SECURITIES AND EXCHANGE
  COMMISSIONWashington, D.C.  20549

Form 10-Q

QUARTERLY REPORT
  UNDER SECTION 13 OR 15(d) OFTHE SECURITIES EXCHANGE
  ACT OF 1934

|For the Quarter
        Ended May 31, 2004 | Commission
        File Number 000-17249
|------------------------------------------ | ----------------------------------------

AURA
  SYSTEMS, INC.(Exact name of
  Registrant as specified in its charter)

|Delaware                                                               | 95-4106894                                  
|---------------------------------------------------------------------- | --------------------------------------------
|(State or
        other jurisdiction of incorporation or organization) | (I.R.S.
        Employer Identification No.)

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

|Registrant's telephone number,
      including area code:                (310) 643-5300     
|--------------------------------------------------------------------------------------------
|Former name, former address
      and former fiscal year, if changed since last report: None

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

Indicate the number
  of shares outstanding of each of the issuer's classes of Common Stock, as of
  the latest practicable date.

|Class                                            | Outstanding
        at August 20, 2004
|------------------------------------------------ | --------------------------------------
|Common Stock,
        par value $0.005 per share | 430,923,150
        Shares            



AURA SYSTEMS, INC.
  AND SUBSIDIARIES

INDEX



|Index    |                                     |                                                                                                                                      |    | Page No.
|-------- | ----------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------ | -- | --------
|PART I.  | FINANCIAL
      INFORMATION         |                                                                                                                                      |    |         
|         |                                     |                                                                                                                                      |    |         
|         | ITEM 1.                             | Financial
      Statements                                                                                                           |    |         
|         |                                     |                                                                                                                                      |    |         
|         |                                     | Statement
      Regarding Financial Information                                                                                      |    | 2       
|         |                                     |                                                                                                                                      |    |         
|         |                                     | Condensed
      Consolidated Balance Sheets as of May 31, 2004(Unaudited)
      and February 29, 2004                                |    | 3       
|         |                                     |                                                                                                                                      |    |         
|         |                                     | Condensed
      Consolidated Statements of Operations for the Three Months Ended May 31,
      2004 (Unaudited) and 2003 (Unaudited) |    | 4       
|         |                                     |                                                                                                                                      |    |         
|         |                                     | Condensed
      Consolidated Statements of Cash Flows for the Three Months Ended May 31,
      2004 (Unaudited) and 2003 (Unaudited) |    | 5       
|         |                                     |                                                                                                                                      |    |         
|         |                                     | Notes
      to Condensed Consolidated Financial Statements (Unaudited)                                                               |    | 6       
|         |                                     |                                                                                                                                      |    |         
|         | ITEM 2.                             | Management's Discussion
      and Analysis of Financial Condition and Results of Operations                                          |    | 11      
|         |                                     |                                                                                                                                      |    |         
|         | ITEM 4.                             | Controls
      and Procedures                                                                                                        |    | 15      
|         |                                     |                                                                                                                                      |    |         
|PART II. | OTHER
      INFORMATION             |                                                                                                                                      |    |         
|         |                                     |                                                                                                                                      |    |         
|         | ITEM 1.                             | Legal
      Proceedings                                                                                                              |    | 16      
|         |                                     |                                                                                                                                      |    |         
|         | ITEM 2.                             | Changes
      in Securities                                                                                                          |    | 16      
|         |                                     |                                                                                                                                      |    |         
|         | ITEM 6.                             | Exhibits
      and Reports on Form 8-K                                                                                               |    | 16      
|         |                                     |                                                                                                                                      |    |         
|         | SIGNATURES
      AND CERTIFICATIONS |                                                                                                                                      | 17

1

###### AURA SYSTEMS, INC. AND SUBSIDIARIES

###### QUARTER ENDED MAY 31, 2004

## PART I.  FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

The consolidated financial statements included
  herein have been prepared by AuraSystems, Inc. (the "Company"), without
  audit, pursuant to the rules andregulations of the Securities and Exchange Commission
  (the "SEC").  Ascontemplated by the SEC under Rule 10-01 of Regulation
  S-X, theaccompanying consolidated financial statements and footnotes have been
  condensed and therefore do not contain all disclosures required by accounting
  principles generally accepted in the United States of America.  However, the
  Company believes that the disclosures are adequate to make the information presented
  not misleading.  These consolidated financial statements should be read in conjunction
  with the financial statements and notes thereto included in the Company's Form
  10-K for the year ended February 29, 2004 as filed with the SEC (file number
  000-17249).>



AURA SYSTEMS,
  INC. AND SUBSIDIARIES 
  QUARTER ENDED MAY 31, 2004



PART I. FINANCIAL
  INFORMATION

ITEM 1. FINANCIAL
  STATEMENTS

The consolidated financial statements
  included herein have been prepared by Aura Systems, Inc. (the "Company"),
  without audit, pursuant to the rules and regulations of the Securities and Exchange
  Commission (the "SEC"). As contemplated by the SEC under Rule 10-01
  of Regulation S-X, the accompanying consolidated financial statements and footnotes
  have been condensed and therefore do not contain all disclosures required by
  accounting principles generally accepted in the United States of America. However,
  the Company believes that the disclosures are adequate to make the information
  presented not misleading. These consolidated financial statements should be
  read in conjunction with the financial statements and notes thereto included
  in the Company's Form 10-K for the year ended February 29, 2004 as filed with
  the SEC (file number 000-17249).



AURA SYSTEMS, INC.
  AND SUBSIDIARIESCONDENSED CONSOLIDATED
  BALANCE SHEETS

|                                                                                                                                                                                                                                                                            |  | May
        31, 2004
        (Unaudited) |  | February
        29,
        2004
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------------------------------- |  | ---------------------------------
|Assets                                                                                                                                                                                                                                                                      |  |                                          |  |                                  
|Current assets:                                                                                                                                                                                                                                                             |  |                                          |  |                                  
|Cash
      and cash equivalents                                                                                                                                                                                                                                             |  | $      
        20,266                   |  | $     
        83,200            
|Receivables,
      net                                                                                                                                                                                                                                                      |  | 404,383                                  |  | 682,302                          
|Inventories,
      net                                                                                                                                                                                                                                                      |  | 1,150,319                                |  | 809,659                          
|Other current assets                                                                                                                                                                                                                                                        |  | 462,247                                  |  | 259,089                          
|                                                                                                                                                                                                                                                                            |  |                                          |  |                                  
|Total
        current assets                                                                                                                                                                                                                                                |  | 2,037,215                                |  | 1,834,250                        
|                                                                                                                                                                                                                                                                            |  |                                          |  |                                  
|Property and equipment,
        at cost                                                                                                                                                                                                                                     |  | 13,864,035                               |  | 13,864,035                       
|Less accumulated
        depreciation and amortization                                                                                                                                                                                                                      |  | ( 
        7,007,623)                    |  | ( 
        6,924,606)            
|                                                                                                                                                                                                                                                                            |  |                                          |  |                                  
|Net
        property and equipment                                                                                                                                                                                                                                          |  | 6,856,403                                |  | 6,939,429                        
|                                                                                                                                                                                                                                                                            |  |                                          |  |                                  
|Non-current inventories                                                                                                                                                                                                                                                     |  | 7,149,377                                |  | 7,496,484                        
|Long term investments                                                                                                                                                                                                                                                       |  | 286,061                                  |  | 286,061                          
|Patents and trademarks,
        net                                                                                                                                                                                                                                         |  | 593,806                                  |  | 610,238                          
|Other assets                                                                                                                                                                                                                                                                |  | 591,761                                  |  | 594,271                          
|                                                                                                                                                                                                                                                                            |  |                                          |  |                                  
|Total
        assets                                                                                                                                                                                                                                                        |  | $ 
        17,514,623                    |  | $ 
        17,760,733            
|                                                                                                                                                                                                                                                                            |  |                                          |  |                                  
|Liabilities
      and Stockholder's Deficit                                                                                                                                                                                                                                 |  |                                          |  |                                  
|Current liabilities:                                                                                                                                                                                                                                                        |  |                                          |  |                                  
|Accounts payable                                                                                                                                                                                                                                                            |  | $   
        2,897,363                   |  | $   
        2,778,366           
|Notes payable                                                                                                                                                                                                                                                               |  | 4,240,454                                |  | 4,273,052                        
|Convertible notes                                                                                                                                                                                                                                                           |  | 7,479,609                                |  | 6,400,973                        
|Accrued expenses                                                                                                                                                                                                                                                            |  | 2,801,866                                |  | 2,232,229                        
|Deferred income                                                                                                                                                                                                                                                             |  | 160,875                                  |  | 160,875                          
|                                                                                                                                                                                                                                                                            |  |                                          |  |                                  
|Total current
        liabilities                                                                                                                                                                                                                                           |  | 17,580,167                               |  | 15,845,495                       
|                                                                                                                                                                                                                                                                            |  |                                          |  |                                  
|Notes payable and
        other liabilities                                                                                                                                                                                                                                 |  | 4,839,443                                |  | 4,871,804                        
|                                                                                                                                                                                                                                                                            |  |                                          |  |                                  
|Minority interest
        in consolidated subsidiary                                                                                                                                                                                                                        |  | 606,756                                  |  | 657,859                          
|                                                                                                                                                                                                                                                                            |  |                                          |  |                                  
|COMMITMENTS AND CONTINGENCIES                                                                                                                                                                                                                                               |  |                                          |  |                                  
|Stockholders'
        deficit       Series A Convertible, Redeemable
        Preferred stock par value $0.005 per share and additional paid in capital. 
        1,500,000 shares authorized, 591,110 shares issued and outstanding at
        May 31 and February 29, 2004 |  | 2,956                                    |  | 2,956                            
|Common
        stock par value $0.005 per share and additional paid in capital. 
        500,000,000 shares authorized, 430,923,150 issued and outstanding at May
        31 and February 29, 2004.                                                                         |  | 2,154,544                                |  | 2,154,544                        
|Committed
        common stock                                                                                                                                                                                                                                              |  | 3,102,958                                |  | 3,102,958                        
|Additional
        paid-in capital                                                                                                                                                                                                                                          |  | 308,856,193                              |  | 308,182,035                      
|Accumulated
        deficit                                                                                                                                                                                                                                                 |  | (319,628,394)                            |  | (317,056,918)                    
|                                                                                                                                                                                                                                                                            |  |                                          |  |                                  
|Total
        stockholders deficit                                                                                                                                                                                                                                         |  | (   
        5,511,743)                  |  | ( 
        3,614,425)            
|                                                                                                                                                                                                                                                                            |  |                                          |  |                                  
|Total
        liabilities and stockholders deficit                                                                                                                                                                                                                         |  | $ 
        17,514,623                    |  | $ 
        17,760,733            
|                                                                                                                                                                                                                                                                            |  |                                          |  |                                  

See accompanying notes
  to condensed consolidated financial statements.

AURA SYSTEMS, INC.
  AND SUBSIDIARIESCONDENSED CONSOLIDATED
  STATEMENTS OF OPERATIONSTHREE MONTHS ENDED
  MAY 31, 2004 AND 2003(Unaudited)





|                                                                                 | Three
        Months   
|-------------------------------------------------------------------------------- | -----------------------
|                                                                                 |                        
|                                                                                 | 2004                   
|                                                                                 |                        
|Net Revenues                                                                     | $   
        685,834   
|                                                                                 |                        
|Cost
        of goods                                                            | 268,998                
|                                                                                 |                        
|Gross Profit                                                                     | 416,836                
|                                                                                 |                        
|Expenses                                                                         |                        
|Engineering,
        research and development expenses                           | 545,630                
|Selling,
        general and administrative                                      | 1,362,731              
|                                                                                 |                        
|Total
        costs and expenses                                                 | 1,908,361              
|                                                                                 |                        
|Loss
      from operations                                                       | (1,491,525)            
|                                                                                 |                        
|Other (income)
        and expense                                               |                        
|Interest
        expense, net                                                    | 1,144,408              
|Other
      (income) expense, net                                                | (    
        13,354)  
|Minority
      interest in net income of consolidated subsidiary                 | (   
        51,103)   
|                                                                                 |                        
|Loss before extraordinary
        item                                           | (2,571,476)            
|                                                                                 |                        
|Extraordinary
      item                                                         |                        
|Gain
        on extinguishment of debt obligations, net of income taxes of $0    | -                      
|                                                                                 |                        
|Net loss                                                                         | $(2,571,476)           
|                                                                                 |                        
|Basic and diluted
        loss per share                                         |                        
|Before
      extraordinary item                                                  | $    
        (0.006)  
|                                                                                 |                        
|Extraordinary
        item                                                       | $       
             
|                                                                                 |                        
|Total
        basic and diluted loss per share                                   | $      
        (0.006)
|                                                                                 |                        
|Weighted average
        shares used to compute basic and diluted loss per share | 430,923,150            
|                                                                                 |                        
|                                                                                 |                        

See accompanying notes
  to condensed consolidated financial statements.

AURA SYSTEMS, INC.
  AND SUBSIDIARIESCONDENSED CONSOLIDATED
  STATEMENTS OF CASH FLOWSFOR THE THREE MONTHS
  ENDED MAY 31, 2004 AND 2003(Unaudited)

|                                                           | 2004                   |  | 2003                  
|---------------------------------------------------------- | ---------------------- |  | ----------------------
|                                                           |                        |  |                       
|Net cash used
        in operations                        | $ (  
        967,975) |  | $ (1,301,226)         
|                                                           |                        |  |                       
|Investing activities:                                      |                        |  |                       
|                                                           |                        |  |                       
|Proceeds from sale
        of investment                   | -                      |  | 302,500               
|Note receivable                                            | -                      |  | 51,008                
|                                                           |                        |  |                       
|Net cash provided
        by investing activities          | -                      |  | 353,508               
|                                                           |                        |  |                       
|Financing activities:                                      |                        |  |                       
|                                                           |                        |  |                       
|Issuance of debt                                           | 970,000                |  | 644,214               
|Repayment of debt                                          | (64,959)               |  | (44,198)              
|Issuance of convertible
        notes                      | -                      |  | 200.000               
|Net proceeds from
        sale of Series A preferred stock | -                      |  | 109,500               
|                                                           |                        |  |                       
|Net cash provided
        by financing activities:         | 905,041                |  | 909,516               
|                                                           |                        |  |                       
|Net increase (decrease)
        in cash                    | (62,934)               |  | (38,202)              
|                                                           |                        |  |                       
|Cash and cash equivalents
        at beginning of period   | 83,200                 |  | 163,693               
|                                                           |                        |  |                       
|Cash and cash
        equivalents at end of period         | $     
        20,266  |  | $     
        125,491
|                                                           |                        |  |                       
|Supplemental disclosures
        of cash flow information  |                        |  |                       
|Cash paid during
        the period for:                   |                        |  |                       
|Interest                                                   | $  
        30,106     |  | $      
        58,587
|                                                           |                        |  |                       

Unaudited supplemental disclosure
  of noncash investing and financing activities:

During the three months ended May
  31, 2004, the Company:

| | - | issued $108,636
      of convertible notes payable in satisfaction of $108,636 in contractual
      obligations arising from the sale of the convertible notes payable.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------

During the three months ended May
  31, 2003, the Company:

| | - | exchanged $3,605,973
      of convertible notes payable, plus accrued interest, for 534,020 shares
      of Series A Convertible, Redeemable Preferred Stock.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------

See accompanying
  notes to condensed consolidated financial statements.

AURA SYSTEMS, INC.NOTES TO CONDENSED
  CONSOLIDATED FINANCIAL STATEMENTSMay 31, 2004(Unaudited)

1)       Basis
  of Presentation

The condensed consolidated financial
  statements include the accounts of Aura Systems, Inc. and subsidiaries ("the
  Company").  All inter-company balances and inter-company transactions have
  been eliminated.

In
  the opinion of management, the accompanying condensed consolidated financial
  statements reflect all adjustments (which include normal recurring adjustments)
  and reclassifications for comparability necessary to present fairly the financial
  position of Aura Systems, Inc. and subsidiaries at May 31, 2004 and the results
  of its operations for the three months ended May 31, 2004 and 2003.

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

Restatement
  of Beginning Balances
            At February 29,
  2004, the Company improperly accounted for the beneficial conversion feature
  on certain convertible notes issued during the year. In the February 29, 2004
  condensed consolidated balance sheet, additional paid-in capital and accumulated
  deficit have both been reduced by $348,555. The Company will file an amended
  Form 10-K to reflect the correction of this error.

2)Going
  Concern

In
  connection with the audit of its consolidated financial statements for the year
  ended February 29, 2004, the Company received a report from its independent
  auditors that includes an explanatory paragraph describing uncertainty as to
  the Companys ability to continue as a going concern.  Except as otherwise
  disclosed, the condensed consolidated financial statements have been prepared
  on the basis that it is a going concern, which contemplates the realization
  of assets and satisfaction of liabilities in the normal course of business. 
  The Companys consolidation and reduction of the scope of its operations
  has resulted in several writedowns of assets, which have occurred over time
  as the Company determines, based on its current information, that such asset
  is impaired.  Further writedowns may occur and would occur were the Company
  to cease operations.

The
  Company continues to experience acute liquidity challenges.  The Company
  had cash of approximately $20,000 and $80,000 at May 31 and February 29, 2004,
  respectively.  For the three months ended May 31, 2004 and the year ended
  February 29, 2004, the Company incurred a net loss of approximately $2,600,000
  and $13,600,000, respectively, on net revenues of approximately $700,000 and
  $1,900,000, respectively.  The Company had working capital deficiencies
  at May 31 and February 29, 2004 of approximately $15,500,000 and $14,000,000,
  respectively.  These conditions, combined with the Companys historical
  operating losses, raise substantial doubt as to the Company's ability to continue
  as a going concern.  At July 31, 2004, the Company approximately $20,000
  of cash.

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

The
  Company is seeking to raise additional capital; however, the Company has no
  firm commitments from third parties other than those involved in the 2004 Recapitalization
  Transactions to provide additional financing and there can be no assurance that
  financing will be available at the times or in the amounts required.  The
  issuance of additional shares of equity in connection with such financing could
  dilute the interests of existing stockholders of the Company and such dilution
  could be substantial.  The Company must increase its authorized shares
  in order to be able to sell common equity and intends to propose to stockholders
  such action as well as a reverse stock split of its common shares; there can
  be no assurance that either such action will be approved.  If financing
  cannot be arranged in the amounts and at the times required, the Company will
  cease operations.

The
  Company is currently in default on many of its payment obligations and needs
  to restructure its existing obligations.  Management is seeking to raise
  financing for the Company and to restructure the Companys obligations
  but there can be no assurance that the Company will be successful.

3)Capital

The
  Company did not issue shares of Common Stock or Preferred Stock during the quarter
  ended May 31, 2004.

In
  April 2004, the Company issued additional warrants (with a net exercise feature)
  to purchase an aggregate of 12,369,878 shares of common stock at a price per
  share of $0.024 to the lenders under the Secured Notes (see Note 7) primarily
  as an inducement to the lender to continue to provide interim funding. 
  These warrants were valued at $674,158 and have been recorded as interest expense
  in the accompanying financial statements.

During
  the quarter ended May 31, 2004, the Company received $100,000 from an investor
  not participating in the Secured Notes (see Note 7) as an advance against his
  purchase of Series B Preferred Stock contemplated in the 2004 Recapitalization
  Transactions (see Note 8).  The Company has used and would be unable to
  return such funds in the event the offering does not close; in which case, such
  funds evidence short-term indebtedness of the Company.  This advance is
  included in accrued expenses in the May 31, 2004 financial statements.

4)Inventories

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

|                                                    | May
        31, 2004 
        (unaudited) |  | February
        29,
        2004
|--------------------------------------------------- | ----------------------------------------- |  | ---------------------------------
|                                                    |                                           |  |                                  
|Raw materials                                       | $  
        4,120,724                     |  | $ 4,004,785                      
|Finished goods                                      | 6,210,972                                 |  | 6,333,358                        
|Reserved for potential
        product obsolescence | (2,032,000)                               |  | (2,032,000)                      
|                                                    |                                           |  |                                  
|                                                    | 8,299,696                                 |  | 8,306,143                        
|Non-current portion                                 | 7,149,376                                 |  | 7,496,484                        
|                                                    |                                           |  |                                  
|                                                    | $  
        1,150,319                     |  | $    
        809,659            
|                                                    |                                           |  |                                  

Inventories
  consist primarily of components and completed units for the Company's AuraGen
  product.

The
  Company does not expect to realize all of its inventories within the 12-month
  period ending May 31, 2005.  Because of this, the Company has assessed
  the net realizability of these assets, the proper classification of the inventory,
  and the potential obsolescence of inventory.  The net inventories as of
  May 31 and February 29, 2004 which are not expected to be realized within a
  12-month period have been reclassified as long term.  The Company has also
  recorded a reserve for obsolescence of $2,032,000 at May 31 and February 29,
  2004.

5)Significant
  Customers

In
  the three months ended May 31, 2004, the Company sold AuraGen related products
  to one significant customer for a total of approximately $150,000 or 22% of
  net revenues.  This customer is not related to or affiliated with the Company.

At
  May 31, 2004, the Company held accounts receivable from three of these significant
  customers for a total of approximately $186,000 or 41% of net receivables. 
  None of these customers are related to or affiliated with the Company.

6)Contingencies

The
  Company is engaged in certain material legal proceedings as described in Part
  II, Item 1of this Form 10-Q. Provisions have been made in the financial statements
  for all judgments and settlements noted therein, and as otherwise stated in
  such discussion.

7)Notes
  Payable and Other Liabilities

Notes
  payable and other liabilities consist of the following:

|                                         | May
        31, 2004
        (unaudited) |  | February
        29,
        2004
|---------------------------------------- | ---------------------------------------- |  | ---------------------------------
|                                         |                                          |  |                                  
|Convertible notes
        payable (a)    | $   
        6,854,609                   |  | $ 5,775,973                      
|Convertible notes
        payable (b)    | 625,000                                  |  | 625,000                          
|Notes payable - buildings
        (c)    | 4,923,277                                |  | 4,952,531                        
|Note payable - related
        party (d) | 1,000,000                                |  | 1,000,000                        
|Litigation payable
        (e)           | 2,201,604                                |  | 2,201,604                        
|Trade debt (f)                           | 949,325                                  |  | 983,345                          
|Notes payable - equipment
        (g)    | 5,591                                    |  | 7,376                            
|                                         |                                          |  |                                  
|                                         | 16,559,506                               |  | 15,545,829                       
|Less: current portion                    | 11,720,063                               |  | 10,674,024                       
|                                         |                                          |  |                                  
|Long-term portion                        | $   
        4,839,443                   |  | $  
        4,871,805            
|                                         |                                          |  |                                  

> (a)
>       Represents secured notes
>           payable (the "Secured Notes") on June 15, 2004, bearing interest at
>           10% per annum and convertible at the option of the holder into new debt
>           or equity securities at of the Company at a 20% discount to the best
>           terms by which such new debt or equity is sold to any new investor.
>           The Secured Notes may be prepaid on notice at a 15% premium. Repayment
>           of the Secured Notes is secured by substantially all the assets of the
>           Company (with limited exceptions).  Since the conversion feature
>           of the Secured Notes is based upon a contingent event, any potential
>           beneficial conversion feature cannot be determined at this time. As
>           of August 20, 2004, the holders of the Secured Notes have not presented
>           a demand for payment that is currently due and payable.
>         In connection with the Secured
>           Notes issued in fiscal 2004, primarily as inducements to the lender
>           to continue to provide interim funding, the Company agreed to issue
>           warrants to purchase an aggregate of 3,200,000 shares of common stock
>           at a price per share of $0.11, exercisable through January 7, 2011. 
>           The value of these warrants was recorded as interest expense in fiscal
>           2004.  In April 2004, the Company issued additional warrants (with
>           a net exercise feature) to purchase an aggregate of 12,369,878 shares
>           of common stock at a price per share of $0.024 to the same lenders. 
>           These warrants were valued at $674,158 and have been recorded as interest
>           expense in the accompanying financial statements.
>         Repayment of the Secured
>           Notes is secured by substantially all the assets of the Company (with
>           limited exceptions).  Pursuant to the proposed 2004 Recapitalization
>           Transactions, the maturity of such notes is expected to be extended
>           to June 15, 2005, the conversion discount / prepayment premium is to
>           be eliminated, and a portion of such notes are to be converted into
>           Series B Preferred Stock (see Note 8).  There can be no assurance
>           that the proposed 2004 Recapitalization Transactions will be completed
>           or that all of the Secured Notes will be extended and converted as contemplated
>           by these transactions.
>         Between June 1 and August
>           20, 2004, the Company received $760,000 of additional interim funding
>           from certain holders of Secured Notes on substantially the same terms
>           as those for the Secured Notes issued at May 31, 2004.(b)
>       Convertible notes
>         payable carry an 8% interest rate and are convertible into common stock
>         at various conversion rates (the "8% Convertible Notes").  These
>         notes were due and payable during the fourth quarter of fiscal 2003. 
>         As of August 20, 2004, the holders of these notes have not presented a
>         demand for payment.(c)
>       Notes payable-buildings
>         consist of a 1st Trust Deed on two buildings in California bearing interest
>         at the rate of 7.625%.  A final balloon payment is due in Fiscal
>         2009.  In April 2003, the Company defaulted on these notes payable
>         and, in June 2004, cured such defaults.(d)
>       Note payable
>         - related party consisted of a $1,000,000 note payable, which was entered
>         into in connection with the sale of a minority interest in Aura Realty,
>         as more fully described in the Company's Form 10-K for the year ended
>         February 29, 2004 as filed with the SEC.  The note bears interest
>         at 12.3% per annum and is secured by a security interest in a certain
>         note receivable.  The Company is required to make interest only payments
>         for the first 17 months of the term, and the $1,000,000 principal was
>         due on May 31, 2004. The Company was unable to make the principal payment
>         as demanded by the Purchasers and the note is now in default.(e)
>       The litigation
>         payable represents the legal settlements entered into by Aura with various
>         parties.  These settlements call for payment terms with 8% interest
>         rate to the plaintiffs through fiscal 2004. The Company is in default
>         with respect to payments required under these settlements.(f)
>       Restructured
>         trade debt with payment terms over a three-year period with interest at
>         8% per annum commencing in January 2000.  The Company is in default
>         with respect to payments required under these restructuring agreements.(g)
>       Notes payable-equipment
>         consists of a note maturing in February 2005 with an interest rate of
>         8.45%.

8) Subsequent Events

Between
  June 1 and August 20, 2004, the Company received interim funding to meet its
  immediate cash needs as follows:

- $760,000 from Koyah Leverage
    Partners, LLP and other investors in the Secured Notes.  These amounts were
    added to the Secured Notes (see Note 7).
- $545,000 from various individuals
    as an advance against their purchase of Series B Preferred Stock contemplated
    in the 2004 Recapitalization Transactions (see below).  $380,000 of this amount
    was advanced by individuals affiliated with the Aries Group Ltd., $150,000
    was advanced by holders of Secured Notes and $15,000 was advanced by a participant
    in the sale of the Companys headquarters facility (discussed below).
    The Company has used and would be unable to return such funds in the event
    the offering does not close; in which case, such funds evidence short-term
    indebtedness of the Company.
- $450,000 from the purchasers
    under the contemplated sale and lease back of the Companys headquarters
    facilities as an advance against such purchase.  These funds were used to
    cure the defaults on the mortgage note related to the real estate (see Note
    7 and below).  The Company has used and would be unable to return such funds
    in the event the offering does not close; in which case, such funds evidence
    short-term indebtedness of the Company.
- $150,000 from a Company employee for which the Company issued a $150,000
    note payable. This note is to be repaid from the proceeds of accounts receivable
    collected after September 1, 2004 and specifies a flat $15,000 interest payment.
    It is also secured by the Company's accounts receivable. The holders of the
    Secured Notes have subordinated their security interest in the Company's accounts
    receivable to allow the Company to grant this security interest.

In
  June 2004, the Company cured all remaining payment defaults, including late
  fees and penalty interest charges, related to the mortgage note payable secured
  by the Companys headquarters facility.  After this cure payment was
  tendered, this note was no longer in default.  A portion of the funds required
  to make this cure payment were provided as an advance against the contemplated
  purchase of the real estate  included in the 2004 Recapitalization Transactions
  discussed below.

In
  July 2004, the Board granted 10,000,000 warrants to purchase shares of common
  stock at a price per share of $0.02 for a period of seven years to the Companys
  Chairman/CEO in recognition of his efforts to complete the 2004 Restructuring
  Transactions (see below).

2004 Recapitalization Transactions

In
  May and June 2004, the Company reached nonbinding agreements in principle with
  a number of parties that,  if consummated, would resolve the Companys
  monetary defaults on its headquarters mortgage, settle certain litigation involving
  the Company and former management, provide for additional  equity at closing,
  provide for conversion to equity of existing secured debt and provide for changes
  in the Companys senior management and Board of Directors (together, the
  "2004 Recapitalization Transactions").  Management believes that following
  completion of the 2004 Recapitalization Transactions, including receipt of funding,
  the Company will have a more stable financial condition.  Completion of
  the 2004 Recapitalization Transactions would substantially dilute the interests
  of existing stockholders, reducing by at least one-half their proportional interest
  in the Company. Although nonbinding term sheets have been executed with the
  parties for each of these transactions, no assurances can be given that the
  transactions will close in the immediate future or at all.  In the event
  the agreements are not consummated, it is likely that the Company would need
  to file for bankruptcy protection.

Even
  if the 2004 Recapitalization Transactions are completed as anticipated, the
  Company will continue to require forbearance of several creditors and may require
  additional financing in the next twelve months as it seeks to increase its sales. 
  As a result of the 2004 Recapitalization Transactions, the Company would record
  an as yet undetermined charge to earnings due to the settlement of certain litigation
  at amounts in excess of those currently reserved on the Companys balance
  sheet, and the expected loss on the sale of the headquarters facility.

The
  2004 Recapitalization Transactions include four related components: the sale
  of the Companys headquarters facility; the settlement of outstanding litigation
  with members of the Companys former management and others, conversion
  of Secured Notes into equity and the receipt of new equity funding.  Each
  component involves in the issuance of shares of a new series of preferred stock,
  Series B Cumulative Convertible Preferred Stock (the "Series B Preferred Stock").

Each
  of these components is discussed in some detail in the Companys Form 10-K
  for the year ended February 29, 2004 as filed with the SEC.  No material
  changes have occurred in the proposed terms of the 2004 Recapitalization Transactions,
  nor have any of the contemplated transactions been consummated.

ITEM 2. MANAGEMENT'S
  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This
  Form 10-Q report may contain forward-looking statements which involve risks
  and uncertainties.  Such forward-looking statements include, but are not
  limited to, statements regarding future events and the Companys plans
  and expectations.  The Companys actual results may differ significantly
  from the results discussed in forward-looking statements as a result of certain
  factors, including those discussed in the Companys Form 10-K for the period
  ended February 29, 2004, as amended, and this report.  The Company expressly
  disclaims any obligations or undertaking to release publicly any updates or
  revisions to any forward-looking statements contained herein to reflect any
  change in the Company's expectations or any events, conditions or circumstances
  on which any such statement is based.  This report includes product names,
  trade names and marks of companies other than the Company.  All such company
  or product names are trademarks, registered trademarks, trade names or marks
  of their respective owners and are not the property of the Company.

Overview

Aura
  Systems, Inc., a Delaware corporation, ("Aura" or the "Company")
  designs, assembles and sells the AuraGen(R), the Company's patented mobile power
  generator that uses the engine of a vehicle to generate power. It installs under-the-hood
  in many motor vehicles and delivers on-location, plug-in electricity for any
  end use including industrial, commercial, recreational and military applications.
  The Company began commercializing the AuraGen(R) in late 1999. To date, AuraGen(R)
  units have been sold to more than 500 customers in more than 10 industries,
  including recreational, utilities, telecommunications, emergency/rescue, public
  works, catering, oil and gas, transportation, government and the military.

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

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

The
  Companys financial statements have been prepared on the assumption the
  Company continues as a going concern, which contemplates the realization of
  assets and satisfaction of liabilities in the normal course of business. 
  However, as a result of the Company's losses from operations and its  default 
  on  certain  of its  obligations  (see Notes 2 and 7 in
  the Condensed Consolidated Financial Statements),  there is substantial 
  doubt  about  its  ability  to  continue  as a
  going  concern.  The  consolidated  financial  statements
  do not include any  adjustments  to reflect  the  possible 
  future  effects on the recoverability   and   classification  
  of   assets  or  the   amount   and   
  classification  of liabilities that may result from the possible 
  inability of the Company to continue as a going concern.

The
  Company's ability to continue as a going concern is dependent upon the successful
  achievement of profitable operations and the ability to generate sufficient
  cash from operations and financing sources to meet the Companys obligations. 
  In order to attract additional financing, the Company expects that payment terms
  of its obligations will need to be restructured, including resolution of the
  current defaults on many of its payment obligations.  The Company is currently
  seeking to restructure payment terms of its outstanding obligations in connections
  with its efforts to raise additional financing through a private placement. 
  There can be no assurance that such efforts will be successful.

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

As
  of August 20, 2004, the Company had outstanding warrants, options and convertible
  securities to purchase approximately 200 million shares of common stock. The
  Company also had commitments to issue approximately 22 million shares of common
  Stock without further consideration. The aggregate number of outstanding options,
  warrants, and common share equivalents is in excess of the authorized, but unissued
  number of shares of the Company's common stock. Management intends to seek shareholder
  approval of an increase in the Company's authorized shares sufficient to satisfy
  all existing commitments, the shares contemplated in the 2004 Recapitalization
  Transactions and create available shares for potential future investments. However,
  there can be no assurance that such approval will be obtained.

For
  the three month period ended May 31, 2004The
  Company's net loss for the three months ended May 31, 2004 (the "First Quarter
  FY2005") was $2,571,476 compared to a net loss of $2,225,284 for the three months
  ended May 31, 2003 (the "First Quarter FY2004"). Net operating revenues and
  gross profit were $685,834 and $416,836, respectively, in the First Quarter
  FY2005 and $416,836 and $30,829, respectively, in First Quarter FY2004.

Net
  revenues for the First Quarter FY2005 increased to $685,834 from $97,612 in
  the First Quarter FY2004.  This represents an increase of $588,222 (603%)
  from the First Quarter FY2004.  Revenues are significantly higher in Fiscal
  2005 due largely to the Companys ability to attract new, primarily military,
  customers and maintain loyalty of existing customers despite its financial condition.

Cost
  of goods increasedto $268,998 in the First Quarter FY2005 from $66,783 in the
  First Quarter FY2004.  This 303% increase was smaller than the change in
  net revenues (603%) resulting in an increase in gross margin to 61% in First
  Quarter FY2005 from 32% for First Quarter FY2004.  This improvement is
  due to a significant portion (22%) of First Quarter FY2005 being derived from
  a contract to develop a variation of the AuraGen® for future production (the
  "Development Contract") combined with depressed gross margins reported in First
  Quarter FY2004.  Cost of goods includes only the direct material and labor
  costs incurred.

Engineering,
  research and development expenses increased by $49,558 (10%) to $545,630 in
  the First Quarter FY2005 from $496,072 in the First Quarter FY2004.  The
  increase was primarily due to the labor costs associated with supporting the
  Development Contract.  Labor and labor related costs included in engineering
  expense amounted to approximately $512,000 in the First Quarter FY2005, compared
  to approximately $468,000 in the First Quarter FY2004.The Company also reduced
  its research and development activities throughout fiscal 2003 and 2004 and
  expects these efforts to continue at or below this reduced level at least through
  the second quarter of fiscal 2005.

Selling,
  general and administrative ("SG&A") expenses increasedto $1,362,731 in the
  First Quarter FY2005 from $1,177,768 in the First Quarter FY2004; an increase
  of $184,963 (16%).  The SG&A expenses were higher due primarily to
  temporary pay cuts that were in effect in First Quarter FY2004 but had been
  reinstated by First Quarter 2005.  Labor and labor related costs included
  in SG&A amounted to approximately $712,000 in the First Quarter FY2005,
  compared to approximately $618,000 in the First Quarter FY2004.



Net
  interest expense for the First Quarter FY2005 increased $500,320 to $1,144,408
  from $644,088 in the First Quarter FY2004 due principally to the recording of
  $674,158 of expense representing value of warrants issued to those lenders (see
  Financial Position, Liquidity and Capital Resources); similar charges in First
  Quarter FY2004 were $466,500.  Additional borrowing required in the First
  Quarter FY2005 accounted for the remainder of the interest expense increase.



The
  Company's discussion and analysis of its financial conditions and results of
  operations are based upon its consolidated financial statements, which have
  been prepared in accordance with accounting principles generally accepted in
  the United States of America. The preparation of financial statements requires
  management to make estimates and disclosures on the date of the financial statements.
  On an on-going basis, the Company evaluates its estimates, including, but not
  limited to, those related to revenue recognition. The Company uses authoritative
  pronouncements, historical experience and other assumptions as the basis for
  making judgments. Actual results could differ from those estimates. The Company
  believes that the following critical accounting policies affect its more significant
  judgments and estimates in the preparation of its consolidated financial statements.

Aura
  is required to make judgments based on historical experience and future expectations,
  as to the reliability of shipments made to its customers. These judgments are
  required to assess the propriety of the recognition of revenue based on Staff
  Accounting Bulletin ("SAB") No. 101, "Revenue Recognition,"
  and related guidance. Because sales are currently in limited volume and many
  sales are for evaluative purposes, the Company has not booked a general reserve
  for returns. The Company will consider an appropriate level of reserve for product
  returns when its sales increase to commercial levels.

Inventories
  consist primarily of components and completed units for the Company's AuraGen®
  product. Inventories are valued at the lower of cost (first-in, first-out) or
  market. Provision is made for estimated amounts of current inventories that
  will ultimately become obsolete due to changes in the product itself or vehicle
  engine types that go out of production. Due to continuing lower than projected
  sales, the Company is holding inventories in excess of what it expects to sell
  in the next fiscal year. The net inventories which are not expected to be realized
  within a 12-month period based on current sales forecasts have been reclassified
  as long term. Management believes that existing inventories can, and will, be
  sold in the future without significant costs to upgrade it to current models
  and that the valuation of the inventories, classified both as current and long-term
  assets, accurately reflects the realizable values of these assets. The AuraGen®
  product being sold currently is not technologically different from those in
  inventory. Existing finished goods inventories can be upgraded to the current
  model with only a small amount of materials and manpower. We make these assessments
  based on the following factors: i) existing orders, ii) age of the inventory,
  iii) historical experience and iv) the Companys expectations as to future
  sales. If expected sales volumes do not materialize, there would be a material
  impact on the Company's financial statements.

Long-lived
  assets, consisting primarily of property and equipment, and patents and trademarks,
  comprise a significant portion of the Company's total assets.  Long-lived
  assets are reviewed for impairment whenever events or changes in circumstances
  indicate that their carrying values may not be recoverable. Recoverability of
  assets is measured by a comparison of the carrying value of an asset to the
  future net cash flows expected to be generated by those assets. Net cash flows
  are estimated based on expectations as to the realizability of the asset. Factors
  that could trigger a review include significant changes in the manner of an
  assets use or the Companys overall strategy.

Specific
  asset categories are treated as follows:

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

Property,
  Plant and Equipment: The Company depreciates its property and equipment over
  various useful lives ranging from five to ten years. Adjustments are made as
  warranted when market conditions and values indicate that the current value
  of an asset is less than its net book value.

Long-Term
  Investments: As the Company does not hold a sufficient interest in its investments
  to exercise significant influence and the fair market value of the investments
  are not readily determinable, long-term investments have been accounted for
  under the cost method. Management reviews financial and other available information
  pertaining to such investments to determine if and when a decline, other than
  temporary, in the value of any investment has occurred and an adjustment is
  warranted.

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

When
  the Company determines that an asset is impaired, it measures any such impairment
  by discounting an assets realizable value to the present using a discount
  rate appropriate to the perceived risk in realizing such value. When the Company
  determines that an impaired asset has no foreseeable realizable value, it writes
  such asset down to zero.

Financial Position,
  Liquidity and Capital Resources

The
  Company continues to experience acute liquidity challenges.  The Company
  had cash of approximately $20,000 and $83,000 at May 31 and February 28, 2004,
  respectively.  For the three months ended May 31, 2003 and the year ended
  February 29, 2004, the Company incurred a net loss of approximately $2,600,000
  and $13,600,000, respectively, on net revenues of approximately $700,000 and
  $1,900,000, respectively.  The Company had working capital deficiencies
  at May 31 and February 29, 2004 of approximately $15,500,000 and $14,000,000,
  respectively.  These conditions, combined with the Companys historical
  operating losses, raise substantial doubt as to the Company's ability to continue
  as a going concern.  At July 31, 2004, the Company had approximately $20,000
  of cash.

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

The
  Company requires additional debt or equity financing to fund ongoing operations.
  In May and June 2004, the Company reached nonbinding agreements in principle
  with a number of parties that, when and if consummated,  resolve certain
  litigation involving the Company and former management of the Company, resolve
  the Companys defaults on its pending sale and leaseback of its headquarters
  facilities, set forth a schedule for the Company to obtain longer term funding,
  and provide for changes in the Companys senior management and Board of
  Directors (together, the "2004 Recapitalization Transactions").  Completion
  of the 2004 Recapitalization Transactions, including receipt of funding, would
  provide the Company a more stable financial condition. The Company, however,
  would continue to require forbearance of several creditors as it seeks to grow
  sales, and may require further financing to remain solvent. Completion
  of such agreements would substantially dilute the interests of existing stockholders,
  reducing by at least one-half their proportional interest in the Company.   
  In the event the agreements are not consummated, it is likely that the Company
  would need to file for bankruptcy protection.

The
  Company is seeking to raise additional capital; however, the Company has no
  firm commitments from third parties other than those involved in the 2004 Recapitalization
  Transactions to provide additional financing and there can be no assurance that
  financing will be available at the times or in the amounts required. The issuance
  of additional shares of equity in connection with such financing could dilute
  the interests of existing stockholders of the Company, and such dilution could
  be substantial. The Company must increase its authorized shares in order to
  be able to sell common equity, and intends to propose to stockholders such action
  as well as a reverse stock split of its common shares; there can be no assurance
  that either such action will be approved.  If financing cannot be arranged
  in the amounts and at the times required, the Company will cease operations.

Due
  to the Companys acute liquidity challenges, it has defaulted in payments
  under many of its financial obligations (see Note 7 in the Condensed Consolidated
  Financial Statements).  These  defaults  effectively render these 
  obligations payable on demand and the entire  principal  balance of
  each obligation has been included  in current  liabilities  in
  the  accompanying  Consolidated  Financial Statements. 
  Actions by the parties to these obligations to enforce their rights to collect
  the amounts due could require the Company to cease operations.

At
  May 31, 2004, the Company had accounts receivable, net of allowance for doubtful
  accounts, of $404,383; $682,302 at February 28, 2004.  As of July 31, 2004,
  the Company had net accounts receivable of approximately $250,000.

There
  was no spending for property and equipment in the First Quarter FY2005 or the
  First Quarter FY2004.  The Company has no material capital project that
  would require funding. The Company's current plant and equipment is sufficient
  to support its current level of sales.

Debt
  repayments of $64,959 were made in First Quarter FY2005 as compared to $44,198
  in First Quarter FY2004.

During
  fiscal 2003, the Company agreed to sell its Aura Realty, Inc. subsidiary ("Aura
  Realty") to a group of individuals, including five members of the Company's
  former management including Zvi Kurtzman and Steve Veen, (the "Purchasers")
  and to lease back the Company's headquarters facility, which is owned by Aura
  Realty. On December 1, 2002, the Company received the purchase price, net of
  the principal balance of the current mortgage which was to be assumed by the
  Purchasers, and transferred 49.9% of the common stock of Aura Realty to the
  Purchasers, issued to Purchasers a $1.0 million term note maturing on May 31,
  2004 and granted Purchasers a security interest in a note receivable to secure
  the Company's performance under the agreement. The Purchasers also received
  warrants to purchase 15,000,000 shares of common stock, exercisable through
  November 30, 2007, at exercise prices ranging from $0.15 to $0.25 per share.
  The Purchasers also purchased 21,366,347 shares of the Company's common stock
  for $1.5 million.  The Company is required to issue approximately 8,150,000
  additional shares and has issued 5,500,000 additional warrants to Purchasers
  due to its failure to register the shares for resale.

The
  holder of the mortgage did not consent to the transfer of the Company's remaining
  51.1% interest in Aura Realty and the Company failed to make certain payments
  to the Purchasers as required under the agreement. During June 2003, the Company
  entered into a forbearance agreement with the Purchasers, whereby the Company
  agreed to issue the additional warrants required under the agreements for failure
  to register the previously issued shares for resale to the public, assign the
  receivable (a note issued by Alpha Ceramic) to the Purchasers, promptly engage
  an exclusive listing agent for the sale of the property and pay certain amounts
  in default on the mortgage. As of August 20, 2004, the Company owes the Purchasers
  the August 2004 payment due under the agreement and the Purchasers have not
  issued a formal demand for payment of the $1,000,000 term note that was due
  on May 31, 2004.  The Company is currently in negotiations with the Purchasers,
  seeking to get them to consent to and participate in the 2004 Recapitalization
  Transactions as they pertain to the real estate owned by Aura Realty (see below).

In
  June 2004, the Company cured all remaining payment defaults, including late
  fees and penalty interest charges, related to the mortgage note payable secured
  by the Companys headquarters facility.  A portion of the funds required
  to make this cure payment were provided as an advance against the contemplated
  purchase of the real estate included in the 2004 Recapitalization Transactions
  (see below).  At August 20, 2004, this note was no longer in default.

Capital Transactions

During
  the quarter ended May 31, 2004, the Company received an additional $970,000
  of interim funding from certain holders of the Secured Notes and issued approximately
  $109,000 of Secured Notes to satisfy the Companys obligations to reimburse
  the holders costs associated with the Secured Notes (see Note 7 to the
  Condensed Consolidated Financial Statements) on substantially the same terms
  as the existing Secured Notes.  From June 1 through August 20, 2004, the
  Company has received an additional $760,000 of interim funding evidenced by
  Secured Notes.

In
  April 2004, the Company issued additional warrants (with a net exercise feature)
  to purchase an aggregate of 12,369,878 shares of common stock at a price per
  share of $0.024 to the lenders under the Secured Notes (see Note 7) primarily
  as an inducement to the lender to continue to provide interim funding. 
  These warrants were valued at $674,158 and have been recorded as interest expense
  in the accompanying financial statements.

During
  the quarter ended May 31, 2004, the Company received $100,000 from an investor
  not participating in the Secured Notes (see Note 7) as an advance against his
  purchase of Series B Preferred Stock contemplated in the 2004 Recapitalization
  Transactions (see Note 8).  The Company has used and would be unable to
  return such funds in the event the offering does not close; in which case, such
  funds evidence short-term indebtedness of the Company.  This advance is
  included in accrued expenses in the May 31, 2004 financial statements.

Subsequent
  to May 31, 2004, the Company has, in addition to the funding received in exchange
  for Secured Notes described above, also received:

- $545,000 from various individuals
    as an advance against their purchase of Series B Preferred Stock contemplated
    in the 2004 Recapitalization Transactions (see below).  $380,000 of this amount
    was advanced by individuals affiliated with the Aries Group Ltd., $150,000
    was advanced by holders of Secured Notes and $15,000 was advanced by a participant
    in the sale of the Companys headquarters facility (discussed below). 
    The Company has used and would be unable to return such funds in the event
    the offering does not close; in which case, such funds evidence short-term
    indebtedness of the Company.
- $450,000 from the purchasers
    under the contemplated sale and lease back of the Companys headquarters
    facilities as an advance against such purchase.  These funds were used to
    cure the defaults on the mortgage note related to the real estate (see Note
    7 and below).  The Company has used and would be unable to return such funds
    in the event the offering does not close; in which case, such funds evidence
    short-term indebtedness of the Company.
- $150,000 from a Company employee
    for which the Company issued a $150,000 note payable. This note is to be repaid
    from the proceeds of accounts receivable collected after September 1, 2004
    and specifies a flat $15,000 interest payment. It is also secured by the Company's
    accounts receivable. The holders of the Secured Notes have subordinated their
    security interest in the Company's accounts receivable to allow the Company
    to grant this security interest.

In
  July 2004, the Board granted 10,000,000 warrants to purchase shares of common
  stock at a price per share of $0.02 for a period of seven years to the Companys
  Chairman/CEO in recognition of his efforts to complete the 2004 Restructuring
  Transactions (see below).

2004 Recapitalization Transactions

In
  May and June 2004, the Company reached nonbinding agreements in principle with
  a number of parties that,  if consummated, would resolve the Companys
  monetary defaults on its headquarters mortgage, settle certain litigation involving
  the Company and former management, provide for additional  equity at closing,
  provide for conversion to equity of existing secured debt and provide for changes
  in the Companys senior management and Board of Directors (together, the
  "2004 Recapitalization Transactions").  Management believes that following
  completion of the 2004 Recapitalization Transactions, including receipt of funding,
  the Company will have a more stable financial condition.  Completion of
  the 2004 Recapitalization Transactions would substantially dilute the interests
  of existing stockholders, reducing by at least one-half their proportional interest
  in the Company. Although nonbinding term sheets have been executed with the
  parties for each of these transactions, no assurances can be given that the
  transactions will close in the immediate future or at all.  In the event
  the agreements are not consummated, it is likely that the Company would need
  to file for bankruptcy protection.

Even
  if the 2004 Recapitalization Transactions are completed as anticipated, the
  Company will continue to require forbearance of several creditors and may require
  additional financing in the next twelve months as it seeks to increase its sales. 
  As a result of the 2004 Recapitalization Transactions, the Company would record
  an as yet undetermined charge to earnings due to the settlement of certain litigation
  at amounts in excess of those currently reserved on the Companys balance
  sheet, and the expected loss on the sale of the headquarters facility.

The
  2004 Recapitalization Transactions include four related components: the sale
  of the Companys headquarters facility; the settlement of outstanding litigation
  with members of the Companys former management and others, conversion
  of Secured Notes into equity and the receipt of new equity funding.  Each
  component involves in the issuance of shares of a new series of preferred stock,
  Series B Cumulative Convertible Preferred Stock (the "Series B Preferred Stock").

Each
  of these components is discussed in some detail in the Companys Form 10-K
  for the year ended February 29, 2004 as filed with the SEC.  No material
  changes have occurred in the proposed terms of the 2004 Recapitalization Transactions,
  nor have any of the contemplated transactions been consummated.

ITEM 4                 
  Controls and Procedures

> (a) The Companys chief executive
>     officer and its chief financial officer, after evaluating the effectiveness
>     of the Companys disclosure controls and procedures (as defined in Exchange
>     Act Rules 13a-14(c) and 15-d-14(c)) as of a date within 90 days of the filing
>     date of this quarterly report (the "Evaluation Date") have concluded that
>     as of the Evaluation Date, the Companys disclosure controls and procedures
>     were adequate and effective to ensure that material information relating to
>     the Company and its consolidated subsidiaries would be made known to them
>     timely by others within those entities.
>   (b) There were no significant
>     changes in the Companys internal controls or in other factors that could
>     significantly affect the Companys disclosure controls and procedures
>     subsequent to the Evaluation Date, nor were there any significant deficiencies
>     or material weaknesses in such disclosure controls and procedures requiring
>     corrective actions.  As a result, no corrective actions were taken.

PART
  II - OTHER INFORMATION

ITEM 1 Legal
  Proceedings

Due
  to the Company's acute liquidity challenges, it has defaulted in payments under
  many of its financial obligations (see Part I, Item 2. - Financial Position,
  Liquidity and Capital Resources and Note 7 in the Condensed Consolidated Financial
  Statements). These defaults effectively render these obligations payable on
  demand and the entire principal balance of each obligation has been included
  in current liabilities in the accompanying Consolidated Financial Statements.
  The Company is engaged in numerous legal actions by creditors seeking payment
  of sums owed. Actions by the parties to these obligations to enforce their rights
  to collect the amounts due could require the Company to cease operations.

Securities and Exchange Commission

In
  June 2002, the Securities and Exchange Commission ("SEC") brought
  a civil action against the Company, NewCom (a former subsidiary of Aura), and
  certain former members of the Company's management team, including Zvi (Harry)
  Kurtzman (the Company's former Chief Executive Officer) and Steven Veen (the
  Company's former Chief Financial Officer), for violations of the antifraud and
  books and records provisions of the securities laws. The complaint relates to
  the financial statements for various transactions during fiscal years 1996 through
  1999. The Company originally disclosed the investigation by press release in
  January 1999. The SEC brought a related action against Gerald Papazian (the
  Company's former President). Without admitting or denying the allegations in
  the complaint, the Company as well as the former officers filed consents agreeing
  to settle the case. The Company consented to a permanent injunction against
  violations of specified sections of the securities laws, with no penalty imposed
  based on the Company's financial condition. Mr. Kurtzman consented to a permanent
  injunction against violations of specified sections of the securities laws,
  a $75,000 civil penalty and a permanent bar from serving as an officer or director
  of a publicly-traded company. Mr. Veen consented to a permanent injunction against
  violations of specified sections of the securities laws, a $50,000 civil penalty
  and a five-year suspension from appearing or practicing before the SEC. Mr.
  Papazian consented to a permanent injunction against violations of specified
  sections of the securities laws and a $25,000 civil penalty.

In
  September 2002, a federal grand jury indicted three officers of NewCom, including
  Mr. Veen, on various conspiracy and fraud charges related to NewCom's financial
  statements. This matter was brought to trial in 2003 and Mr. Veen was acquitted
  of all charges.

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

As
  previously reported in its fiscal 2000 report on Form 10K, the Company settled
  shareholder litigation in the referenced matter in January 1999. On November
  20, 1999, the parties entered into an Amended Stipulation of Settlement, providing
  that the Company make payment of $2,260,000 (plus interest) in thirty-six equal
  monthly installments of $70,350. On October 22, 2002, after the Company had
  failed to make certain monthly payments, Plaintiffs applied for and obtained
  a judgment against the Company for $935,350, representing the balance due with
  respect to the original principal amount of $2,260,000. The Company has subsequently
  made only two monthly payments of $70,350 each, reducing the amount owed to
  $794,650 (plus interest). In early fiscal 2004, the Plaintiffs took further
  legal actions to enforce the October 2002 judgment, culminating in a lien on
  one of the Company's smaller bank accounts. The Company has made appropriate
  provisions in its financial statements to fully reflect this liability.

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

On
  December 11, 2002, Plaintiff, Waltco Engineering Co. ("Waltco"), filed
  a suit in California Superior Court for Breach of Written Agreement against
  the Company and related common counts. Waltco asserted that the Company breached
  the terms of a payment plan. Waltco claimed damages of $283,296.41 and received
  a summary judgment for that amount plus costs. During fiscal 2004, the Company
  negotiated an agreement with Waltco under which the Company would make two payments
  of $125,000 each in full settlement of this judgment. The Company was not able
  to fund the second of these payments and negotiated an amendment to the agreement
  calling for monthly payments until the remaining $125,000 has been paid in full.
  As of August 20, 2004, the Company was current on those payments. The Company
  has made appropriate provisions in its financial statements to fully reflect
  its estimated liability in this case.

Former Management Suits

During
  fiscal 2004, a group of former officers of the Company (the "Former Officers"),
  who resigned on February 28, 2002 following the commencement of an SEC investigation
  into the Company's accounting practices (as described above), filed a number
  of lawsuits against the Company. A description of each suit is set forth below.

These
  Former Officers are expected to participate in the 2004 Recapitalization Transactions
  and settlement of these suits is contemplated within these transactions (see
  Part I, Item 2 - Financial Position, Liquidity and Capital Resources). There
  can be no assurance that the 2004 Recapitalization Transactions will be completed
  and that these suits with thereby be resolved.

Arthur Schwartz v. Aura Systems, Inc. On July 23, 2003, the Former Officers
  filed a lawsuit against the Company seeking payment of amounts owed under a
  consulting arrangement. The Company had renegotiated the amounts payable under
  the consulting arrangement, but defaulted on such payments. The suit seeks full
  payment based on their original employment agreements, which had been revised
  and replaced prior to their resignations. The accruals reflected on the Company's
  financial statements were based on the revised agreements and, should these
  former officers be awarded the full amount sought in this suit, the Company
  would be required to record additional expense of approximately $1,100,000.

Zvi Kurtzman, et al v. Aura Systems, Inc.On February 8, 2004,
  the Former Officers, along with other plaintiffs, filed a lawsuit alleging,
  among other things, breach of contract and fraud. At issue were shares of the
  Company's common stock that were to be issued to the Former Officers and the
  other plaintiffs as a penalty for the Company's failure to register certain
  shares of common stock purchased in calendar 2002 (the "Penalty Shares").
  The Company has reflected the obligation to issue the Penalty Shares on its
  balance sheet at February 29, 2004.

Zvi Kurtzman v. Aura Systems, Inc.On May 22, 2003, Kurtzman,
  a member of Former Management, filed a "Petition for Writ of Mandamus"
  requesting access to the Company's books and records as a shareholder of the
  Company (the "Petition"). The Petition was dismissed on May 20, 2004;

Foreclosure Proceeding

On
  or about September 25, 2003, the Company was notified that the holder of the
  deed of trust on the Company's headquarters facility had begun foreclosure proceedings
  for nonpayment of the mortgage.

On
  January 22, 2004, the Company received notice that a foreclosure sale of the
  property had been scheduled. Through negotiation and additional payments against
  the default amounts owed, this sale was postponed several times. On June 18,
  2004, the Company made sufficient payments to cure the defaults and the pending
  foreclosure has been withdrawn.The
  defaults under the mortgage also resulted in defaults in the Agreement for Sale
  and Leaseback (the "Sale/Leaseback Agreement") under which the Company
  sold a minority interest in and intended to sell the entirety of its Aura Realty
  subsidiary, which owns the buildings subject to this mortgage (see Part 1, Item
  2 -Financial Position, Liquidity and Capital Resources). In its efforts to address
  the defaults under the mortgage and the Sale/Leaseback Agreement, the Company
  undertook efforts to sell these buildings and, if necessary, move its headquarters
  and processing facilities to a new location. In May 2004, the Company entered
  into an agreement under which it would sell the buildings subject to this mortgage,
  use the proceeds to substantially buy out the holders of the minority interest
  in Aura Realty (the "Realty Minority Shareholders") arising from the
  Sale/Leaseback Agreement and terminate its obligations thereunder and leaseback
  one of the buildings and a portion of the other (see discussion of 2004 Recapitalization
  Transactions in see Part 1, Item 2 -Financial Position, Liquidity and Capital
  Resources). In June 2004, the Realty Minority Shareholders sent notice to the
  Company that it had defaulted on the May 2004 agreement as it pertained to the
  Realty Minority Shareholders and terminated the agreement. The Company has continued
  negotiations with the Realty Minority Shareholders since that date but has not
  yet been successful in getting them to recommit to the terms of the May 2004
  agreement or any other settlement. Such an agreement with the Realty Minority
  Shareholders is a condition precedent to the buyer's obligation to complete
  the purchase of the buildings. There can be no assurance that the Company will
  be able to obtain an agreement with the Realty Minority Shareholders or complete
  the 2004 Recapitalizaton Transactions.

ITEM 2 Changes
  in Securities

For
  a discussion of recent sales of securities, see Managements Discussion
  and Analysis.

All
  of the noted sales of unregistered securities were exempt from registration
  pursuant to Section 4(2) of the Securities Act of 1933 as these offerings were
  a private placement to a limited number of accredited investors.

ITEM 6 Exhibits
  and Reports on Form 8-K

> a)
>       Exhibits:99.1  
>         
>       Certification
>         Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906
>         of the Sarbanes-Oxley Act of 200299.2 
>       Certification
>         Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906
>         of the Sarbanes-Oxley Act of 2002b)
>       Reports
>         on Form 8-K:None.

SIGNATURES

Pursuant to the requirements 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.(Registrant)

Date:      August 30, 2004

By:    /s/ Neal
  F. Meehan

Neal F. MeehanActing Chief Financial
  Officer (Principal Financial and Accounting
  Officerand Duly Authorized Officer)

CERTIFICATION

I, Neal F. Meehan, Chairman and
  Chief Executive Officer of Aura Systems, Inc., certify that:

|1. | I have reviewed
      this quarterly report on Form 10-Q of Aura Systems, Inc. and,                                                                                                                                                                                                                                                                                                                                    
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|2. | Based on my knowledge,
      this quarterly report does not contain any untrue statement of a material
      fact or omit to state a material fact necessary to make the statements made,
      in light of the circumstances under which such statements were made, not
      misleading with respect to the period covered by this quarterly report;                                                                 
|3. | Based on my knowledge,
      the financial statements, and other financial information included in this
      quarterly report, fairly present in all material respects the financial
      condition, results of operations and cash flows of the registrant as of,
      and for, the periods presented in this quarterly report;                                                                                    
|4. | The registrant's
      other certifying officers and I are responsible for establishing and maintaining
      disclosure controls and procedures (as defined in Exchange Act Rules 13a-14
      and 15d-14) for the registrant and we have:                                                                                                                                                                            
|   | a.                                                                                                                                                                                                                                                                                                                                                                                                                     
|   | b.                                                                                                                                                                                                                                                                                                                                                                                                                     
|   | c.                                                                                                                                                                                                                                                                                                                                                                                                                     
|5. | The registrant's
      other certifying officers and I have disclosed, based on our most recent
      evaluation, to the registrant's auditors and the audit committee of the
      registrant's board of directors (or persons performing the equivalent function):                                                                                                                                                   
|   | a.                                                                                                                                                                                                                                                                                                                                                                                                                     
|   | b.                                                                                                                                                                                                                                                                                                                                                                                                                     
|6. | The registrant's
      other certifying officers and I have indicated in this quarterly report
      whether or not there were significant changes in internal controls or in
      other factors that could significantly affect internal controls subsequent
      to the date of our most recent evaluation, including any corrective actions
      with regard to significant deficiencies and material weaknesses.



/s/ Neal F. Meehan

Neal F. Meehan Chairman & Chief Executive Officer
  August 30, 2004


CERTIFICATION

I, Neal F. Meehan, Acting Chief
  Financial Officer of Aura Systems, Inc., certify that:

|1. | I have reviewed
      this quarterly report on Form 10-Q of Aura Systems, Inc. and,                                                                                                                                                                                                                                                                                                                                    
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|2. | Based on my knowledge,
      this quarterly report does not contain any untrue statement of a material
      fact or omit to state a material fact necessary to make the statements made,
      in light of the circumstances under which such statements were made, not
      misleading with respect to the period covered by this quarterly report;                                                                 
|3. | Based on my knowledge,
      the financial statements, and other financial information included in this
      quarterly report, fairly present in all material respects the financial
      condition, results of operations and cash flows of the registrant as of,
      and for, the periods presented in this quarterly report;                                                                                    
|4. | The registrant's
      other certifying officers and I are responsible for establishing and maintaining
      disclosure controls and procedures (as defined in Exchange Act Rules 13a-14
      and 15d-14) for the registrant and we have:                                                                                                                                                                            
|   | a.                                                                                                                                                                                                                                                                                                                                                                                                                     
|   | b.                                                                                                                                                                                                                                                                                                                                                                                                                     
|   | c.                                                                                                                                                                                                                                                                                                                                                                                                                     
|5. | The registrant's
      other certifying officers and I have disclosed, based on our most recent
      evaluation, to the registrant's auditors and the audit committee of the
      registrant's board of directors (or persons performing the equivalent function):                                                                                                                                                   
|   | a.                                                                                                                                                                                                                                                                                                                                                                                                                     
|   | b.                                                                                                                                                                                                                                                                                                                                                                                                                     
|6. | The registrant's other certifying
        officers and I have indicated in this report whether or not there were
        significant changes in internal controls or in other factors that could
        significantly affect internal controls subsequent to the date of our most
        recent evaluation, including any corrective actions with regard to significant
        deficiencies and material weaknesses.



/s/ Neal
  F. Meehan

Neal F. MeehanActing Chief Financial
    Officer
    August 30, 2004