<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, 1995           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 
  of incorporation or organization)             Identification No.)

                                2335 ALASKA AVE.
                          EL SEGUNDO, CALIFORNIA 90245
                    (Address of principal executive offices)

Registrant's telephone number, including area code:    (310) 643-5300

Former name, former address and former fiscal year, if changed since last
report: None


          Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days:  YES  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 12 , 1996
               -----                      ---------------------------------

          Common Stock, par value                  59,978,052 Shares
               $.005 per share
<PAGE>
 
                      AURA SYSTEMS, INC. AND SUBSIDIARIES

                                     INDEX

                                                                    Page No.

PART I.  FINANCIAL INFORMATION
 
     ITEM 1. Financial Statements
 
             Statement Regarding Financial Information                 1
 
             Condensed Consolidated Balance Sheets
             as of November 30, 1995 and  February 28, 1995            2
 
             Condensed Consolidated Statement of Operations
             for the Three Months and Nine Months Ended
             November 30, 1995 and 1994                                3
 
             Condensed Consolidated Statements of Cash Flows
             for the Nine Months Ended November 30, 1995 and 1994      4
 
             Notes to Condensed Consolidated Financial
             Statements                                                5
 
     ITEM 2. Management's Discussion and Analysis
             of Financial Condition and Results of Operations         10 
 
PART II.  OTHER INFORMATION

     ITEM 1. Legal Proceedings                                        12

     ITEM 6. Exhibits and Reports on Form 8-K                         12


SIGNATURES                                                            13
<PAGE>
 
                      AURA SYSTEMS, INC. AND SUBSIDIARIES

                        QUARTER ENDED NOVEMBER 30, 1995

                         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, 1995 as filed with the SEC (file number 0-17249).

                                       1
<PAGE>
 
                      AURA SYSTEMS, INC. AND SUBSIDIARIES
                     CONDENSED CONSOLIDATED BALANCE SHEETS
                                  (UNAUDITED)

<TABLE>
<CAPTION>
 
 
                                             NOVEMBER 30,    FEBRUARY 28,
ASSETS                                           1995            1995
------                                       ------------    ------------
<S>                                          <C>             <C> 
CURRENT ASSETS
 Cash and equivalents                        $ 19,657,820    $  3,827,500
 Trade receivables and other                   47,303,067      28,333,898
 Insurance proceeds in escrow for
   class action settlement                              -       1,720,000
 Inventories and Contracts in progress         25,706,250      13,039,030
 Other current assets                           5,168,123       1,960,279
                                             ------------    ------------
 
    TOTAL CURRENT ASSETS                       97,835,260      48,880,707
                                             ------------    ------------
 
 PROPERTY AND EQUIPMENT, AT COST               27,016,082      22,471,598
 Less accumulated depreciation
   and amortization                            (6,767,578)     (5,151,073)
                                             ------------    ------------
 
 NET PROPERTY AND EQUIPMENT                    20,248,504      17,320,525
 
 Patents - net                                  2,109,183       2,039,881
 Investments and Joint Ventures                 5,855,924         645,626
 Deferred charges                               2,498,178       3,123,552
 Other assets                                   1,451,628       1,456,712
                                             ------------    ------------
                                             $129,998,677    $ 73,467,003
                                             ============    ============
 
LIABILITIES AND STOCKHOLDER'S EQUITY
------------------------------------
 
CURRENT LIABILITIES:
 Current installments of notes payable       $  1,925,825    $    545,006
 Class action settlement                                -       5,720,000
 Accounts payable and accrued expenses          9,464,198       8,819,520
                                             ------------    ------------
 
    TOTAL CURRENT LIABILITIES                  11,390,023      15,084,526
 
Convertible Notes                               3,787,900       3,662,900
Notes payable and other liabilities               811,116         466,158
 
STOCKHOLDERS' EQUITY
 Common stock, issued and out-
  standing  59,896,906 and 43,073,634
  shares, respectively                        157,605,776      95,826,986
 Accumulated deficit                          (43,596,138)    (41,573,567)
                                             ------------    ------------
 
Net stockholders' equity                      114,009,638      54,253,419
                                             ------------    ------------
                                             $129,998,677    $ 73,467,003
                                             ============    ============ 
 
</TABLE>
     See accompanying notes to condensed consolidated financial statements.

                                       2
                                                           
<PAGE>
 
                      AURA SYSTEMS, INC. AND SUBSIDIARIES
                CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
            THREE AND NINE MONTHS ENDED NOVEMBER 30, 1995 AND 1994
                                  (UNAUDITED)


                                      
<TABLE>
<CAPTION>
                                           THREE MONTHS                  NINE MONTHS
                                           ------------                  -----------
                                        1995           1994          1995          1994
                                        ----           ----          ----          ----

<S>                                 <C>            <C>            <C>            <C>
GROSS REVENUES                      $28,117,313    $18,372,429    $55,716,103    $32,214,127

 Less returns and allowances           (118,444)             -       (502,861)             -
                                    -----------    -----------    -----------    -----------

NET REVENUES                         27,998,869     18,372,429     55,213,242     32,214,127

 Cost of revenues                    22,138,410     11,399,003     43,890,839     20,715,877
                                    -----------    -----------    -----------    -----------
GROSS PROFIT                          5,860,459      6,973,426     11,322,403     11,498,250

EXPENSES

 General and administrative           5,321,563      5,465,567     11,472,459     10,328,525
 Research and development               932,914        593,780      1,921,718      1,366,560
                                    -----------    -----------    -----------    -----------
 Total costs and expenses             6,254,477      6,059,347     13,394,177     11,695,085
                                    -----------    -----------    -----------    -----------

INCOME (LOSS) FROM OPERATIONS          (394,018)       914,079     (2,071,774)      (196,835)
OTHER (INCOME) AND EXPENSE
 Interest income                       (262,273)        (1,902)      (446,614)       (80,458)
 Interest expense                       155,876         88,758        397,411        273,027
                                    -----------    -----------    -----------    -----------

NET INCOME (LOSS)                   $  (287,621)   $   827,223    $(2,022,571)   $  (389,404)
                                    ===========    ===========    ===========    ===========

NET INCOME (LOSS) PER SHARE         $     (.005)   $       .02    $      (.04)   $      (.01)
                                    ===========    ===========    ===========    ===========

WEIGHTED AVERAGE SHARES USED
TO COMPUTE NET INCOME (LOSS)
 PER SHARE                           58,043,251     37,885,043     51,374,076     35,819,115
                                    ===========    ===========    ===========    ===========

</TABLE>



     See accompanying notes to condensed consolidated financial statements.

                                       3
<PAGE>
 
                      AURA SYSTEMS, INC. AND SUBSIDIARIES
                CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
             FOR THE NINE MONTHS ENDED NOVEMBER 30, 1995 AND 1994
                                  (UNAUDITED)
<TABLE>
<CAPTION>



                                                           1995            1994
                                                       ------------    ------------
<S>                                                    <C>             <C>
NET CASH (USED) IN OPERATIONS                          $(31,351,791)   $(24,407,254)
                                                       ------------    ------------
CASH FLOWS FROM INVESTING ACTIVITIES:

 Purchase of property and equipment                      (4,366,141)     (2,438,267)
 Equity investments                                      (3,020,000)              -
                                                       ------------    ------------

NET CASH PROVIDED BY (USED) IN INVESTING
 ACTIVITIES                                              (7,386,141)     (2,438,267)
                                                       -------------   ------------
CASH FLOWS FROM FINANCING ACTIVITIES:

 Cash released from escrow                                        -       5,000,000
 Net borrowings on line of credit                         1,674,967               -
 Proceeds from issuance of convertible debt               1,174,830               -
 Proceeds from long term debt                               338,322               -
 Repayment of debt                                         (492,855)       (282,789)
 Proceeds from warrant exercises                            100,000         225,000
 Proceeds from exercise of stock options                    647,860         644,332
 Proceeds from issuance of common stock                  51,200,298      21,271,985
 Legal and other financing fees paid                        (75,170)       (490,639)
                                                       ------------    ------------

 NET CASH PROVIDED BY FINANCING ACTIVITIES               54,568,252      26,367,889
                                                       ------------    ------------

NET INCREASE (DECREASE) IN CASH                          15,830,320        (477,632)

Cash and cash equivalents at beginning of year            3,827,500       4,560,312
                                                       ------------    ------------

CASH AND CASH EQUIVALENTS AT END OF PERIOD             $ 19,657,820    $  4,082,680
                                                       ============    ============

Supplemental disclosures of cash flow information
   Cash paid during the period for:
     Interest                                          $    325,349    $    195,425
     Income tax                                               6,400           7,383
                                                       ============    ============
</TABLE>

Supplemental disclosure of noncash investing and financing activities:

In the nine months ended November 30, 1995, the Company entered into financing
arrangements whereby it acquired equipment in exchange for three notes payable
in the amount of $178,343. In the nine months ended November 30, 1995 the
Company issued 49,046 shares of  common stock to its 401-K plan. The Company
also issued 1,032,314 shares at market in settlement of a class action liability
and other liabilities. Additionally, the Company issued 315,000 shares of common
stock for the acquisition of assets. In the nine months ended November 30, 1995,
260,960 shares of common stock were issued for the conversion of $1,125,000 of
9% convertible debt and the payment of $33,094 in associated interest.

In June 1994, the Company entered into a financing arrangement whereby it
acquired equipment in exchange for a note  payable in the amount of $88,300. In
the nine months ended November 30, 1994 the Company issued 282,863 shares of
common stock for $950,000 of 7% Convertible Secured Notes that holders
voluntarily converted.

In the nine months ended November 30, 1994, the Company issued 364,468 shares of
common stock in connection with the settlement of a previously recorded
liability, a consulting arrangement, and the acquisition of patents.  The
Company also issued 1,497,700 shares of common stock at market value in
consideration of liabilities.

In the nine months ended November 30, 1994, the Company acquired Electrotec
Productions, Inc. for the payment of $89,000 in cash and a $350,000 note
payable.

     See accompanying notes to condensed consolidated financial statements.

                                       4
<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 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 six months ended August 31, 1994.

2)   CONVERTIBLE NOTES

     In Fiscal 1993, the Company issued its 7% Secured Convertible Debentures
due 2002 in the total amount of $5,500,000.  The notes are secured by a first
lien on the Company's headquarters facility and are convertible at the holder's
option into Aura's common stock at an average conversion price of $3.38 per
share.  The loan agreement also provides for mandatory conversion into common
stock in the event the market price of the common stock exceeds $10.00 per share
for ten consecutive trading days.

     The balance outstanding at November 30, 1995 of $3,662,900 reflects
voluntary conversions of $1,837,100 by holders who have elected to receive
550,281 shares of common stock in exchange for their Notes.

     In the second quarter of Fiscal 1996, the Company issued $1,250,000 of 9%
convertible notes.  As of November 30, 1995, $1,125,000 of principle plus
$33,094 in interest has been converted into 260,960 shares of common stock.

3)   AURA CERAMICS, INC.

     In June 1993, the Company formed Aura Ceramics, Inc. to acquire the assets
of the Ceramics Center of Alliant Techsystems solely for the assumption of
liability for environmental cleanup with no current cash payments required.  The
cost of environmental cleanup necessary has been estimated to be $750,000 and
would be payable upon vacancy of the leased premises.  The estimated cleanup
cost was determined after consultation with an engineering firm that has dealt
with environmental cleanups at these types of facilities.  The lease has a term
of 5 years, with options for renewal for two additional 5 year periods.  It is
anticipated that the Company will occupy the premises for 10 years and as such
the Company has recorded a value of $300,000 for the assets involved and a
corresponding liability representing the amortized present value, included in
Notes payable and other liabilities, after application of a 9.25% discount rate,
of the future payment which may be required upon vacancy.  Aura Ceramics, Inc.
began operations shortly after formation.

4)   JOINT VENTURES AND OTHER AGREEMENTS

(a)  Daewoo Agreement
     ---------------- 

     In August 1992, the Company entered into a definitive joint development and
licensing agreement with Daewoo Electronics Co., Ltd. to exploit certain of the
Company's AMA technology as it applies to the development of a high resolution
projection system for use in television sets.  The agreement as modified
provides for the payment of a $1,500,000 licensing fee and approximately
$2,000,000 of reimbursement to Aura for development costs.  Further, Aura is to
receive royalties on a scheduled basis per television set manufactured upon the
commencement of commercial production which is estimated to begin in calendar
1996.  The entire license fee has been received by the Company and recognized as
income as all technical milestones delineated in the agreement have been
achieved by the Company.

                                       5
<PAGE>
 
     In December 1993, the Company entered into a long term supply agreement
with Daewoo Electronics, Co., Ltd.  Pursuant to this agreement, the Company will
produce speakers solely for Daewoo (or a company designated by Daewoo) using the
Company's patented technology in accordance with specifications supplied by
Daewoo, and Daewoo will have the exclusive right in Korea for the sale of such
speakers and the non-exclusive right in the Asian Zone (except for the ASEAN
territories).  Under the agreement, Daewoo will use its best efforts for
marketing to other users in the Korean market.  The Company has granted Daewoo
the exclusive selling right in Korea for the current year.

(b)  Malaysian Joint Venture
     ----------------------- 

     On September 23, 1993, the Company entered into an agreement with
Burlington Technopole SDN. BHD., a Malaysian corporation ("Burlington"), for the
formation of a joint venture to manufacture and sell speakers using Aura's
proprietary technology. The joint venture, which has been named Audiora Sound
SDN. BHD and was established under Malaysian law to operate in Malaysia, has the
exclusive right to sell speakers using Aura technology in the ASEAN countries
and the non-exclusive right to sell such speakers in the United States. Under
the terms of the agreement, the Company owns 49% of the joint venture and
Burlington owns 51%. The capitalization of the joint venture involves a total of
$500,000 ($250,000 from each party) in initial investments by the Company and
Burlington. In addition Burlington intends to borrow $8 million. The Company has
granted all licenses as necessary to enable the joint venture to manufacture the
speakers, and in return may receive up to $1 million in license fee, of which
$500,000 was collected in January 1994 and included in revenues. There is no
further obligation on the Company's part with regards to the license fee
recorded as income. The Company further agreed to purchase a minimum of 3
million speakers per year (at an estimated cost of $5 million to $7 million) for
the five years following the start of production of the speakers at prices equal
to the wholesale market prices to the end users of the speakers. Payment for
these speakers will be made with a revolving letter of credit based on 30 day
revolving terms for each monthly purchase of speakers (based on the previous
month's shipment). The production facility has been completed and production
runs began in the second quarter of Fiscal 1996. At November 30, 1995, the
Company's investment is $371,392, representing the initial investment plus other
costs.

(c)  Intergroup Joint Venture
     ------------------------ 

     In February 1994, the Company entered into an agreement with Intergroup
Corporation ("Intergroup") for the formation of a joint venture, to manufacture
and sell platform motion simulators using Aura's proprietary technology.  The
joint venture known as Magforce is 50% owned by Aura and 50% owned by
Intergroup.  Under the terms of the agreement, Aura granted to Intergroup an
exclusive, worldwide right to Aura's technology regarding platform motion
simulators in consideration of a license fee of $740,000, all of which has been
received by the Company.  The joint venture will be capitalized by a
contribution of $10,000 in cash by each of the parties, the contribution to the
joint venture of Intergroup's exclusive, worldwide license regarding the
platform motion simulator, and the contribution by Aura of a platform motion
simulator.

     The Company also entered into a separate agreement with Intergroup for the
sale of an additional license for $1,000,000, related to the Companys' actuator
technology as used in vibration isolation.  $500,000 of this license fee has
been received by the Company.  (See also Note 7).

(d)  Industrial Equipment Agreement
     ------------------------------ 

     In May 1994, the Company entered into an agreement with an unrelated group
of investors to exploit machine tool, robotic and industrial hand tool
applications of the Company's electromagnetic technology. Concurrently, the
Company granted these investors a license for the exclusive rights under Aura's
patents and proprietary technology for use in such applications. Consideration
for the license was a nonrefundable $1,000,000 fee, all of which has been
received by the Company. The Company has no further obligation with respect to
this license. In exchange for providing a working prototype of an initial
product, the Company will also have a 50% participation in future operating
results of an entity established to manufacture and market products.

                                       6
<PAGE>
 
(e)  K & K Enterprises Joint Venture  (Speakers)
     ------------------------------------------- 

     On July 19, 1995, the Company entered into an agreement with K&K
Enterprises for the formation of a joint venture to manufacture and sell
speakers using Aura's proprietary technology.  K&K has obtained a license to the
Company's technology and will grant an exclusive sub-license to the joint
venture.  The joint venture has the exclusive right to build and sell speakers
using Aura's technology in the republic of Taiwan, Indian Subcontinent, Middle
East and the European market.  The Company owns 49% of the joint venture and K&K
owns 51%.  As consideration for the license to K&K Enterprises, the Company will
receive a $1,000,000 fee.  In addition, the joint venture could, at Aura's
discretion, build speakers for Aura's needs in other parts of the world.  The
Company has committed to order twenty million speakers over a seven year period
as the Company shall determine in its sole discretion.   The speakers are needed
to meet the Company's demand for multimedia applications.

     K&K  Enterprises obtained part of their rights under this joint venture in
a novation executed by Zylux Acoustic, a former joint venture partner with the
Company.


(f)  K&K Enterprises Joint Venture (Bass Shakers)
     -------------------------------------------- 

     On July 12, 1995  the Company entered into an agreement with K&K
Enterprises,  for the formation of a joint venture to manufacture Aura's bass
shaker, an audio enhancement sound system incorporating Aura's proprietary
electromagnetic transducer technology.  The joint venture, established to
operate and manufacture within India, is owned 49% by the Company, and 51% by
K&K Enterprises. In connection with the agreement, Aura granted to K&K
Enterprises, an exclusive license to use Aura's patented and proprietary
technology. As consideration for the license to K&K Enterprises, the Company
will receive license fee payments quarterly over the life of the patent.
Scheduled payments for the first five years total approximately $2.9 million.

     The Company has agreed to purchase two hundred eighty thousand bass shakers
in the first year increasing to four hundred forty  thousand  units and five
hundred sixty thousand  units in years two and three.  Thereafter, manufacturing
commitments are now set at one hundred fifty thousand units of bass shakers per
quarter.  Pursuant to the agreement: (i) Aura will contribute to the new joint
venture a working prototype of an exemplary product of the type to be
manufactured; (ii) K&K will contribute a sublicense of the rights and
obligations under the exclusive license; (iii) Aura and K&K will initially
contribute $400,000 pro rata as paid in capital for the share certificates to be
issued and; (iv) Aura will provide training to K&K personnel with reimbursement
to Aura at cost.

     K&K  Enterprises obtained part of their rights under this joint venture in
a novation executed by Twilight International, a former joint venture partner
with the Company.

5)   AURA MEDICAL SYSTEMS, INC.

     As a result of a series of stock purchase transactions entered into as of
and subsequent to November 30, 1991 the Company reduced its ownership in AMS to
49.7% of total shares outstanding by February 28, 1993.

     Gross proceeds from the stock sale transactions aggregated $4,000,000 of
which $3,000,000 was paid in cash prior to February 28, 1993 with the remaining
$1,000,000 paid in Fiscal 1995.  Included in this $4,000,000 was the sale to a
then director of the Company for $1,000,000.  The $4,000,000 gross amount, less
costs of $560,000 for shares purchased from other AMS shareholders as part of
this transaction, have been included in proceeds from sale of stock in AMS and
deferred on previously presented balance sheets.  The agreements under which the
sale occurred contained provisions whereby the shares purchased by these
individuals are exchangeable for the Company's shares during the period from
November 30, 1993 through November 30, 1998, subject to certain "acceleration
events" as defined in the stock purchase agreements.

     In November 1994, the individuals exercised their right to exchange their
stock in AMS for stock in the Company.  AMS is consolidated in the Company's
financial statements as of

                                       7
<PAGE>
 
February 28, 1995 since the exchange resulted in the Company owning a majority
of the outstanding shares of AMS as of February 28, 1995. The Company has
elected not to restate the consolidated financial statements for the prior
years, due to the immateriality of the amounts.

6)   CAPITAL

     In the nine months ended November 30, 1995, options to purchase 203,000
shares of common stock were exercised resulting in proceeds of $647,860.
Additionally, proceeds of $100,000 were realized from the exercise of warrants
to purchase 35,165 shares of common stock.

     During the nine months ended November 30, 1995, the Company issued
15,051,280 shares of common stock for which it received proceeds of $51,200,298.

     During the nine months ended November 30, 1994, options to purchase 169,000
shares of common stock were exercised resulting in proceeds of $644,332.  An
additional $225,000 in proceeds was realized from the exercise of warrants to
purchase 45,000 shares of common stock.

     In the nine months ended November 30, 1994, the Company issued 4,184,554
shares of common stock for which it received $21,271,985.

7)   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.

      Intergroup Arbitration
      ---------------------- 

     On March 14, 1995, the Intergroup Corp. filed against the Company a Demand
for Arbitration (Case No. 72 133 00276 95) before the American Arbitration
Association (AAA) in Los Angeles, California, under its commercial arbitration
rules.  The Company filed its general denial, affirmative defenses and
counterclaim to the Demand on March 27, 1995.  The claim Intergroup, and the
defenses and counterclaims of the Company were disclosed in the Company's 10-K
filed May 30, 1995.

     The Company does not believe that the outcome of the arbitration will have
a material adverse effect on the financial condition of the Company.  The AAA
has selected the arbitration panel which will decide this dispute.  A
preliminary hearing has been held to assess the scope of the issues to be
decided and the extent of the discovery to be conducted.  Discovery is now
opened and continuing.  The Company intends to vigorously defend this action and
pursue its counterclaims.

     Shareholder Litigation
     ---------------------- 

     On May 17, 1995 two lawsuits naming Aura, certain of its directors and
executive officers and a former executive officer as defendants, were filed in
the United States District Court for the Central District of California (Case
Nos. CV-95-3295 and CV-95-3296).  Both complaints (the "Complaints") purport to
be 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
"Class Period").  The Complaints allege 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.  Specifically, the
Complaints allege that (i) in its periodic reports filed with the SEC during the
Class Period and/or certain public announcements made during that period, the
Company increased its reported revenues by overstating product sales and certain
licensing fees and (ii) the Company misstated the sophistication and quality of,
and commitments for the Company's "Interactor Vest."  The Complaints request
damages in an unspecified amount under certain federal securities laws.  The
Company believes that this action is frivolous and that it has meritorious
defenses to all these claims.  The Company filed motions to dismiss the
complaints on August 4, 1995.  The plaintiffs did not oppose the motions to
dismiss but instead filed a consolidated amended complaint on September 1, 1995.
On October 2, 1995, the Company filed its motion to dismiss

                                       8
<PAGE>
 
the consolidated amended complaint. On November 20, 1995, the court dismissed
the consolidated amended complaint without prejudice and granted plaintiffs 10
days leave to amend. Plaintiffs filed their second amended complaint on
December 5, 1995. The Company filed motion to dismiss the second amended
complaint on December 22, 1995. A hearing on defendant's motion is scheduled for
January 16, 1996.

     Other Litigation
     ---------------- 

     The Company is also engaged in other legal actions arising in the ordinary
course of business. In the opinion of management based in part upon the advice
of counsel, the ultimate resolution of these matters will not have a material
adverse effect. Therefore, no provision for these matters has been made in the
Company's consolidated financial statements.

                                       9
<PAGE>
 
                     MANAGEMENT'S DISCUSSION AND ANALYSIS
               OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

     RESULTS OF OPERATIONS

     For the three months ended November 30, 1995, the Company lost $287,621 on
revenues of $28,117,313 compared to income of $827,223 on revenues of
$18,372,429 for the comparable period of Fiscal 1995. For the nine months ended
November 30, 1995, the Company lost $2,022,571 on revenues of $55,716,103,
compared to a loss of $389,404 on revenues of $32,214,127 in the prior year nine
months. Contributing to the loss in the three and nine months was a reduction in
license fee revenue of $1/2 million and $2.5 million, respectively, and an
increase of approximately $460,000 and $1,760,000 in depreciation and
amortization.

     Revenue for the three and nine month periods ended November 30, 1995
increased by $9,744,844 and  $23,501,976 respectively, from the corresponding
periods in the prior year.  The increased revenues resulted primarily from sales
from the Company's new subsidiaries.

     Sales of computer related products to five unrelated parties in the nine
months ended November 30, 1995, totaled $27,164,554  or 48.8% of revenues
compared to $4,969,345  or 15.4% of revenues to a single unrelated customer in
the comparable prior year period.  This increase is primarily the result of
sales of the Company's Newcom subsidiary.

     There were no license fee revenues in the three and nine months periods
ended November 30, 1995.  License fee revenues for the three and nine months
ended November 30, 1994 totaled $500,000 and $2,500,000, or 2.7% and  7.8% of
revenues, respectively.  Since there is no further obligation on the Company's
part with respect to these license fees, they have been recorded as revenue in
the three and nine month periods.  License agreements have a pronounced effect
on operating results because associated direct costs are insignificant.  At the
same time, the nature of transactions underlying these revenues means that such
revenues are likely to be erratic and difficult to predict.  However, the
Company believes that revenues from licensing of its technology may increase as
more applications of the Company's technology are licensed to third parties.

     Cost of revenues for the three and nine months ended November 30, 1995
increased by $10,739,407 and $23,174,962 in comparison with the corresponding
periods in the prior year as a result of the increase in purchased parts
associated with the increase in sales of the Company's products.

     Gross margins for the periods ended November 30, 1995 were negatively 
impacted by the increase in depreciation and amortization which is primarily due
to the amortization of deferred charges. These charges are being amortized over 
a two year period. The prior years gross margin was favorably impacted by the 
inclusion of license fees which have little or no associated direct costs.

     Research and development costs for the three and nine months ended November
30, 1995 increased by $339,134 and $555,158 as the Company increased development
of new applications for its patented technologies.

     General and administrative costs for the three and nine month periods
decreased by $144,004 and increased by $1,143,934 respectively due principally
to the addition of the Company's two new subsidiaries Electrotec Productions,
Inc. and Newcom Inc.

     Depreciation and amortization for the three and nine months ended November
30, 1995 totaled $1,273,280 and $3,192,599 compared to $815,312 and $1,432,599
in the prior year periods.

     The Company had net interest income of $106,397 and  $49,203 for the three
and nine months ended November 30, 1995, compared with net interest expense of
$86,856 and $192,569 for the prior year periods due partially to the voluntary
redemption of a portion of the Company's Secured 7% Convertible Notes and
partially to the increased amount of cash available to be invested in the
current year periods.

                                      10
<PAGE>
 
     LIQUIDITY AND CAPITAL RESOURCES

     In the nine month period, cash increased from $3,827,500 at February 28,
1995 to $19,657,820 at November 30, 1995.  Inventories increased by $12,667,220
as the Company built inventory levels to an amount necessary to support sales.

     Accounts receivable increased by $8,604,277 at November 30, 1995 from the
quarter ended August 31, 1995 on sales of $28.1 million while increasing
$18,969,169 on sales of $55.7 million from the prior fiscal year end level.

     Cash flows used in operations increased by $6,944,537 compared to the prior
year nine months.  Working capital increased to $86,445,237 from $33,796,181
over the fiscal year end level, with the current ratio improving to 8.59:1 from
3.24:1.

     In the nine months ended November 30, 1995, financing activities
contributed $644,332 from the exercise of options to purchase 169,000 shares of
common stock, $100,000 from the exercise of warrants to purchase 35,165 shares
of common stock, and $51,200,298 from the sale of 15,051,280  shares of common
stock.

     In the nine months ended November 30, 1995, 1,032,314 shares of common
stock were issued for the settlement of previously recorded liabilities, and
315,000 shares of common stock were issued for the acquisition of assets.

     In the nine months ended November 30, 1994, financing activities
contributed $869,322 from the exercise of options  and warrants to purchase
214,000 shares of stock and $21,271,985  from the sale of 4,184,554  shares of
common stock.

   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, principally private and bank indebtedness and equity financing.  No
assurances can be provided that these funding sources will be available in the
future.  The Company expects that, with the expansion of production and sales of
its interactive products, speaker products and computer related products, the
Company's cash flow and results of operations will be favorably impacted in the
future.

                                      11
<PAGE>
 
PART II - OTHER INFORMATION


ITEM 1  Legal Proceedings

        For information regarding pending legal proceedings, see Note 8 to the
        Company's Condensed Consolidated Financial Statements appearing
        elsewhere herein.

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

       a)  Exhibits:

       See Exhibit Index

       b)   Reports On Form 8-K:

       None

                                      12
 
<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 15, 1996                  By:  /s/ Steven C. Veen
     -------------------------                  ----------------------
                                                    STEVEN C. VEEN
                                                Senior Vice President
                                               Chief Financial Officer
                                 (Principal Financial and Accounting Officer)

                                      13
<PAGE>
 
                               INDEX TO EXHIBITS
 
                           
 Exhibit                                                    Sequential 
  Number                                                      Page No.
 
  EX-27                    Financial Data Schedule

                                      14