**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  August 31, 2003

Commission File Number  **000-17249**

**AURA    SYSTEMS, INC.**

(Exact name of Registrant  as specified in its charter)

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

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

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

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

Indicate by check mark whether    the registrant (1) has filed all reports required to be filed by Section 13    or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months    (or for such shorter period that the registrant was required to file such    reports), and (2) has been subject to such filing requirements for the past    90 days: YES 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 September 30, 2003 |
|-------------------------------------------------------|--------------------------------------------|
| **Common Stock,          par value $0.005 per share** | **430,923,150          Shares**            |

**AURA SYSTEMS, INC.  AND SUBSIDIARIES********INDEX**
 Page        No.PART I. FINANCIAL INFORMATIONITEM      1. Financial Statements  Statement      Regarding Financial Information
2

 
 Condensed      Consolidated Balance Sheets as of August 31, 2003(Unaudited) and February 28, 2003
3

 
 Condensed      Consolidated Statements of Operations for the Three and Six Months Ended      August 31, 2003 (Unaudited) and 2002 (Unaudited)
4

 
 Condensed      Consolidated Statements of Cash Flows for the Six Months Ended August 31,      2003 (Unaudited) and 2002 (Unaudited)
5

 
 Notes      to Condensed Consolidated Financial Statements (Unaudited)
6
ITEM      2. Management's Discussion and Analysis of Financial Condition      and Results of Operations
10
ITEM      4. Controls and Procedures
16

**PART II. OTHER INFORMATION**
ITEM      1. Legal Proceedings
17
ITEM      2. Changes in Securities
18
ITEM      6. Exhibits and Reports on Form 8-K
19

SIGNATURES AND CERTIFICATIONS

20

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Back to IndexAURA    SYSTEMS, INC. AND SUBSIDIARIES QUARTER    ENDED AUGUST 31, 2003PART I. FINANCIAL    INFORMATION
ITEM    1. FINANCIAL STATEMENTS

The    consolidated financial statements included herein have been prepared by AuraSystems,    Inc. (the "Company"), without audit, pursuant to the rules andregulations    of the Securities and Exchange Commission (the "SEC"). Ascontemplated by    the SEC under Rule 10-01 of Regulation S-X, theaccompanying consolidated    financial statements and footnotes have been condensed and therefore do not    contain all disclosures required by accounting principles generally accepted    in the United States of America. However, the Company believes that the disclosures are adequate    to make the information presented not misleading. These consolidated financial statements should be read in conjunction    with the financial statements and notes thereto included in the Company's    Form 10-K for the year ended February 28, 2003 as filed with the SEC (file    number 000-17249).

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**AURA  SYSTEMS, INC. AND SUBSIDIARIES****CONDENSED CONSOLIDATED BALANCE  SHEETS**

**Assets**************

**August 31.            2003**

**(Unaudited)**

**February 28,**

**2003**

**Current assets:**
Cash and cash equivalents
$ 95,637          

$ 163,693
Receivables, net
281,672

410,717
Inventories, net
1,997,878

1,414,500

Notes receivable

218,824

210,272

Other current assets

645,913

166,589

**Total          current assets**

3,239,924

2,365,771

Property and equipment, at cost

13,839,349

13,839,351

Less accumulated depreciation          and amortization

(          6,734,591)

(6,495,840)

**Net property and equipment**

7,104,758

7,343,511

Non-current inventories

6,808,596

7,573,225

Long term investments

585,000

1,000,000

Long term receivables

1,894,528

2,006,121

Patents and trademarks, net

643,102

2,753,603

Other assets

606,997

725,635

          Total assets

$          20,882,905

$          23,767,866
**Liabilities and Stockholder's          Equity**
**Current liabilities:**

Accounts payable

$ 2,881,171

$ 2,753,503

Notes payable

9,342,312

9,542,786

Convertible notes 

2,452,242

3,762,317

Accrued expenses

1,696,579

1,772,936

Deferred income

160,500

160,500

**Total current liabilities**

16,532,804

17,992,042

Notes payable and other liabilities

36,669

40,275

Minority interest in consolidated          subsidiary

957,160

1,023,373

COMMITMENTS AND CONTINGENCIES

**Stockholders' equity**

Series A Convertible, Redeemable          Preferred stock par value $0.005 per share and additional paid in capital.          1,500,000 shares authorized, 591,110 shares issued and outstanding at          August 31, 2003; none at February 28, 2003.

3,937,176

-

Common stock par value $0.005          per share and additional paid in capital. 500,000,000 shares authorized,          430,923,150 issued and outstanding at August 31 and February 28, 2003.

305,898,468

305,429,815

Committed common stock

3,102,958

3,102,958

Accumulated deficit

(309,582,330)

(303,820,597)

Total          stockholders' equity

3,356,272

4,712,176

Total          liabilities and stockholders' equity

$          20,882,905

$          23,767,866

See    accompanying notes to condensed consolidated financial statements.

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**AURA    SYSTEMS, INC. AND SUBSIDIARIES****CONDENSED CONSOLIDATED    STATEMENTS OF OPERATIONS****THREE AND SIX MONTHS ENDED    AUGUST 31, 2003 AND 2002****(Unaudited)**
 
**Three Months**
**Six Months** **2003****2002****2003****2002**
**Net Revenues**

$ 519,679

$ 272,978

$ 617,291

$ 456,717

Cost          of goods

288,949          

145,120

355,732

226,105

************

**Gross Profit**

230,730

127,858

261,559

230,612

**Expenses**

Engineering, research and development          expenses

462,865

939,157

958,937

2,171,975

Selling, general and administrative

1,082,770

2,127,569

2,260,538

4,288,044

Impairment          loss on long-lived assets

1,956,338

2,300,000

1,956,338

2,300,000

Total          costs and expenses

3,501,973

5,366,726

5,175,813

8,760,019
**Loss          from operations**
(3,271,243)

(5,238,868)

(4,914,254)

(8,529,407)

************

**Other (income) and expense**

Impairment of investments

-

700,000

-

700,000

Interest          expense, net 

368,099

385,750

1,012,187

467,984
Other          (income) expense, net
(1,205)

(630,580)

(32,900)

(45,151)
Minority interest in net loss          of consolidated subsidiary
(101,687)

-

(66,213)

-

**Loss before extraordinary          item**

(3,536,450)

(5,694,038)

(5,827,328)

(9,652,240)

**Extraordinary item**

Gain on extinguishment of debt          obligations, net of income taxes of $0

-          

-

65,594

-

**Net loss**

$(3,536,450)

$(5,694,038)

$(5,761,734)

$(9,652,240)

Imputed dividend to preferred          shareholders

73,889

-

123,923

-

Net loss available to common          shareholders

**Basic and diluted loss available          to common shareholders per share**

**Before extraordinary item**

**Extraordinary item**

$          (0.008)

$          -

$          (0.014)

$          -

$          (0.014)

$          -

$          (0.024)

$          -

**Total basic and diluted loss          per share**

$          (0.008)

$          (0.014)

$          (0.014)

$          (0.024)

****

**Weighted average shares used          to**

**compute basic and diluted          loss available to common shareholders per share**

430,923,150          

411,461,450

430,923,150

406,925,606

************

See accompanying notes    to condensed consolidated financial statements.********

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**AURA    SYSTEMS, INC. AND SUBSIDIARIES****CONDENSED CONSOLIDATED    STATEMENTS OF CASH FLOWS****FOR THE SIX MONTHS ENDED    AUGUST 31, 2003 AND 2002****(Unaudited)**

****

************

**2003**

************

**2002**

************

**Net cash used in operations**

$          (2,841,962)

$          (6,519,826)

**Investing activities:**

Proceeds          from sale of investment

415,000

85,000

Note          receivable

103,041 

200,734 

************

**Net cash provided by investing          activities**

518,041

285,734          

**Financing activities:**

Issuance          of debt

200,000

1,000,000

Repayment          of debt

(314,044)

(250,000)

Issuance          of convertible notes

2,260,409

-

Net          proceeds from sale of common stock

-

4,510,000

Net          proceeds from sale of Series A preferred stock

109,500 

-

**Net cash provided by financing          activities:**

2,255,865 

5,260,000 

**Net increase (decrease) in cash**

(68,056)

(974,092)

Cash          and cash equivalents at beginning of period

163,693          

1,143,396

**Cash and cash equivalents at end          of period**

$ 95,637 

$ 169,304 

Supplemental          disclosures of cash flow information

Cash          paid during the period for:

Interest

$134,214 

$305,000 

Unaudited    supplemental    disclosure of noncash investing and financing activities:

During    the six months ended August 31, 2003, the Company:

-    issued $11,047 of convertible notes payable to satisfy    a fee reimbursement obligation to Koyah Leverage Partners, LLP

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

****

During    the six months ended August 31, 2002, the Company:

-    issued 292,508 shares of the Company's common stock in satisfaction    of $92,140 in liabilities. 

See accompanying    notes to condensed consolidated financial statements.

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**AURA    SYSTEMS, INC.****NOTES TO CONDENSED CONSOLIDATED    FINANCIAL STATEMENTS****August 31, 2003****(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 August 31, 2003 and the results of its operations for the    three and six months ended August 31, 2003 and 2002.

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, 2003, the Company received a report from its independent    auditors that includes an explanatory paragraph describing uncertainty as    to the Company's ability to continue as a going concern. Except as otherwise disclosed, the condensed consolidated financial    statements have been prepared on the basis that it is a going concern, which    contemplates the realization of assets and satisfaction of liabilities in    the normal course of business. . The Company's consolidation and reduction of the scope of its operations    has resulted in several writedowns of assets, which have occurred over time    as the Company determines, based on its current information, that such asset    is impaired. Further writedowns may    occur and would occur were the Company to cease operations.

The    Company continues to experience acute liquidity challenges. The Company had cash of approximately $100,000    and $200,000 at August 31 and February 28, 2003, respectively. For the six months ended August 31, 2003 and    the year ended February 28, 2003, the Company incurred a net loss of approximately    $5,800,000 and $16,100,000, respectively, on net revenues of approximately    $500,000 and $1,100,000, respectively. The Company had working capital deficiencies at August 31 and February    28, 2003 of approximately $12,400,000 and $15,600,000, respectively.    These conditions, combined with the Company's historical operating    losses, raise substantial doubt as to the Company's ability to continue as    a going concern. At September 30, 2003, the Company had approximately    $300,000 of cash.

The Company requires additional debt    or equity financing to fund ongoing operations. The Company is seeking to    raise additional capital; however, there can be no assurance that the Company    will raise sufficient capital to fund ongoing operations. The issuance of    additional shares of equity in connection with such financing could dilute    the interests of existing stockholders of the Company and such dilution could    be substantial. The Company must increase its authorized shares in order to    be able to sell common equity and intends to propose to stockholders such    action as well as a reverse stock split of its common shares; there can be    no assurance that either such action will be approved. The inability to secure    additional funding could result in the Company having to cease operations.

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The    cash flow generated from the Company's operations to date has not been sufficient    to fund its working capital needs, and the Company does not expect that operating    cash flow will be sufficient to fund its working capital needs in its fiscal    year ending February 28, 2004. In order to maintain liquidity, the Company    has relied and continues to rely upon external sources of financing, principally    equity financing and private and bank indebtedness.    The Company expects to fund any operating shortfall in the current    fiscal year from cash on hand, sales of non-core assets and external financings.    Currently, the Company has no firm commitments from third parties to provide    additional financing and there can be no assurance that financing will be    available at the times or in the amounts required.    If future financing involves the issuance of equity securities, existing stockholders may suffer dilution in net    tangible book value per    share and such    dilution may be significant. If financing cannot be arranged in the amounts    and at the times required, the Company will cease operations. The Company has no bank line of credit. .    The Company is currently in default on many of its payment obligations    and needs to restructure its existing obligations.    Management is seeking to raise financing for the Company and to restructure    the Company's obligations but there can be no assurance that the Company will    be successful.
The    Company's ability to continue as a going concern is dependent upon the successful    achievement of profitable operations and the ability to generate sufficient    cash from operations and financing sources    to meet its obligations. 

**3)                 ****Capital**********

In March 25, 2003,    the Board of Directors of the Company authorized 1,500,000 shares of Series    A convertible, redeemable preferred stock (the "Series A Preferred")    with a par value of $0.005. Each Series A Preferred share is convertible into    common stock at $0.08 per share. The Series A Preferred can be converted at    the option of the holder provided that the Company does not exercise the mandatory    conversion on any date on or after March 31, 2004. The Company may exercise    its right to mandatory conversion provided that the current market value of    the Company's common stock equal or exceeds 120% of the then prevailing conversion    price. As the redemption of the Series    A Preferred is at the option of the Company, all preferred outstanding has    been classified as equity in the accompanying condensed consolidated financial    statements.

The Series A Preferred    has liquidation preference of $10 per share plus accrued but unpaid dividends.    The holders of the Series A Preferred are entitled to cumulative dividends    at a rate of 5% per annum, payable in arrears on the first day of each quarter,    commencing on September 1, 2003. The    Company may redeem the shares on or after March 31, 2004 in whole or in part    at a redemption price equal to $10 per share, plus the amount of any accumulated    and unpaid dividends.

In    the six months ended August 31, 2003, Series A Preferred outstanding increased    by a total of 591,110 shares as follows:    534,020 shares were issued in exchange for convertible notes payable,    plus accrued interest, totaling approximately $3,700,000 and 57,090 shares    were issued for $259,500 cash proceeds. As    of August 31, 2003 cumulative preferred dividends of $123,923 have accrued    but have not been declared or paid. These    unpaid dividends represent an increase in the liquidation preference for the    outstanding Series A Preferred. 

The Company did not issue    shares of Common Stock during the six months ended August 31, 2003.

During the quarter ended    August 31, 2003, the Company issued stock options to three executive officers    to purchase, in the aggregate, 8,100,000 shares of the Company's common stock    at prices at or above the market price at the date of grant.

During the quarter ended    August 31, 2003, the Company issued stock options to a Board member to purchase    1,300,000 shares of the Company's common stock at a price above the market    price on the date of grant. In September 2003, the Company issued stock options    to members of the Board of Directors to purchase, in the aggregate, 9,250,000****shares of the Company's common stock at a price equal to the closing market    price on the date of grant. 
During the quarter ended  August 31, 2003, the Board of Directors authorized the issuance of 8,000 shares  of Series A Preferred in settlement of a $57,423 payable to a law firm in which  a Board member is a partner. As of August 31, 2003, these shares have not been  issued and this amount continues to be included in Accounts Payable.
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**Inventories**

********Inventories,    stated at the lower of cost (first in, first out) or market, consist of the    following:
August 31. 2003          (unaudited)
February 28,             2003

Raw materials

$ 3,894,841 

$ 3,846,439

Finished goods

6,589,633

6,819,286

Reserved for potential product          obsolescence

(1,678,000)

(1,678,000)

8,806,474

8,987,725

Non-current portion

6,808,596          

7,573,225

$          1,997,878

$          1,414,500

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

The    Company does not expect to realize all of its inventories within the 12-month    period ending August 31, 2004. Because    of this, the Company has assessed the net realizability of these assets, the    proper classification of the inventory, and the potential obsolescence of    inventory. In these evaluations, management    has recorded a reserve of $1,678,000 at August 31 and February 28, 2003.    The net inventories as of August 31 and February 28, 2003 which are    not expected to be realized within a 12-month period have been reclassified    as long term.

**5)                 ****Patents and Trademarks**********

During    the second quarter of fiscal 2004, the Company reevaluated its intentions    with regard to its patents and trademarks related to products not related    to its core business. This evaluation resulted in the conclusion    that certain of these patents and trademarks would not generate revenues or    cash flows during their remaining lives and, accordingly, the value of these    assets was written off. This was recorded    as an impairment loss on long-lived assets and classified as an operating    expense.

**6)                 ****Notes Payable and Other Liabilities**********

Notes    payable and other liabilities consist of the following:

************

August            31, 2003 (unaudited)

February            28,2003

Notes payable-buildings          (a)

$          5,005,065 

$          5,058,774

Convertible notes          payable (b)

-

2,012,320

Convertible notes          payable (c)

625,000

1,750,000

Convertible notes          payable (d)

1,827,242

-

Litigation payable          (e)

2,201,604

2,201,604

Trade debt (f)

1,161,480

1,308,533

Note payable-related          party (g)

1,000,000

1,000,000

Notes payable-equipment          (h)

 10,832

 14,147

11,831,223

13,345,378

Less: current portion

          11,794,554

13,305,103

Long-term portion

$          36,669 

$          40,275

    (a)              Notes payable-buildings    consist of a 1st Trust Deed on two buildings in California bearing interest    at the rate of 7.625%. A final balloon    payment is due in Fiscal 2009. In April 2003, the Company defaulted on these notes payable and    the notes remain in default at July 31, 2003.    As such, these notes payable were classified as current liabilities    at August 31 and February 28, 2003.

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(b)          The    notes payable bear interest at 5% per annum, mature at various dates, and    are convertible into shares of the Company's Series A Preferred at a rate    of $1.00 principal amount of notes for each $2.20 of Series A Preferred. During the quarter ended May 31, 2003, the    Company issued an additional $466,500 of these notes payable and recorded    interest expense of $466,500 related to the conversion feature thereon. On March 31, 2003, these notes were converted into shares of Series A Preferred (see    Note 3).

(c)          The notes carry an 8% interest rate and    are convertible into common stock at various conversion rates. During the    quarter ended March 31, 2003, the Company issued an additional $200,000 of    these convertible notes payable. In March, 2003, $1,125,000 of the notes were    converted into Series A Preferred (see Note 3). 

(d)           Between May 29 and July 11, 2003, the Company received $600,000    of interim funding from Koyah Leverage Partners, LLP to meet its immediate    cash needs and issued term notes bearing interest at 5% per annum, convertible    into shares of Series A Preferred (the "Term Notes"). From July 24, 2003 through    August 31, 2003, the Company has received an additional $1,227,242 of interim    funding. These amounts are evidenced by secured notes (the "Secured Notes")    payable on October 24, 2003, which date automatically extends to January 24,    2004 if the Company has not received $2,000,000 of additional funding by October    24, 2003. The Secured Notes bear interest at 10% per annum and are convertible    at the option of the holder into new debt or equity securities at of the Company    at a 20% discount to the best terms by which such new debt or equity is sold    to any new investor. The Secured Notes may be prepaid on notice at a 20% premium.    Repayment of the Secured Notes is secured by substantially all the assets    of the Company (with limited exceptions). The $600,000 of Term Notes were    replaced with Secured Notes as part of this transaction. 

From September    1 through 30, 2003, the Company has received an additional $766,147****of interim funding evidenced by additional Secured Notes. Although the Company is in discussions with    the investor with regard to further financing, there can be no assurance that    additional financing will be obtained.

(e)          The litigation payable represents the legal    settlements entered into by Aura with various parties. These settlements call    for payment terms with 8% interest rate to the plaintiffs through fiscal 2004.    

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

During the quarter ended May 31, 2003    and the year ended February 28, 2003, the Company settled $59,818 and $1,456,213,    respectively, of this trade debt, including accrued interest, for $14,356    and $385,142, respectively. The gains on the extinguishment of debt of $65,594    and $1,050,995, which are reflected as extraordinary items in the six months    ended August 31, 2003 and the year ended February 28, 2003, respectively,    resulted in extraordinary income per share of less than $0.01 in each period.    To fund these transactions, the Company issued $307,862 of the convertibles    notes payable described in (b) above in the year ended February 28, 2003.    

    (g)              Note payable - related    party consisted of a $1,000,000 note payable, which was entered into in connection    with the sale of a minority interest in Aura Realty, as more fully described    in Financial Position, Liquidity and Capital Resources below. The    note bears interest at 12.3% per annum and is secured by a security interest    in a certain note receivable. The    Company is required to make interest only payments for the first 17 months    of the term, and the $1,000,000 principal is due on May 31, 2004.

    (h)              Notes payable-equipment    consists of a note maturing in February 2005 with an interest rate of 8.45%.
**7)                 ****Significant Customers**********
In    the six months ended August 31, 2003, the Company sold AuraGen related products    to two significant customers for a total of approximately $378,000 or 61%    of net revenues. None of these customers    is related to or affiliated with the Company.

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In June 2003,    the Company received an order for over $1,000,000 of AuraGen(R) units, including    mounting brackets and installation, from one of its significant customers.    During the quarter ended August 31, 2003, approximately $250,000 of    this order was delivered. These deliveries    are included in the preceding significant customer discussion. The remainder of this order will be delivered    at the customer's request through June 2006.

At    August 31, 2003, the Company held accounts receivable from one of these significant    customers for approximately $85,000 or 30% of net receivables. 

**8)                 ****Contingencies**********

The    Company is engaged in certain material legal proceedings as described in Part    II, Item 2 of this Form 10-Q. Appropriate    provisions have been made in the financial statements for all judgments and    settlements noted therein, and as otherwise stated in such discussion. 

 

**ITEM 2.**MANAGEMENT'S    DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Form 10-Q report    may contain forward-looking statements which involve risks and uncertainties.    Such forward-looking statements include, but are not limited to, statements    regarding future events and the Company's plans and expectations.    The Company's actual results may differ significantly from the results    discussed in forward-looking statements as a result of certain factors, including    those discussed in the Company's Form 10-K for the period ended February 28,    2003 and this report. The Company    expressly disclaims any obligations or undertaking to release publicly any    updates or revisions to any forward-looking statements contained herein to    reflect any change in the Company's expectations or any events, conditions    or circumstances on which any such statement is based. This report includes product names, trade names and marks of companies    other than the Company. All such company    or product names are trademarks, registered trademarks, trade names or marks    of their respective owners and are not the property of the Company. **Overview**
Aura    Systems, Inc., a Delaware corporation, ("Aura" or the "Company")    designs, assembles and sells the AuraGen(R), the Company's patented mobile    power generator that uses the engine of a vehicle to generate power. It installs    under-the-hood in many motor vehicles and delivers on-location, plug-in electricity    for any end use including industrial, commercial, recreational and military    applications. The Company began commercializing the AuraGen(R) in late 1999.    To date, AuraGen(R) units have been sold to more than 500 customers in more    than 10 industries, including recreational, utilities, telecommunications,    emergency/rescue, public works, catering, oil and gas, transportation, government    and the military. 

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

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

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

The    Company's ability to continue as a going concern is dependent upon the successful    achievement of profitable operations and the ability to generate sufficient    cash from operations and financing sources to meet the Company's obligations. In order to attract additional financing, the    Company expects that payment terms of its obligations will need to be restructured,    including resolution of the current defaults on many of its payment obligations.    The Company is currently seeking to restructure payment terms of its    outstanding obligations in connections with its efforts to raise additional    financing through a private placement.  There can be no assurance that    such efforts will be successful.
**Results of Operations**
**For the three and six    months period ended August 31, 2003**

The    Company's net loss for the six months ended August 31, 2003 (the "Six Months    FY2004") was $5,761,734 compared to a net loss of $9,652,240 for the six months    ended August 31, 2002 (the "Six Months FY2003").    Substantially all of the improvement    is due to the Company's ongoing efforts to reduce its costs of operations,    primarily through reductions in headcount and cost of labor. The net loss also was reduced by a 35% increase    in sales. Because the Company is selling    from inventory, the Company's cost of goods is relatively constant and an    increase in revenues results in a decrease in the Company's loss. Net operating    revenues and gross profit were $617,291 and $261,559, respectively, in the    Six Months FY2004 and $459,717 and $230,612, respectively, in Six Months FY2003.

The    Company's net loss for the three months ended August 31, 2003 (the "Second    Quarter FY2004") was $3,536,450 compared to a net loss of $5,694,038 for the    three months ended August 31, 2002 (the "Second Quarter FY2003"). Net operating    revenues and gross profit were $519,679 and $230,730, respectively, in the    Second Quarter FY2004 and $272,978and $127,858, respectively, in Second Quarter FY2003.    

Net    revenues for the Six Months FY2004 of $617,291 represent an increase of $160,574    (35%) from $456,717 in the Six Months FY2003.    Net revenues for the Second Quarter FY2004 of $519,679 represent an    increase of $246,701 (90%) from $272,978 in the Second Quarter FY2003.    Revenues are higher in Fiscal 2004 due largely to Second Quarter FT2004    delivery of approximately $240,000 of product against a $1,000,000 order from    an existing customer. The Company is seeking to increase    sales by educating purchasers and potential purchasers on the advantages of    the Company's product as compared to competing technology and sales have varied    in response to the relative success of the Company's efforts.

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Cost    of goods increased to $355,732 for the Six Months FY2004 from $226,105 in    the Six Months FY2003; a $129,627 (57%) increase. Cost of Goods increasedto $288,949 in the Second Quarter FY2004 from $145,120    in the First Quarter FY2003; a $143,829 (99%) increase. These increases were larger than the changes    in net revenues resulting in a reduction in gross margins to 42% and 44% in    the Six Months FY2004 and Second Quarter FY2004, respectively, from 50% and    47% for the Six Months FY2003 and Second Quarter FY2003, respectively. This minor reduction in gross margin results    from volume discount pricing given on the significant order discussed above.    The Company's cost of goods from other sales was consistent with historical    gross margins. Cost of goods includes only the direct material    and labor costs incurred in production and does not include any allocation    of rent, depreciation, overhead or other administrative expenses.

Engineering,    research and development expenses decreased by $1,213,038 (56%) to $958,937    in the Six Months FY2004 from $2,1711,975 in the Six Months FY2003 and decreased    by $476,292 (51%) to $462,865 in the Second Quarter FY2004 from $939,157 in    the Second Quarter FY2003. The decrease was primarily due to the cost control    efforts taken throughout fiscal 2003 and into the Six Months FY2004, most    significantly, reductions in headcount. Labor and labor related costs included    in engineering expense amounted to approximately $810,000 in the Six Months    Quarter FY2004, compared to approximately $1,520,000 in the Six Months FY2003.    The Company also reduced its research and development activities throughout    fiscal 2003 and expects these efforts to continue at or below this reduced    level at least through the remainder of fiscal 2004.

Selling,    general and administrative ("SG&A") expenses decreasedto $2,260,538 in the Six Months FY2004 from $4,288,044    in the Six Months FY2003; a reduction of $2,027,506 (47%) and decreased to    $1,082,770 in the Second Quarter FY2004 from $2,127,569 in the Second Quarter    FY2003; a reduction of $1,0440799 (49%). The SG&A expenses were lower due primarily    to cost control efforts taken throughout fiscal 2003 and into the Six Months    FY2004, most significantly, reductions in headcount. Labor    and labor related costs included in SG&A amounted to approximately $1,077,000    in the Six Months FY2004, compared to approximately $2,321,000 in the Six    Months Quarter FY2003.

In the    Second Quarter FY2004, the Company recorded a $1956,338 long-lived asset impairment    charge resulting from the write off of some of the Company's patents and trademarks. During    the Second Quarter FY2004, the Company reevaluated its intentions with regard    to its patents and trademarks related to products not related to its core    business. This evaluation resulted in the conclusion that certain of these    patents and trademarks would not generate revenues or cash flows during their    remaining lives and, accordingly, the value of these assets was written off.    In the Second Quarter FY2003, the Company recorded a $2,300,000 long-lived    asset impairment charge resulting from a decline in the realizable value of    the Company's headquarters facilities. 

In    the Second Quarter FY2003, the Company recorded a $700,000 impairment of investments    charge resulting from a decline in realizable value of certain non-core investments.    There was no similar impairment charge recorded in Second Quarter    FY2004.

Net    interest expense for the Six Months FY2004 of $1,012,187 was $544,203 (116%)    greater than the $467,984 of net interest expense recorded in the Six Months    FY2003. This increase was due principally    to the recording of $466,500 of expense, in the First Quarter FY2004, representing    the beneficial conversion feature related to the issuance of convertible notes    payable. Net interest expense for    the Second Quarter FY2004 of $368,099 was $17,651 (5%) less than the $385,750    of net interest expense recorded in the Second Quarter FY2003.    Interest expense for Second Quarter FY2004 included approximately $199,000    of penalty interest and late fees, $79,000 of which related to the First Quarter    FY2004, triggered by the defaults on the mortgage note payable on the Company's    headquarters facility (see Financial Position, Liquidity and Capital Resources). Interest expense for the Second Quarter FY2003    included approximately $224,000 of interest charges from prior periods related    to restructured trade debt obligations. 

Other    income was $32,900 and $1,205 in the Six Months FY2004 and Second Quarter    FY2004, respectively, compared to other income of $32,480 in the Six Months    FY2003 and other expense of $82,091 Second Quarter FY2003.****
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**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 

The Company 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.    The Company makes these assessments based on the following factors: i) customer-specific    information, ii) return policies, and iii) historical experience for issues    not yet identified. 

Inventory   

The Company is    required to make judgments based on historical experience and future expectations    as to the realizability of inventory. The Company makes these assessments    based on the following factors: i) existing orders, ii) age of the    inventory, iii) historical experience and iv) the    status of the Company's expectation as to future sales.

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 its future    net cash flows expected to be generated by those assets. The cash flow projections    are based on historical experience, management's view of growth rates within    the industry, and the anticipated future economic environment. 

Factors that could    trigger a review for impairment include: 

(a)    significant underperformance relative to expected historical or projected    future operating results, 

(b)    significant changes in the manner an asset is used or the Company's    overall business strategy, and 

(c)    significant negative industry or economic trends. 

When the Company    determines that an asset is impaired, it measures any such impairment by discounting    such 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.

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Back to Index**Financial Position,****Liquidity    and Capital Resources**
The    Company continues to experience acute liquidity challenges. The Company had cash of approximately $100,000    and $200,000 at August 31 and February 28, 2003, respectively. For the six months ended August 31, 2003 and    the year ended February 28, 2003, the Company incurred a net loss of approximately    $5,800,000 and $16,100,000, respectively, on net revenues of approximately    $500,000 and $1,100,000, respectively. The    Company had working capital deficiencies at August 31 and February 28, 2003    of approximately $12,400,000 and $15,600,000, respectively. These conditions, combined with the Company's    historical operating losses, raise substantial doubt as to the Company's ability    to continue as a going concern. At September 30, 2003, the Company had approximately $300,000 of    cash.

The    Company requires additional debt or equity financing to fund ongoing operations.    The Company is seeking to raise additional capital; however, there    can be no assurance that the Company will raise sufficient capital to fund    ongoing operations. The issuance of additional shares of equity    in connection with such financing could dilute the interests of existing stockholders    of the Company and such dilution could be substantial. The Company must increase its authorized shares    in order to be able to sell common equity and intends to propose to stockholders    such action as well as a reverse stock split of its common shares; there can    be no assurance that either such action will be approved. The inability to secure additional funding    could result in the Company having to cease operations.

The    cash flow generated from the Company's operations to date has not been sufficient    to fund its working capital needs, and the Company does not expect that operating    cash flow will be sufficient to fund its working capital needs in its fiscal    year ending February 28, 2004. 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 expects to fund any operating shortfall in the current    fiscal year from cash on hand, sales of non-core assets and external financings.    Currently, the Company has no firm commitments from third parties to provide    additional financing and there can be no assurance that financing will be    available at the times or in the amounts required. If    future financing involves the issuance of equity    securities, existing stockholders may suffer dilution in    book value per    share and such    dilution may be significant. If financing cannot be arranged in the amounts    and at the times required, the Company will cease operations. The Company has no bank line of credit. .    The Company is currently in default on many of its payment obligations    and needs to restructure its existing obligations.    Management is seeking to raise financing for the Company and to restructure    the Company's obligations but there can be no assurance that the Company will    be successful.

The    Company's ability to continue as a going concern is dependent upon the successful    achievement of profitable operations and the ability to generate sufficient    cash from operations and financing sources    to meet its obligations.

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

At    August 31, 2003, the Company had accounts receivable, net of allowance for    doubtful accounts, of $281,672; $410,717 at February 28, 2003.    As of September 30, 2003, the Company had net accounts receivable of    approximately $150,000.

From    April 1 through June 11, 2003, the Company sold a portion of one of its long-term    investments realizing net proceeds of approximately $415,000.    The Company intends to sell the remainder of this investment and is    actively seeking buyers but has no commitments from any buyers at this time. In May 2003, the Company borrowed $200,000,    secured by a portion of the remainder of this investment. In August 2003, this secured borrowing, including    accrued interest, was paid with proceeds of borrowing under the Secured Notes    referred to below.

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There    was no spending for property and equipment in the Six Months FY2004 or the    Six Months FY2003. The Company has no material capital project that would    require funding. The Company's current plant and equipment is sufficient to    support its current level of sales.

Debt    repayments of $314,044 were made in Six Months FY2004 as compared to $250,000    in Six Months FY2003.

During    fiscal 2003, the Company agreed to sell its Aura Realty, Inc. subsidiary ("Aura    Realty") to a group of individuals, including five members of the Company's    former management including Zvi Kurtzman and Steve Veen, (the "Purchasers")    and to lease back the Company's headquarters facility, which is owned by Aura    Realty. The purchase price of $7,350,000 was to be paid by assumption or refinancing    of the current mortgage on the property (which had a principal balance of    approximately $5.1 million). Net of this mortgage, $0.6 million of security    deposits and prepayments paid to the Purchasers to secure the Company's performance,    $0.1 million of past due amounts owed to certain of the Purchasers and $0.1    million of fees to Purchasers, the Company received approximately $1.5 million,    of which $0.9 million was advanced to the Company by the Purchasers prior    to closing and $0.6 million was transferred to the Company at the initial    closing on December 1, 2002. Also on December 1, 2002, the Company transferred    49.9% of the common stock of Aura Realty to the Purchasers, issued to Purchasers    a $1.0 million term note and granted Purchasers a security interest in a note    receivable to secure the Company's performance under the agreement. The Purchasers    also received warrants to purchase 15,000,000 shares of common stock, exercisable    through November 30, 2007, at exercise prices ranging from $0.15 to $0.25    per share. The value of the warrant was calculated at $0.7 million using the    Black-Scholes method of valuation. The Purchasers also purchased 21,366,347    shares of the Company's common stock for $1.5 million, which is included in    the 2003 Subtotal Shares. 

The    holder of the mortgage did not consent to the transfer of the Company's remaining    51.1% interest in Aura Realty and the Company failed to make certain payments    to the Purchasers as required under the agreement. During June 2003, the Company    entered into a forbearance agreement with the Purchasers, whereby the Company agreed to issue the additional    warrants required under the agreements for failure to file a stock registration    shares and warrants and register the previously issued shares and the shares    underlying the warrants for resale to the public, assign the receivable (a    note issued by Alpha Ceramic) to the Purchasers, promptly engage an exclusive    listing agent for the sale of the property and pay certain amounts in default    on the mortgage. The Company is currently in negotiations with the Purchasers    and the holder of the mortgage relative to these matters. The Company originally    recorded and reported the Aura Realty transaction as a sale of 100% of its    Aura Realty subsidiary. The events subsequent to year end raise significant    doubt that the remainder of the transaction contemplated by the agreement    will ever be completed. As a result, the transaction has been recorded at    February 28, 2003 as a sale of a minority interest in Aura Realty.

On or about September    25, 2003, the Company was notified that the mortgagor holding a deed of trust    on the Company's headquarters facility had begun foreclosure proceedings    for nonpayment of the mortgage.  The notice states that the mortgagor    may sell the property if the Company does not pay all past due payments plus    permitted costs, which the notice states totaled $479,828.31 as of September    8, 2003. See Part II, Item 1, Legal Proceedings.    Through the Six Months FY2004 and to the date of this report, the Company    has taken steps toward curing these defaults and continues to negotiate with    the mortgage note holder and the Purchasers.    Actions by the parties to these obligations to enforce their rights    to collect the amounts due could require the Company to cease operations.

Capital Transactions

In    March 2003, the Company issued approximately $400,000 of "5% Discounted Notes".    All of these notes (together with other 5% Discounted Notes previously issued)    were converted into Series A Preferred on March 31, 2003 as discussed below.

On    March 25, 2003, the Company designated 1,500,000 shares of its authorized    preferred stock as Series A Convertible Redeemable Preferred Stock (the "Series    A Preferred"). Each share of Series A Preferred has a par value of $.005,    a liquidation preference of $10.00 plus accrued unpaid dividends and is convertible    into common stock at $.080 per share, based on the liquidation preference.    Dividends accrue on each share at the rate of 5% of the liquidation preference    per annum. The Company may call the Series A Preferred for redemption on or    after March 31, 2004 subject to certain conditions. As of August 31, 2003,    591,110 shares of Series A Preferred were outstanding, issued as set forth    below.

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On    March 31, 2003, the Company exchanged $1,125,000 of 8% Notes and converted    $1,101,573 of 5% Notes and $1,342,900 of 5% Discounted Notes, plus    accrued interest in all cases, into 534,020 shares of Series A Preferred.    The average effective net acquisition price of the shares of Common Stock    underlying the conversion feature, based on the mounts paid for the notes,    is $0.054 per share.

Between    May 29 and July 11, 2003, the Company received $600,000 of interim funding    from Koyah Leverage Partners, LLP to meet its immediate cash needs and issued    term notes bearing interest at 5% per annum, convertible into shares of Series    A Preferred (the "Term Notes"). From July 24, 2003 through August 31, 2003,    the Company has received an additional $1,227,242 of interim funding. These amounts are evidenced by secured notes    payable (the "Secured Notes") on October 24, 2003, which date automatically    extends to January 24, 2004 if the Company has not received $2,000,000 of    additional funding by October 24, 2003. The    Secured Notes bear interest at 10% per annum and are convertible at the option    of the holder into new debt or equity securities at of the Company at a 20%    discount to the best terms by which such new debt or equity is sold to any    new investor. The Secured Notes may    be prepaid on notice at a 20% premium.    Repayment of the Secured Notes is secured by substantially all the    assets of the Company (with limited exceptions). The $600,000 of Term Notes were replaced with Secured Notes as part    of this transaction. 

From    September 1 through 30, 2003, the Company has received an additional $766,147****of interim funding evidenced by additional Secured Notes. Although the Company is in discussions with    the investor with regard to further financing, there can be no assurance that    additional financing will be obtained.

Also    during the first quarter of fiscal 2004:

    -                 the Company issued 24,090 shares of Series    A Preferred in a private placement for net cash proceeds of $109,500. The    effective net acquisition price of the shares of Common Stock underlying the    conversion feature, based on the amounts paid for the preferred stock is $0.036    per share.

    -                 the Company issued convertible notes payable    to third party investors totaling $200,000. The notes bear interest at 5%    per annum and are due on demand no later than August 29, 2003. The notes are    convertible into Series A Preferred stock at $10.00 per share. The effective    net acquisition price of the shares of Common Stock underlying the conversion    feature, based on the amounts paid for the notes, is $0.080 per share.

    -                 the Company issued a $200,000 note in exchange    for a loan. The note and $10,000 fixed fee interest became due on June 7,    2003. As part of this borrowing, the Company issued warrants to purchase 3,000,000    shares of common stock at $0.050 per share. The Company paid this note in full in August    2003.

ITEM 4 CONTROLS AND    PROCEDURES 

(a)    The Company's chief executive officer and its chief financial officer,    after evaluating the effectiveness of the Company's disclosure controls and    procedures (as defined in Exchange Act Rules 13a-14(c) and 15-d-14(c)) as    of a date within 90 days of the filing date of this quarterly report (the    "Evaluation Date") have concluded that as of the Evaluation Date, the Company's    disclosure controls and procedures were adequate and effective to ensure that    material information relating to the Company and its consolidated subsidiaries    would be made known to them timely by others within those entities.

(b)    There were no significant changes in the Company's internal controls    or in other factors that could significantly affect the Company's disclosure    controls and procedures subsequent to the Evaluation Date, nor were there    any significant deficiencies or material weaknesses in such disclosure controls    and procedures requiring corrective actions.    As a result, no corrective actions were taken.

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PART    II - OTHER INFORMATION

ITEM 1 LEGAL PROCEEDINGS

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

*Foreclosure Proceeding  *

On    or about September 25, 2003, the Company was notified that the mortgagor holding    a deed of trust on the Company's headquarters facility had begun foreclosure    proceedings for nonpayment of the mortgage.  The notice states that the    mortgagor may sell the property if the Company does not pay all past due payments    plus permitted costs, which the notice states totaled $479,828.31 as of September    8, 2003.  Penalty interest and late charges accrue at the rate of approximately    $42,000 per month.  Due to the defaults on the mortgage, the entire mortgage    has been classified as a current payable on the Company's financial statements.     According to the notice, the Company has until at least December 2, 2003,    to make such cure payment, or to negotiate a settlement providing for    lesser payments acceptable to the mortgagor.  The loss of the Company's    headquarters facility, without relocation of the Company, would cause the    Company to cease operations.  

The    Company has been addressing this situation through making monthly payments    equal to the required monthly payment under the mortgage plus and additional    amount to reduce the arrearages for the past several months.    The Company has engaged in discussions with the mortgagor and indicated    its intention to intention to cure the unpaid amounts.    

The    defaults under the mortgage also result in defaults in the Agreement for Sale    and Leaseback under which the Company was selling    its Aura Realty subsidiary , which owns the buildings subject to this    mortgage (see discussion above under Item 2 - Financial Position, Liquidity    and Capital Resources). 

The    Company has also undertaken efforts to sell these buildings and move its headquarters    and processing facilities to a new location.    If not otherwise done sooner, the Company expects that the defaults    under the mortgage and the Agreement for Sale and Leaseback would be cured    from the proceeds of such sale.

*Securities and Exchange Commission*

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

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In September 2002,    a federal grand jury indicted three officers of NewCom, including Mr. Veen,    on various conspiracy and fraud charges related to NewCom's financial statements.

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

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

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

On December 11, 2002,    Plaintiff, Waltco Engineering Co. ("Waltco"), filed a suit in California    Superior Court for Breach of Written Agreement against the Company and related    common counts. Waltco asserted that the Company breached the terms of a payment    plan. Waltco claimed damages of $283,296.41 and has received a summary judgment    for that amount plus costs. The Company is continuing settlement discussions    with Waltco but to date no settlement has been reached. The Company has made    appropriate provisions in its financial statements to fully reflect its estimated    liability in this case.
*Arthur Schwartz v. Aura Systems, Inc (Case number BC299519)*
A group of former officers    of the Company, who resigned on February 28, 2002 following the commencement    of an SEC investigation into the Company's accounting practices (as described    above) filed a lawsuit against the Company, on July 24, 2003, seeking payment    of amounts owed under a consulting arrangement. The Company had renegotiated    the amounts payable under the consulting arrangement, but defaulted on such    amounts. The suit filed by these former officers seeks full payment based    on their original employment agreements. The accruals reflected on the Company's    financial statements were based on the revised agreements in place at the    time of their resignations and, should these former officers be awarded the    full amount sought in this suit, the Company would be required to record additional    expense of approximately $1,100,000. 

The Company intends to    contest this action vigorously and may bring counterclaims against the individuals.    
ITEM 2 CHANGES IN SECURITIES
For    a discussion of recent sales of securities, see Management's Discussion and    Analysis.

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

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ITEM 6 EXHIBITS AND    REPORTS ON FORM 8-K
a)    Exhibits:

99.1 - Certification Pursuant to 18    U.S.C. Section 1350, as Adopted Pursuant toSection 906 of the Sarbanes-Oxley    Act of 2002

99.2 - Certification Pursuant to 18    U.S.C. Section 1350, as Adopted Pursuant toSection 906 of the Sarbanes-Oxley    Act of 2002

 b) Reports on Form 8-K: 

None.

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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. 

    (Registrant)

Date: October 13, 2003   By: /s/David A. Rescino 

**David    A. Rescino**
Interim Chief Financial Officer
(Principal    Financial and Accounting Officer

and    Duly Authorized Officer)

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CERTIFICATION

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

1.             I    have reviewed this quarterly report on Form 10-Q of Aura Systems, Inc. and,

2.             Based    on my knowledge, this quarterly report does not contain any untrue statement    of a material fact or omit to state a material fact necessary to make the    statements made, in light of the circumstances under which such statements    were made, not misleading with respect to the period covered by this quarterly    report;

3.             Based    on my knowledge, the financial statements, and other financial information    included in this quarterly report, fairly present in all material respects    the financial condition, results of operations and cash flows of the registrant    as of, and for, the periods presented in this quarterly report;

4.             The    registrant's other certifying officers and I are responsible for establishing    and maintaining disclosure controls and procedures (as defined in Exchange    Act Rules 13a-14 and 15d-14) for the registrant and we have:

a.          designed such disclosure controls and    procedures to ensure that material information relating to the registrant,    including its consolidated subsidiaries, is made known to us by others within    those entities, particularly during the period in which this report is being    prepared;

b.       evaluated the effectiveness of the registrant's disclosure    controls and procedures as of a date within 90 days prior to the filing date    of this quarterly report (the "Evaluation Date"); and

c.          presented    in this quarterly report our conclusions about the effectiveness of the disclosure    controls and procedures based on our evaluation as of the Evaluation Date;

5.             The registrant's other certifying officers and    I have disclosed, based on our most recent evaluation, to the registrant's    auditors and the audit committee of the registrant's board of directors (or    persons performing the equivalent function):

a.          all    significant deficiencies in the design or operation of internal controls which    could adversely affect the registrant's ability to record, process, summarize    and report financial data and have identified for the registrant's auditors    any material weaknesses in internal controls; and

b.          any    fraud, whether or not material, that involves management or other employees    who have a significant role in the registrant's internal controls; and

6.             The registrant's other certifying officers and    I have indicated in this quarterly report whether or not there were significant    changes in internal controls or in other factors that could significantly    affect internal controls subsequent to the date of our most recent evaluation,    including any corrective actions with regard to significant deficiencies and    material weaknesses.

/s/    Neal F. Meehan 
Neal F. MeehanChairman & Chief Executive OfficerOctober 13, 2003
21

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CERTIFICATION

I,    David A. Rescino, Interim Chief Financial Officer of Aura Systems, Inc., certify    that:

1.             I    have reviewed this quarterly report on Form 10-Q of Aura Systems, Inc. and,

2.             Based    on my knowledge, this quarterly report does not contain any untrue statement    of a material fact or omit to state a material fact necessary to make the    statements made, in light of the circumstances under which such statements    were made, not misleading with respect to the period covered by this quarterly    report;

3.             Based    on my knowledge, the financial statements, and other financial information    included in this quarterly report, fairly present in all material respects    the financial condition, results of operations and cash flows of the registrant    as of, and for, the periods presented in this quarterly report;

4.             The    registrant's other certifying officers and I are responsible for establishing    and maintaining disclosure controls and procedures (as defined in Exchange    Act Rules 13a-14 and 15d-14) for the registrant and we have:

a.       designed    such disclosure controls and procedures to ensure that material information    relating to the registrant, including its consolidated subsidiaries, is made    known to us by others within those entities, particularly during the period    in which this report is being prepared;

b.       evaluated    the effectiveness of the registrant's disclosure controls and procedures as    of a date within 90 days prior to the filing date of this quarterly report    (the "Evaluation Date"); and

c.       presented    in this quarterly report our conclusions about the effectiveness of the disclosure    controls and procedures based on our evaluation as of the Evaluation Date;

5.             The    registrant's other certifying officers and I have disclosed, based on our    most recent evaluation, to the registrant's auditors and the audit committee    of the registrant's board of directors (or persons performing the equivalent    function):

a.       all    significant deficiencies in the design or operation of internal controls which    could adversely affect the registrant's ability to record, process, summarize    and report financial data and have identified for the registrant's auditors    any material weaknesses in internal controls; and

b.       any    fraud, whether or not material, that involves management or other employees    who have a significant role in the registrant's internal controls; and

6.             The    registrant's other certifying officers and I have indicated in this report    whether or not there were significant changes in internal controls or in other    factors that could significantly affect internal controls subsequent to the    date of our most recent evaluation, including any corrective actions with    regard to significant deficiencies and material weaknesses.

/s/    David A. Rescino  
David A. RescinoInterim Chief Financial OfficerOctober 13, 2003
Back to IndexEXHIBIT    99.1
CERTIFICATION PURSUANT    TO18 U.S.C. SECTION 1350AS ADOPTED PURSUANT TOSECTION 906 OF THE SARBANES-OXLEY    ACT OF 2002

In connection    with the Quarterly Report of Aura Systems, Inc. (the "Company") on Form 10-Q    for the period ending November 30, 2002 as filed with the Securities and Exchange    Commission on the date hereof (the "Report"), I, Neal F. Meehan, Chairman    and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C.    Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act    of 2002, to my knowledge:

1.          The    Report fully complies with the requirements of section 13(a) or 15(d) of the    Securities Exchange Act of 1934; and

2.          The    information contained in the Report fairly presents, in all material respects,    the financial condition and results of operations of the Company for the periods    indicated.

/s/    Neal F. Meehan 
Neal F. MeehanChairman & Chief Executive OfficerOctober 13, 2003
EXHIBIT    99.2

CERTIFICATION PURSUANT    TO18 U.S.C. SECTION 1350AS ADOPTED PURSUANT TOSECTION 906 OF THE SARBANES-OXLEY    ACT OF 2002

In connection    with the Quarterly Report of Aura Systems, Inc. (the "Company") on Form 10-Q    for the period ending November 30, 2002 as filed with the Securities and Exchange    Commission on the date hereof (the "Report"), I, David A. Rescino, Chief Financial    Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted    pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to my knowledge:

1.          The    Report fully complies with the requirements of section 13(a) or 15(d) of the    Securities Exchange Act of 1934; and

2.          The    information contained in the Report fairly presents, in all material respects,    the financial condition and results of operations of the Company for the periods    indicated.

/s/    David A. Rescino 
David A. RescinoInterim Chief Financial OfficerOctober 13, 2003