**SECURITIES  AND EXCHANGE COMMISSION**  Washington, D.C. 20549

**Form 10-Q**

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

   For the  Quarter Ended November 30, 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 January 14,  2004

        Common Stock, par value $0.005 per share  

        430,923,150 Shares

 

 
 
AURA SYSTEMS, INC. AND SUBSIDIARIESQUARTER ENDED AUGUST 31, 2003
**INDEX**
Page        No.**PART      I.       FINANCIAL INFORMATION****ITEM      1.           Financial Statements**1**Statement      Regarding Financial Information**
1
**Condensed      Consolidated Balance Sheets as of November 30, 2003(Unaudited) and February      28, 2003**
2
**Condensed      Consolidated Statements of Cash Flows for the Nine Months Ended November      30, 2003 (Unaudited) and 2002 (Unaudited)**
4
**Notes      to Condensed Consolidated Financial Statements (Unaudited)**
5
**ITEM      2.           Management's Discussion and Analysis of Financial Condition      and Results of Operations**
10
**ITEM      4.     Controls and Procedures**
19
**PART      II.    OTHER INFORMATION****ITEM 1.     Legal Proceedings**
19
**ITEM 2.     Changes in Securities**
21
**ITEM 6.     Exhibits and Reports on Form 8-K**
22
**SIGNATURES      AND CERTIFICATIONS**
23

 

 AURA  SYSTEMS, INC. AND SUBSIDIARIES  QUARTER AND NINE MONTHS ENDED NOVEMBER 30, 2003PART 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, 2003 as filed with the SEC (file number 000-17249) and any amendments thereto.

1

AURA SYSTEMS, INC. AND SUBSIDIARIES  QUARTER AND NINE MONTHS ENDED NOVEMBER 30, 2003**AURA  SYSTEMS, INC. AND SUBSIDIARIES  CONDENSED CONSOLIDATED BALANCE SHEETS**
**Assets**

**November            30, 2003****(Unaudited)**

**February          28, 2003**

**Current          assets:**
        Cash and cash equivalents 
$          256,067

$      163,693
        Receivables, net 
624,692

410,717
        Inventories, net 
1,882,738

1,414,500

Notes receivable

223,230

210,272

Other current          assets

          471,402

        166,589

**Total current assets**

          3,458,129

   2,365,771

Property          and equipment, at cost

13,839,236

13,839,351

Less accumulated          depreciation and amortization

          (  6,853,967)

(6,495,840)

**Net          property and equipment**

6,985,269

7,343,511

Non-current          inventories

6,881,321

7,573,225

Long term          investments

585,000

1,000,000

Long term          receivables

1,837,041

2,006,121

Patents          and trademarks, net

626,670

2,753,603

Other assets

          600,634

         725,635

      Total          assets

$          20,974,064

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

Accounts          payable

$          2,745,413

$    2,753,503

Notes payable

9,211,768

9,542,786

Convertible          notes 

4,597,342

3,762,317

Accrued          expenses

1,848,673

1,772,936

Deferred          income

          160,500

      160,500

**Total          current liabilities**

18,563,696

   17,992,042

Notes payable          and other liabilities

34,808

40,275

Minority          interest in consolidated subsidiary

905,466

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 November 30, 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 November 30          and February 28, 2003.

305,898,468

305,429,815

Committed          common stock.  20,653,668 at November 30, 2003; 13,790,923 at February          28, 2003

3,102,958

3,102,958

Accumulated          deficit

 (311,468,508)

 (303,820,597)

          Total stockholders' equity

          1,470,094

          4,712,176

          Total liabilities and stockholders' equity

$          20,974,064

$  23,767,866

 See accompanying  notes to condensed consolidated financial statements.

2

AURA SYSTEMS, INC. AND SUBSIDIARIES  QUARTER AND NINE MONTHS ENDED NOVEMBER 30, 2003
**AURA SYSTEMS, INC. AND  SUBSIDIARIES  CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS  THREE AND NINE MONTHS ENDED NOVEMBER 30, 2003 AND 2002**
**(Unaudited)****Three        Months****Nine        Months****2003****2002****2003****2002**
**Net Revenues**

$     726,692

$     423,066

$ 1,343,983

$     879,783

      Cost        of goods

        302,463

        199,154

        658,195

        425,259

**Gross        Profit**

424,229

223,912

685,788

454,524

**Expenses**

 Engineering,        research and development expenses

636,628

914,890

1,595,565

3,086,865

Selling,        general and administrative

1,217,000

   1,542,284

3,477,538

5,830,328

      Impairment        loss on long-lived assets

        -

        -

   1,956,338

   2,300,000

      Total        costs and expenses

  1,853,628

   2,457,174

   7,029,441

   11,217,193

**Loss        from operations**

(1,429,399)

(2,233,262)

(6,343,653)

(10,762,669)

**Other        (income) and expense**

Impairment        of investments

-

-

-

700,000

        Interest expense, net 

381,626

   163,279

1,393,813

631,263

        Other (income) expense, net

126,846

(61,992)

93,946

(107,143)

Minority        interest in net loss of consolidated subsidiary 

   (51,694)

        -

   (117,907)

        -

**Loss before        extraordinary item**

(1,886,177)

(2,334,549)

(7,713,505)

(11,986,789)

**Extraordinary        item**

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

             -        

        -

        65,594

        -

**Net loss**

$(1,886,177)

$(2,334,549)

$(7,647,911)

$(11,986,789)

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

**Before        extraordinary item**

**Extraordinary        item**

$        (0.005)

$            -

$        (0.006)

$        -

$        (0.018)

$            -

$        (0.029)

$        -

**Total        basic and diluted loss per share**

$        (0.005)

$        (0.006)

$        (0.018)

$        (0.029)

**Weighted        average shares used to**

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

430,923,150        

421,086,112

430,923,150

410,794,584

 See  accompanying notes to condensed consolidated financial statements.

3

AURA SYSTEMS, INC. AND SUBSIDIARIES  QUARTER AND NINE MONTHS ENDED NOVEMBER 30, 2003**AURA SYSTEMS, INC.  AND SUBSIDIARIES  CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS  FOR THE NINE MONTHS ENDED NOVEMBER 30, 2003 AND 2002**
**(Unaudited)**

**2003**

**2002**

**Net cash        used in operations**

$        (4,897,308)

$        (8,567,844)

**Investing        activities:**

Proceeds        from sale of investment

415,000

85,000

Additions        to property and equipment

-

(6,491)

Note receivable

       156,122        

       249,746        

**Net cash        provided by investing activities**

571,122

328,255        

**Financing        activities:**

Issuance        of debt

200,000

2,628,750

Repayment        of debt

 (446,449)

(1,126,182)

Issuance        of convertible notes

4,405,509

-

Net proceeds        from sale of common stock

-

5,670,398

Net proceeds        from sale of Series A preferred stock

        259,500        

        -

**Net cash        provided by financing activities:**

    4,418,560        

   7,172,966        

**Net increase        (decrease) in cash**

 92,374

(1,066,624)

Cash and        cash equivalents at beginning of period

        163,693    

        1,143,396

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

$        256,067

$        76,772  

Supplemental        disclosures of cash flow information

        Cash paid during the period for:

        Interest

$317,541        

$378,065        

 Unaudited supplemental  disclosure of noncash investing and financing activities:

 During the nine  months ended November 30, 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 nine  months ended November 30, 2002, the Company:- issued  659,175 shares of the Company's common stock in satisfaction of $169,740 in  liabilities.  

 See accompanying  notes to condensed consolidated financial statements.

4

AURA SYSTEMS, INC. AND SUBSIDIARIES  QUARTER AND NINE MONTHS ENDED NOVEMBER 30, 2003
 

**AURA SYSTEMS, INC.  NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  November 30, 2003  (Unaudited)**
 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 November 30, 2003 and the results of its operations for the  three and nine months ended November 30, 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.
 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  $260,000 and $160,000 at November 30 and February 28, 2003, respectively.  For  the nine months ended November 30, 2003 and the year ended February 28, 2003,  the Company incurred a net loss of approximately $7,600,000 and $16,100,000,  respectively, on net revenues of approximately $1,300,000 and $1,100,000, respectively.  The Company had working capital deficiencies at November 30 and February 28,  2003 of approximately $15,100,000 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 December 31,  2003, the Company had approximately $150,000 of cash.  

5

AURA SYSTEMS, INC. AND SUBSIDIARIES  QUARTER AND NINE MONTHS ENDED NOVEMBER 30, 2003
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 the remainder of  its current fiscal year, ending February 29, 2004, and its next fiscal year,  ending February 28, 2005. 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 has no bank line of  credit.

 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.  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. 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.   If financing  cannot be arranged in the amounts and at the times required, the Company will  cease operations.

 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.
 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 nine months  ended November 30, 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 November 30, 2003  cumulative preferred dividends of approximately $198,000 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 nine months ended November 30, 2003.

6

AURA SYSTEMS, INC. AND SUBSIDIARIES  QUARTER AND NINE MONTHS ENDED NOVEMBER 30, 2003
During the nine  months ended November 30, 2003, the Company issued stock options to executive  officers and members of the Board of Directors to purchase, in the aggregate,  16,650,000 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 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.
 Inventories
 Inventories, stated at the  lower of cost (first in, first out) or market, consist of the following:

November          30, 2003 (unaudited)

February 28,           2003

Raw materials

$  3,994,647

$   3,846,439

Finished        goods

6,447,412

6,819,286

Reserved        for potential product obsolescence

        (1,678,000)

   (1,678,000)

8,764,059

8,987,725

Non-current        portion

   6,881,321        

     7,573,225

$   1,882,738

$   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 November  30, 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.  The net inventories as of November 30 and February  28, 2003 which are not expected to be realized within a 12-month period have  been reclassified as long term.  The Company has also recorded a reserve for  obsolescence of $1,678,000 at November 30 and February 28, 2003.
 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 outside its core business and wrote off patents  related to products not in development.    This was recorded as an impairment  loss on long-lived assets and classified as an operating expense.

7

AURA SYSTEMS, INC. AND SUBSIDIARIES  QUARTER AND NINE MONTHS ENDED NOVEMBER 30, 2003Notes Payable  and Other Liabilities
 Notes payable and other liabilities  consist of the following:

November          30, 2003           (unaudited)

February          28,2003

Notes payable-buildings        (a)

 $      4,979,058

 $        5,058,774

Convertible        notes payable (b)

        -

        2,012,320

Convertible        notes payable (c)

           625,000

        1,750,000

Convertible        notes payable (d)

        3,972,342

        -

Litigation        payable (e)

        2,201,604

        2,201,604

Trade debt        (f)

        1,056,793

        1,308,533

Note payable-related        party (g)

        1,000,000

        1,000,000

Notes payable-equipment        (h)

          9,121

        14,147

       13,843,918

       13,345,378

Less: current        portion

        13,809,110

        13,305,103

Long-term        portion

$        34,808 

$        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 November 30, 2003.  As such, these notes payable were classified  as current liabilities at November 30 and February 28, 2003.

  (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.  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.  In March 2003, $1,125,000 of the notes were converted  into Series A Preferred (see Note 3).   

  (d)   Represents Secured Notes payable on March 31, 2004, bearing interest at 10%  per annum and 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).

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

8

AURA SYSTEMS, INC. AND SUBSIDIARIES  QUARTER AND NINE MONTHS ENDED NOVEMBER 30, 2003
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 nine months ended November 30, 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.  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%.
 Significant Customers
 In the nine months ended  November 30, 2003, the Company sold AuraGen related products to three significant  customers for a total of approximately $858,000 or 64% of net revenues.  None  of these customers is related to or affiliated with the Company.

 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  nine months ended November 30, 2003, approximately $275,000 of this order was  delivered. The remainder of this order will be delivered at the customer's request  through June 2006.

 At November 30, 2003, the  Company held accounts receivable from these significant customers for approximately  $413,000 or 66% of net receivables.  
 Contingencies
 The Company is engaged  in certain material legal proceedings as described in Part II, Item 2 of this  Form 10-Q.  Provisions have been made in the financial statements for all judgments  and settlements noted therein, and as otherwise stated in such discussion.  

9

AURA SYSTEMS, INC. AND SUBSIDIARIES  QUARTER AND NINE MONTHS ENDED NOVEMBER 30, 2003ITEM  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, as amended, 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.

10

AURA SYSTEMS, INC. AND SUBSIDIARIES  QUARTER AND NINE MONTHS ENDED NOVEMBER 30, 2003
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 6 in the Condensed Consolidated Financial Statements),  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.

 The Company's current level  of sales reflects the Company's efforts to introduce a new product into the  marketplace. Many purchases of the product are being made for evaluation purposes.  The Company seeks 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.

 As of January 14,  2004, the  Company had outstanding warrants, options and convertible securities to purchase  approximately 170 million shares of common stock. The Company also had commitments  to issue approximately 20 million shares of common Stock without further consideration.  The aggregate number of outstanding options, warrants, and common share equivalents  is in excess of the authorized, but unissued number of shares of the Company's  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, there  can be no assurance that such approval will be obtained.

11

AURA SYSTEMS, INC. AND SUBSIDIARIES  QUARTER AND NINE MONTHS ENDED NOVEMBER 30, 2003Results of Operations
**For  the three and nine months period ended November 30, 2003**

 The Company's net loss  for the nine months ended November 30, 2003 (the "Nine Months FY2004")  was $7,647,911 compared to a net loss of $11,986,789 for the nine months ended  November 30, 2002 (the "Nine 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 was also favorably impacted by a 53% 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 $1,343,983 and $685,788,  respectively, in the Nine Months FY2004 and $879,783 and $454,524, respectively,  in Nine Months FY2003.

 The Company's net loss  for the three months ended November 30, 2003 (the "Third Quarter FY2004")  was $1,886,177 compared to a net loss of $2,334,549 for the three months ended  November 30, 2002 (the "Third Quarter FY2003"). Net operating revenues  and gross profit were $726,692 and $424,229, respectively, in the Third Quarter  FY2004 and $423,066 and $223,912, respectively, in Third Quarter FY2003.  

 Net revenues for the Nine  Months FY2004 of $1,343,983 represent an increase of $464,200 (53%) from $879,783  in the Nine Months FY2003.  Net revenues for the Third Quarter FY2004 of $726,692  represent an increase of $303,626 (72%) from $423,066 in the Third Quarter FY2003.  Revenues are higher in Fiscal 2004 due largely to Third Quarter FY2004 delivery  of approximately $240,000 of product against a $1,000,000 order from an existing  customer and strengthening sales in the military sector.  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.

 Cost of goods increased  to $658,195 for the Nine Months FY2004 from $425,259 in the Nine Months FY2003;  a $232,936 (55%) increase.  Cost of Goods increased to $302,463 in the Third  Quarter FY2004 from $199,154 in the Third Quarter FY2003; a $103,309 (52%) increase.  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.  Gross margin for Nine Months FY2004 of 51%  is comparable to the gross margin of 52% for Nine Months FY2003.  Gross margin  for Third Quarter FY2004 of 58% is improved from the 53% gross margin in Third  Quarter FY2003 due to sales in Third Quarter FY2004 consisting of a greater  percentage of military sales, which tend to have higher margins.  

 Engineering, research and  development expenses decreased by $1,491,300 (48%) to $1,595,565 in the Nine  Months FY2004 from $3,086,865 in the Nine Months FY2003 and decreased by $278,262  (30%) to $636,628 in the Third Quarter FY2004 from $914,890 in the Third Quarter  FY2003.  The decrease was primarily due to the cost control efforts taken throughout  fiscal 2003 and into the Nine Months FY2004, most significantly, reductions  in headcount.  Labor and labor related costs included in engineering expense  amounted to approximately $1,260,000 in the Nine Months Quarter FY2004, compared  to approximately $2,140,000 in the Nine 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.

12

AURA SYSTEMS, INC. AND SUBSIDIARIES  QUARTER AND NINE MONTHS ENDED NOVEMBER 30, 2003 
Selling, general  and administrative ("SG&A") expenses decreased to $3,477,538 in  the Nine Months FY2004 from $5,830,328 in the Nine Months FY2003; a reduction  of $2,352,790 (40%) and decreased to $1,217,000 in the Third Quarter FY2004  from $1,542,284 in the Third Quarter FY2003; a reduction of $325,284 (21%).  The SG&A expenses were lower due primarily to cost control efforts taken  throughout fiscal 2003 and into the Nine Months FY2004, most significantly,  reductions in headcount.  Labor and labor related costs included in SG&A  amounted to approximately $1,650,000 in the Nine Months FY2004, compared to  approximately $3,310,000 in the Nine Months Quarter FY2003.

 In the Second Quarter  FY2004, the Company recorded a $1,956,338 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 outside its core business  and wrote off patents related to products not in active development.  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 FY2004.

 Net interest expense for  the Nine Months FY2004 of $1,393,813 was $762,550 (121%) greater than the $631,263  of net interest expense recorded in the Nine 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 of the notes payable  that were converted into Series A Preferred and penalty interest triggered by  the defaults on the mortgage note payable on the Company's headquarters facility  (see Financial Position, Liquidity and Capital Resources).  Net interest expense  for the Third Quarter FY2004 of $381,626 was $218,347 (134%) greater than the  $163,279 of net interest expense recorded in the Third Quarter FY2003.   This  increase was due principally to the approximately $120,000 of penalty interest  and late fees related to the defaults on the mortgage note payable on the Company's  headquarters facility and interest accruing on the convertible notes payable  issued in FY2004.

 Other expense was $93,946  in the Nine Months FY2004 and $126,846 of other expense in Third Quarter FY2004  compared to other income of $107,143 and $61,992 in the Nine Months FY2003 and  Third Quarter FY2003, respectively.  The other expense in Third Quarter FY2004  was primarily to record the judgment entered in the Waltco Engineering lawsuit  (see Legal Proceedings).
 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.

13

AURA SYSTEMS, INC. AND SUBSIDIARIES  QUARTER AND NINE MONTHS ENDED NOVEMBER 30, 2003 **Revenue  Recognition**
 Aura is required to make  judgments based on historical experience and future expectations, as to the  reliability of shipments made to its customers. These judgments are required  to assess the propriety of the recognition of revenue based on Staff Accounting  Bulletin ("SAB") No. 101, "Revenue Recognition," and related  guidance. Because sales are currently in limited volume and many sales are for  evaluative purposes, the Company has not booked a general reserve for returns.  The Company will consider an appropriate level of reserve for product returns  when its sales increase to commercial levels.
**Inventory Valuation  and Classification**
 Inventories consist primarily  of components and completed units for the Company's AuraGen(R) product.  Inventories are valued at the lower of cost (first-in, first-out) or market.  Provision is made for estimated amounts of current inventories that will ultimately  become obsolete due to changes in the product itself or vehicle engine types  that go out of production. Due to continuing lower than projected sales, the  Company is holding inventories in excess of what it expects to sell in the next  fiscal year. The net inventories which are not expected to be realized within  a 12-month period based on current sales forecasts have been reclassified as  long term. Management believes that existing inventories can, and will, be sold  in the future without significant costs to upgrade it to current models and  that the valuation of the inventories, classified both as current and long-term  assets, accurately reflects the realizable values of these assets. The AuraGen(R)  product being sold currently is not technologically different from those in  inventory. Existing finished goods inventories can be upgraded to the current  model with only a small amount of materials and manpower. We make these assessments  based on the following factors: i) existing orders, ii) age of the inventory,  iii) historical experience and iv) the Company's expectations as to future sales.  If expected sales volumes do not materialize, there would be a material impact  on the Company's financial statements.
**Valuation of Long-Lived  Assets**
 Long-lived assets, consisting  primarily of property and equipment, and patents and trademarks, comprise a  significant portion of the Company's total assets.  Long-lived assets are reviewed  for impairment whenever events or changes in circumstances indicate that their  carrying values may not be recoverable. Recoverability of assets is measured  by a comparison of the carrying value of an asset to the future net cash flows  expected to be generated by those assets. Net cash flows are estimated based  on expectations as to the realizability of the asset. Factors that could trigger  a review include significant changes in the manner of an asset's use or the  Company's overall strategy.

 Specific asset categories  are treated as follows:

 Accounts Receivable: The  Company records an allowance for doubtful accounts based on management's expectation  of collectibility of current and past due accounts receivable.

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

14

AURA SYSTEMS, INC. AND SUBSIDIARIES  QUARTER AND NINE MONTHS ENDED NOVEMBER 30, 2003 
Long-Term Investments:  As the Company does not hold a sufficient interest in its investments to exercise  significant influence and the fair market value of the investments are not readily  determinable, long-term investments have been accounted for under the cost method.  Management reviews financial and other available information pertaining to such  investments to determine if and when a decline, other than temporary, in the  value of any investment has occurred and an adjustment is warranted.

 Patents and trademarks:  As the Company's business depends on using new technology to create new products,  impairments in patents can be triggered by changed expectations regarding the  foreseeable commercial production of products underlying such patents.

 When the Company determines  that an asset is impaired, it measures any such impairment by discounting an  asset's realizable value to the present using a discount rate appropriate to  the perceived risk in realizing such value. When the Company determines that  an impaired asset has no foreseeable realizable value, it writes such asset  down to zero.
 Financial Position, Liquidity  and Capital Resources
 The Company continues to  experience acute liquidity challenges.  The Company had cash of approximately  $260,000 and $160,000 at November 30 and February 28, 2003, respectively.  For  the nine months ended November 30, 2003 and the year ended February 28, 2003,  the Company incurred a net loss of approximately $7,600,000 and $16,100,000,  respectively, on net revenues of approximately $1,300,000 and $1,100,000, respectively.  The Company had working capital deficiencies at November 30 and February 28,  2003 of approximately $15,100,000 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 December 31,  2003, the Company had approximately $150,000 of cash.

 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 the remainder of its current  fiscal year, ending February 29, 2004, and its next fiscal year, ending February  28, 2005. 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 has no bank line of credit.

  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.  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. 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.   If financing  cannot be arranged in the amounts and at the times required, the Company will  cease operations.

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AURA SYSTEMS, INC. AND SUBSIDIARIES  QUARTER AND NINE MONTHS ENDED NOVEMBER 30, 2003 
Due to the Company's  acute liquidity challenges, it has defaulted in payments under many of its financial  obligations (see Note 6 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 November 30, 2003, the  Company had accounts receivable, net of allowance for doubtful accounts, of  $624,692; $410,717 at February 28, 2003.  As of December 31, 2003, the Company  had net accounts receivable of approximately $610,000.

 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.

 There was no spending for  property and equipment in the Nine Months FY2004 and only $6,491 spent in the  Nine 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 $446,449  were made in Nine Months FY2004 as compared to $1,126,182 in Nine 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.  The Company is required to issue approximately  6,900,000 additional shares and has issued 5,500,000 additional warrants to  Purchasers due to its failure to register the shares for resale.

16

AURA SYSTEMS, INC. AND SUBSIDIARIES  QUARTER AND NINE MONTHS ENDED NOVEMBER 30, 2003
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 register  the previously issued shares  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 Nine 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 November 30, 2003, 591,110 shares of Series A Preferred  were outstanding, issued as set forth below.

 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.

17

AURA SYSTEMS, INC. AND SUBSIDIARIES  QUARTER AND NINE MONTHS ENDED NOVEMBER 30, 2003 
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 November 30, 2003,  the Company has received an additional $3,372,242 of interim funding.  These  amounts are evidenced by secured notes payable (the "Secured Notes")  on March 31, 2004.  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 December 1, 2003 through  January 14,  2004, the Company has received an additional $680,000****of interim  funding evidenced by additional Secured Notes.  In connection with this financing,  the Company agreed to issue warrants to purchase an aggregate of 3,200,000 shares  of common stock at a price per share of $0.11, exercisable through January 7,  2011, as an inducement to the lender to continue providing funding and in resolution  of a prior commitment of the Company.  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.

  -   the Company issued 57,090 shares of Series A Preferred in a private placement  for net cash proceeds of $259,500. 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 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.

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AURA SYSTEMS, INC. AND SUBSIDIARIES  QUARTER AND NINE MONTHS ENDED NOVEMBER 30, 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.
PART  II - OTHER INFORMATIONITEM  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  6 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.   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.  

19

AURA SYSTEMS, INC. AND SUBSIDIARIES  QUARTER AND NINE MONTHS ENDED NOVEMBER 30, 2003 
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.

 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.

20

AURA SYSTEMS, INC. AND SUBSIDIARIES  QUARTER AND NINE MONTHS ENDED NOVEMBER 30, 2003 
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.

 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.

21

AURA SYSTEMS, INC. AND SUBSIDIARIES  QUARTER AND NINE MONTHS ENDED NOVEMBER 30, 2003 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 to

 Section 906 of the Sarbanes-Oxley  Act of 2002

 99.2 -   Certification Pursuant  to 18 U.S.C. Section 1350, as Adopted Pursuant to

 Section 906 of the Sarbanes-Oxley  Act of 2002

  b)   Reports on Form 8-K:

 None.

**SIGNATURES**

 Pursuant  to the requirements of the Securities Exchange Act of 1934, the registrant has  duly caused this report to be signed on its behalf by the undersigned thereunto  duly authorized.

              AURA SYSTEMS, INC.                (Registrant)

 Date:      January 14,  2004                                                 By:    /s/David  A. Rescino                                

**David A. Rescino**
**Interim Chief Financial  Officer**(Principal  Financial and Accounting Officer and Duly  Authorized Officer)
22

AURA SYSTEMS, INC. AND SUBSIDIARIES  QUARTER AND NINE MONTHS ENDED NOVEMBER 30, 2003 
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 OfficerJanuary 14,  2004
23

AURA SYSTEMS, INC. AND SUBSIDIARIES  QUARTER AND NINE MONTHS ENDED NOVEMBER 30, 2003 
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 OfficerJanuary 14,  2004
24

AURA SYSTEMS, INC. AND SUBSIDIARIES  QUARTER AND NINE MONTHS ENDED NOVEMBER 30, 2003 
 EXHIBIT  99.1

 CERTIFICATION  PURSUANT TO 18  U.S.C. SECTION 1350 AS  ADOPTED PURSUANT TO SECTION  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, 2003 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. Meehan  Chairman & Chief Executive Officer  January 14,  2004
 EXHIBIT  99.2

 CERTIFICATION  PURSUANT TO 18  U.S.C. SECTION 1350 AS  ADOPTED PURSUANT TO SECTION  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, 2003 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. Rescino  Interim Chief Financial Officer  January 14,  2004