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 29, 2000

                                       OR

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

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

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

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

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

                                 (310) 643-5300
                          Registrant's telephone number

                              Name of each exchange
                               on which registered
                                      None

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

                                      None

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

                                  Common Stock

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

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

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




<PAGE>





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


                                     PART I

ITEM 1            BUSINESS
 I.      INTRODUCTION

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

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

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

         In 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.

         In  September  1997,  NewCom  completed  an  initial  public  offering,
decreasing  Aura's  ownership  in  NewCom  down to a  majority  interest  at the
conclusion  of the  offering.  During the second  half of Fiscal  1999  NewCom's
business suffered from adverse industry  conditions,  including  increased price
reductions and a decline in demand  resulting from  increased  incorporation  of
computer peripherals at the OEM level. These conditions resulted in heavy losses
to NewCom and its competitors,  causing a buildup in inventory and difficulty in
collecting receivables from mass merchants. NewCom's business reached a critical
juncture in the fourth quarter of Fiscal 1999 when Deutsche Financial  Services,
which maintained NewCom's working capital line,  announced that it was unwilling
to  continue to advance  working  capital to NewCom  under its credit  facility.
This, in conjunction with the actions of the retail mass merchants,  resulted in
the cessation of NewCom operations in early Fiscal 2000.

         Aura anticipated that its working capital needs in Fiscal 1999 would be
met from a number of sources, including the repayment by NewCom of approximately
$20 million of indebtedness,  which was due in September 1998, and proceeds from
external debt and equity financing. NewCom was unable to meet its obligations to
Aura in September  1998,  ultimately  creating a significant  cash  shortfall to
Aura.  This  required  Aura  beginning  in  late  January  1999 to  refocus  its
operations  by  shutting  down  certain  operating  divisions,  selling  its MYS
subsidiary, licensing and selling proprietary based AuraSound speaker technology
and assets,  and leasing its Electrotec  concert  touring sound  equipment.  The
Company  also   temporarily   suspended  the  further   development  of  certain
electro-magnetic projects, including the electromagnetic valve actuator ("EVA").
In  Fiscal  2000  the  Company  entered  into   agreements   providing  for  the
restructuring  of more than $85 million of debt and contingent  liabilities.  Of
this  amount,  over $37 million was either  converted  into equity or  forgiven.
Subsequent to Fiscal 2000 the Company sold its Aura Ceramics division. See "Item
7 - Management  Discussion  and Analysis of Financial  Condition  and Results of
Operations.

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

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

II.      DESCRIPTION OF BUSINESS

A.       Technology

     1.  Magnetic Technology

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

         Ferrodisk Induction Motor (AuraGen(R))

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

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

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

         Magnetic High Fidelity Actuators (HFATM)

         Actuators  are used in a wide  range of  applications,  including  high
speed,  precision  computer-controlled  applications  such  as  the  control  of
aircraft flaps, and heavy-duty  applications such as the lifting of the bed of a
dump truck.  Actuators are generally hydraulic,  pneumatic,  mechanical or voice
coil.  Hydraulic,  pneumatic and mechanical actuators can produce extremely high
forces and long  strokes in  relatively  small  packages.  Voice coil  actuators
provide high precision and high-speed operation, producing short stroke and very
little force.

         The Company  believes that its high fidelity  electromagnetic  actuator
HFATM,  is the first "Lorenz's Law" actuator to provide both the high forces and
long  strokes  produced by  hydraulic  or  pneumatic  actuators at the speed and
precision  of  response  produced  by voice  coil  actuators.  This  ability  is
attributable  to the patented  magnetic  design.  Standard  voice coil actuators
typically  provide less than one inch of stroke whereas the HFA(TM)'s  stroke is
virtually unlimited. For example, Aura's HFATM is capable of producing more than
1,000 pounds of force over a 32 inch stroke.  The Company has commercially  used
its HFATM technology in applications such as actuated weld heads and shakers.

         Electromagnetic Actuator (EMA(TM))

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

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

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

     2.  ELECTRO-OPTICAL Technology

         Light Efficient Displays - Actuated Mirror Array (AMATM)

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

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

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

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

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

B.       Products

         1.       AuraGen(R)

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

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

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

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

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

         Another  area  where  the  AuraGen  could   potentially   offer  unique
possibilities  is in the  telecommunication  industry.  Currently the AuraGen is
used by a number of broadcasting TV stations in their mobile news vehicles.  The
AuraGen is also being used by cable  companies  for numerous  applications.  The
technical  possibilities of the AuraGen have generated  numerous  interests from
utilities as well as municipalities  across the nation. Over 23 utilities in the
U.S. have also purchased and are  evaluating the AuraGen for their  applications
and requirements. The Company has shipped a number of AuraGen units to two major
telecommunication   companies  and  numerous  state  and  federal  agencies  are
evaluating the AuraGen for their specific applications.

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

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

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

         2.       Electromagnetic Valve Actuator (EVA(TM))

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

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

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

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

C.       Certain Product Risk Factors

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

         1.       AuraGen(R)

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

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

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

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

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

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

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

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

         2.       Actuated Mirror Array (AMA(TM))

     The Company licensed its AMA technology to Daewoo Electronics,  Co., Ltd of
Korea   ("Daewoo").   Since   1992,   Daewoo  has  been   responsible   for  the
commercialization,  production  and sale of the AMA  products.  Daewoo in Fiscal
1999  announced  the  completion  of the  commercialization  of the AMA.  Due to
Daewoo's  financial crisis, no assurances can be given as to the future plans of
the AMA technology at Daewoo.

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

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


D.       Competition

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

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

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

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

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

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

                               TABLE 1: GENERATORS

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

Rated Power               5,000 W             4,500 W           5,000 W             5,000 W           5,000 W
Weight                    258 lbs/117.3 kg    146 lbs/66.4 kg   393 lbs/178.6 kg    268 lbs/122 kg    68 lbs/30.9 kg
Cubic Feet/
Cubic Meters              6.72/.19            5.39/.15          26.80/.76           3.71/0.11         0.25/0.01
Output                    120 V               120/240 V         120/240 V           120/240 V         120/240 V
Engine RPM
@ Rated Output            1,800               3,600             3,600               1,800             1,300
Noise (db @10 Ft.)`       73.5                82                65                  88.5              64
Load-Follower
Economy                   No                  No                No                  No                Yes
</TABLE>


         In  addition  to  competition   from  gensets,   there  are  six  major
manufacturers of Inverters in the United States including Vanner,  Dimension and
Heart.

         Inverters provide strong competition in specific markets of the overall
market place for mobile power.  The specific  markets where inverters are strong
competitors  are ambulance,  fire and rescue,  small  recreational  vehicles and
telecommunications.

         Limitations of Inverters:

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

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

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

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

o    Often,  inverters require upgraded vehicle  alternator and battery harness,
     and--for  extended  use  period  without  battery  charging--an  additional
     battery pack.
<TABLE>
<CAPTION>

                               TABLE 2: INVERTERS

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

1. Max Rated Power (Watts)          2500            2600           2800          4800           5000
2. Weight (LBS)                     56              70             75            110            68
2A. Weight Battery Pack             Add/No          Add/No         Add/No        No             No
3. Overall Cubic In.                1207.5          1866.73        1800          2595.94        432.73
4. 60 Hz                            Yes             Yes            Yes           Yes            Yes
5. Sine Wave @ All RPM              Modified        Modified       Yes           Modified       Yes
6. Battery Discharge Operation      Yes             Yes            Yes           No             No
7. Vehicle Engine Noise
         (db @ 10Ft.)               64              64             64            64             64
8. Load Follower-Economy            Yes             Yes            Yes           Yes            Yes
</TABLE>

E.       Manufacturing

         The AuraGen is assembled at Aura's  facility in El Segundo,  California
with parts which are produced by various  suppliers.  In Fiscal 1996 the Company
acquired a 27,692  square  foot  manufacturing  facility  in El Segundo  for the
AuraGen  production  line.  In Fiscal  1998,  the Company set up the  production
facilities in the acquired  building.  This facility is for assembly and testing
and has a production  capability of 5,000 units per month per  operating  shift.
The Company  leases an  approximate  38,000 square foot ceramic  facility in New
Hope,  Minnesota.  Subsequent to year end the Company sold its ceramics division
and no longer leases this facility.

F.       Quality Assurance and Testing

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

         In addition to the qualification testing, the Company has established a
Quality  Management  system,  and  is  in  pursuit  of  both  ISO  and  QS  9000
registration.  Elements  include a  controlled  manufacturing  lot  traceability
system,  documentation and  configuration  control system, as well as acceptance
test and compliance procedures at all manufacturing levels, including suppliers.
The  company  also uses  automated  tools  for SPC,  In-Process  Inspection  and
Functional Test on its AuraGen assembly line.

G.        Product Development Expenditures

         During the fiscal years ended February 29, 2000, February 28, 1999, and
February 28, 1998 the Company spent  approximately $ 0.1 million,  $ 2.0 million
and $ .5 million,  respectively,  on Company sponsored research and development
activities. The Company plans to continue its research and may incur substantial
costs  in  doing  so.  All  of  the  Company's  sponsored  R & D is  focused  on
technological enhancements and product developments for the AuraGen.

H.       Patents

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

I.       Employees

         As of February 29, 2000 the Company employed  approximately 85 persons.
The Company  believes  that its  relationship  with its  employees is good.  The
Company is not a party to any collective bargaining agreements.

J.       Principal Sources of Revenues

         For the year  ended  February  29,  2000,  ceramics  products  were the
largest  single  source  of  revenue  on  a  consolidated  basis,   constituting
approximately  $2.9  million  or 40% of net  revenues.  Sound  related  products
totaled approximately $.6 million or 8% of net revenues.  License fees for sound
related patents constituted $1.5 million or 21% of revenues.  For the year ended
February 28, 1999,  multi-media  products  and modems were  approximately  $46.8
million or 57.4% of net revenues,  sound related products were approximately $29
million or 35.6% of net revenues.  With the sale of the sound related operations
in Fiscal 2000, and the sale of the ceramics facility subsequent to Fiscal 2000,
the  principal  source of revenue going forward will be related to the Company's
AuraGen technology.

K.       Significant Customers

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

ITEM 2.  PROPERTIES

         The  Company  owns a 46,000  square  foot  headquarters  facility in El
Segundo,  California and a 27,692 square foot manufacturing  facility also in El
Segundo,  California for its AuraGen product. These properties are encumbered by
a deed of trust securing a Note in the original  principal amount of $5,450,000.
The Company  leases an  approximate  38,000 square foot ceramic  facility in New
Hope,  Minnesota.  Subsequent to year end the Company sold its ceramics division
and no longer leases this facility.

ITEM 3.         LEGAL PROCEEDINGS

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

Shareholder Litigation

         Barovich/Chiau v. Aura

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

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

         Morganstein v. Aura

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

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

NewCom Related Litigation

         Deutsche Financial Services v. Aura

         In June,  1999,  a lawsuit  naming Aura was filed in the United  States
District  Court for the  Central  District  of  California,  Deutsche  Financial
Services ("DFS") vs. Aura (Case No. 99-03551 GHK (BQRx)).  The complaint follows
DFS'  termination of its credit  facility with NewCom of $11,000,000 and seizure
of substantially all of NewCom's  collateral in April,  1999. It alleges,  among
other  things,  that Aura is liable to DFS for NewCom's  indebtedness  under the
secured credit  facility  purportedly  guaranteed by Aura in 1996, well prior to
the NewCom initial public  offering of September  1997. In the  proceeding,  DFS
sought  an  order  to  attach  Aura's  assets  which  was  denied  following  an
evidentiary hearing before the Honorable Brian Quinn Robbins,  U.S.  Magistrate,
and the matter has been  ordered by the District  Court to binding  arbitration.
Aura has now responded in  arbitration,  denying  DFS'claims and has asserted in
its defense, among other things, that the guarantee,  if any, is discharged.  In
addition,  Aura through its counsel, has asserted  cross-claims for, among other
things,  tortious lender liability,  alleging that DFS wrongfully terminated the
NewCom credit facility,  wrongfully  seized the NewCom collateral and wrongfully
foreclosed upon NewCom collateral, acting in a commercially unreasonably manner.
A panel of three  arbitrators  has been  selected and  appointed by the American
Arbitration  Association,  and a hearing set for May,  2000 was suspended by the
panel  without yet  scheduling a new hearing date.  The Company  believes it has
meritorious defenses and cross-claims. However, no assurances can be given as to
the ultimate outcome of this proceeding.

         Excalibur v. Aura

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

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

         The  Plaintiffs  allege  in their  complaint  that  Aura  breached  its
agreements  with the Plaintiffs by, among other things,  failing to register the
Aura Common Stock  relating to the  Repricing  Rights.  The  Plaintiffs  further
allege that Aura  misrepresented  its  intention  to register the Aura shares in
order to induce the  Plaintiffs  to loan $1.0 million to NewCom.  The  Complaint
seeks  damages  of not less than  $4.5  million.  In  January  2000  Aura  filed
counterclaims against the Plaintiffs,  including claims that the Plaintiffs made
false  representations  to Aura in order to  induce  Aura to agree to issue  its
Common Stock pursuant to the Repricing Rights. The parties have agreed to submit
this matter to  mediation  on June 28, 2000.  The Company  believes  that it has
meritorious defenses and counterclaims to the Plaintiffs' allegations.  However,
no assurances can be given as to the ultimate outcome of this proceeding.

Securities and Exchange Commission Settlement.

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

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

Other Legal Actions

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

ITEM 4.  Submission of Matters to a vote of Security Holders.

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


<PAGE>


                                     PART II

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

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

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

         Set forth below are high and low sales  prices for the Common  Stock of
Aura for each quarterly period in each of the two most recent fiscal years. Such
quotations  reflect  inter-dealer  prices,  without retail mark-up,  markdown or
commissions and may not necessarily  represent actual transactions in the Common
Stock. The Company had approximately 4,400 stockholders of record as of June 12,
2000.

       Period                                           High      Low

Fiscal 1999

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

Fiscal 2000

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

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

Dividend Policy

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

Changes in Securities and Use of Proceeds

         For  information   regarding  equity   securities  sold  or  issued  in
restructuring   transactions  by  the  Company  during  Fiscal  2000,  see  debt
restructuring in Liquidity and Capital Resources.





<PAGE>


ITEM 6.    SELECTED FINANCIAL DATA

     The following  Selected  Financial  Data has been taken or derived from the
audited  consolidated  financial statements of the Company and should be read in
conjunction  with and is  qualified  in its  entirety  by the full  consolidated
financial  statements,  related notes and other information  included  elsewhere
herein.  The data for Fiscal 2000,  1999 and 19998 has been  restated to reflect
discontinued  operations.  The data for Fiscal 1997 and 1996 hs not been revised
as the  change  in the  scope of the  Company's  operations  would  not  provide
additional relevant comparison.
<TABLE>
<CAPTION>

                       AURA SYSTEMS, INC. AND SUBSIDIARIES

                                                    February 29,       February 28,   February 28,     February 28,     February 29,
                                                         2000               1999             1998           1997              1996
<S>                                               <C>                 <C>           <C>                 <C>             <C>
Net Revenues                                       $   5,788,221      $53,650,025   $103,939,641        $109,950,202   $ 77,088,850
                                                   -------------      -----------   ------------        ------------   ------------
Cost of goods and overhead                            13,424,304      130,437,194     71,774,522          86,350,828     71,849,204

Expenses:
   Research and development                              148,443        1,996,198        475,992           6,022,586      5,225,735
   Impairment of long-lived assets                            --        5,838,466             --                  --             --
   Selling, general and administrative expenses       10,725,397       64,131,072     35,266,048          18,542,840     26,399,794
                                                   -------------       ----------     ----------         -----------     ----------

         Total costs and expenses                     24,298,144      202,402,930    107,516,562         110,916,254    103,474,733
                                                   -------------       ----------     ----------         -----------    -----------

(Loss) From Operations                               (18,509,922)    (148,752,905)    (3,576,921)           (966,052)   (26,385,883)

Other (Income) and Expense

   Interest expense (income)                           4,476,690       11,577,990      6,450,741           1,415,934        289,793
   Termination of License Agreements                          --               --      3,114,030                  --             --
   Loss on Disposal of Assets and Investments           (259,724)       5,809,811             --                  --             --
   Gain on Sale and Issuance of Subsidiary Stock              --         (811,657)   (12,632,265)           (250,000)            --
   Class Action Litigation and Other Settlements       2,777,762        7,717,518      1,700,000                  --             --
   Equity in Losses of Unconsolidated Joint Ventures          --        6,268,384      1,937,747                  --             --
   Other                                              (1,101,279)         406,576       (220,291)              40,642             --
   Provision (benefit) for taxes                              --          566,635     (1,275,555)            570,484             --
   Minority interests                                         --      (36,934,376)       946,405                  --             --
   Loss in excess of basis of subsidiary                      --       (8,080,695)            --                  --             --
                                                   --------------       ----------   -----------           ---------      ---------

Loss from continuing operations                      (24,403,371)    (135,273,091)    (3,597,733)         (2,880,111)   (26,087,090)

Discontinued Operations:
     Loss from Discontinued Operations, Net
     of taxes                                         (4,l31,501)     (14,875,065)    (8,038,807)                 --             --
Extraordinary Item
     Gain on extinguishment of debt
     obligations, net of income taxes                 19,068,916               --             --                  --             --
                                                     -----------      -----------      ----------         ----------    -----------
Net loss                                             $(9,465,956)   $(150,148,156)  $(11,636,540)        $(2,880,111)  $(26,097,090)
                                                     ===========    =============    ============        ===========   ============

NET (LOSS) PER COMMON SHARE                       $        (0.08)    $      (1.74) $        (.15)        $      (.04)  $       (.48)
                                                   ==============    ============= ==============        ============  ============


WEIGHTED AVERAGE NUMBER OF
   COMMON SHARES                                     124,293,861      85,831,688      79,045,290          68,433,521     53,860,527
                                                     ===========     ============     ==========          ==========     ==========
Working capital (deficit)                              1,376,215      (4,869,876)     78,143,895          62,310,715     71,362,882
Total assets                                          56,122,478      90,143,392     227,302,629         182,528,399    134,080,568
Total liabilities and deferrals                       54,959,832     103,797,049     110,400,761          57,050,812     34,917,462
Net stockholders' equity (deficit)                     1,162,646     (13,653,657)    116,901,868         125,477,587     99,163,106

</TABLE>

<PAGE>



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

Forward Looking Statements

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

         Relating  to the  above  are  potential  difficulties  or delays in the
development,  production,  testing and marketing of products, including, but not
limited to, a failure to ship new products and  technologies  when  anticipated.
There might exist a difficulty in obtaining  raw  materials,  supplies,  natural
resources  and any other items  needed for the  production  of Company and other
products,  creating  capacity  constraints  limiting  the  amounts of orders for
certain  products and thereby causing  effects on the Company's  ability to ship
its products. Manufacturing economies may fail to develop when planned, products
may be defective and/or customers may fail to accept them in the marketplace.

         In addition to these factors,  risks and  contingencies may exist as to
the  amount  and  rate  of  growth  in  the  Company's   selling,   general  and
administrative  expenses,  and the impact of unusual  items  resulting  from the
Company's ongoing  evaluation of its business  strategies,  asset valuations and
organizational  structures.   Furthermore,  any  financing  or  other  financial
incentives  by the Company  under or related to major  infrastructure  contracts
could result in increased bad debt or other  expenses or  fluctuation  of profit
margins from period to period.  The focus by the Company's business on any large
order could entail fluctuating results from quarter to quarter.

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

Overview

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

         The Company  expected that its working capital needs would be met from,
among other things, the repayment by NewCom Inc. ("NewCom") of approximately $20
million of  indebtedness  which was due in September 1998 and with proceeds from
external debt and equity  financing.  NewCom was  ultimately  unable to meet its
obligations to Aura in September 1998,  creating a significant cash shortfall to
Aura.  NewCom's  operations  in the third  quarter of Fiscal 1999 were  severely
impacted by an industry-wide slump in the computer peripherals industry, causing
a buildup in inventory and  difficulty in collecting  receivables  from the mass
merchants.  NewCom's  business reached a critical juncture in the fourth quarter
of Fiscal 1999 when Deutsche Financial Services ("DFS"), which provided NewCom's
principal  working capital line,  announced that it was unwilling to continue to
advance working capital to NewCom under its credit facility.  This, coupled with
the retail mass merchants failure to pay NewCom for significant receivables past
due and owing,  resulted in NewCom ceasing its day-to-day  operations,  in early
Fiscal 2000.  These events  substantially  impacted Aura's results of operations
for Fiscal 1999.

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

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

         In the third  quarter of Fiscal  2000 the  Company  completed a private
placement of $6.9  million in the form of common  stock and debt that  converted
into common stock upon the restructuring of the Infinity Note.

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

Fiscal 2000 as Compared to Fiscal 1999

Revenues

     Net revenues in Fiscal 2000  declined to $5.8 million from $53.7 million in
Fiscal 1999,  a decrease of 89.2%.  In Fiscal  1999,  net revenues  included the
revenues from the Company's  Newcom  subsidiary in which it held an  approximate
41% interest at February 28, 1999.  Newcom ceased  operations  shortly after the
end of Fiscal  1999,  resulting in no revenue  being  recorded for Newcom in the
current  Fiscal  year.  Included  in  Fiscal  2000  revenues  are  license  fees
pertaining  to sound  related  patents  of $1.5  million  or 25.9% of  revenues.
License fees have a pronounced  effect on the results of operations  since there
is little or no cost involved.

Cost of Goods and Overhead

     Cost of goods and overhead  decreased to $13.4 million from $130.4  million
in the prior  Fiscal year  primarily as a result of the sale and shutdown of the
Company's  subsidiaries  previously  mentioned.  Cost of goods and  overhead for
these subsidiaries  totaled  approximately $142 million in Fiscal 1999. Included
in cost of goods and overhead for Fiscal 2000 is  approximately  $4.9 million in
depreciation related to the AuraGen product.

Gross Profit and Net Loss

     Gross profit for Fiscal 2000 was a negative  131.9%  compared to a negative
143% in Fiscal  1999.  The  negative  gross  profit in the prior Fiscal year was
primarily a result of the Company's Newcom subsidiary. The current year negative
gross  profit  is a result  of  insufficient  sales in the  Company's  remaining
business to cover the overhead costs associated with the ongoing operations.

Research and Development

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

Selling, General and Administrative

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

Bad Debt Expense

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

Interest Expense

     Interest  expense for Fiscal 2000 declined to  approximately  $ 4.5 million
from  $12.2  million  in  Fiscal  1999.  This  was  primarily  a  result  of the
elimination of interest expense from the  subsidiaries  that were either sold or
shutdown, and a result of the conversion of debt into equity and the forgiveness
of debt.

Discontinued Operations

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

Fourth Quarter Adjustments

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

Fiscal 1999 as Compared to Fiscal 1998

         The  Company  continued  its  activity  in  development  of  commercial
applications of its proprietary magnetic technologies. The second half of Fiscal
1999 had significant  negative results from operations which caused  significant
cash shortfall problems that affected the entire operation.

Revenues

         Net  revenues in Fiscal  1999  declined  to $53.6  million  from $103.9
million,  a decrease of 48.4%.  The  decrease was  primarily  due to the virtual
shutdown of operations of NewCom in the last quarter of the fiscal year, coupled
with the decline in sales of NewCom in the third quarter of the Fiscal year. The
decline in sales was primarily a result of price pressures in the retail channel
as well as a substantial decline in sales to one of NewCom's major customers. In
the last half of the fiscal year, as NewCom's  business  began to deteriorate in
conjunction with the overall deterioration of the computer peripherals industry,
the levels of returned  goods began to  accelerate.  In the last  quarter of the
fiscal year, when NewCom's  operations  virtually  shutdown,  returns  increased
dramatically  as retailers began to ship back product for fear that NewCom would
go out of business and would not be able to fulfill  warranty and other business
obligations. Magnification of this stemmed from its lender "DFS" and a judgement
creditor each sending  correspondence  to the retail mass merchants  asking that
they remit payments to them. A court battle produced an order describing whom to
pay,  which was sent to the  retail  customer.  The above  actions  added to the
uncertainties of NewCom's future and further deteriorated NewCom's relationships
with its customers.

Cost of Goods and Overhead

         Cost of goods and overhead  increased to $130.4  million in Fiscal 1999
from $71.8 million in Fiscal 1998.  This increase both in dollar terms and as a
percentage  of revenues is  primarily a result of the price  pressures  from the
retail mass merchants which included the substantial  rebates that were required
in order to maintain shelf space, as well as the overall business  conditions at
the Company's NewCom subsidiary as described above.

Gross Profit and Net Loss

         Gross profit for Fiscal 1999 was a negative  143% compared to 30.95% in
Fiscal 1998,  primarily due to the substantial drop in gross profit at NewCom in
the third and  fourth  quarters  of the  Fiscal  year.  In the third and  fourth
quarters of the Fiscal year,  price pressure applied by NewCom's major customers
and inventory write-downs which reflected the change in the computer peripherals
industry resulted in substantially  higher costs of product sold as a percentage
of the selling price.  Coupled with the substantial  rebates NewCom was required
to offer, the resulting gross profit was negative.

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

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

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


Research and Development

     Research and development  expense for Fiscal 1999 increased to $2.0 million
from $.5  million  in  Fiscal  1998 as the  Company  focused  all its  remaining
resources  on  developing   additional  engine  mounts  for  the  AuraGen,   and
researching ways to expand its applications.

Selling, General & Administrative

     Selling,  general and  administrative  expenses increased to $64 million in
Fiscal  1999 from $35.3  million  in Fiscal  1998.  The  increase  is  primarily
attributable to a substantial  increase in sales and marketing  related expenses
at NewCom as the major retailers  required higher levels of sales promotions and
marketing allowances.  Further, increased amortization of product design related
costs were  necessary to account for  impairment  of these assets due to shorter
life cycles of products.

Bad Debt Expense

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

Interest Expense

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


Liquidity and Capital Resources

         The working capital deficit  decreased by approximately $4 million to a
deficit of  approximately  $900,000  at Fiscal  2000 year end,  with the current
ratio improving  slightly to .95:1 from .88:1. The principal  differences in the
Company's accounts from February 28, 1999 to February 29, 2000 are a decrease in
cash and  equivalents  of $3.6 million,  a decrease in net  receivables  of $5.9
million,  a decrease in inventories  of $7.3 and a decrease in accounts  payable
and accrued expenses of $25 million. The primary reason for these changes is the
sale of the Company's  MYS  Corporation  subsidiary  and the sale of the speaker
assets of AuraSound Inc.

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

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

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


         Spending for property and equipment amounted to $15,938 in Fiscal 2000,
$4,053,848  in Fiscal 1999 and  $18,006,394  in Fiscal 1998. Of the Fiscal 2000,
1999 and 1998 amounts,  nil, $1,910,611 and $16,096,180  respectively was due to
the  manufacture  of  tooling  and the  remainder  was due to the  expansion  of
facilities  and purchases of equipment  which was  necessary in connection  with
research  and   development   activities,   services   performed  under  various
subcontracts and manufacturing requirements.

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

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

         The Company and its subsidiaries  lease space located in El Segundo and
New Hope, Minnesota. Minimum monthly rents under the leases approximate $55,000.
Rent expense was  approximately  $.9 million for Fiscal 2000, $1.8 million,  for
Fiscal 1999, and $1.3 million for Fiscal 1998. At February 29, 2000, the Company
has no long term operating leases.

Debt Restructuring

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

         Restructuring of RGC International Investors, LDC, Debt.

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

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

         Under the agreement with the new holder of the RGC Debentures,  the RGC
Debentures were convertible into a maximum of 46,500,000 shares of the Company's
Common Stock unless Aura failed to complete the restructuring with Infinity. The
holder of the RGC  Debentures  converted  a portion of the RGC  Debentures  into
46,500,000  shares  of Common  Stock  and  canceled  the  remaining  outstanding
principal and interest owed under the RGC Debentures as of the  consummation  of
the restructuring of approximately $17.4 million of outstanding  Debentures held
by Infinity. See "Restructuring of Infinity Investors Debt" below.

         Retirement of JNC Debt

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

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

         Restructuring of Infinity Investors Debt

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

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

         Restructuring of Trade debt

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

         Completion of Common Stock Private Placement

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


<PAGE>


                                    PART III

ITEM 10.        DIRECTORS AND OFFICERS OF THE REGISTRANT

Identification of Directors

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


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

Business Experience of Directors and Nominees During the Past Five Years

     Zvi  Kurtzman  is the CEO and  Chairman  of the Board of  Directors  of the
Company and has served in this capacity since 1987. Mr.  Kurtzman also served as
the Company's  President from 1987 to 1997. Mr.  Kurtzman  obtained his B.S. and
M.S. degrees in physics from California State University, Northridge in 1970 and
1971,  respectively,  and  completed  all  course  requirements  for a Ph.D.  in
theoretical physics at the University of California,  Riverside. He was employed
as a senior  scientist  with the  Science  Applications  International  Corp.  a
scientific  research  company  in San Diego,  from 1984 to 1985 and with  Hughes
Aircraft Company, a scientific and aerospace  company,  from 1983 to 1984. Prior
thereto,  Mr. Kurtzman was a consultant to major defense  subcontractors  in the
areas of computers, automation and engineering.

         In October, 1996, the Securities and Exchange Commission ("Commission")
issued an order  (Securities Act Release No. 7352) instituting an administrative
proceeding against Aura Systems,  Zvi Kurtzman,  and an Aura former officer. The
proceeding  was  settled on consent of all the  parties,  without  admitting  or
denying any of the  Commission's  findings.  In its order,  the Commission found
that Aura and the others  violated the reporting,  recordkeeping  and anti-fraud
provisions  of the  securities  laws in 1993  and  1994 in  connection  with its
reporting on two  transactions in reports  previously filed with the Commission.
The Commission's  order directs that each party cease and desist from committing
or causing any future  violation of these  provisions.  The  Commission  did not
require Aura to restate any of the  previously  issued  financial  statements or
otherwise amend any of its prior reports filed with the Commission.  Neither Mr.
Kurtzman  nor anyone else  personally  benefited  in any way from these  events.
Also, the Commission did not seek any monetary penalties from Aura, Mr. Kurtzman
or anyone else. For a more complete  description of the Commission's  Order, see
the Commission's release referred to above.

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

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

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

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

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

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

MANAGEMENT

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

Name                       Age              Title

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

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

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

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

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

         Steven  C.  Veen,  a  Certified  Public  Accountant,   is  Senior  Vice
President,  Chief Financial Officer, and has served in this capacity since March
1994. He joined the Company as its Controller in December 1992.  Before that, he
had over 12 years  experience  in varying  capacities  in the public  accounting
profession. Mr. Veen served from 1983 to December 1992 with Muller, King, Black,
Mathys & Acker, Certified Public Accountants. He received a B.A.
in accounting from Michigan State University in 1981.

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

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

         Ronald J.  Goldstein  is Senior Vice  President,  Sales and  Marketing,
serving  in this  capacity  since  November,  1999.  He is  responsible  for the
marketing and sales of AuraGen to worldwide government agencies and the military
and has  served in various  capacities  at Aura  since  1989.  He holds two M.S.
degrees  in  Computing  Technology  and  the  Management  of R & D  from  George
Washington  University  and has  completed  coursework  for a Ph.D.  in  Nuclear
Engineering  from North Carolina  State  University.  Mr.  Goldstein has over 25
years of experience in high  technology  both in government and industry.  Since
1989 Mr.  Goldstein was responsible  for all marketing and business  development
activities   for  the  Company  and  served  since  1995  as  President  of  the
Automotive/Industrial  division  of the  Company.  Prior to  joining  Aura,  Mr.
Goldstein  was  Manager  of Space  Initiatives  at Hughes  Aircraft  Company,  a
scientific  and  research  company,  where he was  responsible  for the  design,
production  and  marketing of a wide variety of aerospace  systems and hardware.
Prior to joining  Hughes in 1982,  Mr.  Goldstein was the Special  Assistant for
National  Programs in the Office of the  Secretary  of Defense,  and before that
held high level program  management  positions  with the Defense  Department and
Central Intelligence Agency.

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

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

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

Section 16(a) Beneficial Ownership Reporting Compliance

         Section  16(a) of the  Securities  and Exchange Act of 1934, as amended
(the  "Exchange  Act"),  requires  the  Company's  officers and  directors,  and
beneficial owners of more than ten percent of the Common Stock, to file with the
Securities and Exchange  Commission  and the National  Association of Securities
Dealers, Inc. reports of ownership and changes in ownership of the Common Stock.
Copies of such reports are required to be furnished to the Company. Based solely
on its review of the copies of such reports furnished to the Company, or written
representations that no reports were required,  the Company believes that during
its fiscal year ended February 29, 2000, all filing  requirements  applicable to
its officers, directors, and ten percent beneficial owners were satisfied except
that Harvey Cohen, Zvi Kurtzman,  Keith Stuart, and Dr. Richard Van Allen failed
to timely file a single Form 5 and Norman  Reitman  failed to file a single Form
3.

ITEM 11.        EXECUTIVE COMPENSATION

Cash Compensation For Executives

         The following table summarizes all  compensation  paid to the Company's
Chief  Executive  Officer,  and to the four most  highly  compensated  executive
officers  of the  Company  other than the Chief  Executive  Officer  whose total
compensation exceeded $100,000 during the fiscal year ended February 29, 2000.
<TABLE>
<CAPTION>

                           SUMMARY COMPENSATION TABLE

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

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

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

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

  Cipora Kurtzman-Lavut                     2000          $203,942                 0                 $  0
  Senior Vice President                     1999           199,221              500,000
                                            1998           162,225                 0
</TABLE>

(1) The amounts shown are the amounts actually paid to the named officers during
the  respective  fiscal  years.  Because  of the timing of the  payments,  these
amounts do not represent the actual salary accrued by each individual during the
period.  The actual salary rate for these  individuals  which was accrued during
the fiscal  year  ended  February  2000,  1999 and 1998,  respectively,  were as
follows:  Zvi  Kurtzman - $385,000,  $385,000,  $200,000;  Gerald S.  Papazian -
$210,000, $210,000, $140,000; Arthur J. Schwartz - $205,000, $205,000, $160,000;
Steven C. Veen - $200,000, $200,000, $150,000; Cipora Kurtzman-Lavut - $195,000,
$195,000, $150,000.

     Of the  compensation  paid in  Fiscal  2000,  $144,561,  $34,781,  $78,201,
$44,918  and  $58,520  was paid in the form of  restricted  common  stock of the
Company  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  Employees Stock Ownership
Plan during the fiscal year ended February 29, 2000.

         No cash  bonuses or  restricted  stock awards were granted to the above
individuals  during the fiscal years ended February 29, 2000,  February 28, 1999
and February 28, 1998.  Effective September 1997, each non-employee  director is
entitled to receive  $30,000 per year for serving as a director,  and $5,000 per
year for each director who serves on the audit committee.

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

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

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

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

Zvi Kurtzman                          870,000                 600,000         $         0              $      0
Gerald S. Papazian                    166,000                  60,000         $         0              $      0
Arthur J. Schwartz                    515,000                 300,000         $         0              $      0
Steven C. Veen                        215,000                 210,000         $         0              $      0
Cipora Kurtzman-Lavut                 515,000                 300,000         $         0              $      0
</TABLE>

*Based on the average high and low reported prices of the Company's Common Stock
on the last day of the fiscal year ended February 29, 2000.

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

         Compensation Committee Report

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

         Compensation Philosophy

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

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

         Employment Contracts

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

         Compensation of Chief Executive Officer and Other Executives

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

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

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

         Effective in Fiscal 1999 Mr. Kurtzman and the Named Executive  Officers
are,  pursuant to their  employment  agreements with the Company,  entitled to a
discretionary  annual bonus as  determined by the  Compensation  Committee and a
majority of the outside, disinterested,  directors of the Board of Directors. In
determining the amounts of such bonuses,  the Compensation  Committee  considers
the individual performance of each executive and the performance of the Company.
Based  upon  the  Company's   financial   performance  during  Fiscal  2000  the
Compensation  Committee  determined not to award bonuses to Mr.  Kurtzman or the
Named Executive Officers.

         Section 162(m) Policy

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

                                Committee Member

                            Salvador Diaz-Verson, Jr.

Compensation Committee Interlocks and Insider Participation

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

Audit Committee Fraud Detection Program

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


<PAGE>


ITEM 12.      SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         The  following  table  sets forth  certain  information  regarding  the
Company's  Common Stock owned as of May 31, 2000 (i) by each person who is known
by  Aura to be the  beneficial  owner  of more  than  five  percent  (5%) of its
outstanding  Common  Stock,  (ii) by each of the  Company's  directors and those
executive  officers named in the Summary  Compensation  Table,  and (iii) by all
directors and executive officers as a group:
<TABLE>
<CAPTION>

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

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

All executive officers and directors                     17,182,587                                  7.2%
as a group (16 persons)
</TABLE>
--------------------
*        Less than 1% of outstanding shares.

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

(2)  Includes  870,000  shares  which may be  purchased  pursuant to options and
     convertible securities exercisable within 60 days of May 31, 2000.

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

(4)  Includes  32,000 shares held by Dr. Schwartz as custodian for his children,
     and 74,000 owned by Dr. Schwartz' children, to which Dr. Schwartz disclaims
     any beneficial ownership.

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

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

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

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

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

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

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

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

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

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

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

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

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




ITEM 13.        CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

December 1998 Private Placement

In December 1998 the Company  completed a private  placement of Units, each Unit
consisting  of 10 shares of Common Stock and Warrants to purchase four shares of
Common  Stock at an  exercise  price of $1.00  per  share  for five  years.  The
original  subscription  price was $10.00 per Unit.  Of the total gross  offering
proceeds of approximately  $1.8 million,  $100,000 was invested by the mother of
Zvi Kurtzman,  and $440,000 was invested by Stephen Talesnick,  who subsequently
became a member of the Board of  Directors  in 1999.  The terms of the  offering
called  for,  among  other  things,  the prompt  registration  of the  purchased
securities  with the SEC. As a result  principally  of delays in completing  the
Company's  audit for the fiscal year ended February 1999, the Company was unable
to timely file the required  registration.  Consequently  in  amendments  to the
offering  terms which  culminated in March 2000,  the Company agreed to increase
the number of shares  received by each  investor  based upon an agreed  price of
$0.33 per share and the  investors  agreed to surrender  the  Warrants and their
right to receive interest from the Company.

Convertible Note Exchange

As part of the  Company's  financial  restructuring  in Fiscal  1999 the Company
offered to exchange  convertible  notes  issued to  investors in 1993 for Common
Stock.  As a result of the  restructuring  the Company  converted the notes at a
price of $0.27 per share. These investors among others included Zvi Kurtzman and
Arthur J.  Schwartz,  whose  notes  entitled  them to receive  from the  Company
$100,000  and $80,000,  respectively,  plus  accrued and unpaid  interest.  Both
Messrs.  Kurtzman and Schwartz  exchanged  their notes for Common Stock in March
2000.


<PAGE>


                                     PART IV


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

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

              (1)    Financial Statements

       See Index to Consolidated Financial Statements at page F-1

              (2)    Financial Statement Schedules

       See Index to Consolidated Financial Statements at page F-1

              (3)    Exhibits

       See Exhibit Index

       (b)    Reports on Form 8-K

       No reports on Form 8-K were filed in the quarter ended February 29, 2000.



<PAGE>


                                INDEX TO EXHIBITS
                            Description of Documents

        3.1(1)      Certificate of Incorporation of Registrant
        3.2(1)      Bylaws of Registrant.
        10.1(1)     Aura Systems, Inc. 1987 Stock Option Plan for Non-Employee
                    Directors.
       10.2(1)      Form of Aura Systems, Inc. Non-Statutory Stock Option
                    Agreement.
       10.3(1)      Deed of Trust and Assignment of Rents, dated as of February
                    27, 1989, by the Registrant in
                    favor of Chicago Title Insurance Company, as Trustee, for
                    the benefit of City National Bank.
       10.4(2)      Indenture, dated as of March 1, 1989, between the Registrant
                    and Interwest Transfer Co., Inc.
                    as Trustee, relating to the 7% Secured Convertible Non-
                    Recourse Notes due 1999.
       10.5(2)      Form of 7% Secured Convertible Non-Recourse Notes due 1999.
       10.6(2)      Deed of Trust, Assignment of Leases and Rents and Fixture
                    Filing, dated as of March 1, 1989, by the Registrant in
                    favor of Ticor Title Insurance Company, as Trustee, for the
                    benefit of Interwest Transfer Co., Inc.,as trustee under the
                    Indenture.
       10.7(3)      Form of 7% Secured Convertible Non-Recourse Note due 2000.
       10.8(4)      1989 Stock Option Plan.
       10.9(5)      Joint  Development and License  Agreement,  dated August 24,
                    1992,  between the  Registrant and Daewoo  Electronics  Co.,
                    Ltd.
       10.10(6)     Agreement,  dated September 23, 1993, between the Registrant
                    and Burlington Technopole SDN. BHD.
       10.11(7)     Dedicated Supplier Agreement, dated December 2, 1993,
                    between the Registrant and Daewoo Electronics Co., Ltd.
       10.12(8)     Form of 7% Secured Convertible Non-Recourse Note due 2002.
       10.13(9)     Agreement dated July 19, 1995 between the Company and K&K
                    Enterprises.
       10.14(9)     Agreement dated July 19, 1995 between the Company and K&K
                    Enterprises.
       10.15(9)     Agreement dated July 12, 1995 between the Company and K&K
                    Enterprises.
       10.16(9)     Agreement dated July 12, 1995 between the Company and K&K
                    Enterprises.
       10.17(9)     Stock Purchase and Sale Agreement dated April 30, 1996
                    between the Company and MYS Corporation
       10.18(9)     Joint Venture Agreement dated July 26, 1995 between the
                    Company and Microbell
       10.19(10)    AuraSound Asset Purchase
       10.19.1(10)  Asset Purchase Agreement dated December 1, 1999 among
                    AuraSound, Inc., Aura Systems, Inc., AlgoSound, Inc., and
                    Algo Technology, Inc.
       10.19.2(10)  Amendment dated December 22, 1999 to Asset Purchase
                    Agreement dated December 1, 1999.
       10.19.3(10)  Assignment and License Agreement as of July 15, 1999 between
                    Speaker Acquisition Sub, Algo
                    Technology, Inc., Aura Systems, Inc., AuraSound Inc.
       10.20(10)    MYS Stock Purchase
       10.20.1(10)  Escrow  Agreement  as of March 26,  1999 among the  Company,
                    Inc.,Yoshikazu Masayoshi, Sadao Masayoshi, Sachie Masayoshi,
                    Kazuaki Masayoshi, and Wolf Haldenstein Adler Freeman & Herz
                    LLP.
       10.20.2(10)  Promissory Note in the amount of $1,000,000  dated March 26,
                    1999  payable to the Company by Yoshikazu  Masayoshi,  Sadao
                    Masayoshi, Sachie Masayoshi and Kazuaki Masayoshi.
       10.20.3(10)  Promissory Note in the amount of $3,200,000  dated March 26,
                    1999  payable to the Company by Yoshikazu  Masayoshi,  Sadao
                    Masayoshi, Sachie Masayoshi and Kazuaki Masayoshi.
       10.20.4(10)  Stock  Purchase  Agreement  dated March 26, 1999 between the
                    Company and Yoshikazu  Masayoshi,  Sadao  Masayoshi,  Sachie
                    Masayoshi and Kazuaki Masayoshi.
       10.21(10)    Agreement with RGC International Investors, LDC
       10.21.1(10)  First Amendment to Security Agreement dated October 22, 1999
                    between RGC International Investors, LDC and the Company.
       10.21.2(10)  Settlement  Agreement  and  Complete  Release  of all Claims
                    dated October 22, 1999 between RGC International  Investors,
                    LDC, and the Company
       10.21.3(10)  Stock Purchase Warrant issued to RGC International
                    Investors, LDC by the Company.
       10.21.4(10)  Amended and Restated Convertible Senior Secured Note dated
                    October 7, 1998 in the amount of $3,000,000 issued to RGC
                    International Investors, LDC by the Company.
       10.22(10)    Settlement Agreement and Release of Claims dated as of
                    December 1, 1999 between JNC Opportunity Fund, Ltd., and the
                    Company.
       10.23(10)    Payment Agreement by and between Credit Managers Association
                    of California and Aura Systems, Inc.
       10.24        Release from Infinity Investors Limited et al. to Aura
                    Systems, Inc.
       10.25        Release from Aura Systems, Inc. to Infinity Investors
                    Limited et al.
       10.26        Exchange Agreement dated as of February 22, 2000, by and
                    among Aura Systems, Inc., Infinity Investors Limited et al.
       10.27        Guaranty dated as of February 22, 2000, by Aura Systems,
                    Inc. and certain of its subsidiaries.
       10.28        Stock Pledge Agreement dated as of February 22, 2000,
                    between Aura Systems, Inc. and HW
                    Partners, L.P. as agent.
       10.29        Security  Agreement  dated as of February 22, 2000,  between
                    Aura Systems,  Inc.,  certain  subsidiaries of Aura Systems,
                    Inc. and HW Partners L.P.
       10.30        Secured Note dated February 22, 2000, from Aura Systems,
                    Inc. to Infinity Investors Limited.
       10.31        Secured Note dated February 22, 2000, from Aura Systems,
                    Inc. to Global Growth Limited.
       10.32        Secured Note dated February 22, 2000, from Aura Systems,
                    Inc. Summit Capital Limited.
       10.33        General Assignment and Bill of Sale dated February 29, 2000,
                    between Alpha Ceramics, Inc. and Aura Ceramics, Inc.
       10.34        Assignment and Assumption of Specified Liabilities dated as
                    of May 3, 2000, by and between Alpha Ceramics, Inc. and Aura
                    Ceramics, Inc.
       10.35        Assignment and Assumption of Lease dated as of May 3, 2000,
                    by and between Alpha Ceramics, Inc. and Aura Ceramics, Inc.
       10.36        Revolving Credit and Term Loan Agreement dated as of May
                    2000, by and between Alpha Ceramics, Inc. and Excel Bank.
       10.37        Asset Purchase Agreement dated February 29, 2000,between
                    Alpha Ceramics, Inc. and Aura Ceramics, Inc.
       10.38        Subordination Agreement dated as of May 2000, by Aura
                    Ceramics, Inc. and Aura Systems, Inc.
       10.39        Escrow Agreement dated March 6, 2000, by and among Guzik &
                    Associates, Aura Systems, Inc. and Isosceles Fund Limited.
       10.40        Subscription Agreement from Isosceles Fund Limited to Aura
                    Systems, Inc.
       10.41        Stock Purchase Warrant of Aura Systems, Inc. issued to
                    Isosceles Fund Limited.
       10.42        Settlement Agreement and Release of Claims dated as of
                    March 6, 2000, between Aura Systems, Inc. and Isosceles Fund
                    Limited.
       21.1         Subsidiaries of Aura Systems, Inc.
       EX-27        Data Schedule

(1)  Incorporated  by reference to the  Exhibits to the  Company's  Statement on
     Form S-1 (File No. 33-19530).

(2)  Incorporated  by reference to the Exhibits in the Company's  Current Report
     on Form 8-K dated March 24, 1989 (File No. 0-17249).

(3)  Incorporated by reference to the Exhibits to Post-Effective Amendment No. 2
     to the Company's Registration Statement on Form S-1 (File No. 33-27164).

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

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

(6)  Incorporated  by reference  to the  Company's  Current  Report in Form 10-Q
     dated November 30, 1993.

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

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

(9)  Incorporated by reference to the Company's  Annual Report Form 10-K for the
     fiscal year ended February 29, 1996 (File No. 0-17249)

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


<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:   13, 2000
                                              By:      /s/   Zvi Kurtzman
                                                        Zvi Kurtzman
                                                     Chief Executive Officer

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

Signatures                                              Title                                     Date

<S>                                       <C>                                                   <C>

/s/Zvi Kurtzman                          Chief Executive Officer and Director                    June 13, 2000
Zvi Kurtzman                             (Principal Executive Officer)

/s/Steven C. Veen                        Senior Vice President,                                  June 13, 2000

Steven C. Veen                           Chief Financial Officer
                                         (Principal Financial and Accounting Officer)

/s/Sanford R. Edlein                     Director                                                June 13, 2000
Sanford R. Edlein

/s/Norman Reitman                        Director                                                June 13, 2000
Norman Reitman

/s/David F. Hadley                       Director                                                June 13, 2000
David F. Hadley

/s/Salvador Diaz-Verson, Jr.             Director                                                June 13, 2000
Salvador Diaz-Verson, Jr.

/s/ Stephen A. Talesnick                 Director                                                June 13, 2000
Stephen A. Talesnick

/s/Harvey Cohen                          Director                                                June 13, 2000
Harvey Cohen
</TABLE>

                               AURA SYSTEMS, INC.
                                AND SUBSIDIARIES


                   Index to Consolidated Financial Statements
<TABLE>
<CAPTION>
<S>                                                                                                     <C>



    Independent Auditors' Report on Consolidated Financial Statements and
           Financial Statement Schedule                                                                          F-2
    Consolidated Financial Statements of Aura Systems, Inc. and Subsidiaries:
    Consolidated Balance Sheets-February 29, 2000 and February 28, 1999                                       F-3 to F-4
    Consolidated Statements of Operations and Comprehensive Loss-
            Years ended  February 29,  2000,  February 28, 1999 and February 28,
    1998 F-5 Consolidated  Statements of  Stockholders'  Equity (Deficit) -Years
    ended
           February  29,  2000,  February  28,  1999 and  February  28, 1998 F-6
    Consolidated Statements of Cash Flows-Years ended February 29, 2000,
           February 28, 1999 and February 28, 1998                                                            F-7 to F-9

   Notes to Consolidated Financial Statements                                                                F-10 to F-24

   Consolidated Financial Statement Schedule:
      II      Valuation and Qualifying Accounts                                                                  F-25
</TABLE>

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



<PAGE>







                          INDEPENDENT AUDITORS' REPORT


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


We have  audited the  consolidated  balance  sheets of Aura  Systems,  Inc.  and
subsidiaries  as of February  29,  2000,  and  February 28, 1999 and the related
consolidated  statements of operations  and  comprehensive  loss,  stockholders'
equity (deficit), and cash flows for each of the three years in the period ended
February 29, 2000 and the related  financial  statement  schedule  listed in the
accompanying  Index at Item 14. These  consolidated  financial  statements,  and
financial statement schedule are the responsibility of the Company's management.
Our  responsibility  is to express an  opinion on these  consolidated  financial
statements and financial statement schedule based on our audits.

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

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material respects,  the financial position of Aura Systems,  Inc.
and  subsidiaries as of February 29, 2000, and February 28, 1999 and the results
of their  operations  and their  cash  flows for each of the three  years in the
period ended February 29, 2000, and the financial  statement  schedule  presents
fairly,  in all material  respects,  the information  set forth therein,  all in
conformity with generally accepted accounting principles.

The accompanying  financial statements have been prepared assuming Aura Systems,
Inc.  will  continue  as a  going  concern.  As  discussed  in  note  1  to  the
consolidated financial statements,  the Company has generated significant losses
from operations.  As the Company has suffered  recurring losses from operations,
there is  substantial  doubt about its  ability to continue as a going  concern.
Management's plans in regard to these matters are described in note 1.




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

Los Angeles, California  90017
June 12, 2000




<PAGE>
<TABLE>
<CAPTION>


                                                 AURA SYSTEMS, INC.
                                                  AND SUBSIDIARIES

                                            Consolidated Balance Sheets

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

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

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

LONG-TERM Investments                                                   2,123,835             2,923,835
long-term receivables                                                   1,250,000             2,500,000
Patents and trademarks-Net                                              4,615,769             5,293,278
GOODWILL-NET                                                                   --             5,383,208
OTHER ASSETS                                                            3,271,771               571,244
                                                                    -------------         -------------
         Total                                                     $   56,122,478          $ 90,143,392
                                                                    =============          ============
</TABLE>












          See accompanying notes to consolidated financial statements.

<PAGE>
<TABLE>
<CAPTION>



                                                 AURA SYSTEMS, INC.
                                                  AND SUBSIDIARIES

                                            Consolidated Balance Sheets

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

CONVERITBLE NOTES-SECURED                                                          --             4,000,000
                                                                        -------------         -------------
CONVERTIBLE NOTES-UNSECURED                                                        --            32,481,782
                                                                        -------------         -------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY (DEFICIT):
   Common stock par value $.005 per share and additional paid in
   capital. Issued and outstanding 196,975,392 and 107,752,042            234,196,092           218,693,245
   shares respectively.
   Common Stock Not Issued                                                  9,132,774                    --
   Cumulative currency translation adjustment (CTA)                          (365,932)             (365,932)
   Accumulated deficit                                                   (241,496,926)         (231,980,970)
                                                                        --------------        --------------

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










          See accompanying notes to consolidated financial statements.


<PAGE>

<TABLE>
<CAPTION>

                                        AURA SYSTEMS, INC. AND SUBSIDIARIES
                            Consolidated    Statements   of    Operations    and
                       Comprehensive   Loss  Years  ended   February  29,  2000,
                       February 28, 1999 and February 28, 1998
                                                              2000                  1999                  1998
                                                           -------------         -------------         -------
<S>                                                        <C>                   <C>                    <C>
Net Revenues                                               $   5,788,221         $  53,650,025          $103,939,641
Cost of GOODS AND OVERHEAD                                    13,424,303           130,437,194            71,774,522
                                                           -------------         -------------         -------------

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

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

(LOSS) FROM OPERATIONS                                       (18,509,922)         (148,752,907)           (3,576,921)

OTHER (INCOME) AND EXPENSE                                     5,893,449            30,562,046               349,962
(LOSS) BEFORE INCOME TAXES AND OTHER ITEMS
                                                             (24,403,371)         (179,314,953)           (3,926,883)
   Provision (benefit) for taxes                                      --               566,635            (1,275,555)
   Minority interests in consolidated subsidiary                      --            10,372,895              (946,405)
   Loss in excess of basis of subsidiary:
     Aura Systems, Inc.                                               --             8,080,695                    --
     Minority interests                                               --            26,561,481                    --
                                                          --------------        --------------         -------------
Loss from continuing operations                              (24,403,371)         (134,866,517)           (3,597,733)
                                                          ---------------       ---------------       ---------------
Discontinued Operations:
     Loss from Discontinued Operations, Net of
     taxes of $0 for 2000,1999 & 1998 respectively            (1,433,859)          (14,875,065)           (8,038,807)
     Loss on Disposal, Net of Taxes of 0 for 2000             (2,697,642)                   --                    --
                                                          ---------------       --------------        --------------
Loss from Discontinued Operations                             (4,131,501)          (14,875,065)           (8,038,807)
                                                          ---------------       ---------------       ---------------
Loss before extraordinary item                               (28,534,872)         (149,741,582)          (11,636,540)
Extraordinary Item
     Gain on extinguishment of debt obligations,  net
     of income taxes of $0                                    19,068,916                    --                    --
                                                          --------------        --------------        --------------
Net loss                                                      (9,465,956)         (149,741,582)          (11,636,540)

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

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

WEIGHTED AVERAGE NUMBER OF
   COMMON SHARES                                             124,294,051             5,831,688            79,045,290
                                                             ===========         =============         =============
</TABLE>





          See accompanying notes to consolidated financial statements.


<PAGE>

<TABLE>
<CAPTION>

                                                 AURA SYSTEMS, INC.
                                                  AND SUBSIDIARIES

                             Consolidated Statements of Stockholders' Equity (Deficit)

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

                                                                                                      Accumulated
                                                                                                         Other
                                      Common Stock          Additional     Common                    Comprehensive
                                                              Paid-in    Stock not    Accumulated    (CTA) Income
                                    Shares        Amount     Capital       Issued       Deficit          (Loss)        Total
                                    ------        ------     -------       ------       -------     -    ------        -----
<S>                                <C>          <C>        <C>           <C>           <C>                <C>       <C>
Balances at February 28, 1997      76,481,666   $382,408   $195,657,385  $             $(70,602,848) $    40,642    $125,477,587
                                                                                --

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

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

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

Balances at February 28, 1999     107,752,042    538,759    218,154,486         --     (231,980,970)    (365,932)
                                                                                                                    (13,653,657)

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



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












          See accompanying notes to consolidated financial statements.


<PAGE>

<TABLE>
<CAPTION>

                                                 AURA SYSTEMS, INC.
                                                  AND SUBSIDIARIES


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


                                                                           2000              1999              1998
                                                                           ----              ----              ----
<S>                                                                  <C>               <C>                 <C>
Cash flows from operating activities:
    Net loss                                                          $ (9,465,956)    $(149,741,582)      $(11,636,540)
                                                                      -------------    --------------        ----------
    Adjustments to reconcile net loss to net
    cash used by operating activities:
    Depreciation and amortization                                        6,853,924         12,985,278         8,362,110
    Provision for environmental cleanup                                     48,812             44,516            40,597
   (Gain) Loss on disposition of assets                                  1,122,119          6,066,168          (555,326)
    Equity in losses of unconsolidated joint ventures                           --          6,268,384         1,937,747
   (Gain)loss on sale of subsidiary and other stock investments          1,669,161           (262,804)      (12,144,740)
    Impairment of long-lived assets                                             --          9,403,687                --
    Gain on extinguishment of Debt                                     (19,068,916)                --                --
    Foreign currency translation adjustment                                     --           (406,574)               --
    Assets-(Increase) Decrease:
     Receivables                                                           462,541         46,037,727          (674,443)
     Inventories                                                         4,019,810         40,236,817       (24,866,579)
     Prepayments                                                                --          9,891,144        (5,631,521)
     Other current assets                                                1,515,787          3,801,107        (5,534,281)
     Deferred income taxes                                                      --            838,000          (940,000)
    Liabilities-Increase (Decrease):
     Accounts payable                                                   (1,371,174)       (21,479,522)       20,279,113
     Accrued expenses                                                   (1,577,248)         4,614,005         2,086,583
     Litigation and other liabilities                                      222,223          7,389,649          (345,372)
                                                                    --------------       ------------       ------------
    Total adjustments                                                   (6,102,961)       125,427,582       (17,986,112)
                                                                    --------------       -----------         ----------
         Net cash used by operating activities                          (15,568,917)      (24,314,000)      (29,622,652)
                                                                    ---------------      ------------        ----------
Cash flows from investing activities:
   Payments from Notes Receivable                                         5,674,828                --                --
   Proceeds from sale of assets                                             327,109         2,721,000           920,000
   Purchase of property and equipment                                       (16,103)       (2,143,237)       (1,910,214)
   Manufacture of special tools and equipment                                   --         (1,910,611)      (16,096,180)
   Investment in joint ventures                                                 --           (164,466)        1,202,138
   Long-term investments                                                        --         (4,940,000)       (1,117,465)
   Long-term receivables                                                        --          3,436,809         3,347,144
   Patents and trademarks                                                       --           (467,167)       (1,903,718)
   Goodwill and other assets                                                    --          1,425,794        (2,398,400)
   Proceeds from subsidiary stock                                               --          1,611,873         5,472,656
                                                                    --------------        -----------       -----------
         Net cash provided (used) by investing activities                5,985,834           (430,005)      (12,484,039)
                                                                    --------------        ------------       ----------=

</TABLE>










           See accompanying notes to consolidated financial statements


<PAGE>

<TABLE>
<CAPTION>

                                                 AURA SYSTEMS, INC.
                                                  AND SUBSIDIARIES
                                       Consolidated Statements of Cash Flows
                                                                          2000              1999              1998
                                                                          ----              ----              ----
<S>                                                                     <C>              <C>              <C>
     Cash flows from financing activities:
        Net proceeds from borrowings                                     $251,101        $17,922,584       $26,287,632
        Repayment of notes payable                                     (1,218,571)        (3,396,083)      (10,874,683)
        Proceeds from exercise of options                                      --            103,000                --
        Net proceeds from issuance of common stock                      7,393,980          1,675,873           636,350
        Net proceeds from exercise of warrants                             24,800          7,884,325                --
        Proceeds from issuance of warrants                                     --                 --           900,000
        Net proceeds from issuance of convertible notes                        --         11,720,000        13,959,649
        Repayment of convertible notes                                   (430,000)        (3,050,000)       (5,905,223)
        Minority interest adjustment                                           --        (10,372,895)       17,749,979
        Repurchase of warrants                                                 --                 --        (1,679,956)
                                                                     ------------       ------------         ---------
            Net cash provided by financing activities                   6,021,310         22,486,804        41,073,748
                                                                     ------------       ------------        ----------
              Net decrease in cash and equivalents                     (3,561,773)        (2,257,201)       (1,032,943)
     Cash and equivalents at beginning of year                          3,822,210          6,079,411         7,112,354
                                                                     ------------       ------------       -----------
     Cash and equivalents at end of year                           $      260,437       $  3,822,210      $  6,079,411
                                                                     ============        ===========       ===========
     Supplemental disclosures of cash flow
      information:
        Cash paid during the year for:
          Interest                                                 $      922,708       $  3,374,992      $  6,280,859
                                                                     ============       ============       ===========
          Income Taxes                                                         --       $  2,244,762      $    186,310
                                                                   $ ============       ============       ===========
</TABLE>

     Supplemental disclosures of non-cash investing and financing activities:

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

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

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

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

           See accompanying notes to consolidated financial statements
<PAGE>

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













































          See accompanying notes to consolidated financial statements.


<PAGE>


                               AURA SYSTEMS, INC.
                                AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

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

(1)      Business and Summary of Significant Accounting Policies

         Business

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

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

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

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

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

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

         Basis of Presentation and Going Concern

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

         Principles of Consolidation

         For the year  ended  February  29,  2000,  the  consolidated  financial
         statements  include  accounts  of the  Company  and  its  wholly  owned
         subsidiaries Aura Ceramics, Inc. and Electrotec Productions,  Inc. (and
         its wholly owned subsidiary  Electrotec Europe).  During the year ended
         February 29, 2000, the Company divested its AuraSound segment (see note
         22).  The  AuraSound   segment  included  the  Company's  wholly  owned
         subsidiaries  AuraSound,  Inc. and MYS and its subsidiaries  Audio-MYS,
         MYS America and MYS U.S.A.  Subsequent to year-end the Company sold its
         interest in Aura Ceramics, Inc. to local management. For the year ended
         February  28,  1999,  the  consolidated  financial  statements  include
         accounts of the Company and its wholly owned subsidiaries,  MYS and its
         subsidiaries Audio-MYS, MYS America and MYS U.S.A, Aura Ceramics, Inc.,
         Aura Sound Inc. and Electrotec Productions,  Inc. (and its wholly owned
         subsidiary Electrotec Europe).

         For the year ended February 28, 1998, the Company's interest in NewCom,
         a majority owned subsidiary,  is reported on a consolidated  basis, the
         consolidated financial statements include 100 percent of the assets and
         liabilities of the subsidiary, and the ownership percentage of minority
         interests  is  recorded  as  "Minority  Interests  in  Subsidiary."  In
         February  1999,   the  Company   reduced  its  interest  in  NewCom  to
         approximately 41%.  Accordingly,  for the year ended February 28, 1999,
         the  Statement  of  Operations  and  Comprehensive  Loss  reflects  the
         operating  results of NewCom through the period of majority  ownership.
         The  balance  sheet as of  February  28, 1999  reflects  the  Company's
         investment  on an equity basis of  accounting.  In  consolidation,  all
         significant   intercompany   balances   and   transactions   have  been
         eliminated.

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

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

         Revenue Recognition

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

         Comprehensive Income

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

         Cash Equivalents

         The Company  considers  all highly  liquid  assets,  having an original
         maturity  of  less  than  three  months  when  purchased,  to  be  cash
         equivalents.

         Use of Estimates

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

         Long-Term Investments

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

         Goodwill

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

         Inventories

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

         Per Share Information

         The  consolidated  net loss per common  share is based on the  weighted
         average  number of common shares  outstanding  during the year.  Common
         share  equivalents  have been excluded since inclusion would dilute the
         reported  loss per  share.  Such  common  stock  equivalents  amount to
         11,709,000 common shares for convertible debt, warrants and options.

         Patents and Trademarks

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

         Impairment of long-lived assets

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

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

         Research and Development

         Research and development costs are expensed as incurred.

         Advertising Costs

         Advertising  costs are  expensed as  incurred.  Advertising  charged to
         expense in Fiscal 2000,  1999 and 1998  approximated  nil, $9.4 million
         and $5.8 million, respectively.

         Buildings, Equipment and Leasehold Improvements

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

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

         During Fiscal 2000 and 1999, the Company  capitalized  costs of nil and
         $1,910,611,  respectively,  on special tools and equipment,  which have
         been  designed for the  manufacturing  and  development  of  automotive
         products. The capitalized amounts, included in machinery and equipment,
         include  allocated  costs of direct labor and  overhead.  During Fiscal
         1999,  management  reduced  previously  capitalized  amounts  to  their
         estimated  fair  value,  due to  impairment  of  assets.  See  note  on
         Impairment of long-lived assets.

         Depreciation  and  amortization  expense of  buildings,  machinery  and
         equipment,   furniture   and   fixtures  and   leasehold   improvements
         approximated  $6.5  million,  $11.9 million and $5.4 million for Fiscal
         2000, 1999 and 1998, respectively.



(2)      Receivables

         Receivables consist of the following:
<TABLE>
<CAPTION>
                                                                     2000              1999
                                                                     ----              ----
<S>                                                               <C>               <C>
         Commercial receivables:
           Amounts billed                                         $10,100,962       $16,548,666
           Advances due from related parties                           31,455           102,773
           Less allowance for  uncollectible  receivables  and     (7,673,217)       (8,271,025)
                                                                  -----------       -----------
           sales returns
                                                                   $2,459,200        $8,380,414
                                                                    =========         =========
</TABLE>

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

(3)      Notes Receivable

         Notes receivable consist of the following:

                                     2000                         1999
                                     ----                         ----
  MYS                         $   570,092                $           --
  Algo                          1,736,975                            --
  Telemac                       2,500,000                     2,750,000
                                ---------                     ---------
                                4,807,067                     2,750,000
  Less current portion          3,557,067                       250,000
                                ---------                     ---------
                               $1,250,000                    $2,500,000
                                =========                     =========

         During Fiscal 1999, the Company sold a portion of its shares in Telemac
         Cellular Corp. (Telemac) back to Telemac. The Company then entered into
         a cancellation  of shares  agreement  whereby it tendered the remaining
         shares to  Telemac  in  exchange  for a note  receivable  from  Telemac
         resulting in a gain  recognized  of  approximately  $850,000.  The note
         matures in Fiscal 2002.

         In March  1999,  the Company  sold MYS Corp.  and  subsidiaries  to the
         management of MYS for a sales price of $4.2 million.  In December 1999,
         the Company  finalized the sale of the assets of the AuraSound  speaker
         division,  total consideration received was approximately $2.4 million.
         The purchaser of AuraSound's assets is the same party that acquired the
         majority of the Company's restructured debt as described at Note 24.

(4)      Long Term Investments

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

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

(5)      Joint Ventures and Other Agreements

    (a)  Malaysian Joint Venture

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

    (b)  Aura-Dewan Joint Venture

         In 1995, the Company  entered into an agreement with K&K Enterprises of
         India ("K&K") for the formation of a joint venture to  manufacture  and
         sell speakers using Aura's proprietary technology.  In 1995 the Company
         also entered into an  agreement  with K&K for the  formation of a joint
         venture to manufacture  Aura's Bass ShakerTM.  In Fiscal 1999 the joint
         venture was terminated, and a total of $534,911 in joint venture losses
         and  write-off's  were recorded  during Fiscal 1999. In Fiscal 2000 the
         Company's  remaining  investment  in property of the joint  venture was
         disposed of, and certain claims and liabilities were satisfied.  A loss
         on  disposal  of assets,  in the amount of  $800,000,  was  recorded in
         Fiscal 2000.

    (c)  Daewoo Agreement

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

    (d)  Eric Joint Venture

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

    (e)  Microbell Joint Venture

         In 1995 the Company  entered into an agreement with Microbell to form a
         joint  venture  to  further  develop  and  commercialize  patented  and
         proprietary  technology developed by Microbell.  In Fiscal 1999, due to
         Aura's inability to continue to fund the joint venture as required, the
         joint venture was  terminated,  and $635,902 was written-off to loss in
         joint ventures.

(6)      Related Party Transactions

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

(7)      Inventories

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

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

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

(8)      Property and Equipment

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


(9)      Notes Payable and Other Liabilities

         Notes Payable and Other Liabilities consist of the following:
<TABLE>
<CAPTION>

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

    (a) Notes payable-equipment at February 29, 2000 consists of a note maturing
in February 2005.

    (b)  Notes  payable-buildings  consists of a 1st Trust Deed on a building in
         California,  due in Fiscal 2009, and in Fiscal 1999 includes a note due
         October 2000 collateralized by a building in Malaysia.

     (c)  Unsecured  notes  payable  consists of four notes at February 29, 2000
          and three notes at February 28, 1999.

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

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

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

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

(10)     Convertible Notes Payable

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

         In Fiscal 1998,  the Company  issued $34.5  million of unsecured  notes
         payable to  investors.  During  fiscal 1998 the Company  redeemed  $3.8
         million of notes  issued in Fiscal 1997 and $2 million of notes  issued
         in Fiscal  1998.  Additionally,  $4.5 million of notes issued in Fiscal
         1997 were converted into 3,164,001 shares of common stock.

         In Fiscal  1999,  the  Company  issued $8  million of  unsecured  notes
         payable  to  investors  and  $4,662,900  of  secured  notes  payable to
         investors.  During  Fiscal 2000 the Company  redeemed  $1.6  million of
         convertible notes issued in Fiscal 1998. Additionally,  in Fiscal 1999,
         $9,662,184  worth of  convertible  notes  issued  in  Fiscal  1998 plus
         interest of $547,249,  were converted into 16,513,282  shares of common
         stock.

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

(11)     Accrued Expenses

         Accrued expenses consist of the following:

                                             2000              1999
                                             ----              ----
Accrued payroll and related expenses      $   582,850       $1,076,185
Bond interest payable                         261,328        4,535,789
Other                                         290,120        2,444,809
                                           ----------    -------------
                                          $ 1,134,298       $8,056,783
                                           ==========    ==============

(12)     Income Taxes

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

         Under SFAS 109 "Accounting  for Income Taxes" the Company  utilizes the
         liability  method of  accounting  for income  taxes.  Accordingly,  the
         Company  has  recorded a deferred  tax  benefit of  approximately   $97
         million for Fiscal 2000 and $93  million for Fiscal  1999.  The Company
         has also  recorded a  valuation  account to fully  offset the  deferred
         benefit due to the uncertainty of the realization of this benefit.

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

(13)     Common Stock, Stock Options and Warrants

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

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

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

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

                                                                    Shares       Exercise Price

<S>                                                                 <C>             <C>
         Options outstanding at February 28, 1997                   1,009,578        $1.44-5.50
                                                                    ---------        ----------

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

         Grants                                                            --                --
         Cancellations                                                     --                --
         Exercises                                                         --                --
         Expired                                                      499,578         1.44-5.50
                                                                      -------       -----------
         Options outstanding at February 28,1999                      560,000         2.06-4.75

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

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

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

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

 (14)    Employee Stock Plans

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

         The ESOP is a qualified  discretionary  employee  stock  ownership plan
         that  covers  substantially  all  employees.  This  plan  was  formally
         approved by the Board of Directors during Fiscal 1990. The Company made
         no   contributions   to  the  ESOP  in  Fiscal  2000,   1999  and  1998
         respectively.

         In March 2000, the Company's Board of Directors  adopted the 2000 Stock
         Option Plan, a nonqualified plan which was subsequently approved by the
         shareholders.  The Stock Option Plan authorizes the grant of options to
         purchase up to 10% of the Company's  outstanding common shares.  Shares
         currently under option generally vest ratably over a five year period.

         In October 1995, the Financial  Accounting  Standards Board issued SFAS
         No. 123  "Accounting for  Stock-Based  Compensation,"  which contains a
         fair  value-based  method for  valuing  stock-based  compensation  that
         entities may use,  which  measure  compensation  cost at the grant date
         based on the fair value of the award.  Compensation  is then recognized
         over  the  service  period,   which  is  usually  the  vesting  period.
         Alternatively, the standard permits entities to continue accounting for
         employee stock option and similar equity  instruments under APB Opinion
         No. 25,  "Accounting  for Stock  Issued to  Employees."  Entities  that
         continue  to account  for stock  options  using APB  Opinion No. 25 are
         required to make pro forma  disclosures  of net income and earnings per
         share, as if the fair value-based  method of accounting defined is SFAS
         No. 123 had been  applied.  Management  accounts for options  under APB
         Opinion No. 25. If the  alternative  accounting-related  provisions  of
         SFAS No. 123 had been adopted as of the  beginning of 1995,  any effect
         on 2000,  1999 and 1998 net loss and loss per  share  would  have  been
         immaterial.

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

                                                                    Shares         Exercise Price


<S>                                                                <C>                <C>
         Options outstanding at February 28, 1997                   3,879,800          $1.44-7.31
                                                                    ---------           ---------

         Grants                                                     2,983,000           1.79-2.15
         Cancellations                                             (3,002,800)          1.44-3.06
         Exercises                                                    (25,000)               2.06
                                                                  -----------       --------------
         Options outstanding at February 28, 1998                   3,835,000           1.44-7.31

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

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

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

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

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

(15)     Leases

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

(16)     Significant Customers

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

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

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

(17)     Commitments and Contingencies

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

         Shareholder Litigation

         Barovich/Chiau v. Aura

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

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

         Morganstein v. Aura.

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

         In June, 1998, the Court entered an order staying further  discovery in
         order to facilitate  completion of settlement  discussions  between the
         parties.  On October 12, 1998,  the parties  entered into a stipulation
         for settlement of all claims,  subject to approval by the Court.  Under
         the  stipulation for settlement Aura agreed to pay $4.5 million in cash
         or stock,  at Aura's option,  plus 3.5 million  warrants at an exercise
         price of $2.25.  In addition,  Aura's  insurance  carrier agreed to pay
         $10.5  million.  The  settlement  was finally  approved by the Court in
         October 1999 and was thereafter  amended in December 1999 to allow Aura
         to defer payment of the settlement  amount until April 2000 in exchange
         for an  additional 2 million  shares of Aura Common  Stock,  subject to
         certain  adjustments.  The deferral resulted from the limitation on the
         number of shares  authorized  (see note 23). The final  distribution of
         stock and warrants to class members occured in June 2000.

         NewCom Related Litigation

         Deutsche Financial Services v. Aura

         In June,  1999,  a  lawsuit  naming  Aura was  filed in  United  States
         District  Court  for  the  Central  District  of  California,  Deutsche
         Financial Services ("DFS") vs. Aura (Case No. 99-03551 GHK (BQRx)). The
         complaint  follows DFS'  termination of its credit facility with NewCom
         of $11,000,000 and seizure of substantially all of NewCom's  collateral
         in April, 1999. It alleges,  among other things, that Aura is liable to
         DFS  for  NewCom's  indebtedness  under  the  secured  credit  facility
         purportedly  guaranteed  by Aura in  1996,  well  prior  to the  NewCom
         initial  public  offering of September  1997.  In the  proceeding,  DFS
         sought an order to attach Aura's  assets which was denied  following an
         evidentiary  hearing  before the Honorable  Brian Quinn  Robbins,  U.S.
         Magistrate,  and the matter has been ordered by the  District  Court to
         binding  arbitration.  Aura has now responded in  arbitration,  denying
         DFS' claims and has asserted in its defense,  among other things,  that
         the  guarantee,  if any, is discharged.  In addition,  Aura through its
         counsel,  has asserted  cross-claims for, among other things,  tortious
         lender  liability,  alleging that DFS wrongfully  terminated the NewCom
         credit facility, wrongfully seized the NewCom collateral and wrongfully
         foreclosed   upon   NewCom   collateral,   acting  in  a   commercially
         unreasonably manner. A panel of three arbitrators has been selected and
         appointed by the American Arbitration Association and a hearing set for
         May,  2000 was  suspended  by the panel  without yet  scheduling  a new
         hearing  date.  The Company  believes it has  meritorious  defenses and
         cross claims.  However,  no assurances  can be given as to the ultimate
         outcome of this proceeding.

         Excalibur v. Aura

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

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

         The  Plaintiffs  allege  in their  complaint  that  Aura  breached  its
         agreements  with the  Plaintiffs  by,  among other  things,  failing to
         register the Aura Common Stock relating to the Re-pricing  Rights.  The
         Plaintiffs  further  allege that Aura  misrepresented  its intention to
         register the Aura shares in order to induce the Plaintiffs to loan $1.0
         million to NewCom.  The  Complaint  seeks damages of not less than $4.5
         million.  In  January  2000  Aura  filed   counterclaims   against  the
         Plaintiffs,   including   claims   that  the   Plaintiffs   made  false
         representations  to Aura in order to induce  Aura to agree to issue its
         Common Stock pursuant to the Re-pricing Rights. The parties have agreed
         to submit  this  matter to  mediation  on June 28,  2000.  The  Company
         believes  that it has  meritorious  defenses and  counterclaims  to the
         Plaintiffs' allegations.  However, no assurances can be given as to the
         ultimate outcome of this proceeding.

         Securities and Exchange Commission Settlement.

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

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

         Other Legal Actions

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

(18)     Concentrations of Credit Risk

         Financial  instruments  that  subject the Company to  concentration  of
         credit risk are cash equivalents,  trade receivables, notes receivable,
         trade payables and notes payable. The carrying value of these financial
         instruments  approximate  their fair value at February 29,  2000.  Cash
         equivalents consist principally of short-term money market funds, these
         instruments are short term in nature and bear minimal risk.

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

(19)     Other (Income) and Expenses

         Other (income) and expenses consist of:
<TABLE>
<CAPTION>

                                                           2000                  1999                  1998
                                                           ----                  ----                  ----

            <S>                                        <C>                    <C>
             Gain on  subsidiary  stock  and other
             assets                                     $          --         $    (811,657)        $ (12,632,265)
             Legal settlements                              2,777,762             7,717,518             1,700,000
             Equity in  losses  of  unconsolidated
             joint ventures                                        --             6,268,384             1,937,747
             Loss on disposal of assets                      (259,274)            1,026,972                    --
             Loss on disposal of investment                        --             4,782,839                    --
             Termination of license arrangement                    --                    --             3,114,030
             Other income                                  (1,101,279)             (101,711)             (220,291)
             Interest expense                               4,476,690            11,679,701             6,450,741
                                                            ---------            ----------         -------------
                                                        $   5,893,449         $  30,562,046         $     349,962
                                                            =========          ============          ============
</TABLE>


(20)     Fourth Quarter Adjustments

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

(21)     Segment Reporting

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

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

         The  computer  related   communications   and  sound  related  products
         operating  segment  consists of the  manufacturing  and selling of high
         performance  computer  communication  and  multimedia  products for the
         personal  computer  market.  The segment  also  includes  internal  and
         external data fax modems,  speaker phones,  sound cards, and multimedia
         kits. This operating  segment  suffered  significant  operating  losses
         during the year ended February 28, 1999 and ceased  operations in early
         Fiscal 2000.

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

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

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

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

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

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

Number of operating locations at year-end (unaudited)
                 2000                  2                   --                  --                   2
                 1999                  2                    2                   5                   9
                 1998                  2                    2                   5                   9
</TABLE>

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

Segment Reporting
Net Revenue from customer geographical segments are as follows (in thousands):
<TABLE>
<CAPTION>

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

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


(22)     Discontinued Operations

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

(23)     Subsequent Events

         Note Conversion

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

         Sale of Assets of Aura Ceramics

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

         Completion of Common Stock Private Placement

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

         Authorized Stock

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

         2000 Stock Option Plan

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

(24)     Extinguishment of Debt

         At the start of Fiscal 2000, the Company had $38,481,782 in convertible
         notes payable,  of which most were in default.  During the current year
         the  Company   restructured  much  of  its  convertible  notes  payable
         obligation  through debt  forgiveness and equity  conversion.  With the
         debt  restructure,  $11,009,102 of convertible notes was converted into
         71,054,445  shares of the Company's  common stock,  of which  2,520,000
         shares are not reflected as  outstanding  as of February 29, 2000.  The
         Company also redeemed $430,000 of convertible notes, and $12,535,898 in
         convertible  notes and $5,850,168 in accrued interest were forgiven.  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.


<PAGE>
<TABLE>
<CAPTION>


                                                    SCHEDULE II
                                                 AURA SYSTEMS, INC.
                                                  AND SUBSIDIARIES

                                         Valuation and Qualifying Accounts

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


                                     Balance at      Charged to       Charged to                        Balance at
                                     beginning of    costs and          other                             end
                                       period         expenses         Accounts       Deductions        of period
                                     -----------------------------------------------------------------------------------
<S>                                     <C>           <C>            <C>                <C>               <C>

Allowances  are  deducted  from  the
assets to which they apply

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

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

Year ended February 28, 1998:

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


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