**SECURITIES
      AND EXCHANGE COMMISSION**


Washington,
      D.C. 20549





**Form
      10-Q**




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





For
      the
      quarterly period ended August 31, 2006




OR





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




For
      the
      transition period from__________ to _________





**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)





**2330
      Utah Avenue.**


**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
o
      NO x





Indicate
      by check mark whether the registrant is a large accelerated filer, an
      accelerated file, or a non-accelerated filer (as defined in Rule 12b-2 of the
      Act).




Large
      Accelerated Filer  ̈ Accelerated
      Filer  ̈ Non-accelerated
      filer x





Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12b-2 of the Exchange Act).





Yes  ̈ No x




**APPLICABLE
      ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY** **PROCEEDINGS
      DURING THE PRECEDING FIVE YEARS:**





Indicate
      by check mark whether the registrant has filed all documents and reports
      required to be filed by Section 12, 13 or 15(d) of the Securities Exchange
      Act
      of 1934 subsequent to the distribution of securities under a plan confirmed
      by a
      court. 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
                September 30, 2006Common
                Stock, par value $0.0001 per share
            
            24,282,710
                shares















**AURA
      SYSTEMS, INC. AND SUBSIDIARIES**





**INDEX**


PART
                  I.
              
              FINANCIAL
                  INFORMATIONITEM
                  1.
              
              Financial
                  StatementsStatement
                  Regarding Financial Information
              
              3Condensed
                  Consolidated Balance Sheets as of August 31, 2006
                (Unaudited)
                  and February 28, 2006
              
              4Condensed
                  Consolidated Statements of Operations for the Three and Six Months
                  Ended
                  August 31, 2006 (Unaudited) and 2005 (Unaudited)
              
              5Condensed
                  Consolidated Statements of Cash Flows for the Six Months Ended
                  August 31,
                  2006 (Unaudited) and 2005 (Unaudited)
              
              6Notes
                  to Condensed Consolidated Financial Statements (Unaudited)
              
              7ITEM
                  2.
              
              Management's
                  Discussion and Analysis of Financial Condition and Results of
                  Operations
              
              14ITEM
                  3.
              
              Quantitative
                  and Qualitative Disclosures About Market Risk
              
              18ITEM
                  4.
              
              Controls
                  and Procedures
              
              18PART
                  II.
              
              OTHER
                INFORMATIONITEM
                  2.
              
              Unregistered
                  Sales of Equity Securities and Use of Proceeds
              
              19ITEM
                  6.
              
              Exhibits
              
              19SIGNATURES
                  AND CERTIFICATIONS
              
              20






2


**AURA
      SYSTEMS, INC. AND SUBSIDIARIES**




**QUARTER
      ENDED AUGUST 31, 2006**





**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 28, 2006, as filed with the
      SEC
      (file number 000-17249).





3




**AURA
      SYSTEMS, INC. AND SUBSIDIARIES**




**CONDENSED
      CONSOLIDATED BALANCE SHEETS**


**August
                  31, 2006**
              
              **February
                  28, 2006****(Unaudited)****Assets****Current
                  assets:**Cash
                  and cash equivalents
              
              $
              4,260
              
              $
              472,482Receivables,
                  net
              
              
              331,447
              
              
              87,808Current
                  inventories
              
              
              767,552
              
              
              615,000Other
                  receivables
              
              
              -
              
              
              2,654,864Other
                  current assets
              
              
              103,693
              
              
              69,690**Total
                  current assets**
              
              
              1,206,952
              
              
              3,894,844Property
                  and equipment, at cost
              
              
              2,282,064
              
              
              2,420,800Less:
                  accumulated depreciation and amortization
              
              
              2,228,845
              
              
              2,394,131**Net
                  property and equipment**
              
              
              53,219
              
              
              26,669Non-current
                  inventories
              
              
              3,630,998
              
              
              3,964,864**Total
                  assets**
              
              $
              4,891,169
              
              $
              7,891,377**Liabilities
                  and Stockholder's Equity****Current
                  liabilities:**Accounts
                  payable
              
              $
              78,689
              
              $
              590,577Notes
                  payable - current portion
              
              
              398,189
              
              
              48,766Accrued
                  expenses
              
              
              394,140
              
              
              528,192Deferred
                  income
              
              
              164,625
              
              
              164,625**Total
                  current liabilities**
              
              
              1,035,643
              
              
              1,332,160Notes
                  payable, net of current portion
              
              
              2,232,228
              
              
              2,476,234**Total
                  Liabilities**
              
              
              3,267,871
              
              
              3,808,394COMMITMENTS
                  AND CONTINGENCIESCommon
                  stock, par value $0.0001 per share.  50,000,000 shares authorized,
                  24,282,710 issued and outstanding at August 31 and February 28,
                  2006.
              
              
              2,428
              
              
              2,428Additional
                  paid-in capital
              
              
              343,073,025
              
              
              343,073,025Accumulated
                  deficit
              
              
              (341,452,155
              )
              
              (338,992,470
              )**Total
                  stockholders’ equity**
              
              
              1,623,298
              
              
              4,082,983**Total
                  liabilities and stockholders’ equity**
              
              $
              4,891,169
              
              $
              7,891,377






See
      accompanying notes to these unaudited condensed consolidated financial
      statements.




4





**AURA
      SYSTEMS, INC. AND SUBSIDIARIES**


**CONDENSED
      CONSOLIDATED STATEMENTS OF OPERATIONS**


**THREE
      AND SIX MONTHS ENDED AUGUST 31, 2006 AND 2005**


**(Unaudited)**





**Three
                Months**
            
            **Six
                Months****2006**
            
            **2005**
            
            **2006**
            
            **2005****Net
                Revenues**
            
            $
            591,898
            
            $
            274,007
            
            $
            836,360
            
            $
            804,710Cost
                of goods
            
            
            191,888
            
            
            102,058
            
            
            423,044
            
            
            297,110**Gross
                Profit**
            
            
            400,010
            
            
            171,949
            
            
            413,316
            
            
            507,600**Expenses**Engineering,
                research and development expenses
            
            
            295,679
            
            
            270,137
            
            
            586,684
            
            
            786,806Selling,
                general and administrative
            
            
            1,451,720
            
            
            1,138,962
            
            
            2,239,005
            
            
            2,207,871Total
                costs and expenses
            
            
            1,747,399
            
            
            1,409,099
            
            
            2,825,689
            
            
            2,994,677**Loss
                from operations**
            
            
            (1,347,389
            )
            
            (1,237,150
            )
            
            (2,412,373
            )
            
            (
                2,487,077
            )**Other
                (income) and expense**Interest
                expense, net
            
            
            33,435
            
            
            402,025
            
            
            61,516
            
            
            719,650Change
                in derivative liability
            
            
            -
            
            
            (19,955,887
            )
            
            -
            
            
            (16,154,430
            )Other
                (income) expense, net
            
            
            (150
            )
            
            (55,317
            )
            
            (6,453
            )
            
            (62,442
            )Gain
                on disposition of assets
            
            
            (2,950
            )
            
            -
            
            
            (7,750
            )
            
            -Income
                (Loss) before minority interest
            
            
            (1,377,724
            )
            
            18,372,029
            
            
            (2,459,686
            )
            
            13,010,145Minority
                interest in net income (loss) of consolidated subsidiary
            
            
            -
            
            
            (73,473
            )
            
            -
            
            
            (172,415
            )**Net
                Income (Loss)**
            
            $
            (1,377,724
            )
            $
            18,445,502
            
            $
            (2,459,686
            )
            $
            13,182,560**Total
                basic and diluted income (loss) per share**
            
            $
            (0.06
            )
            $
            14.20
            
            $
            (0.10
            )
            $
            10.15**Weighted
                average shares used to****compute
                basic and diluted income (loss) per share**
            
            
            24,282,710
            
            
            1,299,036
            
            
            24,282,710
            
            
            1,299,036




See
      accompanying notes to these unaudited condensed consolidated financial
      statements.





5




**AURA
      SYSTEMS, INC. AND SUBSIDIARIES**


**CONDENSED
      CONSOLIDATED STATEMENTS OF CASH FLOWS**


**FOR
      THE SIX MONTHS ENDED AUGUST 31, 2006 AND 2005**


**(Unaudited)**





**2006**
            
            **2005****Net
                cash used in operations**
            
            $
            (3,061,372
            )
            $
            (1,637,642
            )**Investing
                activities:**Acquisition
                of plant and equipment
            
            
            (61,714
            )
            
            -Proceeds
                from escrow on sale of building
            
            
            595,000
            
            
            -Collections
                on investor receivables
            
            
            -
            
            
            231,666**Net
                cash provided by investing activities**
            
            
            533,286
            
            
            231,666**Financing
                activities:**Debtor
                in possession financing
            
            
            -
            
            
            1,090,476Issuance
                of debt
            
            
            -
            
            
            116,928Repayment
                of debt
            
            
            -
            
            
            (
                62,274
            )Issuance
                of convertible notes
            
            
            -
            
            
            288,815Net
                proceeds from sale of Series B preferred stock
            
            
            -
            
            
            123,463Proceeds
                from escrow on sale of stock
            
            
            2,059,864
            
            
            -**Net
                cash provided by financing activities:**
            
            
            2,059,864
            
            
            1,557,408**Net
                increase (decrease) in cash**
            
            
            (468,222
            )
            
            151,432Cash
                and cash equivalents at beginning of period
            
            
            472,482
            
            
            61,376**Cash
                and cash equivalents at end of period**
            
            $
            4,260
            
            $
            212,808Supplemental
                disclosures of cash flow informationCash
                paid during the period for:Interest
            
            $
            -
            
            $
            184,462Taxes
            
            $
            -
            
            $
            -





Unaudited
      supplemental disclosure of noncash investing and financing
      activities:




During
      the six months ended August 31, 2006, $105,417 of accrued and unpaid interest
      was added to notes payable.




See
      accompanying notes to the unaudited condensed consolidated financial
      statements.




6




**AURA
      SYSTEMS, INC.**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


**AUGUST
      31, 2006**


**(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, 2006 and
      the results of its operations for the six months ended August 31, 2006 and
      2005.




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.




**2)**  **Going
      Concern**




In
      connection with the audit of its consolidated financial statements for the
      year
      ended February 28, 2006, 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.




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 current 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.




Management
      raised new financing upon exit from bankruptcy, and will seek to raise
      additional financing to fund the Company’s operations. On June 24, 2005 we filed
      for reorganization under Chapter 11 of the U.S. Bankruptcy Code, in the United
      States Bankruptcy Court, Central District of California, (Case Number LA
      05-24550-SB). We secured a Debtor in Possession (“DIP”) loan from Blue Collar
      Films LLC (“BCF”) for one million dollars and secured an additional $1.2 million
      DIP loan from AGP Lender LLC. In addition a group of individual investors
      provided an additional $1.16 million in DIP financing. We submitted a
      reorganization plan that was approved by the court and voted and approved by
      the
      DIP lenders, the secured creditors, the unsecured creditors, the shareholders
      and the new money investors. Under the reorganization plan (i) the secured
      creditor retained $2.5 million in a secured note payable over 48 months at
      7%
      annual interest with the first payment starting 12 months after the
      reorganization, (ii) the Series B Preferred Stock holders received new common
      shares calculated by dividing the total cash invested in the Series B Placement
      by $3.37, (iii) the Series A Preferred Stock holders converted their 1.8 Series
      A Preferred Stock for one new common share, (iv) the common shareholders
      converted 338 of their shares for one new share, and (v) the DIP loans converted
      their loans into approximately 6.07 million new shares of common stock, and
      (vi)
      all the unsecured creditors received new shares of common stock valued at one
      share per $1.75 in claim. An additional 5.89 million shares of common stock
      were
      issued for the new money and reorganization related fees. 254,127 additional
      shares were issued to shareholders to settle their claims in excess of the
      bankruptcy court approval.




All
      of
      the outstanding litigation and disputes were settled during the bankruptcy.
      The
      real estate was sold to an unrelated third party in December 2005 for gross
      proceeds of $8,750,000. After satisfaction of the mortgage liabilities and
      payment of the costs of the sale, approximately $2.9 million was due us. From
      this amount, $1.9 million was paid to the minority shareholder, approximately
      $470,000 was used to satisfy outstanding legal bills, and the balance of
      $595,000 was received by the Company in March of 2006. All disputes regarding
      the real estate were settled.




We
      emerged from the Chapter 11 effective January 31, 2006.




7




**3)
      Summary of Significant Accounting Policies**




Principles
      of Consolidation




The
      consolidated financial statements include the accounts of Aura and subsidiary,
      Aura Realty, Inc.. Investments in affiliated companies are accounted for by
      the
      equity or cost method, as appropriate. Significant inter-company amounts and
      transactions have been eliminated in consolidation.




Revenue
      Recognition





The
      Company’s revenue recognition policies are in compliance with Staff accounting
      bulletin (SAB) 104. Sales revenue is recognized at the date of shipment to
      customers when a formal arrangement exists, the price is fixed or determinable,
      the delivery is completed, no other significant obligations of the Company
      exist
      and collectibility is reasonably assured. Payments received before all of the
      relevant criteria for revenue recognition are satisfied are recorded as unearned
      revenue.




We
      recognize revenue for product sales upon shipment and when title is transferred
      to the customer. When Aura performs the installation of the product, revenue
      and
      cost of sales are recognized when the installation is complete. We have in
      the
      past earned a portion of our revenues from license fees and recorded those
      fees
      as income when we fulfilled our obligations under the particular
      agreement.




Cash
      and
      Cash Equivalents





Cash
      and
      cash equivalents include cash in hand and cash in time deposits, certificates
      of
      deposit and all highly liquid debt instruments with original maturities of
      three
      months or less.





Accounts
      Receivable




Accounts
      receivable consist primarily of amounts due from customers. We have provided
      for
      an allowance for doubtful accounts, which management believes to be sufficient
      to account for all uncollectible amounts.




Inventories




Inventories
      are valued at the lower of cost (first-in, first-out) or market. Due to
      continuing lower than projected sales, we are holding inventories in excess
      of
      what we expect to sell in the next fiscal year.




Property,
      Plant, and Equipment




Property,
      plant, and equipment, including leasehold improvements, are recorded at cost,
      less accumulated depreciation and amortization. Depreciation is provided using
      the straight-line method over the estimated useful lives of the respective
      assets as follows:




Buildings
            
            
            40
                yearsMachinery
                and equipment
            
            
            5
                to 10 yearsFurniture
                and fixtures
            
            
            7
                years




Improvements
      to leased property are amortized over the lesser of the life of the lease or
      the
      life of the improvements. Amortization expense on assets acquired under capital
      leases is included with depreciation and amortization expense on owned
      assets.






Maintenance
      and minor replacements are charged to expense as incurred. Gains and losses
      on
      disposals are included in the results of operations.




Minority
      Interest





Minority
      interest represents the proportionate share of the equity of the consolidated
      subsidiary owned by our minority stockholders in that subsidiary.




8





Income
      Taxes




We
      utilize SFAS No. 109, "Accounting for Income Taxes," which requires the
      recognition of deferred tax assets and liabilities for the expected future
      tax
      consequences of events that have been included in the financial statements
      or
      tax returns. Under this method, deferred income taxes are recognized for the
      tax
      consequences in future years of differences between the tax bases of assets
      and
      liabilities and their financial reporting amounts at each period end based
      on
      enacted tax laws and statutory tax rates applicable to the periods in which
      the
      differences are expected to affect taxable income. Valuation allowances are
      established, when necessary, to reduce deferred tax assets to the amount
      expected to be realized.




Estimates




The
      preparation of financial statements requires management to make estimates and
      assumptions that affect the reported amounts of assets and liabilities and
      disclosure of contingent assets and liabilities at the date of the financial
      statements and the reported amounts of revenue and expenses during the reporting
      period. Actual results could differ from those estimates.




Recently
      Issued Accounting Pronouncements





In
      February 2006, FASB issued SFAS No. 155, "Accounting for Certain Hybrid
      Financial Instruments". SFAS No. 155 amends SFAS No 133, "Accounting for
      Derivative Instruments and Hedging Activities", and SFAF No. 140, "Accounting
      for Transfers and Servicing of Financial Assets and Extinguishments of
      Liabilities".  SFAS No. 155, permits fair value remeasurement for any
      hybrid financial instrument that contains an embedded derivative that otherwise
      would require bifurcation, clarifies which interest-only strips and
      principal-only strips are not subject to the requirements of SFAS No. 133,
      establishes a requirement to evaluate interest in securitized financial assets
      to identify interests that are freestanding derivatives or that are hybrid
      financial instruments that contain an embedded derivative requiring bifurcation,
      clarifies that concentrations of credit risk in the form of subordination are
      not embedded derivatives, and amends SFAS No. 140 to eliminate the prohibition
      on the qualifying special-purpose entity from holding a derivative financial
      instrument that pertains to a beneficial interest other than another derivative
      financial instrument.  This statement is effective for all financial
      instruments acquired or issued after the beginning of the Company's first fiscal
      year that begins after September 15, 2006.  The Company has not evaluated
      the impact of this pronouncement in its financial statements.





In
      March
      2006 FASB issued SFAS 156 'Accounting for Servicing of Financial Assets' this
      Statement amends FASB Statement No. 140, Accounting for Transfers and Servicing
      of Financial Assets and Extinguishments of Liabilities, with respect to the
      accounting for separately recognized servicing assets and servicing liabilities.
      This Statement:




1.
      Requires an entity to recognize a servicing asset or servicing liability each
      time it undertakes an obligation to service a financial asset by entering into
      a
      servicing contract.




2.
      Requires all separately recognized servicing assets and servicing liabilities
      to
      be initially measured at fair value, if practicable.




3.
      Permits an entity to choose 'Amortization method' or 'Fair value measurement
      method' for each class of separately recognized servicing assets and servicing
      liabilities.




4.
      At its
      initial adoption, permits a one-time reclassification of available-for-sale
      securities to trading securities by entities with recognized servicing rights,
      without calling into question the treatment of other available-for-sale
      securities under Statement 115, provided that the available-for-sale securities
      are identified in some manner as offsetting the entity's exposure to changes
      in
      fair value of servicing assets or servicing liabilities that a servicer elects
      to subsequently measure at fair value.




5.
      Requires separate presentation of servicing assets and servicing liabilities
      subsequently measured at fair value in the statement of financial position
      and
      additional disclosures for all separately recognized servicing assets and
      servicing liabilities.




9




This
      Statement is effective as of the beginning of the Company's first fiscal year
      that begins after September 15, 2006. Management believes that this statement
      will not have a significant impact on the consolidated financial
      statements.





In
      September 2006, FASB issued SFAS 157 ‘Fair Value Measurements’. This Statement
      defines fair value, establishes a framework for measuring fair value in
      generally accepted accounting principles (GAAP), and expands disclosures about
      fair value measurements. This Statement applies under other accounting
      pronouncements that require or permit fair value measurements, the Board having
      previously concluded in those accounting pronouncements that fair value is
      the
      relevant measurement attribute. Accordingly, this Statement does not require
      any
      new fair value measurements. However, for some entities, the application of
      this
      Statement will change current practice. This Statement is effective for
      financial statements issued for fiscal years beginning after November 15, 2007,
      and interim periods within those fiscal years. The management is currently
      evaluating the effect of this pronouncement on financial
      statements.





In
      July 2006, the Financial Accounting Standards Board ("FASB") issued FASB
      Interpretation No. 48, Accounting for Uncertainty in Income Taxes—an
      Interpretation of FASB Statement No. 109 ("FIN 48"). FIN 48 seeks to reduce
      the diversity in practice associated with certain aspects of measuring and
      recognition in accounting for income taxes. In addition, FIN 48 requires
      expanded disclosure with respect to the uncertainty in income taxes and is
      effective as of the beginning of the 2008 fiscal year. Management is currently
      evaluating the effect of this pronouncement on financial
      statements.





In
      September 2006, FASB issued SFAS No. 158 “Employers’ Accounting for Defined
      Benefit Pension and Other Postretirement Plans - an amendment of FASB Statements
      No. 87, 88, 106, and 132(R)”. This Statement improves financial reporting by
      requiring an employer to recognize the over funded or under funded status of
      a
      defined benefit postretirement plan (other than a multiemployer plan) as an
      asset or liability in its statement of financial position and to recognize
      changes in that funded status in the year in which the changes occur through
      comprehensive income of a business entity or changes in unrestricted net assets
      of a not-for-profit organization. This Statement also improves financial
      reporting by requiring an employer to measure the funded status of a plan as
      of
      the date of its year-end statement of financial position, with limited
      exceptions. An employer with publicly traded equity securities is required
      to
      initially recognize the funded status of a defined benefit postretirement plan
      and to provide the required disclosures as of the end of the fiscal year ending
      after December 15, 2006. An employer without publicly traded equity securities
      is required to recognize the funded status of a defined benefit postretirement
      plan and to provide the required disclosures as of the end of the fiscal year
      ending after June 15, 2007. However, an employer without publicly traded equity
      securities is required to disclose the following information in the notes to
      financial statements for a fiscal year ending after December 15, 2006, but
      before June 16, 2007, unless it has applied the recognition provisions of this
      Statement in preparing those financial statements:




·
            A
                brief description of the provisions of this Statement




·
            The
                date that adoption is required




·
            The
                date the employer plans to adopt the recognition provisions of this
                Statement, if earlier.




The
      requirement to measure plan assets and benefit obligations as of the date of
      the
      employer’s fiscal year-end statement of financial position is effective for
      fiscal years ending after December 15, 2008. Management is currently evaluating
      the effect of this pronouncement on financial statements.




In
      February 2007, FASB issued FASB Statement No. 159, The Fair Value Option for
      Financial Assets and Financial Liabilities. FAS 159 is effective for fiscal
      years beginning after November 15, 2007. Early adoption is permitted subject
      to
      specific requirements outlined in the new Statement. Therefore, calendar-year
      companies may be able to adopt FAS 159 for their first quarter 2007 financial
      statements.




The
      new
      Statement allows entities to choose, at specified election dates, to measure
      eligible financial assets and liabilities at fair value that are not otherwise
      required to be measured at fair value. If a company elects the fair value option
      for an eligible item, changes in that item's fair value in subsequent reporting
      periods must be recognized in current earnings. FAS 159 also establishes
      presentation and disclosure requirements designed to draw comparison between
      entities that elect different measurement attributes for similar assets and
      liabilities. Management is currently evaluating the effect of this pronouncement
      on financial statements.




10





In
      December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in
      Consolidated Financial Statements”. This Statement amends ARB 51 to establish
      accounting and reporting standards for the non-controlling (minority) interest
      in a subsidiary and for the deconsolidation of a subsidiary. It clarifies that
      a
      non-controlling interest in a subsidiary is an ownership interest in the
      consolidated entity that should be reported as equity in the consolidated
      financial statements. SFAS No. 160 is effective for the Company’s fiscal year
      beginning October 1, 2009. Management is currently evaluating the effect of
      this
      pronouncement on financial statements.





In
      December 2007, the FASB issued SFAS No. 141(R), “Business Combinations”. This
      Statement replaces SFAS No. 141, Business Combinations. This Statement retains
      the fundamental requirements in Statement 141 that the acquisition method of
      accounting (which Statement 141 called the purchase method) be used for all
      business combinations and for an acquirer to be identified for each business
      combination. This Statement also establishes principles and requirements for
      how
      the acquirer: a) recognizes and measures in its financial statements the
      identifiable assets acquired, the liabilities assumed, and any non-controlling
      interest in the acquiree; b) recognizes and measures the goodwill acquired
      in
      the business combination or a gain from a bargain purchase and c) determines
      what information to disclose to enable users of the financial statements to
      evaluate the nature and financial effects of the business combination. SFAS
      No.
      141(R) will apply prospectively to business combinations for which the
      acquisition date is on or after Company’s fiscal year beginning October 1, 2009.
      While the Company has not yet evaluated this statement for the impact, if any,
      that SFAS No. 141(R) will have on its consolidated financial statements, the
      Company will be required to expense costs related to any acquisitions after
      September 30, 2009.




**4)**  **Inventories**




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


August
                  31, 2006
              
              February
                  28,2006(unaudited)Raw
                  materials
              
              $
              2,910,186
              
              $
              2,909,930Finished
                  goods
              
              
              4,456,115
              
              
              4,637,685Reserved
                  for potential product obsolescence
              
              
              (2,967,751
              )
              
              (2,967,751
              )4,398,550
              
              
              4,579,864Non-current
                  portion
              
              
              3,630,998
              
              
              3,964,864Current
                  portion
              
              $
              767,552
              
              $
              615,000




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




We
      do not expect to realize all of our inventories within the 12-month period
      ending August 31, 2007.  Because of this, we have assessed the net
      realizability of these assets, the proper classification of the inventory,
      and
      the potential obsolescence of inventory.  The net inventories as of August
      31, 2006 and February 28, 2006, which are not expected to be realized within
      a
      12-month period, have been reclassified as long term.  We have also
      recorded a reserve for obsolescence of $2,967,451 at August 31, 2006 and
      February 28, 2006.




5)
      Property, Plant & Equipment




Property,
      plant, and equipment at August 31, 2006 and February 28, 2006 consisted of
      the
      following:


August
                  31, 2006
              
              February
                  28, 2006Machinery
                  and equipment
              
              
              903,018
              
              
              911,308Furniture
                  and fixtures
              
              
              1,379,046
              
              
              1,509,4522,282,064
              
              
              2,420,800Less
                  accumulated depreciation and amortization
              
              
              2,228,845
              
              
              2,394,131Property,
                  plant and equipment, net
              
              $
              53,219
              
              $
              26,669




11




Depreciation
      and amortization expense was $15,657, for the six month period ended August
      31,
      2006, and $65,091 for the year ended February 28, 2006




6) Accrued
      expenses




Accrued
      expenses at August 31, 2006 and February 28, 2006 consisted of the
      following:


August
                  31, 2006
              
              February
                  28, 2006Accrued
                  payroll and related expenses
              
              $
              203,969
              
              $
              178,170Accrued
                  interest
              
              
              -
              
              
              16,833Other
              
              
              190,171
              
              
              333,189Total
              
              $
              394,140
              
              $
              528,192




**7)**  **Notes
      Payable and Other Liabilities**




Notes
      payable and other liabilities consist of the following:


August
                  31, 2006
              
              February
                  28,2006(unaudited)Note
                  payable (a)
              
              $
              2,630,417
              
              
              2,525,000Less:
                  current portion
              
              
              398,189
              
              
              48,766Long-term
                  portion
              
              $
              2,232,228
              
              $
              2,476,234




(a)
      Represents notes payable dated January 31, 2006, bearing interest at a rate
      of
      7% per annum and secured by substantially all our assets. The notes carry a
      term
      of five years with interest accruing the first twelve months, principal and
      interest payments beginning the thirteenth month, and continuing through month
      sixty. During the six months ended August 31, 2006, $105,417 in accrued and
      unpaid interest was added to the notes payable.




**8)**  **Capital**




We
      did not issue shares of Common Stock during the six months ended August 31,
      2006. During the six months ended August 31, 2005, we issued 24,693 shares
      of
      Series B Convertible Preferred Stock for consideration of $123,463.




Warrants




As
      of
      February 29, 2004, the aggregate number of outstanding options, warrants, and
      common share equivalents was significantly in excess of the authorized but
      unissued number of shares of our common stock. Management intends to seek
      shareholder approval of an increase in the Company's authorized shares
      sufficient to satisfy all existing commitments and create available shares
      for
      potential future investments. However, such approval has not been granted.
      Hence, the management determined that the value of the warrants is required
      to
      be classified as a liability under the provisions of EITF 00-19 - Accounting
      for
      Derivative Financial Instruments Indexed To and Potentially Settled In a
      Company's Own Stock. As of February 28, 2005, we reclassified the value of
      the
      warrants to a derivative liability. There is no longer a derivative liability
      at
      August 31, 2006.




12




The
      warrants granted during bankruptcy settlement were valued using the following
      black schools assumptions:




Risk
      free
      interest rate - 5.25%




Dividend
      Yield - 0.0%




Volatility
      - 50%




Expected
      term - 5 years




Activity
      in issued and outstanding warrants was as follows:


Number
                  of
                Shares
              
              Exercise
                PricesOutstanding,
                  February 29, 2005
              
              
              574,684
              
              $
              6.76-858.52Cancelled
              
              
              (574,684
              )
              $
              6.76-858.52Issued
              
              
              5,022,948
              
              $
              2.00-3.00Exercised
              
              
              -
              
              $
              -Outstanding
                  February 28, 2006
              
              
              5,022,948
              
              $
              2.00-3.00Issued
              
              
              -
              
              
              -Exercised
              
              
              -
              
              
              -Outstanding
                  August 31, 2006
              
              
              5,022,948
              
              $
              2.00-3.00There
                  was no aggregate intrinsic value of the warrants as of August 31,
                  2006 was




**9)**  **Significant
      Customers**




In
      the six months ended August 31, 2006, we sold AuraGen related products to one
      significant customer for a total of approximately $98,000, or 12% of net
      revenues.  This customer is not related to or affiliated with
      us.




At
      August 31, 2006, we held accounts receivable from three significant customers
      for a total of approximately $165,000, or 50% of net receivables.  None of
      these customers are related to or affiliated with us.




In
      the
      six months ended August 31, 2005, we had no customers that exceeded 10% of
      our
      sales.




**10)**  **Litigation**





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




As
      previously reported in our fiscal 2000 report on Form 10-K, we settled
      shareholder litigation in the referenced matter in January 1999. On November
      20,
      1999, the parties entered into an Amended Stipulation of Settlement, requiring
      that we make payment of $2,260,000 (plus interest) in thirty-six equal monthly
      installments of $70,350. On October 22, 2002, after we had failed to make
      certain monthly payments, Plaintiffs applied for and obtained a judgment against
      us for $935,350, representing the balance due. We have subsequently made only
      two monthly payments of $70,350 each, reducing the amount owed to $794,650
      (plus
      interest) as of February 28, 2005. Subsequent to year end, the bankruptcy court
      (see footnote 18) approved the settlement of this claim in the amount of
      approximately $820,000, to be satisfied by the issuance of approximately 465,000
      shares of common stock in the recapitalized company. Plaintiffs appealed the
      settlement claiming they are a secured creditor entitled to full payment in
      cash
      over a period of five years. The appellate court upheld the settlement
      provisions, and Plaintiffs have appealed this decision. The appeal is
      pending.




13




**11)**  **Subsequent
      events**




*Capital
      Transactions*




In
      the
      year ended February 28, 2007, we issued 4,412,928 shares of common stock for
      net
      proceeds of $3,965,156.





In
      the
      nine months ended November 30, 2007, we issued 5,614,650 shares of common stock
      for net proceeds of $5,377,080. We also issued 183,532 shares of common stock
      upon conversion of $183,532 of secured notes payable.




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





**Forward
      Looking Statements**




This
      Report c ontains
      forward-looking statements within the meaning of the federal securities laws.
      Statements other than statements of historical fact included in this Report,
      including the statements under the heading “Management’s Discussion and Analysis
      of Financial Condition and Results of Operations,” regarding future events or
      prospects are forward-looking statements. The words “approximates,” “believes,”
“expects,” “anticipates,” “estimates,” “intends,” “plans” “would “should,”
“may,” or other similar expressions in this Report, as well as other statements
      regarding matters that are not historical fact, constitute forward-looking
      statements.. We caution investors that any forward-looking statements presented
      in this Report are based on the beliefs of, assumptions made by, and information
      currently available to, us. Such statements are based on assumptions and the
      actual outcome will be affected by known and unknown risks, trends,
      uncertainties and factors that are beyond our control or ability to predict.
      Although we believe that our assumptions are reasonable, they are not guarantees
      of future performance and some will inevitably prove to be incorrect. As a
      result, our actual future results may differ from our expectations, and those
      differences may be material. Accordingly, investors should use caution in
      relying on forward-looking statements to anticipate future results or
      trends.




14




Some
      of
      the risks and uncertainties that may cause our actual results, performance
      or
      achievements to differ materially from those expressed or implied by
      forward-looking statements include the following:





·
            Our
                ability to generate positive cash flow from
                operations;





·
            Our
                ability to obtain additional financing to fund our
                operations;





·
            Our
                business development and operating development;
                and





·
            Our
                expectations of growth in demand for our
                products.





For
      further information regarding these and other risks and uncertainties, we refer
      you to Part I, Item 1A of our Form 10-K for the fiscal year ended February
      28,
      2007.




We
      do not
      intend to update or revise any forward-looking statements, whether as a result
      of new information, future events or otherwise except to the extent required
      by
      law. You should interpret all subsequent written or oral forward-looking
      statements attributable to us or persons acting on our behalf as being expressly
      qualified by the cautionary statements in this Report. As a result, you should
      not place undue reliance on these forward-looking statements.




**Overview**




We
      design, assemble and sell the AuraGen ® ,
      our
      patented mobile power generator that uses the engine of a vehicle to generate
      power. The AuraGen ® delivers
      on-location, plug-in electricity for any end use, including industrial,
      commercial, recreational and military applications. We began commercializing
      the
      AuraGen ® in late
      1999. To date, AuraGen ® units
      have been sold to numerous industries, including recreational, utilities,
      telecommunications, emergency/rescue, public works, catering, oil and gas,
      transportation, government and the military.




We
      have
      not yet achieved a level AuraGen ® sales
      sufficient to generate positive cash flow. Accordingly, we have depended on
      repeated infusions of cash in order to maintain liquidity as we have sought
      to
      develop sales. During fiscal 2002 through fiscal 2004, we substantially reduced
      our internal staffing due to the slower-than-anticipated level of
      AuraGen ® sales.
      We also suspended substantially all research and development activities. We
      continued to downscale our operations in fiscal 2005.




Our
      current level of sales reflects our efforts to introduce a new product into
      the
      marketplace. Many purchases of the product are being made for evaluation
      purposes. We seek 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.




**Results
      of Operations**




**For
      the three and six month periods ended August 31, 2006:**





The
      Company had a net loss for the six months ended August 31, 2006 (the “Six Months
      FY2007”) of $2,459,686 compared to income of $13,182,560 for the six months
      ended August 31, 2005 (the “Six Months FY2006”). Net operating revenues and
      gross profit were $836,360 and $413,316, respectively, in the Six Months FY2007
      and $804,710 and $507,600, respectively, in Six Months FY2006.




The
      Company's net loss for the three months ended August 31, 2006 (the “Second
      Quarter FY2007”) was $1,377,724 compared to net income of $18,455,502 for the
      three months ended August 31, 2005 (the “Second Quarter FY2006”). Net operating
      revenues and gross profit were $591,898 and $400,010 respectively, in the Second
      Quarter FY2007 and $274,007 and $171,949 respectively, in Second Quarter FY2006.




15




Net
      revenues for the Six Months FY2007 of $836,360 represents an increase of $31,650
      (4%) from $804,710 in the Six Months FY2006. Net revenues for the Second Quarter
      FY2007 of $591,898 represents an increase of $317,891 (116%) from $274,007
      in
      the Second Quarter FY2006. The
      increase in revenues is a result of our beginning to rebuild our sales
      department and customer base after exiting bankruptcy.




Cost
      of
      goods increased to $423,044 for the Six Months FY2007 from $297,110 in the
      Six
      Months FY2006; a $125,934 (42%) increase. Cost of goods increased  to
      $191,888 in the Second Quarter FY2007 from $102,058 in the Second Quarter
      FY2006, a $89,830 (88%) increase. This
      is
      primarily a result of the increased sales volume.




Engineering,
      research and development expenses decreased by $200,122 (25%) to $586,684 in
      the
      Six Months FY2007 from $786,806 in the Six Months FY2006 and increased by
      $25,542 (9%) to $295,679 in the Second Quarter FY2007 from $270,137 in the
      Second Quarter FY2006. The Company reduced its research and development
      activities throughout fiscal 2004 and 2005 but expects these efforts will begin
      to increase in the coming periods.





Selling,
      general and administrative (“SG&A”) expenses increased  to
      $2,239,005 in the Six Months FY2007 from $2,207,871 in the Six Months FY2006;
      an
      increase of $31,134 (1%) and increased to $1,451,720 in the Second Quarter
      FY2007 from $1,138,962 in the Second Quarter FY2006; an increase of $312,758
      (27%). The
      increase is attributable to increased levels of employees, primarily in the
      sales area, as we begin to rebuild the Company.





For
      the
      three and six months FY2006, we recorded income of $19,955,887 and $16,154,430
      respectively, as a change in derivative liability for warrants that were
      exercisable, but for which there were not sufficient shares authorized. There
      was no comparable income in the current year period.




Net
      interest expense for the three and Six Months FY2007 decreased $368,590 to
      $33,435 from $402,025 and $658,134 to $61,516 from $719,650 respectively, in
      the
      Six Months FY2006 due to the lower levels of debt in the current year
      period.




**Critical
      Accounting Policies and Estimates**




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.




Revenue
      Recognition




Aura
      is
      required to make judgments based on historical experience and future
      expectations, as to the reliability of shipments made to its customers. These
      judgments are required to assess the propriety of the recognition of revenue
      based on Staff Accounting Bulletin ("SAB") No. 101, "Revenue Recognition,"
      and
      related guidance. 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.




Inventory
      Valuation and Classification




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.




16





Valuation
      of Long-Lived Assets




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
      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.




17





**Liquidity
      and Capital Resources**




The
      Company had cash of $4,260 compared to cash of $472,482, at August 31 and
      February 28, 2006, respectively. For the six months ended August 31, 2006,
      we
      reported a net loss of approximately $2.5 million, and for the year ended
      February 28, 2006 we reported income of approximately $6.9 million, on net
      revenues of approximately $.8 million and $1.8 million, respectively. The
      Company had working capital at August 31 and February 28, 2006 of approximately
      $.2 million and $2.6 million, respectively.




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, or if,
      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.





At
      August
      31, 2006, the Company had accounts receivable, net of allowance for doubtful
      accounts, of $331,447 compared to $87,808 at February 28, 2006.





We
      acquired property and equipment at a cost of $61,714 in the Six Months FY2006.
      There was no purchases in the Six Months FY2005. We have no material capital
      project that would require funding and we believe our current plant and
      equipment is sufficient to support our current level of sales.




No
      debt
      repayments were made in the Six Months FY2007 as compared to $62,274 in the
      Six
      Months FY2006.




Capital
      Transactions




During
      the six months ended August 31, 2006, we did not issue any shares of common
      stock. During the six months ended August 31, 2005, we issued 24,693 shares
      of
      Series B Convertible Preferred Stock for consideration of $123,463.





**ITEM
      3. Quantitative and Qualitative Disclosures About Market Risk**





We
      are
      exposed to various market risks, including changes in interest rates. Market
      risk is the potential loss arising from adverse changes in market rates and
      prices. We consider our exposure to market risks to be immaterial. Historically,
      we have not entered into derivative financial instrument transactions to manage
      or reduce market risk or for speculative purposes. Our long term debt
      obligations all bear interest at fixed rates and, therefore, have no exposure
      to
      interest rate fluctuations. Our risk related to foreign currency fluctuations
      is
      not material at this time, as any accounts we have in foreign denominations
      are
      not in themselves material.





As
      we
      anticipate needing to use the cash we hold within a short period, we have it
      invested it in money market accounts, and we do not expect that the amount
      of
      fluctuation in interest rates will expose us to any significant risk due to
      market fluctuation.




**ITEM
      4.    Controls and Procedures**




**Evaluation
      of Disclosure Controls and Procedures**





Disclosure
      controls and procedures are designed to provide reasonable assurance that
      information required to be disclosed by us in the reports that we file or
      submit, is recorded, processed, summarized and reported, within the time periods
      specified in the U.S. Securities and Exchange Commission’s rules and forms,
      and such information is accumulated and communicated to management as
      appropriate to allow timely decisions regarding required disclosures. Our Chief
      Executive Officer and Chief Financial Officer have evaluated our disclosure
      controls and procedures and have concluded, as of August 31, 2006, that they
      were not effective in view of our delinquent filings.




18





As
      of
      August 31, 2006, we were delinquent in filing all quarterly and annual SEC
      reports due since November 30, 2004. We did not have adequate financial
      resources to engage our outside auditors and ensure the timely filing of Form
      10-K for the fiscal year ended February 28, 2005. In June 2005 our financial
      condition required us to seek protection from creditors under Chapter 11 of
      the
      U.S. Bankruptcy Code. The commencement of the bankruptcy proceeding placed
      additional demands on our then existing accounting personnel, including the
      filing of monthly financial reports with the bankruptcy court and the SEC.
      Our
      limited financial and personnel resources did not allow us to fully address
      our
      reporting obligations under the Securities Exchange Act of 1934 until we emerged
      from bankruptcy on January 31, 2006. We continued to be hampered by other events
      which further delayed the filing of our delinquent SEC reports. Specifically,
      the integrity of our financial records was severely disrupted as a result of
      errors made by temporary file personnel in December 2005 in the course of moving
      our principal office from 2335 Alaska Avenue to our Utah Avenue location. This
      problem was compounded by a change in accounting personnel in February 2006.





In
      February 2006, when we successfully emerged from bankruptcy under a plan of
      reorganization, we retained a new Chief Financial Officer and other accounting
      personnel. In May 2006 we engaged new auditors to audit our financial statements
      for fiscal years from and after February 2005 and to review our interim
      quarterly financial statements for all subsequent quarters. We continue to
      work
      diligently towards the completion and filing of delinquent quarterly and annual
      reports. However, delays are unavoidable due to the impact of the factors
      discussed above and the number of financial reporting periods involved. We
      expect that once we become current in our SEC filings our disclosure controls
      and procedures will be adequate to ensure timely disclosure under SEC rules
      and
      regulations.




**Changes
      in Internal Control over Financial Reporting**





There
      have been no changes in our internal control over financial reporting during
      our
      fiscal quarter ended August 31, 2006, that have materially affected or are
      reasonably likely to materially affect our internal control over financial
      reporting.




**PART
      II - OTHER INFORMATION**




**ITEM
      2.  Unregistered Sales of Equity Securities and Use of Proceeds**





During
      the three months ended August 31, 2006, we did not issue any shares of
      common stock .




All
      of
      the 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 without public
      solicitation or advertising.




**ITEM
      6.  Exhibits**




31.1
            Certifications
                pursuant to Rule 13a-14 under the Securities Exchange Act of
                1934.


31.2
            Certifications
                pursuant to Rule 13a-14 under the Securities Exchange Act of
                1934.


32.1
            Certification
                of CEO and CFO Pursuant to 18 U.S.C. § 1350, as Adopted Pursuant to § 906
                of theSarbanes-Oxley
                Act of 2002.





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**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.**Date: March
                ___, 2008
            By:
            /s/ Melvin
                GagermanMelvin
                Gagerman
              Chief
                Financial Officer
              (Principal
                Financial and Accounting
              Officer
                and Duly Authorized Officer)





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