<PAGE>
===============================================================================

                     SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549


                                    Form 10-Q


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


For the Quarter Ended November 30, 1998           Commission File Number 0-17249



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

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

                                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 X NO

         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 January 18, 1999

Common Stock, par value                       92,510,822 Shares
   $.005 per share




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



<PAGE>

<TABLE>
<CAPTION>


                       AURA SYSTEMS, INC. AND SUBSIDIARIES

                                      INDEX


                                                                                                      Page No.



PART I.      FINANCIAL INFORMATION                                                                     

<S>                  <C>                                                                                           <C>
         ITEM 1.     Financial Statements

                     Statement Regarding Financial Information                                              2

                     Condensed Consolidated Balance Sheets as of                                            3
                     November 30, 1998 and February 28, 1998

                     Condensed Consolidated Statement of Operations for the Three Months and Nine           4
                     Months Ended November 30, 1998 and 1997

                     Condensed Consolidated Statements of Cash Flows for the                                5
                     Nine Months Ended November 30, 1998 and 1997

                     Notes to Condensed Consolidated Financial Statements                                   6

         ITEM 2.     Management's Discussion and Analysis of Financial Condition and Results of
                     Operations                                                                             9


PART II. OTHER INFORMATION

         ITEM 1.     Legal Proceedings                                                                      13

         ITEM 2.     Changes in Securities and Use of Proceeds                                              13

         ITEM 3.     Defaults Upon Senior Securities                                                        13

         ITEM 6.     Exhibits and Reports on Form 8-K                                                       13

SIGNATURES                                                                                                  14
</TABLE>






<PAGE>



                                                                  

                       AURA SYSTEMS, INC. AND SUBSIDIARIES

                         QUARTER ENDED NOVEMBER 30, 1998

                          PART I. FINANCIAL INFORMATION



The  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  financial  statements and
footnotes  have been  condensed  and  therefore  do not contain all  disclosures
required by  generally  accepted  accounting  principles.  However,  the Company
believes that the disclosures are adequate to make the information presented not
misleading.  These 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 28, 1998 as filed with the SEC (file number 0-17249).




<PAGE>

<TABLE>
<CAPTION>


                       AURA SYSTEMS, INC. AND SUBSIDIARIES
                      CONDENSED CONSOLIDATED BALANCE SHEETS
                                   (Unaudited)

                                                                             November 30,              February 28,
Assets                                                                          1998                      1998      
                                                                            -------------            ---------------

<S>                                                                          <C>                       <C>              
Current assets
   Cash and equivalents                                                      $       3,312,020         $       6,079,411
     Receivables-net                                                                49,892,806                54,418,141
     Inventories and contract in process                                            51,092,047                58,713,875
     Prepayments and deposits                                                       10,059,877                13,326,789
     Other current assets                                                            3,678,908                 5,925,642
     Prepaid and deferred income taxes                                               1,600,000                   838,000
                                                                              ----------------          ----------------

       Total current assets                                                        119,635,658               139,301,858

     Property and equipment, at cost                                                78,564,238                66,667,671
     Less accumulated depreciation                                                                  
         and amortization                                                          (17,537,660)             (11,888,586)
                                                                              -----------------          ---------------

Net property and equipment                                                          61,026,578                54,779,085

     Joint ventures                                                                  6,395,364                 6,903,918
     Long-Term investments                                                          12,301,835                 7,476,299
     Long-Term receivables                                                           3,663,094                 3,627,098
     Patents and trademarks, net                                                     6,464,076                 6,410,771
     Goodwill, net                                                                   6,055,253                 6,146,642
     Other assets                                                                    3,017,249                 2,656,958
                                                                               ---------------          ----------------
       Total                                                                 $     218,559,107         $     227,302,629
                                                                              ================          ================

Liabilities and Stockholder's Equity

Current liabilities:
     Notes payable                                                           $      36,692,387         $      31,147,572
     Accounts payable                                                               38,007,559                43,995,364
     Accrued expenses                                                               12,668,307                 3,990,027
                                                                              ----------------          ----------------

       Total current liabilities                                                    87,368,253                79,132,963

Notes payable and other liabilities                                                  8,596,825                 3,282,003
                                                                              ----------------          ----------------
Convertible notes secured                                                              662,900                 2,112,900
                                                                              ----------------          ----------------
Convertible notes-unsecured                                                         24,500,000                15,500,000
                                                                              ----------------           ---------------
Minority interests in subsidiaries                                                   5,821,222                10,372,895
                                                                              ----------------          ----------------

COMMITMENTS AND CONTINGENCIES

Stockholders' equity
   Common stock par value $.005 per share paid in
capital.  Issued and outstanding 90,186,973
     and 80,001,244 shares respectively.                                           210,605,858               199,100,614

   Accumulated deficit                                                            (118,995,951)              (82,198,746)
                                                                              -----------------         -----------------

       Total stockholders' equity                                                   91,609,907               116,901,868
                                                                              ----------------          ----------------
       Total                                                                 $     218,559,107         $     227,302,629
                                                                              ================          ================

See accompanying notes to condensed consolidated financial statements.
</TABLE>

<PAGE>
                       AURA SYSTEMS, INC. AND SUBSIDIARIES
                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
             THREE AND NINE MONTHS ENDED NOVEMBER 30, 1998 AND 1997
                                   (Unaudited)

<TABLE>
<CAPTION>

                                                           Three Months                             Nine Months

                                                       1998              1997                 1998                1997
                                                       ----              ----                 ----                ----

<S>                                                   <C>                  <C>              <C>                    <C>         
Net Revenues                                          $  33,931,756        $48,215,300      $  105,487,348         $108,769,267

     Cost of goods and overhead                          44,808,406         38,622,290         100,358,647           82,576,867
                                                       ------------         ----------        ------------           ----------

Gross Profit                                            (10,876,650)         9,593,010           5,128,701           26,192,400

Expenses

     Selling, general and administrative                 15,291,137         14,415,182          31,625,291           26,266,825
     Research and development                               283,638            413,286           1,105,371            2,522,680
                                                       ------------     --------------        ------------          -----------

     Total costs and expenses                            15,574,775         14,828,468          32,730,662           28,789,505
                                                       ------------     --------------        ------------          -----------

Income (loss) from operations                           (26,451,425)        (5,235,458)        (27,601,961)          (2,597,105)

Other (income) and expense

     Equity in losses of unconsolidated
       joint ventures                                       175,000                 --             675,000                   --
     Gain on sale and issuance of
       subsidiary stock and other assets                         --         (9,832,688)         (1,432,627)          (9,832,688)
     Other income                                          (906,428)                --          (1,214,530)                  --
     Legal settlements and costs                          1,300,000                 --           7,600,000                   --
     Interest expense-net                                 3,021,611          2,136,603           8,766,274            4,105,621
                                                       ------------      -------------         -----------          -----------

Income (loss) before taxes                              (30,041,608)         2,460,627         (41,996,078)           3,129,962

     Provision (benefit) for taxes                       (1,589,200)           970,015           (647,200)              970,015
                                                       -------------     -------------        ------------          -----------
     Income (loss) before minority
       interest in income of
       consolidated subsidiary                          (28,452,408)         1,490,612         (41,348,878)           2,159,947
     Minority interest in income (loss)
       of consolidated subsidiary                        (5,317,533)           741,894          (4,551,673)             741,894
                                                         -----------        ----------        -------------         -----------

Net income (loss)                                      $(23,134,875)        $  748,718       $ (36,797,205)      $    1,418,053
                                                       ============         ==========        ============          ===========

Net income (loss) per share                            $      (.27)         $     .01       $        (.44)       $          .02
                                                       ===========          ==========        ============          ===========

Weighted average shares used
to compute net income (loss) per share
                                                         86,413,616         79,749,922          83,011,249           78,728,064
                                                        ===========        ===========         ===========          ===========



See accompanying notes to condensed consolidated financial statements.

</TABLE>

<PAGE>



                       AURA SYSTEMS, INC. AND SUBSIDIARIES
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
              FOR THE NINE MONTHS ENDED NOVEMBER 30, 1998 AND 1997
                                   (Unaudited)
<TABLE>
<CAPTION>

                                                                          1998                         1997   
                                                                      ------------               -------------

<S>                                                                 <C>                        <C>              
Net cash (used) in operations                                       $     (13,970,789)         $     (9,879,690)
                                                                          ------------          ----------------

Cash flows from investing activities:

     Additions to property and equipment                                  (11,896,567)              (12,244,515)
     Disposition of property and equipment                                          --                   200,000
     Equity Investments                                                    (5,000,000)                        --
     Proceeds from sale of subsidiary stock                                 1,611,873                 2,552,100
                                                                       --------------           ---------------

     Net cash provided by (used) in investing
         activities                                                       (15,284,694)               (9,492,415)

Cash flows from financing activities:

     Net proceeds (repayment) from short-term
       borrowing                                                             5,360,734                1,454,849
     Proceeds from issuance of convertible debt                             12,000,000                29,000,000
     Net proceeds (repayment) of debt                                        1,450,000               (5,834,193)
     Proceeds from exercise of stock options                                   103,000                        --
     Proceeds from exercise of warrants                                      7,574,358                        --
                                                                      ----------------          ----------------

     Net cash provided by financing activities:                             26,488,092                24,620,656
                                                                       ---------------          ----------------

Net increase (decrease) in cash and cash equivalents
                                                                           (2,767,391)                5,248,551

Cash and cash equivalents at beginning of year                               6,079,411                 7,112,354
                                                                       ---------------            --------------

Cash and cash equivalents at end of period                            $      3,312,020          $     12,360,905
                                                                       ===============           ===============

Supplemental  disclosures of cash flow  information  Cash paid during the period
       for:
              Interest                                                $      3,746,051          $      2,772,939
              Income Tax                                                       942,000                     9,200
                                                                        ==============            ==============

Supplemental disclosure of noncash investing and financing activities:

In the nine months ended  November 30, 1998,  $3,741,878  of  convertible  notes
payable were converted into common stock.  In the nine months ended November 30,
1997, $5,086,600 of convertible notes payable were converted into common stock.

     In the nine months ended November 30, 1997, the Company  disposed of assets
in exchange for a note  receivable  of $503,385  and cash of $200,000,  which is
included above.



See accompanying notes to condensed consolidated financial statements.
</TABLE>


<PAGE>



                               AURA SYSTEMS, INC.
                         NOTES TO CONDENSED CONSOLIDATED
                              FINANCIAL STATEMENTS
                                   (Unaudited)


1)       Management Opinion

         The condensed consolidated financial statements include the accounts of
Aura Systems,  Inc. ("the Company") and subsidiaries from the effective dates of
acquisition.  All material 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  only  normal
recurring  adjustments) and  reclassifications  for  comparability  necessary to
present  fairly the  financial  position and results of operations as of and for
the three and nine months ended November 30, 1998.

2)       Capital

         In the nine months ended  November 30, 1998,  $3,741,878 of convertible
notes were converted into common stock of the Company.  In the nine months ended
November 30, 1997,  $5,086,600 of  convertible  notes were converted into common
stock of the Company.

3)       Significant Customers

         The Company sold sound related  products and computer  related products
to four  significant  customers  during the nine months ended November 30, 1998.
Sales  of  speakers  to  a  single  major  electronics  retailer  accounted  for
approximately  $7.6 million in the period ended November 30, 1998 as compared to
approximately  $11.1  million  in the prior  year  comparable  period.  Sales of
communication  and  multimedia   products  to  three  major  mass  merchandisers
accounted for approximately  $49.9 million in the nine months ended November 30,
1998 as compared to approximately $39.6 million in the prior year period.

     None of the above  customers are related or affiliated  with the Company or
any customers of the Company. The Company has no reason to believe that sales to
any of these  customers  will not continue.  Sales to Best Buy, one of the three
significant customers,  declined from approximately $8 million in the August 31,
1998 quarter to approximately $1.5 million in the November 30, 1998 quarter.

4)       Minority Interest

         In September  1997, a wholly owned  subsidiary of the Company,  Newcom,
Inc.,  completed  an Initial  Public  Offering in which  2,000,000  newly issued
shares  were sold to the  public  along  with  300,000  shares of the  Company's
holdings.  This  results in a minority  interest  holding  in  NewCom,  Inc.  of
approximately   27.9%,   which  is  reflected  in  the  accompanying   financial
statements. As a result of this transaction,  the Company has reported a gain in
the quarter ended November 30, 1997 of approximately $2.1 million on the sale of
the 300,000 shares,  and approximately  $7.4 million on the sale of newly issued
shares.

5)       Contingencies

         The Company is engaged in various  legal actions  listed below.  To the
extent that judgment has been rendered,  appropriate  provision has been made in
the financial statements.


<PAGE>




Shareholder Litigation

         Barovich/Chiau v. Aura Systems, Inc.

     In May,  1995 two  lawsuits  naming  Aura,  certain  of its  directors  and
executive officers and a former officer as defendants,  were filed in the United
States District Court for the Central  District of California,  Barovich v. Aura
Systems,  Inc. et. al. (Case No. CV 95-3295) and Chiau v. Aura Systems, Inc. et.
al. (Case No. CV 95-3296),  before the  Honorable  Manuel Real.  The  complaints
purported to be securities  class actions on behalf of all persons who purchased
common  stock of Aura during the period from May 28,  1993  through  January 17,
1995, inclusive. The Complaints alleged that as a result of false and misleading
information  disseminated by the  defendants,  the market price of Aura's common
stock was  artificially  inflated  during the class period.  The complaints were
consolidated as Barovich v. Aura Systems, Inc., et. al.
        
      A settlement  agreement for this  proceeding was submitted to the Court
on July 20, 1998, for preliminary  approval,  at which time the Court denied the
plaintiffs'  motion for approval of the  settlement.  On September 22, 1998, the
Company and certain of its officers  and  directors  renoticed  their motion for
summary  judgment.  Thereafter,  on  January  8, 1999,  the  plaintiffs  and the
defendants in the Barovich action executed a Stipulation of Settlement  pursuant
to which the Barovich action would be settled in return for payments by Aura and
its insurer to the plaintiff's settlement class and plaintiff's attorneys in the
amount of $2.8 million in cash (with  $800,000 to be  contributed by Aura and $2
million to be contributed by Aura's insurer,  subject to a reservation of rights
by the insurer  against the  insureds) and $1.2 million in cash or common stock,
at the Company's  option,  to be paid by Aura. The settlement will be subject to
the review of the Court,  and will not become final and fully  effective  unless
approved by the Court.  The parties expect that the  preliminary  hearing on the
settlement will take place on or about February 1, 1999.

         Morganstein v. Aura Systems, Inc.

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

         In June, 1998, the Court entered an order staying further  discovery in
order to facilitate completion of settlement discussions between the parties. On
October 12, 1998, the parties  entered into a stipulation  for settlement of all
claims, subject to approval by the Court Under the proposed settlement Aura will
pay $4.5 million in cash or stock, at Aura's option,  plus 3.5 million  warrants
at an exercise price of $2.25. In addition,  Aura's insurance carrier has agreed
to pay  $10.5  million.  Therefore,  the  Company  recorded  a  charge  for this
litigation of $4.5 million in the quarter ended August 31, 1998.

     The Court in November  1998 entered an order  approving  the form of notice
that  was  to  be  given  to  class  members  regarding  the  settlement  terms.
Thereafter,  on  January 4, 1999,  the Court held a hearing on (i)  whether  the
settlement  should be  approved by the Court and (ii)  whether  the  plaintiff's
attorneys'  fees request  should be approved by the Court.  The Court took these
matters under submission  following the hearing on January 4, 1999, and has
not yet issued  its  ruling. The  settlement  will not  become  final  and fully
effective unless it is approved by the Court.

Securities and Exchange Commission Settlement.

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

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

Other Litigation.

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



<PAGE>



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

         Results of Operations

         This Report may contain forward-looking statements, which involve risks
and  uncertainties.  The Company's actual results may differ materially from the
results  discussed in such  statements.  Certain factors could also cause actual
results  to differ  materially  from  those  discussed  in such  forward-looking
statements,  including  factors  discussed  in the  Company's  Form 10-K for the
period ended February 28, 1998, and factors discussed in this Report.

         Net revenue for the three and nine month  periods  ended  November  30,
1998 decreased by $14,283,544  and  $3,281,919 to $33,931,756  and  $105,487,348
from the  corresponding  periods  in the  prior  year.  The  decreased  revenues
resulted  primarily  from  a  reduction  in  revenues  by the  Company's  NewCom
subsidiary of $9,659,785  and  $1,866,482  respectively,  for the three and nine
month periods ended  November 30, 1998.  The decline was also partially a result
of the Company  focusing its sales attention on sound  related  products and the
AuraGen,  while  reducing  its  emphasis  on sales of its  other  products.  Net
revenues also declined in the quarter as a result of declines in sales of one of
NewCom's significant customers to $1.5 million,  compared to sales of $8 million
in the immediately preceding quarter.

     The Company sold sound related  products and computer  related  products to
four significant customers during the nine months ended November 30, 1998. Sales
of speakers to a single major electronics  retailer  accounted for approximately
$7.6 million in the period ended November 30, 1998 as compared to  approximately
$11.1 million in the prior year comparable  period.  Sales of communication  and
multimedia   products  to  three   major  mass   merchandisers   accounted   for
approximately  $49.9  million in the nine  months  ended  November  30,  1998 as
compared to approximately $39.6 million in the prior year period.

     None of the above  customers are related or affiliated  with the Company or
any customers of the Company. The Company has no reason to believe that sales to
any of these  customers  will not continue.  Sales to Best Buy, one of the three
significant customers,  declined from approximately $8 million in the August 31,
1998 quarter to approximately $1.5 million in the November 30, 1998 quarter.

         Cost of goods and overhead for the three and nine months ended November
30,  1998  increased  by  $6,186,116  and  $17,781,780  in  comparison  with the
corresponding  periods in the prior year. This increase is primarily a result of
the increase in cost of goods and overhead at the Company's NewCom subsidiary of
$6,614,694 and $12,738,910,  respectively, for the three and nine months periods
ended  November  30,  1998  which  included a  write-down  in  inventory  of the
Company's NewCom  subsidiary of  approximately  $10 million in the quarter ended
November 30, 1998.

         Gross  margins were a negative 32% and a positive 4.9% in the three and
nine  months  ended  November  30,  1998,  compared  to 19.9%  and  24.1% in the
corresponding  prior year  periods.  The  primary  reason for the decline is the
reduction in margins at the Company's  NewCom  subsidiary as the result of price
pressures  from the mass  merchandise  retailers  and the  previously  mentioned
write-down of inventory at the Company's NewCom  subsidiary in the quarter ended
November  30,  1998.  The  Company  also sold  obsolete  inventory  relating  to
discontinued  products,  at prices which resulted in losses on this inventory of
approximately $1.5 million.

     General and  administrative  costs  increased  for the three and nine month
periods by $875,955  and  $5,358,466  respectively  primarily  due to the higher
level of advertising support for the products of the Company's NewCom subsidiary
including co-op advertising, rebates and Merchandise Development Funds that were
required by the competitive price pressures in the major mass merchandisers. The
increase in general and  administrative  expenses  is also  partially  due to an
increase in  depreciation  and  amortization of $1.1 million to $2.4 million and
$4.2 million to $6.3  million for the three and nine months  ended  November 30,
1998  over  the  comparable   periods  ended  November  30,  1997.  General  and
administrative  expenses increased by $.9 million and $5.4 million respectively,
for the three and nine months ended November 30, 1998.  Exclusive of the effects
of the Company's NewCom subsidiary,  Aura's general and administrative  expenses
decreased by approximately $3.9 million and $2.7 million  respectively,  for the
three and nine months ended November 30, 1998.

         Research  and  development  costs for the three and nine  months  ended
November 30, 1998  decreased by $129,648 and  $1,417,309 as the Company  focused
its  attention  on  marketing  and  manufacturing  of its  products  such as the
AuraGen(TM) and sound products.

         The Company lost  $26,451,425 and  $27,601,961  from operations for the
three and nine months ended November 30, 1998 compared with a loss of $5,235,458
and  $2,597,105  in the prior year  periods.  Of the loss,  approximately  $15.7
million and $13.3 million,  respectively,  is attributed to the Company's NewCom
subsidiary.  This loss also includes  increases in depreciation and amortization
expense of $1.1 million and $4.2 million  respectively which is primarily due to
the amortizing of product development costs over a 24 month period.

         In the nine months ended November 30, 1998, the Company recorded a gain
on the sale of stock in its majority owned  subsidiary  NewCom of  approximately
$1.4 million as compared to a recorded gain on the sale and issuance of stock in
NewCom  in  the  prior  year  nine  months  of  approximately  $9.8  million  in
conjunction with the IPO of NewCom.  There were no such sales in the three month
periods ended November 30, 1997 and 1998.

         Net interest expense increased by $885,008 to $3,021,611 and $4,660,653
to $8,766,274 in the three and nine months ended November 30, 1998 due to higher
levels of borrowing and the  quarterly fee being charged to interest  expense on
the $15 million note that was renegotiated in September 1997.

     The net loss for the  three  months  ended  November  30,  1998,  including
interest  expense of $8.8 million totalled  $23,134,875  compared to earnings of
$748,718 for the  comparable  period of Fiscal  1998.  For the nine months ended
November 30, 1998,  including the above  charges,  the Company lost  $36,797,205
compared to earnings of  $1,418,053  in the prior year nine months.  Included in
these amounts are a loss of $15.7 million and $13.3 million respectively, by the
Company's  NewCom  subsidiary  in the three and nine months  ended  November 30,
1998,  compared  to income of $2.7  million  and $6.0  million in the prior year
comparable periods.

         Liquidity and Capital Resources

         In  the  nine  months  ended  November  30,  1998,  cash  decreased  by
$2,767,391 to $3,312,020 from $6,079,411 at February 28, 1998.  Accounts payable
and accrued expenses increased by $2,690,475 from February 28, 1998. Inventories
decreased by  $7,621,828  due to the  write-down  of inventory at the  Company's
NewCom subsidiary as previously discussed.

         The decrease in  receivables  of  $4,525,335  is due to the lower sales
volume for the quarter  coupled with the increased  levels of co-op  advertising
and Merchandise Development Fund credits in the quarter as previously discussed.

         Cash flows used in operations  increased by $4,091,099  compared to the
prior  year  nine  months.   Working  capital   decreased  to  $32,267,405  from
$60,168,895 over the fiscal year end level,  with the current ratio declining to
1.37:1from 1.76:1.

     In the nine months ended November 30, 1998, the Company  received  proceeds
of $12,000,000 from the sale of convertible  notes payable.  In this same period
$3,741,878 of previously  issued  convertible  notes were  converted into common
stock of the Company.  In the nine months ended  November 30, 1997,  the Company
received proceeds of $29,000,000 from the sale of convertible notes payable. The
Company also redeemed $4,000,000 of previously issued convertible notes.

         In October 1998 the Company  completed a private  placement to a single
institutional  investor of a  $3,000,000  Convertible  Senior  Secured  Note and
Warrants to purchase 1,200,000 of the Company's Common Stock in consideration of
$3,000,000  gross cash proceeds.  The Note bears interest at the rate of 14% per
annum and is due and payable on the earlier of April 1, 1999, and the closing of
an equity or convertible debt financing  resulting in at least $6,000,000 of net
proceeds  to the  Company.  The Note is secured by a junior  lien on  inventory,
equipment and receivables of the Company and its subsidiaries other than NewCom.

         In March 1997 the Company issued $15 million of convertible  Debentures
to a group of accredited  investors in a private placement.  The Debentures were
convertible  into  Common  Stock  of the  Company  in  accordance  with a stated
formula. In October 1997 the Company and the investors entered into an agreement
modifying the  Debentures to eliminate  the  conversion  feature in exchange for
increasing  the  interest  rate on the  principal  to 18% and the  payment  of a
quarterly fee of $935,000 for each quarter  during which the  Debentures  remain
outstanding.  The stated maturity was shortened from March 2000 to September 30,
1998. The Debentures,  as modified, are secured by a Note from NewCom to Aura in
the original  principal amount of $17 million (the "NewCom Note"),  which by its
terms matured in September  1998, of which the entire  principal  amount remains
outstanding.  The  Debentures  are also  secured by  2,500,000  shares of NewCom
Common Stock owned by Aura.  In September  1998 the Company,  the  investors and
NewCom reached an  agreement-in-principle  to restructure  the  Debentures.  The
proposed  restructuring  called  for an  initial  cash  payment  by  Aura to the
investors  and  the  issuance  by  NewCom  of a  $3  million  convertible  note,
redeemable  by NewCom under  certain  circumstances.  The unpaid  balance of the
Debentures  would bear interest at 9% per annum and the remaining  principle and
interest  would be payable  in six equal  monthly  installments.  As part of the
restructuring  of the  Debentures  NewCom  and Aura  agreed to  restructure  the
payment terms of the remaining principal balance of the NewCom Note.

         The agreement-in-principle was subject to certain terms and conditions,
including the execution of definitive  documents on or before  October 21, 1998,
and funding from an  institutional  lender.  The Company did not  finalize  its
agreement  with these  investors  by October 21,  1998,  and had not  received a
commitment for third party funding by such date. Completion of the restructuring
also remains  subject to completion of definitive  restructuring  documents with
the investors.

         The  investors  have  advised  the  Company  that they have no  present
intention of demanding  payment  under the Aura Note and intend to work with the
Company to complete a restructuring.  There are no assurances, however, that the
restructuring  will be  consummated.  Since  October  21,  1998,  the  investors
converted   approximately   $1.53   million  of  principal   and  interest  into
approximately  2 million shares of Common Stock in lieu of the initial  payments
under the  proposed  restructuring.  As of January 14, 1999,  approximately  $16
million of principal and interest remained outstanding under the Debentures.

         In the past the Company's cash flow  generated from  operations has not
been sufficient to completely fund its working capital needs.  Accordingly,  the
Company has also relied  upon  external  sources of  financing  to maintain  its
liquidity.  In order to finance its existing operations it will be necessary for
the Company to obtain  additional  working  capital from  external  sources.  In
particular,  the  Company's  need for working  capital has  increased  in recent
months  as a result  of  ongoing  expenditures  in  connection  with  activities
relating to the  manufacturing  and marketing of the Company's  AuraGen product.
The Company is presently seeking additional sources of financing, including debt
and equity  financing.  No assurances can be provided that these funding sources
will be  available  at the times and in the  amounts  required.  The  Company is
temporarily  curtailing certain expansion plans and is taking measures to reduce
overhead  until such time as  sufficient  working  capital is available to fully
implement its business plan.  The inability of the Company to obtain  sufficient
working  capital at the times and in the amounts  required would have a material
adverse effect on the Company's business and operations.

         The ongoing financial crisis in Asia may also have a negative effect on
the Company's cash flow due to the potential  requirements  for cash advances to
Asian vendors in order to ensure an adequate flow of product.

Year 2000

         The Company  relies  heavily on  computers in its internal and external
financial  reporting  systems.  In  addition,  computers  are  used  extensively
throughout the Company to perform critical  operating  activities  including the
processing of payroll,  accounts  receivable and accounts payable and to perform
critical  analyses.  The  Company  also  makes use of  computers  for  efficient
communication  with employees and customers,  including  extensive use of e-mail
systems and the Internet,  and is expected to expand its use of such  technology
in the  future.  Finally,  embedded  technology  such  as  microcontrollers  are
commonly  found in equipment  used  throughout  the  Company's  operations.  The
complete  failure of these systems could have a material  negative impact on the
operations of the Company.  In addition,  most of the Company's  major suppliers
and customers  rely heavily on similar  computer  systems,  and failures in such
systems could disrupt their operations.

         The Company is substantially  complete in assessing and addressing Year
2000 issues in its major computer  systems.  Most of the Company's major systems
are Year 2000  compliant or have been  updated in the normal  course of business
with applications that are Year 2000 compliant. No system replacements were made
or accelerated to comply with Year 2000 issues,  but rather were made to address
other operating issues.

         In addition  to  substantially  addressing  Year 2000 issues in its own
critical computer systems, the Company is in the process of contacting its major
customers  and vendors to assess their  progress in  addressing  their Year 2000
issues.  The Company  expects to have responses from these customers and vendors
by the first quarter of fiscal 2000.  The Company  believes that in making these
contacts it can minimize the risks  associated  with Year 2000  failures of such
vendors and  customers.  The Company can give no  assurance  that the systems of
other  companies  on which  the  Company's  systems  rely will be  converted  or
otherwise  addressed  on time,  or that a failure to convert by another  company
would not have a material adverse effect on the Company.

         While the Company has and will continue to make efforts to address Year
2000 issues,  the Company could  experience  disruptions  in its operations as a
result  of  failures  in its own  systems  and  those of its  major  vendors  or
customers.

         To date,  the total amount spent on Year 2000 issues has been less than
$100,000  and has not been  material to the  Company's  operations  or financial
condition. Based on current assessments,  the Company expects to incur less than
$100,000 in additional  expenditures to address Year 2000 issues. However, these
estimates  are subject to revisions  based on future  assessments  and responses
from vendors and customers.

         Estimates  of the  costs or  consequences  of  incomplete  or  untimely
resolution of Year 2000 issues would be  speculative.  The Company will continue
to assess and address Year 2000 issues and expects to fund such efforts  through
operating cash flows and, if necessary, external sources of financing.




<PAGE>




PART II - OTHER INFORMATION



ITEM 1        Legal Proceedings

              For information regarding pending legal proceedings, see Note 4 to
              the  Company's   Condensed   Consolidated   Financial   Statements
              appearing elsewhere herein.


ITEM 2        Changes in Securities and Use of Proceeds

              In October  1998 the Company  completed a private  placement  to a
              single institutional  investor of a $3,000,000  Convertible Senior
              Secured Note and Warrants to purchase  1,200,000 of the  Company's
              Common Stock in  consideration  of $3,000,000 gross cash proceeds.
              The Note  bears  interest  at the rate of 14% per annum and is due
              and payable on the earlier of April 1, 1999, and the closing of an
              equity  or  convertible  debt  financing  resulting  in  at  least
              $6,000,000 of net proceeds to the Company.  The Note is secured by
              a junior lien on inventory and  receivables of the Company and its
              subsidiaries  other than NewCom.  The Warrants are  exercisable at
              $1.40 per share until January 1, 1999; from February 1, 1999 until
              June 30, 1999, the Warrants are exercisable at the lesser of $1.40
              and 101% of the average  closing bid price of the Common Stock for
              the five  consecutive  trading  days ended  January  31, 1999 (the
              "January  Price");  and from July 1, 1999 until  October  2003 the
              Warrants are exercisable at the lower of $1.40,  the January Price
              or 101% of the average  closing bid price of the Common  Stock for
              the five consecutive trading days ended June 30, 1999. In November
              1998 the  Company  completed  a  similar  financing  with  another
              institutional  investor of a $1,000,000 Convertible Senior Secured
              Note and  Warrants to  purchase  400,000  shares of the  Company's
              Common Stock.

ITEM 3        Defaults Upon Senior Securities

              For information regarding defaults under outstanding  indebtedness
              of Aura,  see  "Management's  Discussion and Analysis of Financial
              Condition  and  Results of  Operations  -  Liquidity  and  Capital
              Resources" appearing elsewhere in this Report.


ITEM 6        Exhibits and Reports on Form 8-K

              a)  Exhibits:
              See Exhibit Index

              b)  Reports On Form 8-K:

              None



<PAGE>





                                   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:     January 18, 1999                     By:  /s/Steven C. Veen           
      ------------------------------                ---------------------------
                                                    Steven C. Veen
                                                    Senior Vice President
                                                    Chief Financial Officer
                                                    (Principal Financial and 
                                                    Accounting Officer)






<PAGE>



<TABLE>
<CAPTION>


                                INDEX TO EXHIBITS


       Exhibit                                                                                       Sequential
        Number                                                                                        Page No.

       <S>              <C>                                                                       
       EX-10.1          Parent  Agreement  dated as of  November  30,  1998,  by and among the
                        Company, NewCom, Inc. and the Original Holder

       EX-10.2          Amendment  Agreement  dated as of December 28, 1998,  by and among the
                        Company, NewCom, Inc, and the Original Holder

       EX-10.3          Form of Convertible Senior Secured Note


       EX-10.4          Form of Warrant

        EX-27           Financial Data Schedule
</TABLE>