see Note 23).
     In fiscal  2001,  the  Company  reclassified  certain  costs  that had been
characterized as overhead costs and included in cost of sales.  These items were
primarily  engineering  and  facility  related and have now been  classified  as
engineering  expenses in the operating expense  category.  This was done to more
accurately  reflect  the actual  cost of the  product  sold and  provide a gross
profit  presentation based on the sale of the product itself. This resulted in a
change in the reported gross margins for fiscal 2000 from a negative 131.9% to a
positive 66.2%.


<PAGE>



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


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 our 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.




/s/ SINGER LEWAK GREENBAUM & GOLDSTEIN LLP

Los Angeles, California
April 30, 2002


<PAGE>


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

                        Valuation and Qualifying Accounts

     Years ended February 28, 2002, February 28, 2001 and February 29, 2000


                                                Balance at       Charged to cost   Charged to                        Balance at
                                           beginning of period    and expenses   other accounts     Deductions     end of period
                                           -------------------    ------------   --------------     ----------     -------------

Year ended February 28, 2002:
Allowance for:
<S>                                                 <C>              <C>                <C>            <C>             <C>
    Uncollectible accounts receivable               $ 160,000           $   --          $   --         $ 10,000        $ 150,000
    Reserve for inventory                             291,404        1,510,871              --            6,864        1,795,411
    Reserve for investments                           388,652        1,433,835              --              --         1,822,487
                                                     --------        ---------        ---------       ---------        ---------
                                                    $ 840,056       $2,944,706         $    --         $ 16,864       $3,767,898
                                                    =========       ==========         =======         ========       ==========

Year ended February 28, 2001:
Allowance for:
    Uncollectible accounts receivable             $ 7,673,217        $1,339,696        $    --       $8,852,913     $    160,000
    Reserve for inventory                             326,936                --             --           35,532          291,404
    Reserve for investments                           148,652          240,000              --               --          388,652
                                                     --------        ---------     -----------      -----------     ------------
                                                  $ 8,148,805       $1,579,696         $    --      $ 8,888,445     $    840,056
                                                  ===========       ==========         =======      ===========     ============

Year ended February 29, 2000:
Allowance for:
    Uncollectible accounts receivable               $8,149,551   $     456,233         $    --      $   932,567      $ 7,673,217
    Reserve for inventory                            7,876,000           82,913             --        7,631,977          326,936
    Reserve for investments                            148,652                --            --               --          148,652
                                                       -------   ---------------  --------------  -------------     ------------
                                                   $16,174,203   $     539,146   $            --     $8,564,544      $ 8,148,805
                                                   ===========   =============    ==============     ==========      ===========
</TABLE>