<PAGE>
 
================================================================================

                       SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C. 20549


                                   FORM 10-Q


                 QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
                      THE SECURITIES EXCHANGE ACT OF 1934


For the Quarter Ended November 30, 1997           Commission File Number 0-17249



                               AURA SYSTEMS, INC.
             (Exact name of Registrant as specified in its charter)

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

                                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 13, 1998
               -----                    -------------------------------

         Common Stock, par value                79,952,188 Shares
               $.005 per share

================================================================================
<PAGE>
 
                      AURA SYSTEMS, INC. AND SUBSIDIARIES

                                     INDEX
<TABLE>
<CAPTION>

                                                                                       Page No.
<S>               <C>                                                                   <C>
PART I.     FINANCIAL INFORMATION

     ITEM 1.      Financial Statements
 
                  Statement Regarding Financial Information                                 2
 
                  Condensed Consolidated Balance Sheets
                  as of November 30, 1997 and  February 28, 1997                            3
 
                  Condensed Consolidated Statement of Operations
                  for the Three Months and Nine Months Ended
                  November 30, 1997 and 1996                                                4
 
                  Condensed Consolidated Statements of Cash Flows
                  for the Nine Months Ended November 30, 1997 and 1996                      5
 
                  Notes to Condensed Consolidated Financial
                  Statements                                                                6
 
     ITEM 2.      Management's Discussion and Analysis
                  of Financial Condition and Results of Operations                          8
 
PART II.    OTHER INFORMATION
 
     ITEM 1.      Legal Proceedings                                                        11
 
     ITEM 2.      Changes in Securities                                                    11
 
     ITEM 6.      Exhibits and Reports on Form 8-K                                         11
 
SIGNATURES                                                                                 12
</TABLE>
<PAGE>
 
                      AURA SYSTEMS, INC. AND SUBSIDIARIES

                        QUARTER ENDED NOVEMBER 30, 1997

                         PART I. FINANCIAL INFORMATION

The financial statements included herein have been prepared by Aura Systems,
Inc. (the "Company"), without audit, pursuant to the rules and regulations of
the Securities and Exchange Commission (the "SEC"). As contemplated by the SEC
under Rule 10-01 of Regulation S-X, the accompanying financial statements and
footnotes have been condensed and therefore do not contain all disclosures
required by generally accepted accounting principles. However, the Company
believes that the disclosures are adequate to make the information presented not
misleading. These financial statements should be read in conjunction with the
financial statements and notes thereto included in the Company's Form 10-K for
the year ended February 28, 1997 as filed with the SEC (file number 0-17249).

                                       2
<PAGE>
 
                      AURA SYSTEMS, INC. AND SUBSIDIARIES
                     CONDENSED CONSOLIDATED BALANCE SHEETS
                                  (UNAUDITED)
<TABLE>
<CAPTION>
 
                                            NOVEMBER 30,    FEBRUARY 28,
ASSETS                                          1997            1997
                                           --------------   -------------
<S>                                        <C>              <C>
 
CURRENT ASSETS
  Cash and equivalents                      $ 12,360,905    $  7,112,354
  Receivables-net                             58,253,298      53,743,698
  Inventories and contract in process         50,083,642      33,847,296
  Prepayments and deposits                     9,502,978       7,695,268
  Other current assets                         1,234,609         391,361
                                            ------------    ------------
 
           TOTAL CURRENT ASSETS              131,435,432     102,789,977
                                            ------------    ------------
 
  Property and equipment, at cost             65,111,758      52,867,243
  Less accumulated depreciation
   and amortization                          (10,856,856)     (9,676,454) 
                                            ------------    ------------   
                                                           
 
NET PROPERTY AND EQUIPMENT                    54,254,902      43,190,789
 
  Joint ventures                               9,526,360      10,210,872
  Long-Term investments                        6,993,472       6,534,498
  Long-Term receivables                        4,611,546       6,974,242
  Patents, net                                 2,868,959       2,905,870
  Goodwill, net                                6,238,092       6,540,990
  Other assets                                 8,027,554       3,381,161
                                            ------------    ------------
           Total                            $223,956,317    $182,528,399
                                            ============    ============
 
LIABILITIES AND STOCKHOLDER'S EQUITY
 
CURRENT LIABILITIES
  Notes payable                             $ 16,314,416    $ 14,859,567
  Accounts payable                            28,246,096      23,716,251
  Accrued expenses                             2,422,318       1,903,444
                                            ------------    ------------
 
           TOTAL CURRENT LIABILITIES          46,982,830      40,479,262

Notes payable and other liabilities            3,624,457       4,458,650
Convertible notes secured                      2,662,900       3,662,900
Unsecured notes payable                       29,000,000       8,450,000
                                            ------------    ------------
 
TOTAL LIABILITIES                             82,270,187      57,050,812
 
Minority interests                             9,435,000              --
 
COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' EQUITY
 Common stock par value $.005 per share
  paid in capital.  Issued and
  outstanding 79,760,500 and                      
  76,481,666 shares respectively.            201,395,283     196,039,793 
 Accumulated deficit                         (69,144,153)    (70,562,206)
                                            ------------    ------------
 
     Total stockholders' equity              132,251,130     125,477,587
                                            ------------    ------------
     Total                                  $223,956,317    $182,528,399
                                            ============    ============
</TABLE>
     See accompanying notes to condensed consolidated financial statements.

                                       3
<PAGE>
 
                      AURA SYSTEMS, INC. AND SUBSIDIARIES
                CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
             THREE AND NINE MONTHS ENDED NOVEMBER 30, 1997 AND 1996
                                  (UNAUDITED)
<TABLE>
<CAPTION>
 
 
                                                  THREE MONTHS                  NINE  MONTHS
                                                  ------------                  ------------
                                               1997           1996            1997            1996
                                               ----           -----          -----            ----
<S>                                        <C>            <C>            <C>             <C> 
NET REVENUES                               $48,215,300    $34,343,027    $108,769,267     $80,322,923
 
  Cost of goods and overhead                38,622,290     25,814,596      82,576,867      59,004,256
                                           -----------    -----------    ------------     -----------
 
GROSS PROFIT                                 9,593,010      8,528,431      26,192,400      21,318,667
 
EXPENSES
 
  Selling, general and administrative       14,415,182      5,293,397      26,266,825      13,236,608
  Research and development                     413,286      2,255,398       2,522,680       5,719,512
                                           -----------    -----------    ------------     -----------
 
   Total costs and expenses                 14,828,468      7,548,795      28,789,505      18,956,120
                                           -----------    -----------    ------------     -----------
 
INCOME (LOSS) FROM OPERATIONS               (5,235,458)       979,636      (2,597,105)      2,362,547
 
OTHER (INCOME) AND EXPENSE
 
  Gain on sale and issuance of
   subsidiary stock and other assets        (9,832,688)            --      (9,832,688)             --
  Interest income                              (53,092)       (86,352)        (87,498)       (235,055)
  Interest expense                           2,189,695        197,742       4,193,119         598,694
                                           -----------    -----------    ------------     -----------
NET INCOME BEFORE TAXES                      2,460,627        868,246       3,129,962       1,998,908
 
  Provision for taxes                          970,015             --         970,015              --
                                           -----------    -----------    ------------    ------------
Net income before minority
  interest in income of
  consolidated subsidiary                    1,490,612             --       2,159,947              --
Minority interest in income
  of consolidated subsidiary                   741,894             --         741,894              --
                                           -----------    -----------    ------------    ------------
NET INCOME                                 $   748,718    $   868,246    $  1,418,053     $ 1,998,908
                                           ===========    ===========    ============     ===========
NET INCOME PER SHARE                       $       .01    $       .01    $        .02     $       .03
                                           ===========    ===========    ============     ===========
WEIGHTED AVERAGE SHARES USED
  TO COMPUTE NET INCOME PER SHARE           79,749,922     68,698,838      78,728,064      65,818,905
                                           ===========    ===========    ============     ===========
</TABLE>

     See accompanying notes to condensed consolidated financial statements.

                                       4
<PAGE>
 
                      AURA SYSTEMS, INC. AND SUBSIDIARIES
                CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
              FOR THE NINE MONTHS ENDED NOVEMBER 30, 1997 AND 1996
                                  (UNAUDITED)
<TABLE>
<CAPTION>
 
                                                                        1997            1996     
                                                                      -------         -------    
<S>                                                                 <C>             <C>          
NET CASH (USED) IN OPERATIONS                                       $ (9,879,690)   $(29,187,319)
                                                                    ------------    ------------ 
CASH FLOWS FROM INVESTING ACTIVITIES:                                                            
                                                                                                 
  Additions to property and equipment                                (12,244,515)     (2,866,851)
  Disposition of property and equipment                                  200,000              -- 
  Equity Investments                                                          --      (1,000,000)
  Proceeds from sale of minority interest                              2,552,100              -- 
                                                                    ------------    ------------ 

   NET CASH PROVIDED BY (USED) IN                                                                
    INVESTING ACTIVITIES                                              (9,492,415)     (3,866,851)
                                                                                                 
CASH FLOWS FROM FINANCING ACTIVITIES:                                                            
                                                                                                 
  Net proceeds (repayment) from short-term borrowing                   1,454,849         833,878 
  Proceeds from issuance of convertible debt                          29,000,000      18,850,000 
  Net proceeds (repayment) of debt                                    (5,834,193)       (767,603)
  Proceeds from exercise of stock options                                     --          35,000 
  Proceeds from exercise of warrants                                          --         600,000 
  Proceeds from issuance of common stock                                      --       1,501,500 
                                                                    ------------    ------------ 
   NET CASH PROVIDED BY FINANCING ACTIVITIES:                         24,620,656      21,052,775 
                                                                    ------------    ------------ 
NET INCREASE (DECREASE) IN CASH                                        5,248,551     (12,001,395)
                                                                                                 
Cash and cash equivalents at beginning of year                         7,112,354      21,900,364 
                                                                    ------------    ------------ 
CASH AND CASH EQUIVALENTS AT END OF PERIOD                          $ 12,360,905    $  9,898,969 
                                                                    ============    ============ 
Supplemental disclosures of cash flow information 
     Cash paid during the period for:
           Interest                                                 $  2,772,939    $    519,545 
           Income Tax                                                      9,200           6,400 
                                                                    ============    ============  
</TABLE>                                                      
Supplemental disclosure of noncash investing and financing activities:

In the nine months ended November 30, 1997, $5,086,600 of convertible notes
payable were converted into common stock.

In the nine months ended November 30, 1997, the Company disposed of assets in
exchange for a note receivable of $503,385 and cash of $200,000, which is
included above.

In the nine months ended November 30, 1996 $22,510,000 of convertible notes
payable were converted into common stock.  In the nine months ended November 30,
1996, the Company issued 640,000 shares of common stock for the acquisition of
MYS Corp.



     See accompanying notes to condensed consolidated financial statements.

                                       5
<PAGE>
 
                               AURA SYSTEMS, INC.
                        NOTES TO CONDENSED CONSOLIDATED
                              FINANCIAL STATEMENTS
                                  (UNAUDITED)


1)   MANAGEMENT OPINION

     The condensed consolidated financial statements include the accounts of
Aura Systems, Inc. ("the Company") and subsidiaries from the effective dates of
acquisition. All material inter-company balances and inter-company transactions
have been eliminated.

     In the opinion of management, the accompanying condensed consolidated
financial statements reflect all adjustments (which include only normal
recurring adjustments) and reclassifications for comparability necessary to
present fairly the financial position and results of operations as of and for
the three and nine months ended November 30, 1997.

2)   CAPITAL

     In the nine months ended November 30, 1997, $5,086,600 of convertible notes
were converted into common stock of the Company.

     In the nine months ended November 30, 1996, options to purchase 10,000
shares of common stock and warrants to purchase 300,000 shares of common stock
were exercised resulting in proceeds of $635,000.  Additionally the Company
received proceeds of $1,501,500 from the sale of 385,000 shares of common stock
in the nine months ended November 30, 1996.

3)   SIGNIFICANT CUSTOMERS

     The Company sold sound related products and computer related products to
four significant customers during the nine months ended November 30, 1997.
Sales of speakers to a single major electronics retailer accounted for
approximately $11.1 million in the period ended November 30, 1997 as compared to
approximately $14.5 million in the prior year comparable period.  Sales of
communication and multimedia products to major mass merchandisers Best Buy,
Circuit City and Computer City accounted for approximately $39.6 million in the
nine months ended November 30, 1997 as compared to approximately $6.7 million in
the prior year period.

     Sales of computer monitors to three unrelated parties in the nine months
ended November 30, 1997 totalled approximately $10.8 million as compared to
approximately $12.9 million to a single unrelated party in the prior year
period.

     None of the above customers are related or affiliated with the Company or
any customers of the Company. The Company has no reason to believe that sales to
any of the current years customers will not continue.

4)   MINORITY INTERESTS

     In September 1997, a wholly owned subsidiary of the Company, Newcom, Inc.,
completed an Initial Public Offering in which 2,000,000 newly issued shares were
sold to the public along with 300,000 shares of the Company's holdings. This
results in a minority interest holding in NewCom, Inc. of approximately 27.9%,
which is reflected in the accompanying balance sheet. As a result of this
transaction, the Company has reported a gain in the quarter ended November 30,
1997 of approximately $2.1 million on the sale of the 300,000 shares, and
approximately $7.4 million on the sale of the minority interest.

                                       6
<PAGE>
 
5)   CONTINGENCIES

     The Company is engaged in various legal actions listed below.  To the
extent that judgment has been rendered, appropriate provision has been made in
the financial statements.

     Barovich/Chiau v. Aura
     ----------------------

     In May, 1995 two lawsuits naming Aura, certain of its directors and
executive officers and a former executive officer as defendants, were filed in
the United States District Court for the Central District of California (Case
Nos. CV-95-3296). Both complaints purported to be securities class actions on
behalf of all persons who purchased common stock of Aura during the period from
May 28, 1993 through January 17, 1995, inclusive (the "Class Period"). The
Complaints alleged that as a result of false and misleading information
disseminated by the defendants, the market price of Aura's common stock was
artificially inflated during the Class Period.

     On February 16, 1996, the Company filed its motion for summary judgment
which was granted on April 15, 1996. Judgment in favor of the Company and all
defendants was entered on April 16, 1996, thereby dismissing the action.
Plaintiff's thereafter filed a Notice of Appeal to the judgment on May 16, 1996
and, on January 9, 1998, the United States Court of Appeals for the Ninth
Circuit issued a memorandum decision reversing the grant of summary judgment on
technical grounds, remanding the case back to the district court.

     Morganstein/Ratner v. Aura
     --------------------------

     On April 28, 1997 and May 28, 1997, respectively, two lawsuits naming Aura,
certain of its directors and executive officers, and the Company's independent
accounting firm were filed in the United States District Court for the Central
District of California (Case Nos. 97-3103, 97-3944). They purport to be
securities class actions on behalf of all persons who purchased common stock of
Aura during the alleged periods from January 18, 1995 to April 25, 1997,
inclusive, and from December 1, 1994 to May 27, 1997, inclusive (the "Class
Period"). The complaints, which are consolidated, allege that as a result of
false and misleading information disseminated by the defendants, the market
price of Aura's common stock was artificially inflated during the Class Period.
They contain allegations which assert that the Company violated federal
securities laws by selling Aura Common stock at discounts to the prevailing U.S.
market price under Regulation S without informing Aura's shareholders or the
public at large.

     On August 25, 1997, the Company filed a motion to dismiss plaintiff's
amended consolidated complaint, which motion was denied on November 24, 1997.
The Company believes it has meritorious defenses and intends to pursue all of
its available remedies in this matter, and sanctions if warranted against the
plaintiff and the attorneys, one of whom filed such a strike suit against the
Company in the past.

     Securities and Exchange Commission Settlement.
     ----------------------------------------------

     In October 1996, the Securities and Exchange Commission ("Commission")
issued an order (Securities Act Release No. 7352) instituting an administrative
proceeding against Aura Systems, Zvi Kurtzman, and an Aura former officer. The
proceeding was settled on consent of all the parties, without admitting or
denying any of the Commission's findings. In its order, the Commission found
that Aura and the others violated the reporting, recordkeeping and anti-fraud
provisions of the securities laws in 1993 and 1994 in connection with its
reporting on two transactions in reports previously filed with the Commission.
The Commission's order directs that each party cease and desist from committing
or causing any future violation of these provisions.

                                       7
<PAGE>
 
     The Commission did not require Aura to restate any of the previously issued
financial statements or otherwise amend any of its prior reports filed with the
Commission. Also, the Commission did not seek any monetary penalties from Aura,
Mr. Kurtzman or anyone else. Neither Mr. Kurtzman nor anyone else personally
benefited in any way from these events. For a more complete description of the
Commission's Order, see the Commission's release referred to above.

     Other Litigation.
     -----------------

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

6)   SUBSEQUENT EVENT

     On December 31, 1997, Aura issued and sold Convertible Debentures in the
aggregate amount of $5.5 million (the "Debentures") to two institutional
investors. The Company will use the proceeds from the sale of the Debentures for
working capital and general corporate purposes. The Debentures bear interest at
the rate of 7% per annum, payable quarterly, with the entire principal amount
due and payable on December 31, 2002, subject to prior redemption or conversion.
The Debentures are convertible, at the option of the holder, into the Company's
Common Stock at a fixed conversion price of $3.81 per share.

     As part of the financing, the investors received an aggregate of 1,585,865
five-year Warrants, exercisable at $3.81 per share, which price was equal to the
average closing bid price of the Common Stock over the five trading days prior
to closing.

                                       8
<PAGE>
 
                      MANAGEMENT'S DISCUSSION AND ANALYSIS
                OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

     RESULTS OF OPERATIONS

     Net revenue for the three and nine month periods ended November 30, 1997
increased by $13,872,273 and $28,446,344 respectively, from the corresponding
periods in the prior year. The increased revenues resulted primarily from sales
from the Company's NewCom subsidiary and sales of speaker products, including
the Company's subsidiary MYS Corporation.

     The Company sold sound related products and computer related products to
four significant customers during the nine months ended November 30, 1997. Sales
of speakers to a single major electronics retailer accounted for approximately
$11.1 million in the period ended November 30, 1997 as compared to approximately
$14.5 million in the prior year comparable period. Sales of communication and
multimedia products to major mass merchandisers Best Buy, Circuit City and
Computer City accounted for approximately $39.6 million in the nine months ended
November 30, 1997 as compared to approximately $6.7 million in the prior year
period.

     None of the above customers are related or affiliated with the Company or
any customers of the Company. The Company has no reason to believe that sales to
any of the current years customers will not continue.

     Income from operations for the three and nine months decreased by
$6,215,094 and $4,959,652 over the prior year comparable period to a loss of
$5,235,458 and a loss of $2,597,105 for the three and nine months due primarily
to non-cash charges of approximately $6.5 million in the third quarter.

     For the three months ended November 30, 1997, the Company earned $748,718
on net revenues of $48,215,300 compared to earnings of $868,246 on net revenues
of $34,343,027 for the comparable prior year period. For the nine months ended
November 30, 1997, the Company earned $1,418,053 on net revenues of
$108,769,267, compared to earnings of $1,998,908 on net revenues of $80,322,923
in the prior year nine months.

     The reported results include the following among others. Net interest
expense increased by $2,025,213 and $3,741,982 respectively over the prior year
periods due to higher levels of borrowing over the prior year and premiums paid
on the early redemption of convertible notes resulting in a decrease in net
income of $3,738,850 and $4,200,177 for the three and nine month periods.

     In February, 1995, the Company entered into two separate license agreements
with K&K Enterprises, one for the production of speakers and one for the
production of Bass Shakers. The Company was paid approximately $1.0 million in
cash in the year ended February 28, 1996 on these licenses. Due to continued
quality problems in production, the Company set up a reserve of $620,000 during
the second quarter. Following negotiations in the current quarter, the parties
have decided to terminate the license agreements between them. As a result, the
Company is taking a non cash charge in the current quarter for the remaining
balance of the unpaid license fee. The Company has now fully moved its
manufacturing of these products to Malaysia, the Philippines and Mexico, where
the Company had also been manufacturing these products for the last year.

     Cost of goods and overhead for the three and nine months ended November 30,
1997 increased by $12,807,694 and $23,572,611 in comparison with the
corresponding periods in the prior year primarily as a result of the increase in
purchased parts associated with the increase in the unit volume of sales of the
variety of products sold by the Company.

                                       9
<PAGE>
 
     Research and development costs for the three and nine months ended November
30, 1997 decreased by $1,842,112 and $3,196,832 as the Company continued to
focus its attention in the sales area and in readying new products for
manufacturing, primarily the Auragen and new speaker lines.

     General and administrative costs increased for the three and nine month
periods by $9,121,785 and $13,030,217 respectively, primarily due to the non
cash charges described earlier and the Company's continued expansion of its
facilities and staff and the higher level of advertising support for the
products of the Company's NewCom subsidiary. Excluding the non-cash, non-
recurring charges of approximately $6.5 million, general and administrative
costs increased approximately $2.6 million and $6.5 million, respectively for
the third quarter and nine months.

     In September 1997, a wholly owned subsidiary of the Company, Newcom, Inc.,
completed an Initial Public Offering in which 2,000,000 newly issued shares were
sold to the public along with 300,000 shares of the Company's holdings. This
results in a minority interest holding in NewCom, Inc. of approximately 27.2%,
which is reflected in the accompanying balance sheet. As a result of this
transaction, the Company has reported a gain in the quarter ended November 30,
1997 of approximately $2.1 million on the sale of the 300,000 shares, and
approximately $7.4 million on the sale of the minority interest.

     LIQUIDITY AND CAPITAL RESOURCES

     In the nine months ended November 30, 1997, cash increased by $5,112,714 to
$12,225,068 from $7,112,354, at February 28, 1997. Accounts payable and accrued
expenses increased by $5,048,719 from February 28, 1997. Inventories increased
by $16,226,330 as the Company began to prepare for increasing shipments of
speakers, multi-media kits, modems and soundcards for the fall selling season.

     The increase in receivables of $4,509,600 is due to the increase in sales
volume which was concentrated in the last month of the quarter as sales began to
increase for the fall selling season.

     Cash flows used in operations decreased by $19,307,629 compared to the
prior year nine months. Working capital increased to $84,452,602 from
$62,310,715 over the fiscal year end level, with the current ratio improving
slightly to 2.8:1from 2.54:1.

     In the nine months ended November 30, 1997, the Company received proceeds
of $29,000,000 from the sale of convertible notes payable. The Company also
redeemed $4,000,000 of previously issued convertible notes. $15 million of these
convertible notes were converted into straight debt with an annual interest rate
of 18%.

     In the nine months ended November 30, 1996, financing activities
contributed $635,000 from the exercise of options to purchase 10,000 shares of
common stock and the exercise of warrants to purchase 300,000 shares of common
stock. Proceeds during the nine month period from the sale of convertible debt
totalled $18,850,000. Additionally, the Company received proceeds of $1,501,500
from the sale of 385,000 shares of common stock in the nine months ended
November 30, 1996.

     In the past, the Company's cash flow generated from operations has not been
sufficient to completely fund its working capital needs. Accordingly, the
Company has also relied upon external sources of financing to maintain its
liquidity, principally private and bank indebtedness and equity financing. No
assurances can be provided that these funding sources will be available in the
future. The Company expects that with the increasing shipments of the Bass
Shakers, speakers, multimedia kits, modems and sound cards, and the initiation
of manufacturing of the Company's AuraGen, cash flows and results of operations
should be favorably impacted in the future. 

                                       10
<PAGE>
 
PART II - OTHER INFORMATION



ITEM 1 Legal Proceedings

       For information regarding pending legal proceedings, see Note 4 to the
       Company's Condensed Consolidated Financial Statements appearing elsewhere
       herein.


ITEM 2 Changes in Securities

       On December 31, 1997, Aura issued and sold Convertible Debentures in the
       aggregate amount of $5.5 million (the "Debentures") to two institutional
       investors.  The Company will use the proceeds from the sale of the
       Debentures for working capital and general corporate purposes.  The
       Debentures bear interest at the rate of 7% per annum, payable quarterly,
       with the entire principal amount due and payable on December 31, 2002,
       subject to prior redemption or conversion.  The Debentures are
       convertible, at the option of the holder, into the Company's Common Stock
       at a fixed conversion  price of $3.81 per share.

       As part of the financing, the investors received an aggregate of
       1,585,865 five-year Warrants, exercisable at $3.81 per share, which price
       was equal to the average closing bid price of the Common Stock over the
       five trading days prior to closing.

ITEM 6 Exhibits and Reports on Form 8-K

       a) Exhibits:
       See Exhibit Index

       b)   Reports On Form 8-K:

       Form 8-K dated November 7, 1997.
 

                                       11
<PAGE>
 
                                   SIGNATURES



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



                                                       AURA SYSTEMS, INC.
                                                     -----------------------
                                                          (Registrant)



Date:   JANUARY 16, 1998          By:  /s/Steven C. Veen
        ----------------               -------------------------------------
                                          STEVEN C. VEEN
                                         Senior Vice President
                                        Chief Financial Officer
                                (Principal Financial and Accounting Officer)

                                       12
<PAGE>
 
                               INDEX TO EXHIBITS
 
 
 Exhibit                                           Sequential
 Number                                            Page No.

 
 EX-27        Financial Data Schedule
 

                                       13