10-Q/A

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Amendment No. 1

to

Form 10-Q

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

For the quarterly period ended.................................................August 31, 2014

OR

[   ]   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from..........................to.............................

AURA SYSTEMS, INC.

(Exact name of Registrant as specified in its charter)

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

4000 Redondo Beach Ave., Suite 101

Redondo Beach, California 90278

(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:

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 by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).         YES [ X ]  NO [   ]

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

Large Accelerated Filer 	Accelerated Filer 
Non-accelerated filer 	Smaller Reporting Company [x]

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

Yes  No [x]

1

APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY

PROCEEDINGS DURING THE PRECEDING FIVE YEARS:

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes  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 October 10, 2014
Common Stock, par value $0.0001 per share	110,601,032 shares

Explanatory Note

Aura Systems, Inc. (the “Company”) is filing this Amendment No. 1 (the “Amendment”) to the Company’s quarterly report on Form 10-Q for the period ended August 31, 2014 (the “Form 10-Q”), filed with the Securities and Exchange Commission on October 15, 2014 (the “Original Filing Date”), solely to file Exhibit 101 to the Form 10-Q in accordance with Rule 405 of Regulation S-T. Exhibit 101 consists of the following materials from the Company’s Form 10-Q, formatted in XBRL (eXtensible Business Reporting Language):

101.INS	XBRL Instance Document
101.SCH	XBRL Taxonomy Schema
101.CAL	XBRL Taxonomy Calculation Linkbase
101.DEF	XBRL Taxonomy Definition Linkbase
101.LAB	XBRL Taxonomy Label Linkbase
101.PRE	XBRL Taxonomy Presentation Linkbase

No other changes have been made to the Form 10-Q. This Amendment speaks as of the Original Filing Date, does not reflect events that may have occurred subsequent to the Original Filing Date, and does not modify or update in any way disclosures made in the Form 10-Q.

2

AURA SYSTEMS, INC.

INDEX

Index			Page No.
PART I.	FINANCIAL INFORMATION
	ITEM 1.	Financial Statements (Unaudited)
		Balance Sheets as of August 31, 2014 and February 28, 2014	4
		Statements of Operations for the Three and Six months Ended August 31, 2014 and 2013	5
		Statements of Cash Flows for the Six months Ended August 31, 2014 and 2013	6
		Notes to Financial Statements	7
	ITEM 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	14
	ITEM 4T.	Controls and Procedures	19
PART II.	OTHER INFORMATION
	ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds	19
	ITEM 6.	Exhibits	20
	SIGNATURES AND CERTIFICATIONS		21

3

PART I.  FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS AURA SYSTEMS, INC.

BALANCE SHEETS

(Unaudited)

	As of August 31, 2014			As of February 28, 2014
ASSETS
Current assets:
Cash and cash equivalents	$	33,950		$	40,927
Accounts receivable, net of allowance for doubtful accounts of $50,000 at August 31 and February 28, 2014, respectively		207,948			125,593
Inventory - current		1,000,000			1,000,000
Other current assets		54,943			100,952
Total current assets		1,296,841			1,267,472
Deposits		100,138			89,138
Property, plant, and equipment, net		2,175			7,954
Inventory, non-current, net of allowance for obsolete inventory of $2,284,130 and $2,412,538 at August 31 and February 28, 2014,  respectively		54,264			131,037
Total assets	$	1,453,418		$	1,495,601
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable	$	1,568,076		$	2,077,513
Accrued expenses		3,259,282			3,385,937
Customer advances		427,911			80,641
Notes payable		1,679,990			1,559,990
Convertible notes payable, net of discount		2,720,700			2,567,556
Notes payable and accrued interest- related party		22,324,825			19,730,372
Total current liabilities		31,980,784			29,402,009
Convertible note payable, net of discount		1,232,430			1,187,598
Convertible note payable and accrued interest-related party, net of discount		1,862,385			2,176,005
Total liabilities		35,075,599			32,765,612
Stockholders' deficit:
Common stock, $0.0001 par value; 150,000,000 shares authorized at August 31 and February 28, 2014; 110,549,032 and 88,914,499 issued and outstanding at August 31 and February 28, 2014, respectively		11,055			8,891
Additional paid-in capital		408,993,726			403,234,261
Accumulated deficit		(442,626,962	)		(434,513,163	)
Total stockholders' deficit		(33,622,181	)		(31,270,011	)
Total liabilities and stockholders' deficit	$	1,453,418		$	1,495,601

See accompanying notes to these unaudited financial statements.

4

AURA SYSTEMS, INC.

STATEMENTS OF OPERATIONS

FOR THE THREE AND SIX MONTHS ENDED AUGUST 31, 2014 AND 2013

(Unaudited)

	Three Months						Six Months
	2014			2013			2014                              2013
Net Revenues	$	510,550		$	615,389		$	960,522		$	1,423,915
Cost of goods sold		295,791			311,735			505,850			631,955
Gross Profit		214,759			303,654			454,672			791,960
Expenses
Engineering, research and development expenses		361,371			304,902			665,374			703,700
Selling, general and administrative expenses		3,132,583			2,274,255			6,256,929			4,839,425
Total costs and expenses		3,493,954			2,579,157			6,922,303			5,543,125
Loss from operations		(3,279,195	)		(2,275,503	)		(6,467,631	)		(4,751,165	)
Other (income) and expense
Interest expense, net		826,312			1,455,568			1,651,748			2,171,866
Other (income) expense, net		-			-			(5,580	)		(212,717	)
Total other (income) expense		826,312			1,455,568			1,646,168			1,959,149
Net Loss	$	(4,105,507	)	$	(3,731,071	)	$	(8,113,799	)	$	(6,710,314	)
Total basic and diluted loss per share	$	(0.04	)	$	(0.04	)	$	(0.08	)	$	(0.08	)
Weighted average shares used to compute basic and diluted income (loss) per share		109,847,945			84,722,108			107,494,204			81,121,697

*Weighted average number of shares used to compute basic and diluted loss per share is the samesince the effect of the dilutive securities is anti-dilutive.

See accompanying notes to these unaudited condensed financial statements.

5

AURA SYSTEMS, INC.

STATEMENTS OF CASH FLOWS

FOR THE SIX MONTHS ENDED AUGUST 31, 2014 AND 2013

(Unaudited)

	2014			2013
Cash flow from operating activities:
Net Loss	$	(8,113,799	)	$	(6,710,314	)
Adjustments to reconcile Net loss to net cash used in operating activities
Depreciation Expense		5,780			24,530
Amortization of debt discount		281,364			455,860
Gain on settlement of debt		-			(203,110	)
Stock issued for services		420,000			889,726
Stock option and warrant expense		3,308,176			548,573
Provision for inventory obsolescence		(128,408	)		(93,691	)
(Increase) decrease in: Accounts receivable		(82,355	)		(256,469	)
Inventory		205,181			300,782
Other current assets and deposit		35,009			8,463
Increase (decrease) in:
Accounts payable, customer deposit and accrued expenses		556,416			1,116,789
Net cash used in operations		(3,512,636	)		(3,918,861	)
Financing activities:
Issuance of common stock		2,033,453			-
Proceeds from notes payable		365,000			535,000
Payments on notes payable		(245,000	)		(120,000	)
Proceeds from convertible notes payable		-			1,170,700
Payments on convertible notes payable		-			(306,250	)
Proceeds from notes payable-related party		2,602,206			2,582,000
Payment for notes payable-related party		(750,000	)		-
Payment for convertible notes payable-related party		(500,000	)		-
Net cash provided by financing activities:		3,505,659			3,861,450
Net increase (decrease) in cash & cash equivalents		(6,977	)		(57,411	)
Cash and cash equivalents at beginning of period		40,927			89,196
Cash and cash equivalents at end of period	$	33,950		$	31,785
Supplemental disclosures of cash flow information
Cash paid during the period for:
Interest		-		$	106,842
Income taxes		-			-

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

During the six months ended August 31, 2014, we issued 2,800,000 shares of Common Stock for services rendered valued at $420,000, 17,334,533 shares of common stock upon the exercise of warrants for proceeds of $1,773,453 and we sold 1,500,000 shares of common stock for proceeds of $300,000.

See accompanying notes to these unaudited condensed financial statements.

6

AURA SYSTEMS, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

(Unaudited)

NOTE 1 - ACCOUNTING POLICIES

Accounting principles

In the opinion of management, the accompanying balance sheets and related interim statements of income and comprehensive income, and cash flows include all adjustments, consisting only of normal recurring items, necessary for their fair presentation in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”). Interim results are not necessarily indicative of results for a full year. The information included in this Form 10-Q should be read in conjunction with information included in the Company’s 2014 Form 10-K filed on June 16, 2014 with the U.S. Securities and Exchange Commission.

Estimates

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

Recently Issued Accounting Pronouncements 

In March 2013, the FASB issued guidance on a parent’s accounting for the cumulative translation adjustment upon de-recognition of a subsidiary or group of assets within a foreign entity. This new guidance requires that the parent release any related cumulative translation adjustment into net income only if the sale or transfer results in the complete or substantially complete liquidation of the foreign entity in which the subsidiary or group of assets had resided. The new guidance will be effective for the Company beginning July 1, 2014. The adoption of this standard is not expected to have a material impact on the Company’s financial statements.

Reclassifications

Certain reclassifications have been made to the comparative financial statements to conform to the current period presentation.

NOTE 2 – GOING CONCERN

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern.  During the six months ended August 31, 2014 and August 31, 2013, the Company incurred losses of $8,113,799 and $6,710,314, respectively and had negative cash flows from operating activities of $3,512,636 and $3,918,861, respectively.

If the Company is unable to generate profits and is unable to continue to obtain financing for its working capital requirements, it may have to curtail its business sharply or cease business altogether.

Substantial additional capital resources will be required to fund continuing expenditures related to our research, development, manufacturing and business development activities.  The Company's continuation as a going concern is dependent upon its ability to generate sufficient cash flow to meet its obligations on a timely basis, to retain its current financing, to obtain additional financing, and ultimately to attain profitability.

The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which contemplate continuation of the Company as a going concern. The consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that could result from the outcome of this uncertainty.

During the next twelve months we intend to continue to expand our AuraGen/Viper business both domestically and internationally. There are four major components necessary to execute a significantly expanding business; (i) augmentation of management and staff, (ii) purchase orders, (iii) facilities and equipment, and (iv) working capital.  We plan to add senior quality assurance and quality control staff as well as a number of mechanical and electrical engineers, a number of technicians, and a number of test engineers. We had planned to take these steps in the current fiscal year, but a lack of resources prevented us from doing so. We anticipate being able to fund these additions in the upcoming fiscal year.

7

NOTE 3 – INVENTORIES

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

	August 31, 2014			February 28, 2014
Raw materials	$	1,816,773		$	1,808,556
Finished goods		1,525,085			1,735,019
		3,341,858			3,543,575
Reserve for potential product obsolescence		(2,287,594	)		(2,334,487	)
Discount on long term inventory		-			(78,051	)
		1,054,264			1,131,037
Non-current portion		-			(131,037	)
Current portion	$	1,054,264		$	1,000,000

We assessed the net realize-ability and the related potential obsolescence of inventory. In accordance with this assessment, management has recorded a reserve of $2,287,594 and $2,334,487 as of August 31, 2014 and February 28, 2014, respectively. Management has also recorded a discount on long term inventory of $0 and $78,051 as of August 31, 2014 and February 28, 2014, respectively.

NOTE 4 – OTHER CURRENT ASSETS

Other assets of $54,943 and $100,952 are primarily comprised of vendor advances of $23,751 and $69,497 as of August 31, 2014 and February 28, 2014.

NOTE 5 – PROPERTY, PLANT, AND EQUIPMENT

Property, plant, and equipment consisted of the following:

	August 31, 2014			February 28, 2014
Machinery and equipment	$	964,111		$	964,111
Furniture and fixtures		163,302			163,302
		1,127,413			1,127,413
Less accumulated depreciation		(1,125,238	)		(1,119,458	)
Property, plant and equipment, net	$	2,175		$	7,955

Depreciation expense was $5,780 and $24,531 for the six months ended August 31, 2014 and August 31, 2013, respectively.

8

NOTE 6 – NOTES PAYABLE

Notes payable consisted of the following:

	August 31, 2014		February 28, 2014
Demand notes payable, at 10% and 16%	$	1,679,990	$	1,559,990
Convertible Promissory Note dated August 10, 2012, due August 10, 2017, convertible into shares of our common stock at a price of $0.76 per share. The note carries an interest rate of 7% with interest only payments due on the 10th of each month with the principal payment due on the maturity date.		817,272		786,198
Convertible Promissory Note dated October 2, 2012, due October 2, 2017, convertible into shares of our common stock at a price of $0.76 per share. The note carries an interest rate of 7% with interest only payments due on the 2nd of each month with the principal payment due on the maturity date.		415,158		401,399
Senior secured convertible notes dated May 7, 2013, due June 15, 2013, convertible into shares of our common stock at a price of $0.75 per share. The notes carry an interest rate of 12% with interest due on the last day of the month. If the note is not repaid by the due date, the interest rate increases to 16%.		2,395,700		2,261,643
Senior secured convertible notes dated June 20, 2013, due June 20, 2014, convertible into shares of our common stock at a price of $0.75 per share. The notes carry an interest rate of 16% with interest due on the last day of the month. If the note is not repaid by the due date, the interest rate increases to 16%.		325,000		305,913
		5,633,120		5,315,143
Less: Current portion	$	4,400,690	$	4,127,545
Long-term portion	$	1,232,430	$	1,187,598

CONVERTIBLE DEBT

On May 7, 2013, the Company transferred 4 notes payable with a total principal value of $1,000,000 together with accrued interest, and consulting fees to a senior secured convertible note with a principal value of $1,087,000 (“new note”) and warrants to Kenmont Capital Partners (the “holder”). The new note has a 1 year maturity date and is convertible into shares of common stock at the conversion price of $0.75 per share, provided, that the Conversion Price shall automatically be reset to $0.50 per share on June 15, 2013 if a Qualified Financing has not occurred on or prior to that date. The warrants entitle the holder to acquire 1,449,333 shares and have an initial exercise price of $0.75 per share, and have a 7 year term. The Company recorded $342,020 as a discount, which is being amortized over the life of the note.

On May 7, 2013, the Company transferred 2 note payables with a total principal value of $550,000 together with accrued interest to a senior secured convertible note with a principal value of $558,700 (“new note”) and warrants to LPD Investments, Ltd. (the “holder”). The new note has a 1 year maturity date and is convertible into shares of common stock at the conversion price of $0.75 per share, provided, that the Conversion Price shall automatically be reset to $0.50 per share on June 15, 2013 if a Qualified Financing has not occurred on or prior to that date. The warrants entitle the holder to acquire 744,933 shares and have an initial exercise price of $0.75 per share, and have a 7 year term. The Company recorded $175,793 as a discount, which is being amortized over the life of the note.

9

On May 7, 2013, the Company entered into an agreement with an individual (the “holder”) for the sale of $750,000 of secured convertible note payable (the “Note”) and warrants to the holder. The Note has a 1 year maturity date and is convertible into shares of common stock at the conversion price of $0.75 per share, provided, that the Conversion Price shall automatically be reset to $0.50 per share on June 15, 2013 if a Qualified Financing has not occurred on or prior to that date. The warrants entitle the holder to acquire 1,000,000 shares and have an initial exercise price of $0.75 per share, and have a 7 year term. The Company recorded $235,985 as a discount, which is being amortized over the life of the note.

On June 20, 2013, the Company entered into an agreement with four individuals (the “holders”) for the sale of $325,000 of secured convertible notes payable (the “Notes”) and warrants to the holders. The Notes have a 1 year maturity date and are convertible into shares of common stock at the conversion price of $0.50 per share. If the Company receives no less than $5,000,000 in aggregate gross proceeds from the sale of equity securities of the Company in one or series of related transactions after June 20, 2013 (“the Qualified Financing”), the Company shall deliver to each Holder a written offer to issue and sell to or exchange with such Holder such number of securities as is equal to the quotient of (x) the conversion balance of the Note divided by (y) 100% of the purchase price of the primary securities offered to investors pursuant to the Qualified Financing. The warrants entitle the holders to acquire 433,334 shares and have an initial exercise price of $0.75 per share, and have a 7 year term. The Company recorded $63,622 as a discount, which is being amortized over the life of the notes.

On August 19, 2013, the Company entered into an agreement with a member of its Board of Directors for the sale of $2,500,000 of convertible notes payable (the “Notes”) and warrants to the holder. The notes carry a base interest rate of 9.5%, have a 4 year maturity date and are convertible into shares of common stock at the conversion price of $0.50 per share. The warrants entitle the holder to acquire 5,000,000 shares and have an initial exercise price of $0.75 per share and have a 7 year term. The Company recorded $667,118 as a discount, which is being amortized over the life of the note. On June 20, 2013, $500,000 of this note was converted to a demand note payable.

Future maturities of notes payable at August 31, 2014 are as follows:

Year Ending February 28,
2015	$	-
2016		-
2017		1,232,430
Total	$	1,232,430

7% Convertible Promissory Notes:

On August 10, 2012 the Company entered into an agreement with the individual (the “holder”) for the sale of $1,000,000 of unsecured Convertible Promissory Note (the “Note”) to the holder. The Convertible Promissory Note balance together with all accrued interest thereon shall be due and payable on August 10, 2017 and the annual interest rate is 7% per annum and is due to be repaid 5 years from the closing date.  The Note holder will receive interest on the unpaid principal amount payable monthly in arrears on the tenth day of each calendar month commencing September 10, 2012. Interest shall be computed on the actual number of days elapsed over a 360-day year. The Holder has the right from and after the Date of Issuance, and until any time until the Convertible promissory note is fully paid, to convert any outstanding and unpaid principal portion of the Convertible promissory note into shares of Common Stock. The company recorded $310,723 as a debt discount, which is being amortized over the life of the note.

On October 2, 2012 the Company entered into an agreement with the individual (the “holder”) for the sale of $500,000 of unsecured Convertible Promissory Note (the “Note”) to the holder. The Convertible Promissory Note balance together with all accrued interest thereon shall be due and payable on October 2, 2017 and the annual interest rate is 7% per annum and is due to be repaid 5 years from the closing date.  The Note holder will receive interest on the unpaid principal amount payable monthly in arrears on the second day of each calendar month commencing November 2, 2012. Interest shall be computed on the actual number of days elapsed over a 360-day year. The Holder has the right from and after the Date of Issuance, and until any time until the Convertible promissory note is fully paid, to convert any outstanding and unpaid principal portion of the Convertible promissory note into shares of Common Stock. The company recorded $137,583 as a debt discount, which is being amortized over the life of the note.

On November 2, 2012 the Company entered into an agreement with the individual (the “holder”) for the sale of $350,000 of unsecured Convertible Promissory Note (the “Note”) to the holder. The Convertible Promissory Note balance together with all accrued interest thereon shall be due and payable on January 4, 2013 and the annual interest rate is 7% per annum and is due to be repaid 2 months from the closing date.  The Note holder will receive interest on the unpaid principal amount payable monthly in arrears on the second day of each calendar month commencing December 2, 2012. Interest shall be computed on the actual number of days elapsed over a 360-day year. The Holder has the right from and after the Date of Issuance, and until any time until the Convertible promissory note is fully paid, to convert any outstanding and unpaid principal portion of the Convertible promissory note into shares of Common Stock. On May 7, 2013, this note was converted into a portion of the note due June 15, 2013, which carries an interest rate of 12%.

10

The Convertible Notes have a variable conversion price. If, at any time while the Notes remain outstanding, the Company issues or sells any Convertible Securities and the lowest price per share for which one share of Common Stock is issuable upon the conversion, exercise or exchange thereof is less than the then Conversion Price of the Notes (such lower price, the "Dilutive Price"), then the Conversion Price of these Notes shall be adjusted to reflect such Dilutive Price. Such adjustment shall be made upon the issuance or sale of the Convertible Security bearing a dilutive price. In the event of default for the Notes, the amount of principal and interest not paid when due becomes immediately due and payable.

NOTE 7 - ACCRUED EXPENSES

Accrued expenses consisted of the following:

	August 31, 2014		February 28, 2014
Accrued payroll and related expenses	$	2,223,401	$	2,729,944
Accrued rent		208,735		198,111
Accrued interest		818,164		456,801
Other		8,982		1,079
Total	$	3,259,282	$	3,385,937

Accrued payroll and related expenses consisted primarily of salaries accrued but not paid to certain employees. As of August 31, 2014 and February 28, 2014, these amounts total $1,778,172 and $2,113,061, respectively. Also included in this amount is accrued vacation expense of $411,136 and $418,131 at August 31, 2014 and February 28, 2014, respectively.

NOTE 8–SHAREHOLDERS’ EQUITY

Common Stock

During the six months ended August 31, 2014, we issued 2,800,000 shares of Common Stock for services rendered valued at $420,000, 17,334,533 shares of common stock upon the exercise of warrants for proceeds of $1,773,453 and we sold 1,500,000 shares of common stock for proceeds of $300,000.

During the six months ended August 31, 2013, $1,330,112 of notes payable and accrued interest were converted into 2,660,225 shares of common stock, 595,451 shares of common stock were issued for services and expenses related to the notes valued at $297,726, 1,833,333 shares of common stock were issued to re-price a prior issuance of stock in December 2012, 1,266,667 shares valued at $304,000 and 1,000,000 warrants valued at $133,424 were issued as a settlement for failure to repay a $500,000 note when due, 700,000 shares valued at $168,000 and 700,000 warrants valued at $93,397 were issued as consideration for issuing a letter of credit for $350,000 on Aura’s behalf, 500,000 shares valued at $120,000 and 800,000 warrants valued at $106,739 were issued to an individual as consideration for joining Aura’s Board of Directors and 4,254,250 shares of common stock were issued in exchange for the cancellation of warrants to purchase 5,005,000 shares of common stock at an exercise price of $0.75 per share which would have expired on September 22, 2016.

11

Employee Stock Options

During the six months ended August 31, 2014, there were no stock options granted to employees.

In September, 2006, our Board of Directors adopted the 2006 Employee Stock Option Plan. Activity in this plan is as follows:

	2006 Plan
		Weighted-Average Exercise Price	Aggregate Intrinsic Value	Number of Options
Outstanding, February 28, 2014		$0.75-$1.00	$0.00	8,602,333
Cancelled		$0.75		(825,333)
Granted		-		-
Outstanding, August 31, 2014		$0.75-$1.00	$0.00	7,777,000

The exercise prices for the options outstanding at August 31, 2014, and information relating to these options is as follows:

Options Outstanding

Exercisable Options

Range of Exercise Price

Number

Weighted Average Remaining Life

Weighted Average Exercise Price

Weighted Average Remaining Life

Number

Weighted Average Exercise Price

$0.75-$1.00

7,777,000

5.4 years

$

0.79

5.5 years

7,777,000

$

0.79

Warrants

Activity in issued and outstanding warrants is as follows:

	Number of Shares	Exercise Prices
Outstanding, February 28, 2014	48,503,720	$0.75-$2.00
Granted	17,731,012	$0.10-$0.75
Exercised	(17,334,540)	$0.10
Cancelled	(11,768,430)	$0.75-$1.50
Outstanding, August 31, 2014	37,131,762	$0.10-$2.00

The grant date fair value of the warrants issued in the six months ended August 31, 2014 amounted to $1,910,579 which was calculated using the Black-Scholes option pricing model with the following assumptions: risk free rates of return of 2.18%, volatility of 80.82%, a dividend yield of 0%, and an expected life of 7 years.

The exercise prices for the warrants outstanding at August 31, 2014, and information relating to these warrants is as follows:

Range of Exercise Prices	Stock Warrants Outstanding	Stock Warrants Exercisable	Weighted-Average Remaining Contractual Life	Weighted-Average Exercise Price of Warrants Outstanding	Weighted-Average Exercise Price of Warrants Exercisable	Intrinsic Value
$0.10-$0.75	17,731,012	17,731,012	80 months	$0.55	$0.55	$0.00
$0.75	1,082,734	1,082,734	78 months	$0.75	$0.75	$0.00
$0.75	1,000,000	1,000,000	68 months	$0.75	$0.75	$0.00
$0.75-$1.00	5,990,275	5,990,275	63 months	$0.77	$0.77	$0.00
$1.00-$1.25	795,000	795,000	25 months	$1.05	$1.05	$0.00
$1.00	8,272,187	8,272,187	23 months	$1.00	$1.00	$0.00
$1.50	105,000	105,000	19 months	$1.50	$1.50	$0.00
$0.75-1.50	709,198	709,198	16 months	$1.25	$1.25	$0.00
$1.50	156,000	156,000	12 months	$1.50	$1.50	$0.00
$1.50	704,000	704,000	11 months	$1.50	$1.50	$0.00
$1.50	350,642	350,642	8  months	$1.50	$1.50	$0.00
$2.00	235,714	235,714	2 months	$2.00	$2.00	$0.00
	37,131,762	37,131,762

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NOTE 9 –INCOME TAXES

Our effective tax rates were approximately 0.0% for the three months ended August 31, 2014 and 2013. Our effective tax rate was lower than the U.S. federal statutory rate primarily due to the fact that we record a full valuation allowance against our deferred tax assets, which is primarily comprised of net operating losses.

NOTE 10 - SEGMENT INFORMATION

We are a United States based company providing advanced technology products to various industries. The principal markets for our products are North America, Europe, and Asia.  All of our operating long-lived assets are located in the United States. We operate in one segment.

Total net revenues from customer geographical segments are as follows for the three months ended August 31, 2014 and 2013:

	2014		2013
United States	$	487,455	$	1,150,137
Canada		83,117		78,961
Europe		33,526		24,218
Asia		306,559		161,849
Other		49,865		8,750
Total	$	960,522	$	1,423,915

NOTE 11 – SIGNIFICANT CUSTOMERS

Concentration Risk

In the six months ended August 31, 2014, we sold AuraGen related products to two significant customers whose sales comprised 32% and 21% of net sales, respectively. Net accounts receivable from these customers at August 31, 2014 were $98,567 and $11,366 respectively. These customers are not related to or affiliated with us. In the six months ended August 31, 2013, we sold AuraGen related products to five significant customers whose sales comprised 27.5%, 16.1%, 10.8%, 9.8% and 8.8% of net sales, respectively. Net accounts receivable from these customers at August 31, 2013 were $111,575, $194,250, $22,076, $32,618 and $5,134 respectively. These customers are not related to or affiliated with us.

NOTE 12 – RELATED PARTIES TRANSACTIONS

At August 31, 2014, the balance in Notes Payable and accrued interest-related party, current, includes $13,919,960 of unsecured notes payable plus accrued interest of $5,523,241 to a member of our Board of Directors, payable on demand, bearing interest at a rate of 10% per annum. During the three months ended August 31, 2014 and August 31, 2013, interest amounting to $351,524 and $342,932 respectively, was incurred on these notes. The balance also includes $82,000 of unsecured notes payable plus accrued interest of $11,502 to our CEO pursuant to a demand note entered into on April 5, 2013 and an unsecured note payable to another member of our Board of Directors in the total amount of $2,715,206 plus accrued interest of $54,304 with interest at a rate of 10% per annum.

At August 31, 2014, the balance in Convertible note payable and accrued interest-related party, long term, includes $1,588,989 of secured convertible notes payable net of discounts of $411,011 plus accrued interest of $273,396 to a member of our Board of Directors. The company retains the daughter of a 5% shareholder as its’ corporate attorney. Since January 2013 this has been at a fixed fee of $30,000 per month plus expenses.

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NOTE 13 – COMMITMENTS

In September, 2013, we entered into lease for a facility of approximately 69,000 square feet. The lease is for a term of seven years, has an option to extend for five years, and carries an initial base rent of $46,871.72. In accordance with the terms of the lease, the Company is responsible for common area charges.

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

Forward Looking Statements

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

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

·   Our ability to generate positive cash flow from operations;

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

·   Our business development and  operating development; and

·   Our expectations of growth in demand for our products.

For further information regarding these and other risks and uncertainties, we refer you to Part I, Item 1A of our Form 10-K for the fiscal year ended February 28, 2014.

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

Overview

We design, assemble and sell the AuraGen®, our patented mobile power generator that uses a prime mover such as the engine of a vehicle to generate power. The AuraGen® delivers on-location, plug-in electricity for any end use, including industrial, commercial, recreational and military applications. We began commercializing the AuraGen® in late 1999 and sold our first commercial units in late 2000 and early 2001. To date, AuraGen® units have been sold in numerous industries, including recreational, utilities, telecommunications, emergency/rescue, public works, catering, oil and gas, transportation, government and the military.

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

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Our financial statements included in this report have been prepared on the assumption that we will continue 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 our losses from operations, there is substantial doubt about our ability to continue as a going concern. Our independent auditors, in their report on the Company’s financial statements for the year ended February 28, 2014 expressed substantial doubt about the Company’s 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 our possible inability to continue as a going concern.

Our 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 obtain financing resources to meet our obligations.  There is no assurance that such efforts will be successful.

Our current level of sales reflects our efforts to introduce a new product into the marketplace. Until recently, many purchases of the product were for evaluation purposes. Recently we started to receive repeat orders for larger quantities as different organizations are integrating our products into their vehicles. We seek to achieve profitable operations by obtaining market acceptance of the AuraGen® as a competitive - if not superior - product providing mobile power anywhere anytime. There can be no assurance that this success will be achieved.

Critical Accounting Policies and Estimates

Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of financial statements requires management to make estimates and disclosures on the date of the financial statements. On an on-going basis, we evaluate our estimates, including, but not limited to, those related to revenue recognition. We use authoritative pronouncements, historical experience and other assumptions as the basis for making judgments. Actual results could differ from those estimates. We believe that the following critical accounting policies affect our more significant judgments and estimates in the preparation of our consolidated financial statements.

Revenue Recognition

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

Inventory Valuation and Classification

Inventories consist primarily of components and completed units for our AuraGen® product. Inventories are valued at the lower of cost (first-in, first-out) or market. Provision is made for estimated amounts of current inventories that will ultimately become obsolete due to changes in the product itself or vehicle engine types that go out of production. 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 accurately reflects the realizable values of these assets. The AuraGen® product being sold currently is not technologically different from those in current use. Existing finished goods inventories can be upgraded to the current model with only a small amount of materials and manpower. We make these assessments based on the following factors: i) existing orders, ii) age of the inventory, iii) historical experience and iv) our expectations as to future sales. If expected sales volumes do not materialize, there would be a material impact on our financial statements.

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Valuation of Long-Lived Assets

Long-lived assets, consisting primarily of property and equipment, and patents and trademarks, comprise a portion of our total assets.  Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that their carrying values August 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 realize-ability of the asset. Factors that could trigger a review include significant changes in the manner of an asset’s use or our overall strategy.

Specific asset categories are treated as follows:

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

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

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

Results of Operations

Six months ended August 31, 2014 compared to six months ended August 31, 2013

Net revenues for the six months ended August 31, 2014 (the “Six months FY2015”) decreased $463,393 to $960,522 from $1,423,915 in the six months ended August 31, 2013 (the “Six months FY2014”), a decrease of 33%. The decrease is primarily attributable to decreased sales to four existing customers partially offset by an increase in sales to another customer. These customers are ongoing customers, but do not order on a regular basis. Our customers typically order on an as needed basis and therefore our sales can fluctuate substantially between periods based on our customers’ needs at a given time.

Cost of goods decreased $126,105 (20%) to $505,850 in the Six months FY2015 from $631,955 in the Six months FY2014. The decrease in cost of goods is a result of the decrease in sales for the period combined with the differences in gross margins for the systems sold.

Engineering, research and development expenses decreased $38,326 (5%) to $665,374 in the Six months FY2015 from $703,700 in the Six months FY 2014.  In the past, we have reduced our expenditures in this area due to our financial situation and due to reduced efforts in developments of new configurations.  We expect to be able  to increase our expenditures in this area in the future.

Selling, general and administrative expense increased $1,417,504 (29%) to $6,256,929 in the Six months FY2015 from $4,839,425 in the Six months FY2014. The increase is primarily attributable to non-cash charges of approximately $2,760,000 for warrants issued to replace previously issued and cancelled warrants, and new warrants issued to a board member attached to a note payable, partially offset by a decrease in professional expenses of approximately $500,000 and a decrease in salary expense of approximately $800,000 due to a reduction in the workforce.

 Net interest expense in the Six months FY2015 decreased $520,118 (24%) to $1,651,748 from $2,171,866 in the Six months FY2014 as a result of a reduction in the non-cash amortization of the debt discount, warrant expense and beneficial conversion feature on the notes payable entered into in the prior fiscal year and the decrease in the amortization of the debt discount on the financing completed in the third quarter of FY2012, which was fully repaid in the first quarter of the prior fiscal year. Additionally, the prior year had approximately $470,000 in interest due to penalty issued to a board member and shares issued as compensation for the issuance of a letter of credit by this board member on behalf of the company.

Our net loss for the Six months FY2015 increased $1,403,485 to $8,113,799 from $6,710,314 in the Six months FY2014.

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Three months ended August 31, 2014 compared to three months ended August 31, 2013

Net revenues for the three months ended August 31, 2014 (the “Second Quarter FY2015”) decreased $104,839 to $510,550 from $615,389 in the three months ended August 31, 2013 (the “Second Quarter FY2014”), a decrease of 17%. The decrease is primarily attributable to decreased sales to a single customer of approximatley $230,000partially offset by increased sales to two other customers. These customers are ongoing customers, but do not order on a regular basis.

 Cost of goods decreased $15,944 (5%) to $295,791 in the Second Quarter FY2015 from $311,735 in the Second Quarter FY2014. The decrease in cost of goods is primarily a result of the decrease in sales, combined with the differences in gross margins for the systems sold.

Engineering, research and development expenses increased $56,469 (19%) to $361,371 in the Second Quarter FY2015 from $304,902 in the Second Quarter FY 2013.

Selling, general and administrative expense increased $858,328 (38%) to $3,132,583 in the Second Quarter FY2015 from $2,274,255 in the Second Quarter FY2014. The increase is primarily attributable to non-cash charges of approximately $1,600,000 for warrants issued to replace previously issued and cancelled warrants, and new warrants issued to a board member attached to a note payable, partially offset by a decrease in professional expenses of approximately $60,000 and a decrease in salary expense of approximately $400,000 due to a reduction in the workforce.

Net interest expense in the Second Quarter FY2015 decreased $629,256 (43%) to $826,312 from $1,455,568 in the Second Quarter FY2014. as a result of a reduction in the non-cash amortization of the debt discount, warrant expense and beneficial conversion feature on the notes payable entered into in the prior fiscal year. Additionally, the prior year had approximately $470,000 in interest due to penalty issued to a board member and shares issued as compensation for the issuance of a letter of credit by this board member on behalf of the company.

Our net loss for the Second Quarter FY2015 increased $374,436 to $4,105,507 from $3,731,071900 in the Second Quarter FY2014.

Liquidity and Capital Resources

We had cash of approximately $34,000 and $41,000 as of August 31, 2014, and February 28, 2014, respectively.  We had a working capital deficit at August 31, 2014, and February 28, 2014 of $30,629,679 and $28,134,537, respectively. The working capital deficit includes notes payable and accrued interest to related parties of $22,324,825 and $19,730,372 as of August 31 and February 28, 2014, respectively.  As of August 31, 2014, we had accounts receivable, net of allowance for doubtful accounts, of $207,948 compared to $125,593 as of February 28, 2014. 

Net cash used in operations for the six months ended August 31, 2014, was $3,512,636, a decrease of $406,225 from the comparable period in the prior fiscal year. Net cash provided by financing activities during the six months ended August 31, 2014, was $3,505,659, resulting from net proceeds from notes payable, the exercise of outstanding warrants and the sale of common stock.

There were no acquisitions of property and equipment in the six months FY 2015 or the six months FY 2014.

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Accrued expenses as of August 31, 2014 decreased $126,655 to $3,259,282 from $3,385,937 as of February 28, 2014. Approximately $1,800,000 of accrued expenses is salaries accrued but unpaid to certain employees and ex-employees due to a lack of resources, and approximately $411,000 is accrued but unused vacation time earned by employees.

Net proceeds from the issuance of debt totaled $1,472,206 in the six months FY 2015, compared with $3,861,450 in the six months FY 2014. Net debt proceeds of $82,000 in the three months of FY2014 were from our CEO, and debt repayments totaling $306,250 were made on the $3.5 million financing completed in the third quarter fiscal 2012. As of June 30, 2014, the total amount owing a board member is $13,919,960 plus accrued interest of approximately $5,525,000. We also owe another Board member a total of $4,304,195, net of discounts of $411,011 plus accrued interest of approximately $330,000. If the Board members were to demand repayment, we do not currently have the resources to make the payments.

The Company had a deficit of $33,622,181 in shareholders’ equity as of August 31, 2014, compared to $31,270,011 as of February 28, 2014.

Since 2002 substantially all of our revenues from operations have been derived from sales of the AuraGen®. The cash flow generated from our operations to date has not been sufficient to fund our working capital needs, and we cannot predict when operating cash flow will be sufficient to fund working capital needs.

In the past, in order to maintain liquidity we have relied upon external sources of financing, principally equity financing and private indebtedness. We have no bank line of credit and require additional debt or equity financing to fund ongoing operations. The issuance of additional shares of equity in connection with any such financing could dilute the interests of our existing stockholders, and such dilution could be substantial. If we cannot raise needed funds, we would also be forced to make further substantial reductions in our operating expenses, which could adversely affect our ability to implement our current business plan and ultimately our viability as a company.

Capital Transactions

During the six months ended August 31, 2014, we issued 2,800,000 shares of Common Stock for services rendered valued at $420,000, 17,334,533 shares of common stock upon the exercise of warrants for proceeds of $1,773,453 and we sold 1,500,000 shares of common stock for proceeds of $300,000.

During the six months ended August 31, 2013, $1,330,112 of notes payable and accrued interest were converted into 2,660,225 shares of common stock, 595,451 shares of common stock were issued for services and expenses related to the notes valued at $297,726, 1,833,333 shares of common stock were issued to re-price a prior issuance of stock in December 2012, 1,266,667 shares valued at $304,000 and 1,000,000 warrants valued at $133,424 were issued as a settlement for failure to repay a $500,000 note when due, 700,000 shares valued at $168,000 and 700,000 warrants valued at $93,397 were issued as consideration for issuing a letter of credit for $350,000 on Aura’s behalf, 500,000 shares valued at $120,000 and 800,000 warrants valued at $106,739 were issued to an individual as consideration for joining Aura’s Board of Directors and 4,254,250 shares of common stock were issued in exchange for the cancellation of warrants to purchase 5,005,000 shares of common stock at an exercise price of $0.75 per share which would have expired on September 22, 2016.

Inventories

Inventories consist primarily of components and completed units of the Company’s AuraGen® product.

Early in our AuraGen® program, we 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, we purchased, prior to fiscal 2001, a substantial inventory of components at volume prices. Since sales did not meet such expectations, we have been selling product from this inventory for several years.

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Most of our inventory consists of a variety of (i) metallic, mechanical components, and (ii) electrical components including metallic chassis to hold the assembled electrical systems.  The vast majority of mechanical components are not aged and most of the electrical components are also not aged.  The components that are aged are related to the prime mover/Generator interface that may not be in demand any longer.

Currently, we offer and ship three different basic models of systems; (i) a 5 kW based systems, (ii) an 8.5 kW based system and (iii) a 16 kW based systems (two 8.5 kW systems configured in tandem back-to-back).  Each of these systems can be configured with different options such as 110 VAC only, 220 VAC only, 24 VDC only, 12 VDC only and AC/DC combinations of the same or different voltages.  In addition, the system can be configured with single phase, split phase or three-phase output.

A number of the mechanical components are common to all three of the above configurations, while others are very specific.  For example, the stators and rotors for the 5 kW systems are different from the 8.5 kW systems, but the housings are the same.  Similarly, the electrical components consist of some parts that are geared for a specific configuration while others are generic and can be used for all of the configurations.   The electrical chassis are also interchangeable between the 5 kW and 8.5 kW configurations. Due to the nature and mix of the product being sold, frequently, the 5 kW electrical systems are upgraded to 8.5 kW systems by replacing some components.

From the above description one can understand that the inventory consists of numerous components and subassemblies but not finished systems; therefore each system that is sold and shipped to a customer is built from some components that are in inventory and others that need to be purchased to be able to configure the required system.

Currently, most of the product being shipped consists of 8.5 kW systems.  These systems are built by using existing inventory subassemblies and parts, including some that can be used for both 5 kW and 8.5 kW systems, and additional parts that are purchased to provide the required configuration.  Typically such systems are built using approximately 20 to 25 percent of existing inventory and approximately 75% of additional parts that are purchased.

However, most of the systems currently being sold to the Korean military consist of 5 kW systems.  They have been purchasing approximately 100 systems per year and have indicated to us that they will continue to do so for the next five years.  To date we have shipped over 500 such systems (in this case 100% of the rotors and stators are used from existing inventory and over 50% of the electrical parts are also from inventory).

In addition to the above, we constantly see demand for different and unique configurations that require the purchase of additional parts.

ITEM 4T.  Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Disclosure controls and procedures are designed to provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit, is recorded, processed, summarized and reported, within the time periods specified in the U.S. Securities and Exchange Commission’s rules and forms, and such information is accumulated and communicated to management as appropriate to allow timely decisions regarding required disclosures.   Our Chief Executive Officer and Chief Financial Officer have evaluated our disclosure controls and procedures and have concluded, as of August 31, 2014, that they were effective.

Changes in Internal Control over Financial Reporting

There have been no changes in our internal control over financial reporting during our fiscal quarter ended August 31, 2014, which have materially affected or are reasonably likely to materially affect our internal control over financial reporting.

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PART II - OTHER INFORMATION

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

During the six months ended August 31, 2014, we issued 2,800,000 shares of Common Stock for services rendered valued at $420,000, 17,334,533 shares of common stock upon the exercise of warrants for proceeds of $1,773,453 and we sold 1,500,000 shares of common stock for proceeds of $300,000.

All of the sales of unregistered securities are believed to be 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 qualified investors without public solicitation or advertising.

ITEM 6.  Exhibits

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

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

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

101.INS   XBRL Instance Document

101.SCH  XBRL Schema Document

101.CAL  XBRL Calculation Linkbase Document

101.LAB  Label Linkbase Document

101.PRE  Presentation Linkbase Document

101.DEF  Definition Linkbase

101.XSD  Extension Schema

101.XML Instant Document

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SIGNATURES

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

                  AURA SYSTEMS, INC.          

                  (Registrant)

Date:    October 15, 2014            

By:    /s/ Melvin Gagerman      

Melvin Gagerman

Chief Financial Officer

(Principal Financial and Accounting Officer

and Duly Authorized Officer)

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EX-31.1

Exhibit 31.1

CERTIFICATION

I, Melvin Gagerman, certify that:

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

2.           Based on my knowledge, this 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 report;

3.           Based on my knowledge, the financial statements, and other financial information included in this 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 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-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a.           Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, 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.           Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c.           Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on our evaluation;

d.           Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.           The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, 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 and material weaknesses in the design or operation of internal controls which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b.           Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: October 15, 2014

By:	/s/ Melvin Gagerman
	Melvin Gagerman
	Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION

I, Melvin Gagerman, certify that:

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

2.           Based on my knowledge, this 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 report;

3.           Based on my knowledge, the financial statements, and other financial information included in this 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 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-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a.           Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, 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.           Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c.           Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on our evaluation;

d.           Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.           The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, 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 and material weaknesses in the design or operation of internal controls which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b.           Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date:  October 15, 2014

By:	/s/ Melvin Gagerman
	Melvin Gagerman
	Chief Financial Officer

EX-32.1

Exhibit 32.1

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 quarterly period ending August 31, 2014, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Melvin Gagerman, Chief Executive Officer, Chief Financial Officer and Chief Accounting Officer, 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.

Date: October 15, 2014	By:	/s/ Melvin Gagerman
		Melvin Gagerman Chief Executive Officer, Chief Financial Officer, Chief Accounting Officer

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COMMITMENTS (Details) (Manufacturing Facility [Member], USD $)	6 Months Ended
	Aug. 31, 2014 sqft
Manufacturing Facility [Member]
Operating Leased Assets [Line Items]
Area of facility (in square feet)	69,000
Term of contract	7 years
Term of option extension	5 years
Base rent	$ 46,871.72

XML

SHAREHOLDERS' EQUITY (Details) (USD $)	3 Months Ended		6 Months Ended
	Aug. 31, 2014	Aug. 31, 2013	Aug. 31, 2014	Aug. 31, 2013
Other Significant Noncash Transactions [Line Items]
Common stock issued (in shares)			1,500,000
Common stock issued value			$ 300,000
Notes Payable and Accrued Interest [Member]
Other Significant Noncash Transactions [Line Items]
Stock issued for services				1,330,112
Stock issued for services (in shares)				2,660,225
Services Rendered [Member]
Other Significant Noncash Transactions [Line Items]
Stock issued for services	420,000	297,726	420,000	595,451
Stock issued for services (in shares)	2,800,000	595,451	2,800,000	297,726
Cancellation of Warrants [Member]
Other Significant Noncash Transactions [Line Items]
Stock issued for services				4,254,250
Exercise price of warrants (in dollars per share)		$ 0.75		$ 0.75
Warrants issued (in shares)		5,005,000		5,005,000
Exercise of warrants [Member]
Other Significant Noncash Transactions [Line Items]
Proceeds from exercise of warrants	1,773,453
Stock issued for services (in shares)	17,334,533
Joining Board of Directors [Member]
Other Significant Noncash Transactions [Line Items]
Common stock issued (in shares)				500,000
Common stock issued value				120,000
Warrants issued (in shares)		800,000		800,000
Value of warrants issued				106,739
Issuance of Letter of Credit [Member]
Other Significant Noncash Transactions [Line Items]
Common stock issued (in shares)				700,000
Common stock issued value				168,000
Debt amount		350,000		350,000
Warrants issued (in shares)		700,000		700,000
Value of warrants issued				93,397
Re-price of Prior Issuance [Member]
Other Significant Noncash Transactions [Line Items]
Common stock issued (in shares)				1,833,333
Settlement of Debt Payment Failure [Member]
Other Significant Noncash Transactions [Line Items]
Common stock issued (in shares)				1,266,667
Common stock issued value				304,000
Debt amount		500,000		500,000
Warrants issued (in shares)		1,000,000		1,000,000
Value of warrants issued				$ 133,424

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SHAREHOLDERS' EQUITY (Tables)

6 Months Ended

Aug. 31, 2014

SHAREHOLDERS' EQUITY [Abstract]

Stock Option Activity

In September, 2006, our Board of Directors adopted the 2006 Employee Stock Option Plan. Activity in this plan is as follows:

	2006 Plan
	Weighted-Average Exercise Price		Aggregate Intrinsic Value		Number of Options
Outstanding, February 28, 2014	$	0.75-$1.00	$	0.00		8,602,333
Cancelled	$	0.75				(825,333	)
Granted		-				-
Outstanding, August 31, 2014	$	0.75-$1.00	$	0.00		7,777,000

Exercise price of options outstanding and options information

The exercise prices for the options outstanding at August 31, 2014, and information relating to these options is as follows:

Options Outstanding								Exercisable Options
Range of Exercise Price		Number		Weighted Average Remaining Life	Weighted Average Exercise Price			Weighted Average Remaining Life	Number		Weighted Average Exercise Price
$	0.75-$1.00		7,777,000	5.4 years		$	0.79	5.5 years		7,777,000		$	0.79

Warrants Activity

Activity in issued and outstanding warrants is as follows:

	Number of Shares			Exercise Prices
Outstanding, February 28, 2014		48,503,720		$	0.75-$2.00
Granted		17,731,012		$	0.10-$0.75
Exercised		(17,334,540	)	$	0.10
Cancelled		(11,768,430	)	$	0.75-$1.50
Outstanding, August 31, 2014		37,131,762		$	0.10-$2.00

Exercise prices for the warrants outstanding and warrant information

The exercise prices for the warrants outstanding at August 31, 2014, and information relating to these warrants is as follows:

Range of Exercise Prices		Stock Warrants Outstanding		Stock Warrants Exercisable		Weighted-Average Remaining Contractual Life	Weighted-Average Exercise Price of Warrants Outstanding		Weighted-Average Exercise Price of Warrants Exercisable		Intrinsic Value
$	0.10-$0.75		17,731,012		17,731,012	80 months	$	0.55	$	0.55	$	0.00
$	0.75		1,082,734		1,082,734	78 months	$	0.75	$	0.75	$	0.00
$	0.75		1,000,000		1,000,000	68 months	$	0.75	$	0.75	$	0.00
$	0.75-$1.00		5,990,275		5,990,275	63 months	$	0.77	$	0.77	$	0.00
$	1.00-$1.25		795,000		795,000	25 months	$	1.05	$	1.05	$	0.00
$	1.00		8,272,187		8,272,187	23 months	$	1.00	$	1.00	$	0.00
$	1.50		105,000		105,000	19 months	$	1.50	$	1.50	$	0.00
$	0.75-1.50		709,198		709,198	16 months	$	1.25	$	1.25	$	0.00
$	1.50		156,000		156,000	12 months	$	1.50	$	1.50	$	0.00
$	1.50		704,000		704,000	11 months	$	1.50	$	1.50	$	0.00
$	1.50		350,642		350,642	8  months	$	1.50	$	1.50	$	0.00
$	2.00		235,714		235,714	2 months	$	2.00	$	2.00	$	0.00
			37,131,762		37,131,762

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SIGNIFICANT CUSTOMERS (Details) (USD $)	3 Months Ended	6 Months Ended
	Aug. 31, 2014	Aug. 31, 2013
Significant Customer1 [Member]
Concentration Risk [Line Items]
Percentage sales significant customers (in hundredths)	32.00%	27.50%
Significant Customer2 [Member]
Concentration Risk [Line Items]
Percentage sales significant customers (in hundredths)	21.00%	16.10%
Significant Customer3 [Member]
Concentration Risk [Line Items]
Percentage sales significant customers (in hundredths)		10.80%
Significant Customer4 [Member]
Concentration Risk [Line Items]
Percentage sales significant customers (in hundredths)		9.80%
Significant Customer5 [Member]
Concentration Risk [Line Items]
Percentage sales significant customers (in hundredths)		8.80%
Customer Concentration Risk [Member]
Concentration Risk [Line Items]
Number of significant customers	2	5
Customer Concentration Risk [Member] | Significant Customer1 [Member]
Concentration Risk [Line Items]
Net accounts receivable from significant customers	$ 98,567	$ 111,575
Customer Concentration Risk [Member] | Significant Customer2 [Member]
Concentration Risk [Line Items]
Net accounts receivable from significant customers	11,366	194,250
Customer Concentration Risk [Member] | Significant Customer3 [Member]
Concentration Risk [Line Items]
Net accounts receivable from significant customers		22,076
Customer Concentration Risk [Member] | Significant Customer4 [Member]
Concentration Risk [Line Items]
Net accounts receivable from significant customers		32,618
Customer Concentration Risk [Member] | Significant Customer5 [Member]
Concentration Risk [Line Items]
Net accounts receivable from significant customers		$ 5,134

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INVENTORIES

6 Months Ended

Aug. 31, 2014

INVENTORIES [Abstract]

INVENTORIES

NOTE 3 – INVENTORIES

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

	August 31, 2014			February 28, 2014
Raw materials	$	1,816,773		$	1,808,556
Finished goods		1,525,085			1,735,019
		3,341,858			3,543,575
Reserve for potential product obsolescence		(2,287,594	)		(2,334,487	)
Discount on long term inventory		-			(78,051	)
		1,054,264			1,131,037
Non-current portion		-			(131,037
Current portion	$	1,054,264		$	1,000,000

We assessed the net realize-ability and the related potential obsolescence of inventory. In accordance with this assessment, management has recorded a reserve of $2,287,594 and $2,334,487 as of August 31, 2014 and February 28, 2014, respectively. Management has also recorded a discount on long term inventory of $0 and $78,051 as of August 31, 2014 and February 28, 2014, respectively.

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OTHER CURRENT ASSETS (Details) (USD $)	Aug. 31, 2014	Feb. 28, 2014
OTHER CURRENT ASSETS [Abstract]
Other current assets	$ 54,943	$ 100,952
Vendor advances	$ 23,751	$ 69,497

XML

INVENTORIES (Details) (USD $)	Aug. 31, 2014	Feb. 28, 2014
INVENTORIES [Abstract]
Raw materials	$ 1,816,773	$ 1,808,556
Finished goods	1,525,085	1,735,019
Inventory gross current and noncurrent portion	3,341,858	3,543,575
Reserve for potential product obsolescence	(2,287,594)	(2,334,487)
Discount on long term inventory	0	(78,051)
Total inventory, net	1,054,264	1,131,037
Non-current portion	0	(131,037)
Current portion	$ 1,054,264	$ 1,000,000

XML

PROPERTY, PLANT, AND EQUIPMENT (Details) (USD $)	6 Months Ended
	Aug. 31, 2014	Aug. 31, 2013	Feb. 28, 2014
PROPERTY, PLANT, AND EQUIPMENT [Abstract]
Machinery and equipment	$ 964,111		$ 964,111
Furniture and fixtures	163,302		163,302
Property, plant and equipment, gross	1,127,413		1,127,413
Less accumulated depreciation	(1,125,238)		(1,119,458)
Property, plant, and equipment, net	2,175		7,955
Depreciation expense	$ 5,780	$ 24,530

XML

NOTES PAYABLE (Details) (USD $)					6 Months Ended		6 Months Ended		6 Months Ended					0 Months Ended	6 Months Ended		0 Months Ended	6 Months Ended		0 Months Ended		0 Months Ended
	Aug. 31, 2014	Feb. 28, 2014	Aug. 31, 2014 Demand notes payable, at 10% and 16% [Member]	Feb. 28, 2014 Demand notes payable, at 10% and 16% [Member]	Aug. 31, 2014 Convertible Promissory Note 7% Due August 2017 Converted [Member]	Feb. 28, 2014 Convertible Promissory Note 7% Due August 2017 Converted [Member]	Aug. 31, 2014 Convertible Promissory Note 7% Due October 2017 Converted [Member]	Feb. 28, 2014 Convertible Promissory Note 7% Due October 2017 Converted [Member]	Aug. 31, 2014 Convertible Promissory Note 7% Due January 2013 Converted [Member]	Aug. 31, 2014 Senior secured convertible Note 12% Due June 2013 [Member]	Feb. 28, 2014 Senior secured convertible Note 12% Due June 2013 [Member]	Aug. 31, 2014 Senior secured convertible Note 16% Due June 2014 [Member]	Feb. 28, 2014 Senior secured convertible Note 16% Due June 2014 [Member]	May 07, 2014 May 7 Convertible Note One [Member]	Aug. 31, 2014 May 7 Convertible Note One [Member]	May 07, 2013 May 7 Convertible Note One [Member] Note	May 07, 2014 May 7 Convertible Note Two [Member]	Aug. 31, 2014 May 7 Convertible Note Two [Member]	May 07, 2013 May 7 Convertible Note Two [Member] Note	May 07, 2014 May 7 Convertible Note Three [Member]	May 07, 2013 May 7 Convertible Note Three [Member]	Aug. 19, 2013 August 19 Convertible Note [Member]	Jun. 20, 2013 June 20 Convertible Note [Member]
Note payable [Abstract]
Demand notes payable, at 10% and 16%	$ 1,679,990	$ 1,559,990	$ 1,679,990	$ 1,559,990
Convertible notes payable					817,272	786,198	415,158	401,399		2,395,700	2,261,643	325,000	305,913
Notes payable current and long-term portion	5,633,120	5,315,143
Less: Current portion	4,400,690	4,127,545
Long-term portion	1,232,430	1,187,598
Convertible Promissory Note common stock price (in dollars per share)					$ 0.76		$ 0.76									$ 0.75							$ 0.75
Notes payable interest rate (in hundredths)			10.00%	16.00%	7.00%		7.00%		7.00%							12.00%						9.50%	16.00%
Notes payable increased interest rate (in hundredths)																16.00%							16.00%
Convertible Debt [Abstract]
Principal value of convertible notes					1,000,000		500,000		350,000							1,087,000			558,700		750,000	2,500,000	325,000
Convertible debt maturity term														1 year			1 year			1 year		4 years	1 year
Conversion price per share of notes payable (in dollars per share)																$ 0.75			$ 0.75		$ 0.75	$ 0.50	$ 0.50
Default conversion price																$ 0.50			$ 0.50		$ 0.50
Number of common shares entitlement on exercise of warrant one (in shares)																1,449,333			744,933		1,000,000	5,000,000	433,334
Exercise price per common share under warrant one (in dollars per share)																$ 0.75			$ 0.75		$ 0.75	$ 0.75	$ 0.75
Term of warrant														7 years			7 years			7 years		7 years	7 years
Period of repayment of debt from closing date					5 years		5 years		2 months
Prepaid interest recorded as discount					310,723		137,583									342,020			175,793		235,985	667,118	63,622
Contingent pay out threshold on gross proceeds																							5,000,000
Number of note payables transferred to convertible debt																4			2
Pre conversion debt principal amount															1,000,000			550,000
Due date					Aug. 10, 2017		Oct. 02, 2017		Jan. 04, 2013
Discount on notes payable					310,723		137,583									342,020			175,793		235,985	667,118	63,622
Maturities of Note Payable Debt [Abstract]
2015	0
2016	0
2017	1,232,430
Total	$ 1,232,430

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GOING CONCERN

6 Months Ended

Aug. 31, 2014

GOING CONCERN [Abstract]

GOING CONCERN

NOTE 2 – GOING CONCERN

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern.  During the three months ended August 31, 2014 and August 31, 2013, the Company incurred losses of $8,113,799 and $6,710,314, respectively and had negative cash flows from operating activities of $3,512,636 and $3,918,861, respectively.

If the Company is unable to generate profits and is unable to continue to obtain financing for its working capital requirements, it may have to curtail its business sharply or cease business altogether.

Substantial additional capital resources will be required to fund continuing expenditures related to our research, development, manufacturing and business development activities.  The Company's continuation as a going concern is dependent upon its ability to generate sufficient cash flow to meet its obligations on a timely basis, to retain its current financing, to obtain additional financing, and ultimately to attain profitability.

The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which contemplate continuation of the Company as a going concern. The consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that could result from the outcome of this uncertainty.

During the next twelve months we intend to continue to expand our AuraGen/Viper business both domestically and internationally. There are four major components necessary to execute a significantly expanding business; (i) augmentation of management and staff, (ii) purchase orders, (iii) facilities and equipment, and (iv) working capital.  We plan to add senior quality assurance and quality control staff as well as a number of mechanical and electrical engineers, a number of technicians, and a number of test engineers. We had planned to take these steps in the current fiscal year, but a lack of resources prevented us from doing so. We anticipate being able to fund these additions in the upcoming fiscal year.

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ACCRUED EXPENSES (Details) (USD $)	Aug. 31, 2014	Feb. 28, 2014
Accrued expenses [Abstract]
Accrued payroll and related expenses	$ 2,223,401	$ 2,729,944
Accrued rent	208,735	198,111
Accrued interest	818,164	456,801
Other	8,982	1,079
Total	3,259,282	3,385,937
Accrued payroll and related expenses	1,778,172	2,113,061
Accrued vacation expense	$ 411,136	$ 418,131

XML

CONDENSED BALANCE SHEETS (Unaudited) (USD $)	Aug. 31, 2014	Feb. 28, 2014
Current assets:
Cash and cash equivalents	$ 33,950	$ 40,927
Accounts receivable, net of allowance for doubtful accounts of $50,000 at August 31 and February 28, 2014, respectively	207,948	125,593
Inventory - current	1,054,264	1,000,000
Other current assets	54,943	100,952
Total current assets	1,351,105	1,267,472
Deposits	100,138	89,138
Property, plant, and equipment, net	2,175	7,955
Inventory, non-current, net of allowance for obsolete inventory of $2,284,130 and $2,412,538 at August 31 and February 28, 2014, respectively	0	131,037
Total assets	1,453,418	1,495,601
Current liabilities:
Accounts payable	1,568,076	2,077,513
Accrued expenses	3,259,282	3,385,937
Customer advances	427,911	80,641
Notes payable	1,679,990	1,559,990
Convertible notes payable, net of discount	2,720,700	2,567,556
Notes payable and accrued interest- related party	22,324,825	19,730,372
Total current liabilities	31,980,784	29,402,009
Convertible note payable, net of discount	1,232,430	1,187,598
Convertible note payable and accrued interest-related party, net of discount	1,862,385	2,176,005
Total liabilities	35,075,599	32,765,612
Stockholders' deficit:
Common stock, $0.0001 par value; 150,000,000 shares authorized at August 31 and February 28, 2014; 110,549,032 and 88,914,499 issued and outstanding at August 31 and February 28, 2014, respectively	11,055	8,891
Additional paid-in capital	408,993,726	403,234,261
Accumulated deficit	(442,626,962)	(434,513,163)
Total stockholders' deficit	(33,622,181)	(31,270,011)
Total liabilities and stockholders' deficit	$ 1,453,418	$ 1,495,601

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CONDENSED STATEMENTS OF CASH FLOWS (Unaudited) (Parenthetical) (USD $)	6 Months Ended
	Aug. 31, 2014
Other Significant Noncash Transactions [Line Items]
Common stock issued (in shares)	1,500,000
Proceeds from common stock issued	$ 2,033,453
Common Stock [Member]
Other Significant Noncash Transactions [Line Items]
Common stock issued (in shares)	1,500,000
Proceeds from common stock issued	300,000
Services Rendered [Member]
Other Significant Noncash Transactions [Line Items]
Stock issued for services (in shares)	2,800,000
Stock issued for services	420,000
Warrant [Member]
Other Significant Noncash Transactions [Line Items]
Common stock issued (in shares)	17,334,533
Proceeds from excersice of warrants	$ 1,773,453

XML

INCOME TAXES (Details)	3 Months Ended
	Aug. 31, 2014	Aug. 31, 2013
INCOME TAXES [Abstract]
Effective tax rate (in hundredths)	0.00%	0.00%

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PROPERTY, PLANT, AND EQUIPMENT (Tables)

6 Months Ended

Aug. 31, 2014

PROPERTY, PLANT, AND EQUIPMENT [Abstract]

Property, plant and equipment

Property, plant, and equipment consisted of the following:

	August 31, 2014			February 28, 2014
Machinery and equipment	$	964,111		$	964,111
Furniture and fixtures		163,302			163,302
		1,127,413			1,127,413
Less accumulated depreciation		(1,125,238	)		(1,119,458	)
Property, plant and equipment, net	$	2,175		$	7,955

XML

SEGMENT INFORMATION (Details) (USD $)	6 Months Ended
	Aug. 31, 2014 Segment	Aug. 31, 2013
Segment Reporting , Revenue Reconciling Item [Line Items]
Number of operating segments	1
Revenues from customer geographical segments [Abstract]
Revenues	$ 960,522	$ 1,423,915
United States [Member]
Revenues from customer geographical segments [Abstract]
Revenues	487,455	1,150,137
Canada [Member]
Revenues from customer geographical segments [Abstract]
Revenues	83,117	78,961
Europe [Member]
Revenues from customer geographical segments [Abstract]
Revenues	33,526	24,218
Asia [Member]
Revenues from customer geographical segments [Abstract]
Revenues	306,559	161,849
Other [Member]
Revenues from customer geographical segments [Abstract]
Revenues	$ 49,865	$ 8,750

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ACCRUED EXPENSES (Tables)

6 Months Ended

Aug. 31, 2014

ACCRUED EXPENSES [Abstract]

Accrued expenses

Accrued expenses consisted of the following:

	August 31, 2014		February 28, 2014
Accrued payroll and related expenses	$	2,223,401	$	2,729,944
Accrued rent		208,735		198,111
Accrued interest		818,164		456,801
Other		8,982		1,079
Total	$	3,259,282	$	3,385,937

XML

ACCOUNTING POLICIES

6 Months Ended

Aug. 31, 2014

ACCOUNTING POLICIES [Abstract]

ACCOUNTING POLICIES

NOTE 1 - ACCOUNTING POLICIES

Accounting principles

In the opinion of management, the accompanying balance sheets and related interim statements of income and comprehensive income, and cash flows include all adjustments, consisting only of normal recurring items, necessary for their fair presentation in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”). Interim results are not necessarily indicative of results for a full year. The information included in this Form 10-Q should be read in conjunction with information included in the Company’s 2014 Form 10-K filed on June 16, 2014 with the U.S. Securities and Exchange Commission.

Estimates

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

Recently Issued Accounting Pronouncements 

In March 2013, the FASB issued guidance on a parent’s accounting for the cumulative translation adjustment upon de-recognition of a subsidiary or group of assets within a foreign entity. This new guidance requires that the parent release any related cumulative translation adjustment into net income only if the sale or transfer results in the complete or substantially complete liquidation of the foreign entity in which the subsidiary or group of assets had resided. The new guidance will be effective for the Company beginning July 1, 2014. The adoption of this standard is not expected to have a material impact on the Company’s financial statements.

Reclassifications

Certain reclassifications have been made to the comparative financial statements to conform to the current period presentation.

XML

CONDENSED BALANCE SHEETS (Unaudited) (Parenthetical) (USD $)	Aug. 31, 2014	Feb. 28, 2014
Current assets:
Allowance for doubtful accounts	$ 50,000	$ 50,000
Allowance for obsolete inventory	$ 2,284,130	$ 2,412,538
Stockholders' deficit:
Common stock, par value (in dollars per share)	$ 0.0001	$ 0.0001
Common stock, shares authorized (in shares)	150,000,000	150,000,000
Common stock, shares issued (in shares)	110,549,032	88,414,499
Common stock, shares outstanding (in shares)	110,549,032	88,414,499

XML

SIGNIFICANT CUSTOMERS

6 Months Ended

Aug. 31, 2014

SIGNIFICANT CUSTOMERS [Abstract]

SIGNIFICANT CUSTOMERS

NOTE 11 – SIGNIFICANT CUSTOMERS

Concentration Risk

In the three months ended August 31, 2014, we sold AuraGen related products to two significant customers whose sales comprised 32% and 21% of net sales, respectively. Net accounts receivable from these customers at August 31, 2014 were $98,567 and $11,366 respectively. These customers are not related to or affiliated with us. In the six months ended August 31, 2013, we sold AuraGen related products to five significant customers whose sales comprised 27.5%, 16.1%, 10.8%, 9.8% and 8.8% of net sales, respectively. Net accounts receivable from these customers at August 31, 2013 were $111,575, $194,250, $22,076, $32,618 and $5,134 respectively. These customers are not related to or affiliated with us.

XML

Document and Entity Information	6 Months Ended
	Aug. 31, 2014	Oct. 10, 2014
Document and Entity Information [Abstract]
Entity Registrant Name	AURA SYSTEMS INC
Entity Central Index Key	0000826253
Current Fiscal Year End Date	--02-28
Entity Well-known Seasoned Issuer	No
Entity Voluntary Filers	No
Entity Current Reporting Status	Yes
Entity Filer Category	Smaller Reporting Company
Entity Common Stock, Shares Outstanding		110,601,032
Document Fiscal Year Focus	2015
Document Fiscal Period Focus	Q2
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Aug. 31, 2014

XML

RELATED PARTY TRANSACTIONS

6 Months Ended

Aug. 31, 2014

RELATED PARTY TRANSACTIONS [Abstract]

RELATED PARTY TRANSACTIONS

NOTE 12 – RELATED PARTIES TRANSACTIONS

At August 31, 2014, the balance in Notes Payable and accrued interest-related party, current, includes $13,919,960 of unsecured notes payable plus accrued interest of $5,523,241 to a member of our Board of Directors, payable on demand, bearing interest at a rate of 10% per annum. During the three months ended August 31, 2014 and August 31, 2013, interest amounting to $351,524 and $342,932 respectively, was incurred on these notes. The balance also includes $82,000 of unsecured notes payable plus accrued interest of $11,502 to our CEO pursuant to a demand note entered into on April 5, 2013 and an unsecured note payable to another member of our Board of Directors in the total amount of $2,715,206 plus accrued interest of $54,304 with interest at a rate of 10% per annum.

At August 31, 2014, the balance in Convertible note payable and accrued interest-related party, long term, includes $1,588,989 of secured convertible notes payable net of discounts of $411,011 plus accrued interest of $273,396 to a member of our Board of Directors. The company retains the daughter of a 5% shareholder as its’ corporate attorney. Since January 2013 this has been at a fixed fee of $30,000 per month plus expenses.

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CONDENSED STATEMENTS OF OPERATIONS (Unaudited) (USD $)	3 Months Ended				6 Months Ended
	Aug. 31, 2014		Aug. 31, 2013		Aug. 31, 2014		Aug. 31, 2013
CONDENSED STATEMENTS OF OPERATIONS (Unaudited) [Abstract]
Net Revenues	$ 510,550		$ 615,389		$ 960,522		$ 1,423,915
Cost of goods sold	295,791		311,735		505,850		631,955
Gross Profit	214,759		303,654		454,672		791,960
Expenses
Engineering, research and development expenses	361,371		304,902		665,374		703,700
Selling, general and administrative expenses	3,132,583		2,274,255		6,256,929		4,839,425
Total costs and expenses	3,493,954		2,579,157		6,922,303		5,543,125
Loss from operations	(3,279,195)		(2,275,503)		(6,467,631)		(4,751,165)
Other (income) and expense:
Interest expense, net	826,312		1,455,568		1,651,748		2,171,866
Other (income) expense, net	0		0		(5,580)		(212,717)
Total other (income) expense	826,312		1,455,568		1,646,168		1,959,149
Net Loss	$ (4,105,507)		$ (3,731,071)		$ (8,113,799)		$ (6,710,314)
Total basic and diluted loss per share (in dollars per share)	$ (0.04)		$ (0.04)		$ (0.08)		$ (0.08)
Weighted average shares used to compute basic and diluted income (loss) per share (in shares)	109,847,945	[1]	84,722,108	[1]	107,494,204	[1]	81,121,697	[1]

[1] Weighted average number of shares used to compute basic and diluted loss per share is the same since the effect of the dilutive securities is anti-dilutive

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NOTES PAYABLE

6 Months Ended

Aug. 31, 2014

NOTES PAYABLE [Abstract]

NOTES PAYABLE

NOTE 6 – NOTES PAYABLE

Notes payable consisted of the following:

	August 31, 2014		February 28, 2014
Demand notes payable, at 10% and 16%	$	1,679,990	$	1,559,990
Convertible Promissory Note dated August 10, 2012, due August 10, 2017, convertible into shares of our common stock at a price of $0.76 per share. The note carries an interest rate of 7% with interest only payments due on the 10th of each month with the principal payment due on the maturity date.		817,272		786,198
Convertible Promissory Note dated October 2, 2012, due October 2, 2017, convertible into shares of our common stock at a price of $0.76 per share. The note carries an interest rate of 7% with interest only payments due on the 2nd of each month with the principal payment due on the maturity date.		415,158		401,399
Senior secured convertible notes dated May 7, 2013, due June 15, 2013, convertible into shares of our common stock at a price of $0.75 per share. The notes carry an interest rate of 12% with interest due on the last day of the month. If the note is not repaid by the due date, the interest rate increases to 16%.		2,395,700		2,261,643
Senior secured convertible notes dated June 20, 2013, due June 20, 2014, convertible into shares of our common stock at a price of $0.75 per share. The notes carry an interest rate of 16% with interest due on the last day of the month. If the note is not repaid by the due date, the interest rate increases to 16%.		325,000		305,913
		5,633,120		5,315,143
Less: Current portion	$	4,400,690	$	4,127,545
Long-term portion	$	1,232,430	$	1,187,598

CONVERTIBLE DEBT

On May 7, 2013, the Company transferred 4 notes payable with a total principal value of $1,000,000 together with accrued interest, and consulting fees to a senior secured convertible note with a principal value of $1,087,000 (“new note”) and warrants to Kenmont Capital Partners (the “holder”). The new note has a 1 year maturity date and is convertible into shares of common stock at the conversion price of $0.75 per share, provided, that the Conversion Price shall automatically be reset to $0.50 per share on June 15, 2013 if a Qualified Financing has not occurred on or prior to that date. The warrants entitle the holder to acquire 1,449,333 shares and have an initial exercise price of $0.75 per share, and have a 7 year term. The Company recorded $342,020 as a discount, which is being amortized over the life of the note.

On May 7, 2013, the Company transferred 2 note payables with a total principal value of $550,000 together with accrued interest to a senior secured convertible note with a principal value of $558,700 (“new note”) and warrants to LPD Investments, Ltd. (the “holder”). The new note has a 1 year maturity date and is convertible into shares of common stock at the conversion price of $0.75 per share, provided, that the Conversion Price shall automatically be reset to $0.50 per share on June 15, 2013 if a Qualified Financing has not occurred on or prior to that date. The warrants entitle the holder to acquire 744,933 shares and have an initial exercise price of $0.75 per share, and have a 7 year term. The Company recorded $175,793 as a discount, which is being amortized over the life of the note.

On May 7, 2013, the Company entered into an agreement with an individual (the “holder”) for the sale of $750,000 of secured convertible note payable (the “Note”) and warrants to the holder. The Note has a 1 year maturity date and is convertible into shares of common stock at the conversion price of $0.75 per share, provided, that the Conversion Price shall automatically be reset to $0.50 per share on June 15, 2013 if a Qualified Financing has not occurred on or prior to that date. The warrants entitle the holder to acquire 1,000,000 shares and have an initial exercise price of $0.75 per share, and have a 7 year term. The Company recorded $235,985 as a discount, which is being amortized over the life of the note.

On June 20, 2013, the Company entered into an agreement with four individuals (the “holders”) for the sale of $325,000 of secured convertible notes payable (the “Notes”) and warrants to the holders. The Notes have a 1 year maturity date and are convertible into shares of common stock at the conversion price of $0.50 per share. If the Company receives no less than $5,000,000 in aggregate gross proceeds from the sale of equity securities of the Company in one or series of related transactions after June 20, 2013 (“the Qualified Financing”), the Company shall deliver to each Holder a written offer to issue and sell to or exchange with such Holder such number of securities as is equal to the quotient of (x) the conversion balance of the Note divided by (y) 100% of the purchase price of the primary securities offered to investors pursuant to the Qualified Financing. The warrants entitle the holders to acquire 433,334 shares and have an initial exercise price of $0.75 per share, and have a 7 year term. The Company recorded $63,622 as a discount, which is being amortized over the life of the notes.

On August 19, 2013, the Company entered into an agreement with a member of its Board of Directors for the sale of $2,500,000 of convertible notes payable (the “Notes”) and warrants to the holder. The notes carry a base interest rate of 9.5%, have a 4 year maturity date and are convertible into shares of common stock at the conversion price of $0.50 per share. The warrants entitle the holder to acquire 5,000,000 shares and have an initial exercise price of $0.75 per share and have a 7 year term. The Company recorded $667,118 as a discount, which is being amortized over the life of the note. On June 20, 2013, $500,000 of this note was converted to a demand note payable.

Future maturities of notes payable at August 31, 2014 are as follows:

Year Ending February 28,
2015	$	-
2016		-
2017		1,232,430
Total	$	1,232,430

7% Convertible Promissory Notes:

On August 10, 2012 the Company entered into an agreement with the individual (the “holder”) for the sale of $1,000,000 of unsecured Convertible Promissory Note (the “Note”) to the holder. The Convertible Promissory Note balance together with all accrued interest thereon shall be due and payable on August 10, 2017 and the annual interest rate is 7% per annum and is due to be repaid 5 years from the closing date.  The Note holder will receive interest on the unpaid principal amount payable monthly in arrears on the tenth day of each calendar month commencing September 10, 2012. Interest shall be computed on the actual number of days elapsed over a 360-day year. The Holder has the right from and after the Date of Issuance, and until any time until the Convertible promissory note is fully paid, to convert any outstanding and unpaid principal portion of the Convertible promissory note into shares of Common Stock. The company recorded $310,723 as a debt discount, which is being amortized over the life of the note.

On October 2, 2012 the Company entered into an agreement with the individual (the “holder”) for the sale of $500,000 of unsecured Convertible Promissory Note (the “Note”) to the holder. The Convertible Promissory Note balance together with all accrued interest thereon shall be due and payable on October 2, 2017 and the annual interest rate is 7% per annum and is due to be repaid 5 years from the closing date.  The Note holder will receive interest on the unpaid principal amount payable monthly in arrears on the second day of each calendar month commencing November 2, 2012. Interest shall be computed on the actual number of days elapsed over a 360-day year. The Holder has the right from and after the Date of Issuance, and until any time until the Convertible promissory note is fully paid, to convert any outstanding and unpaid principal portion of the Convertible promissory note into shares of Common Stock. The company recorded $137,583 as a debt discount, which is being amortized over the life of the note.

On November 2, 2012 the Company entered into an agreement with the individual (the “holder”) for the sale of $350,000 of unsecured Convertible Promissory Note (the “Note”) to the holder. The Convertible Promissory Note balance together with all accrued interest thereon shall be due and payable on January 4, 2013 and the annual interest rate is 7% per annum and is due to be repaid 2 months from the closing date.  The Note holder will receive interest on the unpaid principal amount payable monthly in arrears on the second day of each calendar month commencing December 2, 2012. Interest shall be computed on the actual number of days elapsed over a 360-day year. The Holder has the right from and after the Date of Issuance, and until any time until the Convertible promissory note is fully paid, to convert any outstanding and unpaid principal portion of the Convertible promissory note into shares of Common Stock. On May 7, 2013, this note was converted into a portion of the note due June 15, 2013, which carries an interest rate of 12%.

The Convertible Notes have a variable conversion price. If, at any time while the Notes remain outstanding, the Company issues or sells any Convertible Securities and the lowest price per share for which one share of Common Stock is issuable upon the conversion, exercise or exchange thereof is less than the then Conversion Price of the Notes (such lower price, the "Dilutive Price"), then the Conversion Price of these Notes shall be adjusted to reflect such Dilutive Price. Such adjustment shall be made upon the issuance or sale of the Convertible Security bearing a dilutive price. In the event of default for the Notes, the amount of principal and interest not paid when due becomes immediately due and payable.

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PROPERTY, PLANT, AND EQUIPMENT

6 Months Ended

Aug. 31, 2014

PROPERTY, PLANT, AND EQUIPMENT [Abstract]

PROPERTY, PLANT, AND EQUIPMENT

NOTE 5 – PROPERTY, PLANT, AND EQUIPMENT

Property, plant, and equipment consisted of the following:

	August 31, 2014			February 28, 2014
Machinery and equipment	$	964,111		$	964,111
Furniture and fixtures		163,302			163,302
		1,127,413			1,127,413
Less accumulated depreciation		(1,125,238	)		(1,119,458	)
Property, plant and equipment, net	$	2,175		$	7,955

Depreciation expense was $5,780 and $24,531 for the six months ended August 31, 2014 and August 31, 2013, respectively.

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NOTES PAYABLE (Tables)

6 Months Ended

Aug. 31, 2014

NOTES PAYABLE [Abstract]

Notes payable

Notes payable consisted of the following:

	August 31, 2014		February 28, 2014
Demand notes payable, at 10% and 16%	$	1,679,990	$	1,559,990
Convertible Promissory Note dated August 10, 2012, due August 10, 2017, convertible into shares of our common stock at a price of $0.76 per share. The note carries an interest rate of 7% with interest only payments due on the 10th of each month with the principal payment due on the maturity date.		817,272		786,198
Convertible Promissory Note dated October 2, 2012, due October 2, 2017, convertible into shares of our common stock at a price of $0.76 per share. The note carries an interest rate of 7% with interest only payments due on the 2nd of each month with the principal payment due on the maturity date.		415,158		401,399
Senior secured convertible notes dated May 7, 2013, due June 15, 2013, convertible into shares of our common stock at a price of $0.75 per share. The notes carry an interest rate of 12% with interest due on the last day of the month. If the note is not repaid by the due date, the interest rate increases to 16%.		2,395,700		2,261,643
Senior secured convertible notes dated June 20, 2013, due June 20, 2014, convertible into shares of our common stock at a price of $0.75 per share. The notes carry an interest rate of 16% with interest due on the last day of the month. If the note is not repaid by the due date, the interest rate increases to 16%.		325,000		305,913
		5,633,120		5,315,143
Less: Current portion	$	4,400,690	$	4,127,545
Long-term portion	$	1,232,430	$	1,187,598

Future maturities of notes payable

Future maturities of notes payable at August 31, 2014 are as follows:

Year Ending February 28,
2015	$	-
2016		-
2017		1,232,430
Total	$	1,232,430

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COMMITMENTS

6 Months Ended

Aug. 31, 2014

COMMITMENTS [Abstract]

COMMITMENTS

NOTE 13 – COMMITMENTS

In September, 2013, we entered into lease for a facility of approximately 69,000 square feet. The lease is for a term of seven years, has an option to extend for five years, and carries an initial base rent of $46,871.72. In accordance with the terms of the lease, the Company is responsible for common area charges.

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INCOME TAXES

6 Months Ended

Aug. 31, 2014

INCOME TAXES [Abstract]

INCOME TAXES

NOTE 9 –INCOME TAXES

Our effective tax rates were approximately 0.0% for the three months ended August 31, 2014 and 2013. Our effective tax rate was lower than the U.S. federal statutory rate primarily due to the fact that we record a full valuation allowance against our deferred tax assets, which is primarily comprised of net operating losses.

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ACCRUED EXPENSES

6 Months Ended

Aug. 31, 2014

ACCRUED EXPENSES [Abstract]

ACCRUED EXPENSES

NOTE 7 - ACCRUED EXPENSES

Accrued expenses consisted of the following:

	August 31, 2014		February 28, 2014
Accrued payroll and related expenses	$	2,223,401	$	2,729,944
Accrued rent		208,735		198,111
Accrued interest		818,164		456,801
Other		8,982		1,079
Total	$	3,259,282	$	3,385,937

Accrued payroll and related expenses consisted primarily of salaries accrued but not paid to certain employees. As of August 31, 2014 and February 28, 2014, these amounts total $1,778,172 and $2,113,061, respectively. Also included in this amount is accrued vacation expense of $411,136 and $418,131 at August 31, 2014 and February 28, 2014, respectively.

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SHAREHOLDERS' EQUITY

6 Months Ended

Aug. 31, 2014

SHAREHOLDERS' EQUITY [Abstract]

SHAREHOLDERS' EQUITY

NOTE 8–SHAREHOLDERS’ EQUITY

Common Stock

During the six months ended August 31, 2014, we issued 2,800,000 shares of Common Stock for services rendered valued at $420,000, 17,334,533 shares of common stock upon the exercise of warrants for proceeds of $1,773,453 and we sold 1,500,000 shares of common stock for proceeds of $300,000.

During the six months ended August 31, 2013, $1,330,112 of notes payable and accrued interest were converted into 2,660,225 shares of common stock, 595,451 shares of common stock were issued for services and expenses related to the notes valued at $297,726, 1,833,333 shares of common stock were issued to re-price a prior issuance of stock in December 2012, 1,266,667 shares valued at $304,000 and 1,000,000 warrants valued at $133,424 were issued as a settlement for failure to repay a $500,000 note when due, 700,000 shares valued at $168,000 and 700,000 warrants valued at $93,397 were issued as consideration for issuing a letter of credit for $350,000 on Aura’s behalf, 500,000 shares valued at $120,000 and 800,000 warrants valued at $106,739 were issued to an individual as consideration for joining Aura’s Board of Directors and 4,254,250 shares of common stock were issued in exchange for the cancellation of warrants to purchase 5,005,000 shares of common stock at an exercise price of $0.75 per share which would have expired on September 22, 2016.

Employee Stock Options

During the six months ended August 31, 2014, there were no stock options granted to employees.

In September, 2006, our Board of Directors adopted the 2006 Employee Stock Option Plan. Activity in this plan is as follows:

	2006 Plan
	Weighted-Average Exercise Price		Aggregate Intrinsic Value		Number of Options
Outstanding, February 28, 2014	$	0.75-$1.00	$	0.00		8,602,333
Cancelled	$	0.75				(825,333	)
Granted		-				-
Outstanding, August 31, 2014	$	0.75-$1.00	$	0.00		7,777,000

The exercise prices for the options outstanding at August 31, 2014, and information relating to these options is as follows:

Options Outstanding								Exercisable Options
Range of Exercise Price		Number		Weighted Average Remaining Life	Weighted Average Exercise Price			Weighted Average Remaining Life	Number		Weighted Average Exercise Price
$	0.75-$1.00		7,777,000	5.4 years		$	0.79	5.5 years		7,777,000		$	0.79

Warrants

Activity in issued and outstanding warrants is as follows:

	Number of Shares			Exercise Prices
Outstanding, February 28, 2014		48,503,720		$	0.75-$2.00
Granted		17,731,012		$	0.10-$0.75
Exercised		(17,334,540	)	$	0.10
Cancelled		(11,768,430	)	$	0.75-$1.50
Outstanding, August 31, 2014		37,131,762		$	0.10-$2.00

The grant date fair value of the warrants issued in the six months ended August 31, 2014 amounted to $1,910,579 which was calculated using the Black-Scholes option pricing model with the following assumptions: risk free rates of return of 2.18%, volatility of 80.82%, a dividend yield of 0%, and an expected life of 7 years.

The exercise prices for the warrants outstanding at August 31, 2014, and information relating to these warrants is as follows:

Range of Exercise Prices		Stock Warrants Outstanding		Stock Warrants Exercisable		Weighted-Average Remaining Contractual Life	Weighted-Average Exercise Price of Warrants Outstanding		Weighted-Average Exercise Price of Warrants Exercisable		Intrinsic Value
$	0.10-$0.75		17,731,012		17,731,012	80 months	$	0.55	$	0.55	$	0.00
$	0.75		1,082,734		1,082,734	78 months	$	0.75	$	0.75	$	0.00
$	0.75		1,000,000		1,000,000	68 months	$	0.75	$	0.75	$	0.00
$	0.75-$1.00		5,990,275		5,990,275	63 months	$	0.77	$	0.77	$	0.00
$	1.00-$1.25		795,000		795,000	25 months	$	1.05	$	1.05	$	0.00
$	1.00		8,272,187		8,272,187	23 months	$	1.00	$	1.00	$	0.00
$	1.50		105,000		105,000	19 months	$	1.50	$	1.50	$	0.00
$	0.75-1.50		709,198		709,198	16 months	$	1.25	$	1.25	$	0.00
$	1.50		156,000		156,000	12 months	$	1.50	$	1.50	$	0.00
$	1.50		704,000		704,000	11 months	$	1.50	$	1.50	$	0.00
$	1.50		350,642		350,642	8  months	$	1.50	$	1.50	$	0.00
$	2.00		235,714		235,714	2 months	$	2.00	$	2.00	$	0.00
			37,131,762		37,131,762

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SEGMENT INFORMATION

6 Months Ended

Aug. 31, 2014

SEGMENT INFORMATION [Abstract]

SEGMENT INFORMATION

NOTE 10 - SEGMENT INFORMATION

We are a United States based company providing advanced technology products to various industries. The principal markets for our products are North America, Europe, and Asia. All of our operating long-lived assets are located in the United States. We operate in one segment.

Total net revenues from customer geographical segments are as follows for the three months ended August 31, 2014 and 2013:

	2014		2013
United States	$	487,455	$	1,150,137
Canada		83,117		78,961
Europe		33,526		24,218
Asia		306,559		161,849
Other		49,865		8,750
Total	$	960,522	$	1,423,915

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SHAREHOLDERS' EQUITY, Details 2 (Details) (USD $)	6 Months Ended																		6 Months Ended					6 Months Ended
	Aug. 31, 2014 Warrant [Member]	Aug. 31, 2014 Warrant [Member] Exercise Price Range $0.10 - $0.75 and 80 Months [Member]	Aug. 31, 2014 Warrant [Member] Exercise Price Range $0.75 and 78 Months [Member]	Aug. 31, 2014 Warrant [Member] Exercise Price Range $0.75 and 68 Months [Member]	Aug. 31, 2014 Warrant [Member] Exercise Price Range $0.75 - $1.00 and 63 Months [Member]	Aug. 31, 2014 Warrant [Member] Exercise Price Range $1.00 - $1.25 and 25 Months [Member]	Aug. 31, 2014 Warrant [Member] Exercise Price Range $1.00 and 23 Months [Member]	Aug. 31, 2014 Warrant [Member] Exercise Price Range $1.50 and 19 Months [Member]	Aug. 31, 2014 Warrant [Member] Exercise Price Range $0.75 - $1.50 and 16 Months [Member]	Aug. 31, 2014 Warrant [Member] Exercise Price Range $1.50 and 12 Months [Member]	Aug. 31, 2014 Warrant [Member] Exercise Price Range $1.50 and 11 Months [Member]	Aug. 31, 2014 Warrant [Member] Exercise Price Range $1.50 and 8 Months [Member]	Aug. 31, 2014 Warrant [Member] Exercise Price Range $2.00 and 2 Months [Member]	Aug. 31, 2014 Warrant [Member] Minimum [Member]	Aug. 31, 2014 Warrant [Member] Minimum [Member] Exercise Price Range $0.10 - $0.75 and 80 Months [Member]	Aug. 31, 2014 Warrant [Member] Minimum [Member] Exercise Price Range $0.75 - $1.00 and 63 Months [Member]	Aug. 31, 2014 Warrant [Member] Minimum [Member] Exercise Price Range $1.00 - $1.25 and 25 Months [Member]	Aug. 31, 2014 Warrant [Member] Minimum [Member] Exercise Price Range $0.75 - $1.50 and 16 Months [Member]	Aug. 31, 2014 Warrant [Member] Maximum [Member]	Aug. 31, 2014 Warrant [Member] Maximum [Member] Exercise Price Range $0.10 - $0.75 and 80 Months [Member]	Aug. 31, 2014 Warrant [Member] Maximum [Member] Exercise Price Range $0.75 - $1.00 and 63 Months [Member]	Aug. 31, 2014 Warrant [Member] Maximum [Member] Exercise Price Range $1.00 - $1.25 and 25 Months [Member]	Aug. 31, 2014 Warrant [Member] Maximum [Member] Exercise Price Range $0.75 - $1.50 and 16 Months [Member]	Aug. 31, 2014 Employee Stock Option Plan 2006 [Member]	Aug. 31, 2014 Employee Stock Option Plan 2006 [Member] Minimum [Member]	Feb. 28, 2014 Employee Stock Option Plan 2006 [Member] Minimum [Member]	Aug. 31, 2014 Employee Stock Option Plan 2006 [Member] Maximum [Member]	Feb. 28, 2014 Employee Stock Option Plan 2006 [Member] Maximum [Member]
Warrant Fair Value Assumptions [Abstract]
Grant date fair value of warrants issued	$ 1,910,579
Risk free rate of return (in hundredths)	2.18%
Volatiliy ( in hundredths)	80.82%
Dividend yield (in hundredths)	0.00%
Expected life (in years)	7 years
Weighted Average Exercise Price [Abstract]
Outstanding, Beginning Balance (in dollars per share)																									$ 0.75	$ 0.75	$ 1.00	$ 1.00
Cancelled (in dollars per share)																								$ 0.75
Granted (in dollars per share)																								$ 0
Outstanding, Ending Balance (in dollars per share)																									$ 0.75	$ 0.75	$ 1.00	$ 1.00
Aggregate Intrinsic Value [Abstract]
Outstanding, Beginning Balance																								0
Outstanding, Ending Balance																								$ 0
Number of Options [Roll Forward]
Outstanding, Beginning Balance (in shares)																								8,602,333
Cancelled (in shares)																								825,333
Granted (in shares)																								0
Outstanding, Ending Balance (in shares)																								7,777,000
Exercise prices for outstanding options and option information [Abstract]
Range of Exercise Price (in dollars per share)																									$ 0.75	$ 0.75	$ 1.00	$ 1.00
Options Outstanding Number (in shares)																								7,777,000
Weighted Average Remaining Life Options Outstanding																								5 years 4 months 24 days
Weighted Average Exercise Price Options Outstanding (in dollars per share)																								$ 0.79
Weighted Average Remaining Life Exercisable Options																								5 years 6 months
Exercisable Options Number (in shares)																								7,777,000
Weighted Average Exercise Price Exercisable Options (in dollars per share)																								$ 0.79
Number of Shares [Roll Forward]
Stock Warrants Outstanding (in shares)	48,503,720
Stock Warrants Granted (in shares)	17,731,012
Stock Warrants Exercised (in shares)	(17,334,540)
Stock Warrants Cancelled (in shares)	(11,768,430)
Stock Warrants Outstanding (in shares)	37,131,762	17,731,012	1,082,734	1,000,000	5,990,275	795,000	8,272,187	105,000	709,198	156,000	704,000	350,642	235,714
Exercise Prices [Abstract]
Exercise Price, Beginning Balance (in dollars per share)														$ 0.75	$ 0.10	$ 0.75	$ 1.00	$ 0.75	$ 2.00	$ 0.75	$ 1.00	$ 1.25	$ 1.50
Exercise Price, Granted (in dollars per share)														$ 0.10					$ 0.75
Exercise Price, Exercised (in dollars per share)	$ 0.10
Exercise Price, Cancelled (in dollars per share)														$ 0.75					$ 1.50
Exercise Price, Ending Balance (in dollars per share)			$ 0.75	$ 0.75			$ 1.00	$ 1.50		$ 1.50	$ 1.50	$ 1.50	$ 2.00	$ 0.10	$ 0.10	$ 0.75	$ 1.00	$ 0.75	$ 2.00	$ 0.75	$ 1.00	$ 1.25	$ 1.50
Exercise prices for warrants outstanding and warrant information [Abstract]
Stock Warrants Exercisable (in shares)		17,731,012	1,082,734	1,000,000	5,990,275	795,000	8,272,187	105,000	709,198	156,000	704,000	350,642	235,714
Weighted-Average Remaining Contractual Life		80 months	78 months	68 months	63 months	25 months	23 months	19 months	16 months	12 months	11 months	8 months	2 months
Weighted-Average Exercise Price of Warrants Outstanding (in dollars per share)		$ 0.55	$ 0.75	$ 0.75	$ 0.77	$ 1.05	$ 1.00	$ 1.50	$ 1.25	$ 1.50	$ 1.50	$ 1.50	$ 2.00
Weighted-Average Exercise Price of Warrants Exercisable (in dollars per share)		$ 0.55	$ 0.75	$ 0.75	$ 0.77	$ 1.05	$ 1.00	$ 1.50	$ 1.25	$ 1.50	$ 1.50	$ 1.50	$ 2.00
Intrinsic Value (in dollars per share)		$ 0	$ 0	$ 0	$ 0	$ 0	$ 0	$ 0	$ 0	$ 0	$ 0	$ 0	$ 0

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INVENTORIES (Tables)

6 Months Ended

Aug. 31, 2014

INVENTORIES [Abstract]

Inventories

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

	August 31, 2014			February 28, 2014
Raw materials	$	1,816,773		$	1,808,556
Finished goods		1,525,085			1,735,019
		3,341,858			3,543,575
Reserve for potential product obsolescence		(2,287,594	)		(2,334,487	)
Discount on long term inventory		-			(78,051	)
		1,054,264			1,131,037
Non-current portion		-			(131,037
Current portion	$	1,054,264		$	1,000,000

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SEGMENT INFORMATION (Tables)

6 Months Ended

Aug. 31, 2014

SEGMENT INFORMATION [Abstract]

Revenues from customer geographical segments

Total net revenues from customer geographical segments are as follows for the three months ended August 31, 2014 and 2013:

	2014		2013
United States	$	487,455	$	1,150,137
Canada		83,117		78,961
Europe		33,526		24,218
Asia		306,559		161,849
Other		49,865		8,750
Total	$	960,522	$	1,423,915

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CONDENSED STATEMENTS OF CASH FLOWS (Unaudited) (USD $)	6 Months Ended
	Aug. 31, 2014	Aug. 31, 2013
Cash flow from operating activities:
Net Loss	$ (8,113,799)	$ (6,710,314)
Adjustments to reconcile Net loss to net cash used in operating activities
Depreciation Expense	5,780	24,530
Amortization of debt discount	281,364	455,860
Gain on settlement of debt	0	(203,110)
Stock issued for services	420,000	889,726
Stock options and warrants expense	3,308,176	548,573
Provision for inventory obsolescence	(128,408)	(93,691)
(Increase) decrease in:
Accounts receivable	(82,355)	(256,469)
Inventory	205,181	300,782
Other current assets and deposit	35,009	8,463
Increase (decrease) in:
Accounts payable, customer deposit and accrued expenses	556,416	1,116,789
Net cash used in operations	(3,512,636)	(3,918,861)
Financing activities:
Issuance of common stock	2,033,453	0
Proceeds from notes payable	365,000	535,000
Payments on notes payable	(245,000)	(120,000)
Proceeds from convertible notes payable	0	1,170,700
Payments on convertible notes payable	0	(306,250)
Proceeds from notes payable-related party	2,602,206	2,582,000
Payment for notes payable-related party	(750,000)	0
Payment for convertible notes payable related party	(500,000)	0
Net cash provided by financing activities:	3,505,659	3,861,450
Net increase (decrease) in cash & cash equivalents	(6,977)	(57,411)
Cash and cash equivalents at beginning of period	40,927	89,196
Cash and cash equivalents at end of period	33,950	31,785
Cash paid during the period for:
Interest	0	106,842
Income taxes	$ 0	$ 0

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OTHER CURRENT ASSETS

6 Months Ended

Aug. 31, 2014

OTHER CURRENT ASSETS [Abstract]

OTHER CURRENT ASSETS

NOTE 4 – OTHER CURRENT ASSETS

Other assets of $54,943 and $100,952 are primarily comprised of vendor advances of $23,751 and $69,497 as of August 31, 2014 and February 28, 2014.

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GOING CONCERN (Details) (USD $)	3 Months Ended		6 Months Ended
	Aug. 31, 2014	Aug. 31, 2013	Aug. 31, 2014	Aug. 31, 2013
GOING CONCERN [Abstract]
Net Loss	$ 4,105,507	$ 3,731,071	$ 8,113,799	$ 6,710,314
Cash flows from operating activities			$ 3,512,636	$ 3,918,861

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RELATED PARTY TRANSACTIONS (Details) (USD $)	6 Months Ended		3 Months Ended		6 Months Ended				6 Months Ended			6 Months Ended
	Aug. 31, 2014	Feb. 28, 2014	Aug. 31, 2014 Members of Board of Directors [Member]	Aug. 31, 2013 Members of Board of Directors [Member]	Aug. 31, 2014 Members of Board of Directors [Member]	Aug. 31, 2014 Members of Board of Directors [Member] Convertible Secured Notes [Member]	Aug. 31, 2014 Members of Board of Directors [Member] Unsecured note payable [Member]	Aug. 31, 2014 Members of Board of Directors [Member] Accrued interest [Member]	Aug. 31, 2014 CEO [Member]	Aug. 31, 2014 CEO [Member] Unsecured note payable [Member]	Aug. 31, 2014 CEO [Member] Accrued interest [Member]	Aug. 31, 2014 Another Member of the Board of Directors [Member]	Aug. 31, 2014 Another Member of the Board of Directors [Member] Unsecured note payable [Member]	Aug. 31, 2014 Another Member of the Board of Directors [Member] Accrued interest [Member]
Related Party Transaction [Line Items]
Unsecured notes payable and accrued interest- related party	$ 22,324,825	$ 19,730,372					$ 13,919,960	$ 5,523,241		$ 82,000	$ 11,502		$ 2,715,206	$ 54,304
Related party transaction, rate (in hundredths)					10.00%	5.00%						10.00%
Related party transaction, date									Apr. 05, 2013
Interest expense incurred on unsecured notes payable			351,524	342,932
Convertible note payable and accrued interest-related party, net of discount	1,862,385	2,176,005				1,588,989		273,396
Discount on notes payable						411,011
Monthly retention fee for related party relationship	$ 30,000

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ACCOUNTING POLICIES (Policies)

6 Months Ended

Aug. 31, 2014

ACCOUNTING POLICIES [Abstract]

Estimates

Estimates

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

Recently Issued Accounting Pronouncements

Recently Issued Accounting Pronouncements 

In March 2013, the FASB issued guidance on a parent’s accounting for the cumulative translation adjustment upon de-recognition of a subsidiary or group of assets within a foreign entity. This new guidance requires that the parent release any related cumulative translation adjustment into net income only if the sale or transfer results in the complete or substantially complete liquidation of the foreign entity in which the subsidiary or group of assets had resided. The new guidance will be effective for the Company beginning July 1, 2014. The adoption of this standard is not expected to have a material impact on the Company’s financial statements.

Reclassifications

Reclassifications

Certain reclassifications have been made to the comparative financial statements to conform to the current period presentation.