**SECURITIES
      AND EXCHANGE COMMISSION**


Washington,
      D.C. 20549





**Form
      10-Q**





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





For
      the
      quarterly period ended August 31, 2007




OR





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




For
      the
      transition period from _______________ to ______________





**AURA
      SYSTEMS, INC.**


(Exact
      name of Registrant as specified in its charter)





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





**2330
      Utah Avenue.**


**El
      Segundo, California 90245**


(Address
      of principal executive offices)





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





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





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





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




Large
      Accelerated Filer  ̈ Accelerated
      Filer  ̈ Non-accelerated
      filer x





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


Yes  ̈ No x





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





Indicate
      by check mark whether the registrant has filed all documents and reports
      required to be filed by Section 12, 13 or 15(d) of the Securities Exchange
      Act
      of 1934 subsequent to the distribution of securities under a plan confirmed
      by a
      court. Yes x No  ̈





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





Class
            
            Outstanding
                September 30, 2007Common
                Stock, par value $0.0001 per share
            
            32,978,412
                shares












**AURA
      SYSTEMS, INC. AND SUBSIDIARIES**




**INDEX**




Index
            
            
            
            Page
                No.PART
                I.FINANCIAL
                INFORMATIONITEM
                1.
            Financial
                Statements
            
            3Statement
                Regarding Financial InformationCondensed
                Consolidated Balance Sheets as of August 31, 2007 (Unaudited) and
                February
                28, 2007
            
            4Condensed
                Consolidated Statements of Operations for the Three and Six Months
                Ended
              August
                31, 2007 (Unaudited) and 2006 (Unaudited)
            
            5Condensed
                Consolidated Statements of Cash Flows for the Three and Six Months
                Ended
              August
                31, 2007 (Unaudited) and 2006 (Unaudited)
            
            6Notes
                to Condensed Consolidated Financial Statements (Unaudited)
            
            7ITEM
                2.
            Management's
                Discussion and Analysis of Financial Condition and Results of
                Operations
            
            13ITEM
                3.
            Quantitative
                and Qualitative Disclosures About Market Risk
            
            17ITEM
                4.
            Controls
                and Procedures
            
            18PART
                II.OTHER
                INFORMATIONITEM
                2.
            Unregistered
                Sales of Equity Securities and Use of Proceeds
            
            18ITEM
                6.
            Exhibits
            
            19SIGNATURES
                AND CERTIFICATIONS
            
            20




2


**AURA
      SYSTEMS, INC. AND SUBSIDIARIES**




**QUARTER
      ENDED AUGUST 31, 2007**




**PART
      I.  FINANCIAL INFORMATION**




**ITEM
      1. FINANCIAL STATEMENTS**




The
      consolidated financial statements included herein have been prepared by Aura
      Systems, Inc. (the "Company"), without audit, pursuant to the rules and
      regulations of the Securities and Exchange Commission (the "SEC").  As
      contemplated by the SEC under Rule 10-01 of Regulation S-X, the accompanying
      consolidated financial statements and footnotes have been condensed and
      therefore do not contain all disclosures required by accounting principles
      generally accepted in the United States of America.  However, the Company
      believes that the disclosures are adequate to make the information presented
      not
      misleading.  These consolidated financial statements should be read in
      conjunction with the financial statements and notes thereto included in the
      Company's Form 10-K for the year ended February 28, 2007 as filed with the
      SEC
      (file number 000-17249).




3




**AURA
      SYSTEMS, INC. AND SUBSIDIARIES**




**CONDENSED
      CONSOLIDATED BALANCE SHEETS**




**August
                31, 2007**
            
            **February
                28, 2007****(Unaudited)****Assets****Current
                assets:**Cash
                and cash equivalents
            
            $
            77,659
            
            $
            1,051,259Receivables,
                net
            
            
            280,259
            
            
            249,984Current
                inventories
            
            
            1,609,955
            
            
            750,000Other
                current assets
            
            
            86,142
            
            
            243,854**Total
                current assets**
            
            
            2,054,015
            
            
            2,295,097Property
                and equipment, at cost
            
            
            2,470,290
            
            
            2,302,653Less
                accumulated depreciation and amortization
            
            
            2,261,268
            
            
            2,244,136**Net
                property and equipment**
            
            
            209,022
            
            
            58,517Non-current
                inventories
            
            
            2,321,373
            
            
            3,195,523**Total
                assets**
            
            $
            4,584,410
            
            $
            5,549,137**Liabilities
                and Stockholder's Equity****Current
                liabilities:**Accounts
                payable
            
            $
            164,276
            
            $
            216,226Current
                portion of notes payable
            
            
            620,462
            
            
            611,411Accrued
                expenses
            
            
            445,201
            
            
            470,092Deferred
                income
            
            
            164,625
            
            
            164,625**Total
                current liabilities**
            
            
            1,394,564
            
            
            1,462,354Notes
                payable, net of current portion
            
            
            1,673,696
            
            
            1,983,118COMMITMENTS
                AND CONTINGENCIESCommon
                stock par value $0.0001 per share and additional paid in capital. 
                50,000,000 shares authorized, 31,766,335 and 28,695,638 shares issued
                and
                outstanding at August 31 and February 28, 2007,
                respectively.
            
            
            3,177
            
            
            2,870Additional
                paid-in capital
            
            
            350,055,258
            
            
            347,261,713Accumulated
                deficit
            
            
            (348,542,285
            )
            
            (345,160,917
            )**Total
                stockholders’ equity**
            
            
            1,516,150
            
            
            2,103,666**Total
                liabilities and stockholders’ equity**
            
            $
            4,584,410
            
            $
            5,549,137




See
      accompanying notes to these unaudited condensed consolidated financial
      statements.




4




**AURA
      SYSTEMS, INC. AND SUBSIDIARIES**


**CONDENSED
      CONSOLIDATED STATEMENTS OF OPERATIONS**


**THREE
      AND SIX MONTHS ENDED AUGUST 31, 2007 AND 2006**


**(Unaudited)**





**Three
                Months**
            
            **Six
                Months****2007**
            
            **2006**
            
            **2007**
            
            **2006****Net
                Revenues**
            
            $
            382,845
            
            $
            591,898
            
            $
            1,046,763
            
            $
            836,360Cost
                of goods
            
            
            280,240
            
            
            191,888
            
            
            727,566
            
            
            423,044**Gross
                Profit**
            
            
            102,605
            
            
            400,010
            
            
            319,197
            
            
            413,316**Expenses**Engineering,
                research and development expenses
            
            
            488,713
            
            
            295,679
            
            
            697,131
            
            
            586,684Selling,
                general and administrative
            
            
            1,591,922
            
            
            1,451,720
            
            
            2,955,284
            
            
            2,239,005Total
                costs and expenses
            
            
            2,080,635
            
            
            1,747,399
            
            
            3,652,415
            
            
            2,825,689**Loss
                from operations**
            
            
            (1,978,030
            )
            
            (1,347,389
            )
            
            (3,333,218
            )
            
            (
                2,412,373
            )**Other
                (income) and expense**Interest
                expense, net
            
            
            42,340
            
            
            33,435
            
            
            76,673
            
            
            61,516Other
                income , net
            
            
            (2,630
            )
            
            (150
            )
            
            (28,523
            )
            
            (1,944
            )Gain
                on disposition of assets
            
            
            -
            
            
            (2,950
            )
            
            -
            
            
            (7,750
            )**Net
                Loss**
            
            $
            (2,017,740
            )
            $
            (1,377,724
            )
            $
            (3,381,368
            )
            $
            (2,459,686
            )**Total
                basic and diluted income (loss) per share**
            
            $
            (0.06
            )
            $
            (0.06
            )
            $
            (0.11
            )
            $
            (0.10
            )**Weighted
                average shares used to****compute
                basic****and
                diluted loss per share**
            
            
            30,785,830
            
            
            24,282,710
            
            
            30,439,609
            
            
            24,282,710




See
      accompanying notes to these unaudited condensed consolidated financial
      statements.




5




**AURA
      SYSTEMS, INC. AND SUBSIDIARIES**


**CONDENSED
      CONSOLIDATED STATEMENTS OF CASH FLOWS**


**FOR
      THE THREE MONTHS ENDED AUGUST 31, 2007 AND 2006**


**(Unaudited)**





**2007**
            
            **2006****Net
                cash used in operations**
            
            $
            (3,299,444
            )
            $
            (3,061,372
            )**Investing
                activities:**Payments
                on other receivables
            
            
            -
            
            
            2,654,864Acquisition
                of plant and equipment
            
            
            (167,637
            )
            
            (61,714
            )**Net
                cash (used in) provided by investing activities**
            
            
            (167,637
            )
            
            2,593,150**Financing
                activities:**Issuance
                of common stock
            
            
            2,793,852
            
            
            -Repayment
                of debt
            
            
            (300,371
            )
            
            -**Net
                cash provided by financing activities:**
            
            
            2,493,481
            
            
            -**Net
                decrease in cash**
            
            
            (973,600
            )
            
            (468,222
            )Cash
                and cash equivalents at beginning of period
            
            
            1,051,259
            
            
            472,482**Cash
                and cash equivalents at end of period**
            
            $
            77,659
            
            $
            4,260Supplemental
                disclosures of cash flow informationCash
                paid during the period for:Interest
            
            $
            90,986
            
            $
            0Income
                taxes
            
            $
            0
            
            $
            0




Unaudited
      supplemental disclosure of non-cash investing and financing
      activities:




During
      the six months ended August 31, 2006, $90,214 in accrued and unpaid interest
      was
      added to notes payable.




See
      accompanying notes to these unaudited condensed consolidated financial
      statements.




6




**AURA
      SYSTEMS, INC.**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


**August
      31, 2007**


**(Unaudited)**




**1)**  **General**




**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, 2007
      and
      the results of its operations for the six months ended August 31, 2007 and
      2006.




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.




**Chapter
      11 reorganization**




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




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




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




7




**2)
      Summary of Significant Accounting Policies**




**Principles
      of Consolidation**




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




**Revenue
      Recognition**




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




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




**Cash
      and Cash Equivalents**




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




**Accounts
      Receivable**




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




**Inventories**




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




**Property,
      Plant, and Equipment**




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




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




8




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




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




**Income
      Taxes**




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




**Estimates**




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




Recently
      Issued Accounting Pronouncements




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





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




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




·
            A
                brief description of the provisions of this Statement




9




·
            The
                date that adoption is required




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




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




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




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





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




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




**3)** **Inventories**




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




August
                31,2007
            
            February
                28,2007(unaudited)Raw
                materials
            
            $
            3,195,232
            
            $
            2,939,395Finished
                goods
            
            
            4,004,470
            
            
            4,274,502Reserved
                for potential product obsolescence
            
            
            (3,268,374
            )
            
            (3,268,374
            )3,931,328
            
            
            3,945,523Non-current
                portion
            
            
            2,321,373
            
            
            3,195,523Current
                portion
            
            $
            1,609,955
            
            $
            750,000




10




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




We
      do not expect to realize all of our inventories within the 12-month period
      ending August 31, 2008.  Because of this, we have assessed the net
      realizability of these assets, the proper classification of the inventory,
      and
      the potential obsolescence of inventory.  The net inventories as of August
      31, 2007 and February 28, 2007, which are not expected to be realized within
      a
      12-month period, have been reclassified as long term.  We have also
      recorded a reserve for obsolescence of $3,268,374 at August 31, 2007 and
      February 28, 2007.




**4)
      Property, Plant & Equipment**




Property,
      plant, and equipment at August 31, 2007 and February 28, 2007 consisted of
      the
      following:




August
                  31,2007
            
            February
                28,2007(unaudited)Machinery
                and equipment
            
            
            1,062,720
            
            
            903,017Furniture
                and fixtures
            
            
            1,407,570
            
            
            1,399,6362,470,290
            
            
            2,302,653Less
                accumulated depreciation and amortization
            
            
            2,261,268
            
            
            2,244,136Property,
                plant and equipment, net
            
            $
            209,022
            
            $
            58,517




Depreciation
      and amortization expense was $14,790, for the six month period ended August
      31,
      2007, and $30,948 for the year ended February 28, 2007.




**5)
      Accrued expenses**




Accrued
      expenses at August 31, 2007 and February 28, 2007 consisted of the
      following:




August
                31,2007
            
            February
                28,2007(unaudited)Accrued
                payroll and related expenses
            
            $
            291,279
            
            $
            324,636Other
            
            
            153,922
            
            
            145,456Total
            
            $
            445,201
            
            $
            470,092




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




Notes
      payable and other liabilities consist of the following:




August
                31,2007
            
            February
                28,2007(unaudited)Note
                payable (a)
            
            $
            2,294,158
            
            
            2,594,529Less:
                current portion
            
            
            620,462
            
            
            611,411Long-term
                portion
            
            $
            1,673,696
            
            $
            1,983,118





(a)
      Represents notes payable dated January 31, 2006, bearing interest at a rate
      of
      7% per annum and secured by substantially all our assets. The notes carry a
      term
      of five years with interest accruing the first twelve months, principal and
      interest payments beginning the thirteenth month, and continuing through month
      sixty.




11




**7)**  **Capital**




During
      the six months ended August 31, 2007, we issued 3,070,697 shares of Common
      Stock
      for consideration of $2,793,852. We did not issue shares of Common Stock during
      the six months ended August 31, 2006.




Warrants




As
      of
      February 29, 2004, the aggregate number of outstanding options, warrants, and
      common share equivalents was significantly in excess of the authorized but
      unissued number of shares of our common stock. Management intends to seek
      shareholder approval of an increase in the Company's authorized shares
      sufficient to satisfy all existing commitments and create available shares
      for
      potential future investments. However, such approval has not been granted.
      Hence, the management determined that the value of the warrants is required
      to
      be classified as a liability under the provisions of EITF 00-19 - Accounting
      for
      Derivative Financial Instruments Indexed To and Potentially Settled In a
      Company's Own Stock. As of February 28, 2005, we reclassified the value of
      the
      warrants to a derivative liability. There is no longer a derivative liability
      at
      August 31, 2007.




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




Risk
      free
      interest rate - 5.25%




Dividend
      Yield - 0.0%




Volatility
      - 50%




Expected
      term - 5 years




Activity
      in issued and outstanding warrants was as follows:




Number
                of
              Shares
            
            Exercise
              PricesOutstanding,
                February 29, 2005
            
            
            574,684
            
            $
            6.76-858.52Cancelled
            
            
            (574,684
            )
            $
            6.76-858.52Issued
            
            
            5,022,948
            
            $
            2.00-3.00Exercised
            
            
            -
            
            $
            -Outstanding
                February 28, 2006
            
            
            5,022,948
            
            $
            3.50Issued
            
            
            1,155,589
            
            $
            2.00-3.50Exercised
            
            
            -
            
            
            -Outstanding
                February 28, 2007
            
            
            6,178,537
            
            $
            2.00-3.50Issued
            
            
            401,672
            
            $
            3.00Exercised
            
            
            -
            
            
            -Outstanding
                August 31, 2007
            
            
            6,580,209
            
            $
            2.00-3.50There
                was no aggregate intrinsic value of the warrants as of August 31,
                2007.




12




**8)**  **Significant
      Customers**




In
      the six months ended August 31, 2007, we sold AuraGen related products to two
      significant customers for a total of approximately $440,000, or 42% of net
      revenues.  These customers are not related to or affiliated with
      us.




At
      August 31, 2007, we held accounts receivable from four significant customers
      for
      a total of approximately $120,000, or 43% of net receivables.  Neither of
      these customers are related to or affiliated with us.




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




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




**9)**  **Contingencies**




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




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




**10)**  **Subsequent
      events**




Subsequent
      to August 31, 2007, we issued 2,543,953 shares of common stock for net proceeds
      of $5,377,080. We also issued 183,532 shares of common stock upon conversion
      of
      $183,532 of secured notes payable.




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




**Forward
      Looking Statements**




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




13





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




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


·
            Our
                business development and operating development;
                and


·
            Our
                expectations of growth in demand for our
                products.





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




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




**Overview**




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




Since
      fiscal 2002 sales and support of the AuraGen ® have
      provided substantially all of our operating revenues.




We
      have
      not yet achieved a level of AuraGen ® sales
      sufficient to generate positive cash flow. Accordingly, we have depended on
      repeated infusions of cash in order to maintain liquidity as we have sought
      to
      develop sales.




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




**Results
      of Operations**





**For
      the three and six month periods ended August 31, 2007:**





The
      Company had a net loss for the six months ended August 31, 2007 (the “Six Months
      FY2008”) of $3,381,368 compared to a loss of $2,459,686 for the six months ended
      August 31, 2006 (the “Six Months FY2007”). Net operating revenues and gross
      profit were $1,046,763 and $319,197, respectively, in the Six Months FY2008
      and
      $836,360 and $413,316, respectively, in Six Months FY2007.




14




The
      Company's net loss for the three months ended August 31, 2007 (the “Second
      Quarter FY2008”) was $2,017,740 compared to a loss of $1,377,724 for the three
      months ended August 31, 2006 (the “Second Quarter FY2007”). Net operating
      revenues and gross profit were $382,845 and $102,605 respectively, in the Second
      Quarter FY2008 and $591,898 and $400,010 respectively, in Second Quarter FY2007.




Net
      revenues for the Six Months FY2008 of $1,046,763 represents an increase of
      $210,403 (25%) from $836,360 in the Six Months FY2007. Net revenues for the
      Second Quarter FY2008 of $382,845 represents a decrease of $209,053 (35%) from
      $591,898 in the Second Quarter FY2007.




Cost
      of
      goods increased to $727,566 for the Six Months FY2008 from $423,044 in the
      Six
      Months FY2007; a $304,522 (72%) increase. Cost of goods increased  to
      $280,240 in the Second Quarter FY2008 from $191,888 in the Second Quarter
      FY2007, an $88,352 (46%) increase.




Engineering,
      research and development expenses increased by $110,447 (19%) to $727,566 in
      the
      Six Months FY2008 from $586,684 in the Six Months FY2007 and increased by
      $193,034 (65%) to $488,713 in the Second Quarter FY2008 from $295,679 in the
      Second Quarter FY2007. Our research and development activities increased
      primarily as a result of our efforts in developing the tandem generator and
      the
      200 amp ECU.





Selling,
      general and administrative (“SG&A”) expenses increased  to
      $2,955,284 in the Six Months FY2008 from $2,239,005 in the Six Months FY2007;
      an
      increase of $716,279 (32%) and increased to $1,591,922 in the Second Quarter
      FY2008 from $1,451,720 in the Second Quarter FY2007; an increase of $140,202
      (10%).




Net
      interest expense for the three and Six Months FY2008 increased $8,905 to $42,340
      from $33,435 and $15,157 to $76,673 from $61,516 respectively, in the Six Months
      FY2007 due to the lower levels of debt in the current year period.





**Critical
      Accounting Policies and Estimates**




Our
      discussion and analysis of our financial condition and results of operations
      are
      based upon our 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, we evaluate our estimates, including, but not limited to, those
      related to revenue recognition. We use authoritative pronouncements, historical
      experience and other assumptions as the basis for making judgments. Actual
      results could differ from those estimates. We believe that the following
      critical accounting policies affect our more significant judgments and estimates
      in the preparation of our consolidated financial statements.




Revenue
      Recognition




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




15




Inventory
      Valuation and Classification




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




Valuation
      of Long-Lived Assets




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




Specific
      asset categories are treated as follows:




Accounts
      Receivable: We record an allowance for doubtful accounts based on our
      expectation of collectibility of current and past due accounts
      receivable.




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




When
      we determine that an asset is impaired, we measure any such impairment by
      discounting an asset’s realizable value to the present using a discount rate
      appropriate to the perceived risk in realizing such value. When we determine
      that an impaired asset has no foreseeable realizable value, we write such asset
      down to zero.




**Liquidity
      and Capital Resources**




We
      had
      cash of approximately $78,000 and $1,050,000 at August 31 and February 28,
      2007,
      respectively.  For the six months ended August 31, 2007 and the year ended
      February 28, 2007, we incurred a net loss of $3,381,368 and $6,168,447
      respectively, on net revenues of $1,046,763 and $1,624,074, respectively. 
We had working capital at August 31 and February 28, 2007 of $659,451 and
      $832,743, respectively.




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




16




Since
      2002 substantially all of our revenues from operations have been derived from
      sales of the AuraGen ® .
      The
      cash flow generated from our operations to date has not been sufficient to
      fund
      our working capital needs, and we cannot predict when operating cash flow will
      be sufficient to fund working capital needs. Since fiscal 2002 we were forced
      to
      scale back operations due to inadequate working capital and in June 2005 we
      were
      forced to file for protection under Chapter 11 of the U.S. Bankruptcy Code,
      from
      which we emerged under a court-approved plan of reorganization in January 2006.




In
      the
      past, in order to maintain liquidity we have relied upon external sources of
      financing, principally equity financing and private and bank indebtedness.
      We
      have no bank line of credit and require additional debt or equity financing
      to
      fund ongoing operations. We are seeking to raise additional capital. However,
      we
      have no firm commitments from third parties to provide additional financing
      and
      we cannot assure you that financing will be available at the times or in the
      amounts required. The issuance of additional shares of equity in connection
      with
      such financing could dilute the interests of our existing stockholders, and
      such
      dilution could be substantial. If
      we
      cannot raise needed funds, we would also be forced to make further substantial
      reductions in our operating expenses, which could adversely affect our ability
      to implement our current business plan and ultimately our viability as a
      company.




At
      August
      31, 2007, we had accounts receivable, net of allowance for doubtful accounts,
      of
      $280,259 compared to $249,984 at February 28, 2007.




We
      paid $167,637 for acquisitions of property and equipment in the Six Months
      FY2008 and $61,714 in the Six Months FY2007.  We have no material capital
      projects that would require funding. Our current plant and equipment is
      sufficient to support our current level of sales.




Debt
      repayments of $300,371 were made in the Six Months FY2008. No debt repayments
      were made in the Six Months FY2007.




Capital
      Transactions




During
      the six months ended August 31, 2007, we issued 3,070,697 shares of Common
      Stock
      for consideration of $2,793,852. We did not issue shares of Common Stock during
      the six months ended August 31, 2006.




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





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





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





17




**ITEM
      4.    Controls and Procedures**




**Evaluation
      of Disclosure Controls and Procedures**





Disclosure
      controls and procedures are designed to provide reasonable assurance that
      information required to be disclosed by us in the reports that we file or
      submit, is recorded, processed, summarized and reported, within the time periods
      specified in the U.S. Securities and Exchange Commission’s rules and forms,
      and such information is accumulated and communicated to management as
      appropriate to allow timely decisions regarding required disclosures. Our Chief
      Executive Officer and Chief Financial Officer have evaluated our disclosure
      controls and procedures and have concluded, as of August 31, 2007, that they
      were not effective in view of our delinquent filings.





As
      of
      August 31, 2007, we were delinquent in filing all quarterly and annual SEC
      reports due since November 30, 2004. We did not have adequate financial
      resources to engage our outside auditors and ensure the timely filing of Form
      10-K for the fiscal year ended February 28, 2005. In June 2005 our financial
      condition required us to seek protection from creditors under Chapter 11 of
      the
      U.S. Bankruptcy Code. The commencement of the bankruptcy proceeding placed
      additional demands on our then existing accounting personnel, including the
      filing of monthly financial reports with the bankruptcy court and the SEC.
      Our
      limited financial and personnel resources did not allow us to fully address
      our
      reporting obligations under the Securities Exchange Act of 1934 until we emerged
      from bankruptcy on January 31, 2006. We continued to be hampered by other events
      which further delayed the filing of our delinquent SEC reports. Specifically,
      the integrity of our financial records was severely disrupted as a result of
      errors made by temporary file personnel in December 2005 in the course of moving
      our principal office from 2335 Alaska Avenue to our Utah Avenue location. This
      problem was compounded by a change in accounting personnel in February 2006.





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





**Changes
      in Internal Control over Financial Reporting**





There
      have been no changes in our internal control over financial reporting during
      our
      fiscal quarter ended August 31, 2007, that have materially affected or are
      reasonably likely to materially affect our internal control over financial
      reporting.




**** **PART
      II - OTHER INFORMATION**




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






**During
      the six months ended August 31, 2007, we issued 3,070,697 shares of Common
      Stock
      for consideration of $2,793,852.**




All
      of
      the sales of unregistered securities were exempt from registration pursuant
      to
      Section 4(2) of the Securities Act of 1933 as these offerings were a private
      placement to a limited number of accredited investors without public
      solicitation or advertising.




18





**ITEM
      6.  Exhibits**





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


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


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




19




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




20