OTC: AUSI

The universal global trend
for electrification has created in addition to the industrial demand for motors a very large demand for motors used in electric transportation
for vehicles, planes, and boats (“EV”). In such applications, one or more electric motors are used for propulsion. Most
electric motors currently used for electric mobility employ high energy rare earth permanent magnets4 due to their high efficiency
and small size. The magnetic material is usually sintered neodymium–iron–boron (NdFeB) made or processed in China.

It is expected that over 100
million electric motors will be required per year by 2032 to meet the demand for the growing EV market5.

San Global Research 2024 stated
“Various motor types, including the switched reluctance motor (SRM), interior permanent magnet synchronous motor (IPM), induction
motor (IM), and switched flux motor (SFM), have been employed in EV applications. Among these options, the axial flux induction
motor (AFIM) stands out, drawing attention for its distinct advantages over conventional motors when integrated into EV systems.
The AFIM boasts superior power-to-weight and diameter-to-length ratios, compact construction, high efficiency, optimal utilization
of active materials, and enhanced ventilation and cooling. These unique features position the axial flux induction motor as a promising
and strategic choice, contributing to the ongoing evolution and improvement of electric vehicle technology.”

For Electric Vehicle applications,
Aura’s axial flux induction motors (“AAFIM”) provide efficiencies that are equal to or higher than ones provided by
the best high energy rare earth permanent magnet solution (“PM”). AAFIM have higher reliability, are more robust, have larger
operating speed range, are not limited to 100 degrees C operating temperature for the equivalent PM machine. In addition, AAFIM costs
are significantly lower than the equivalent PM machines.

1
Aerospace and Defense | 4th September 2024

2
Markets & Markets Electric Motor Market Published Date: November 2020 | Report Code: EP 3882

3
Precedence Research October 6, 2021

4
Will rare earth be eliminated in EV motor-Dr. James Edmondson November 2, 2020

5
Emerging Electric Motor Technologies for the EV Market September 28, 2021, Luke Gear

1

The history of electric machines
reveals that the earliest machines were, in fact, axial flux machines. However, after the first radial flux machines were demonstrated
in the beginning of the 20th century, radial flux machines were accepted as the mainstream configuration. The reason for shelving
the axial flux machines were multifold and can be summarized as follows: (i) strong axial magnetic attraction force between the stator
and the rotor, (ii) fabrication difficulties such as cutting the slots in laminated cores, (iii) high cost involved in manufacturing the
laminated stator core, (iv) difficulties in assembling the machine and keeping a uniform air gap and (v) providing a laminated rotor that
can withstand the large centripetal forces.

In recent years there has
been great interest in axial flux topology for numerous industrial, commercial, and electric mobility motor and power generation applications.
However, to date the commercial focus in axial flux motors has been designs using rare earth permanent magnets (“PM”).

Nearly all the supply chain
for rare earths is concentrated in China and the chemistry associated with processing rare earths is challenging, expensive, and hazardous.
Reliance on China for raw material and magnet production, can influence global markets through (i) production decisions and (ii) geo-political
decisions by the Chinese government.

The extraction of rare earths
“produce mountains of toxic waste. For every ton of rare earth produced, the mining process yields 13-kg
of dust, 9,600-12,000 cubic meters of waste gas, 75 cubic meters of wastewater, and one ton of radioactive residue. This stems from the
fact that rare earth element ores have metals that, when mixed with leaching pond chemicals, contaminate air,
water, and soil. Most worrying is that rare earth ores are often laced with radioactive thorium and uranium, which result
in especially detrimental health effects. Overall, for every ton of rare earth, 2,000 tons of toxic waste are produced.6

On April 15, 2025, China
has restricted the export of several crucial rare earth minerals to the United States in response to President Donald Trump’s
tariff increases. China has used its rare earths monopoly as a weapon before, notably against Japan in 2010. In September of
that year, the Japanese coast guard arrested the captain of a Chinese fishing boat that collided with Japanese ships off the cost of the
disputed Senkaku Islands. China retaliated by choking off Japan’s supply of rare earth minerals. Japan quickly gave in and
released the fishing boat captain, but it still suffered significant economic damage from the rare earths blacklist for years to come.7

A significant reason for industry
passing on Axial Flux Induction solution and focus on a PM solution could potentially be attributed to page 6 in Jacek F
Gieras book, where they pointed out that it is “difficult to manufacture a laminated rotor with a cage winding for an axial
flux machine. If the cage windings are replaced with nonmagnetic high conductivity (Cu or AL) homogenous disk or steel disk coated with
Cu layer, the performance of the machine drastically deteriorates.”

Aura Systems with its
axial flux induction technology solved the issues related to the rotor back in 2002 and has shipped over 11,000 axial flux induction machines
in the 5-15 kW range to numerous military and commercial users. Aura’s proprietary rotor does not require any laminates
and provides the structural integrity to withstand very large centripetal forces while, at the same time, providing the proper electric
and magnetic properties without the usual issues associated with a solid rotor or a steel disk coated with a copper layer.

Aura has during the
last few years optimized its axial flux induction machine technology (no PM) where the performance (efficiency, torque, energy density)
is now equal to or greater than the very best of both axial and radial permanent magnet machines. Of course, this is done using only copper
and steel with aluminum for housing at a fraction of the cost of equivalent PM machines.

6
Not so “green” technology: the complicated legacy of rare earth mining 12.aug.2021 Harvard
international review

7
Breitbart news John Hayward April 15, 2025

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Aura’s Axial Flux Induction
technology is the culmination of decades of cutting-edge electromagnetic research and more than $150 million in development by Aura scientists
and engineers. Aura’s axial flux induction technology used for mobile power generation was first used in a combat zone by U.S. forces
in the U.N actions in the Balkans and since then, the U.S. military has used it in combat zones in both Iraq and Afghanistan. To date
the Company shipped over 11,000 systems for mobile power applications in the 5-15 kW range of which over 3,000 systems were for various
military applications.

Aura’s Axial Flux Induction
Machine has inherited advantages such as (i) no rare earth or any other kind of permanent magnets, (ii) significantly less copper (60%
less) than equivalent traditional radial flux induction motors, (iii) significantly higher energy density, (iv) fewer overall materials,
and (v) high efficiency. In addition, being an induction machine, Aura’s solution does not have any brushes or commutators and therefore
do not have any potential for sparks.

Aura’s Axial Flux induction
(“AAFIM”) Competitive Edge

○ Performance- AAFIM provides
the highest power density across all other known motor technologies with energy density of more than 45 kW/liter for machines in the
250-kW range. In addition, Aura’s solution provides efficiencies that are higher than any other solutions for commercial and industrial
applications. For 250 kW EV applications Aura’s designs show efficiency of more than 97%. AAFIM solution also has significantly
lower rotor inertia than other solutions. This increases the machine efficiency even further since it requires less input torque to move
the rotor.

○ Size and weight-Aura’s
solution is significantly smaller in volume and has lower weight than any known solution for equivalent power rated machines (even includes
PM machines). When compared to traditional radial flux (“RF”) induction machines, AAFIM has less than 40% of the weight and
more than 40% reduction in volume. The AAFIM pancake design creates a solution that can be integrated with vehicles and boats for seamless
exportable power.

○ Cost-AAFIM provides a significant
cost advantage over equivalent induction and PM machines. The cost advantage comes from (a) the higher energy density which means less
materials and (b) in the case of PM machines significant cost advantage for equivalent machines by just elimination of the permanent
magnets. When compared to radial flux induction, Aura’s solution uses approximately 60% less copper. Due to the fractional materials
used and the simple manufacturing processes Aura’s high-performance machines are less expensive to manufacture than other equivalent
machines.

○ Other Advantages-Aura’s
solution is extremely reliable with the only components to wear out are the bearings. AAFIM do not require any scheduled maintenance,
and the only materials used are copper and steel for the active components and aluminum for the housing. These materials are readily
available everywhere and are not controlled by any country or political group. In addition to the performance, Aura’s rotor lends
itself to mass manufacturing. Many of Aura’s axial flux induction machines have been operating for twenty years and have shown
remarkable reliability.

Our recent efforts have resulted
in our new 10 kW mobile power generator that is approximately 20% smaller in diameter and 10% smaller in axial length than the legacy
8.5 kW solution. This new 10 kW has generated interest from the US military. We completed the design and fabricated a prototype of a 250-kW
axial flux motor which has approximately the same dimensions as our legacy 8.5 kW mobile power solution and is oil cooled. This new 250
kW motor has a base speed of 5,000 rpm and an operating range of up to 20,000 rpm. We have also completed the design for a 250-kW generator
that is air cooled and will operate at 3600 rpm. We already have interest for this new 250-kw generator from Israel, South Korea, and
others. We recently completed the designs for a 5-horsepower motor (3.75kW) for swimming pools applications and a 1.5 kW motor for some
industrial applications.

In March 2019, stockholders
of the Company represented a majority of the outstanding shares of the Company’s common stock delivered signed written consents
to the Company removing Ronald Buschur, William Anderson and Si Ryong Yu as members of the Company’s Board and electing Ms. Cipora
Lavut, Mr. David Mann, and Dr. Robert Lempert as directors of the Company in their stead. Because of Aura’s refusal to recognize
the legal effectiveness of the consents, in April 2019 the stockholders filed suit in the Court of Chancery of the State of Delaware
pursuant to Section 225 of the Delaware General Corporations Law, seeking an order confirming the validity of the consents. On July
8, 2019 the Court of Chancery entered final judgment in favor of the stockholder plaintiffs, confirming that (a) Ronald Buschur, Si Ryong
Yu and William Anderson had been validly removed by the holders of a majority of the Company’s outstanding stock acting by written
consent (b) Ms. Lavut, Mr. Mann and Dr. Lempert had been validly elected by the holders of a majority of the Company’s outstanding
stock acting by written consent, and (c) the Company’s Board of Directors validly consists of Cipora Lavut, David Mann, Robert Lempert,
Gary Douglas and Salvador Diaz-Versón, Jr. See Item 3, Legal Proceedings for more information. Following this ruling by the Court
of Chancery, the newly confirmed Board of Directors terminated the employment of Melvin Gagerman, who had served as CEO and CFO of the
Company since 2006, and installed Ms. Lavut as President, Mr. Mann as Chief Financial Officer and Dr. Lempert as Secretary of the Company.

3

Business Arrangements

During Fiscal 2018, the Company
signed a joint venture agreement with a Chinese company to build, service and distribute AuraGen® mobile power products
in China. Under the Jiangsu Shengfeng joint venture agreement, the Chinese partner owns 51% of the joint venture and the Company owns
49%. The Company contributed $250,000 in cash as well as a limited license. The limited license sold to the joint venture, however, does
not permit the venture to manufacture the AuraGen® rotor; rather, the joint venture is required to purchase all rotor subassemblies
as well as certain software elements directly from the Company. During Fiscal 2018, Jiangsu Shengfeng placed a $1,000,000 order with the
Company including a $700,000 advance payment of which the Company has failed to deliver product in accordance with the order received.
On November 20, 2019, the Company reached a preliminary agreement with Jiangsu Shengfeng regarding the return of $700,000 previously advanced
to the Company. The preliminary agreement reached consists of a non-interest-bearing promissory note and a payment plan pursuant to which
the $700,000 was to be paid over an 11-month period beginning March 15, 2020, through February 15, 2021. The preliminary agreement was
subject to the JV continuous operation. However, starting in January 2020 the JV was shut down by the Chinese authority due to the COVID-19
virus. In 2023, the JV was dissolved and liquidated.

As of February 28, 2026, the
unpaid balance of $700,000 was reported as part of notes payables – related party in the accompanying financial statements. The
$700,000 advance payment was from the JV of which Aura owned 49%). During Fiscal 2020, the Company recorded an impairment expense of $250,000
to fully write-off the Jiangsu Shengfeng investment due to the uncertainty of the operation. In 2023 the JV was dissolved and liquidated.

Recent Developments

In fiscal 2026 the Company
completed the design of 1.5 kW, 3.75 kW, a new 10 and second generation of 250 kW motors and generators of its axial flux induction technology.
In the first 6 months of 2026 the Company also designed a 50kW solution consisting of 40 kW of AC power and 10kW of DC power, as well
as a new 5 kW solution consisting of 2.5 kW of AC and 2.5 kW of DC power with an ability to handle up to 2.5 kW of unscheduled power spikes.
Both the 50 kW and the 5 kW are for specific U.S military applications and customers are paying for the first unis to be evaluated.

The AuraGen®/VIPER Product Overview:

Markets Served by the AuraGen®/VIPER

Induction Motor Applications

Aura’s axial flux induction
machine can be used as either an electric motor or generator as described above. Due to the inherit advantages of Aura’s axial flux
induction machine, such as (i) no rare earth or any other kind of permanent magnets, (ii) significantly less copper (60% less) than equivalent
traditional induction motors (iii) higher energy density and (iv) fewer overall materials, we believe Aura’s axial flux induction
motor can be used across a wide range of industries and applications. Even a small percent increase in motor efficiency translates to
a very large market-wide savings of dollars per year. Since Aura’s axial flux motor designs are more efficient than equivalent radial
flux induction motors, we believe that with the proper financial resources, over time, the Company can capture a reasonable share of the
global electric motor market.

Electric motor are the main
users of electricity, accounting for approximately 53% of the global demand for electricity. Over 65% of the energy used to support electric
motors is used for industrial motor systems.8 The increase in global electricity consumption, and the use of electrical equipment
and machines in different industries and the renewables sector are major factors driving growth in the electric motor market.

8
Identification of Technoeconomic Opportunities with the Use of Premium Efficiency Motors as Alternative for Developing Countries -Julio R. Gómez etc. Published: October 16, 2020

4

Aura’s machines
use approximately 60% less copper, are approximately 1/3 the size and weight and are more efficient than the equivalent traditional radial
flux (“RF”) induction machine.

When compared to radial
and axial flux permanent magnet machines, Aura machines are less expensive to manufacture, do not use any rare earths, do not use any
permanent magnets, are not dependent on supply from China, are more robust, have a higher operating speed range, have lower maintenance,
have a longer lifetime, and are generally smaller, lighter and higher in efficiency.

EV applications

The universal global trend
for electrification has created in addition to the industrial demand for motors also a very large demand for motors used in electric transportation
for vehicles, planes, and boats (“EV”). In such applications, one or more electric motors are used for propulsion. The
power to drive the electric motors is generally a battery system or fuel cell. Both batteries and fuel cells convert some form of fuel
to electricity through some chemical process. EVs include, but are not limited to, road and off-road vehicles, surface and underwater
vessels, electric aircraft, and electric spacecraft.

The global Electric Vehicle
Market size is projected to grow from 4 million units in 2021 to 34.76 million units by 2030.10 The AC motor (most power
by alternating current) is expected to witness the fastest growth in the electric motor market during the forecast period.

There are several key performance
metrics for electric motors. Power and torque density enables improved driving dynamics in a smaller and lighter package, with weight
and space being at a premium in EVs. Another critical area is efficiency. Improving efficiency means that less energy stored in the battery is
wasted when accelerating the vehicle, resulting in improved range from the same battery capacity. Smaller motor system weight will also
contribute to increase in range since less weight needs to be moved.

Most electric motors currently
used for electric mobility employ high energy permanent magnets.11 The magnetic material is usually sintered neodymium–iron–boron
(NdFeB) made or processed in China. Neodymium is one of the rare earth elements. China has around a third of all rare earth reserves and
around 80% of global production.12

9
Emerging Electric Motor Technologies for the EV Market September 28, 2021, Luke Gear

10
Market & market Electric Vehicle Market May 2021 Report code AT4907

11
IDTechEx Dr. James Edmonson Dec 6 2024

12
Polytechnique Insight January 29, 2025, by Mathieu Xemand

5

In 1987 the Chinese President
Deng Xiaoping famously said, “the middle East has Oil; China has rare earths”. An Oxford Analytics Expert briefing
on July 30, 2020, states that “(i) Permanent Magnets will account for 3⁄4 of rare earth demand by 2030 up from 1⁄4 in
2020 and (ii)Electric vehicles and offshore wind will drive demand and be most vulnerable to supply shocks”.

Permanent magnet (“PM”)
machines can be extremely light in weight and highly efficient. In PM machines the magnetic field B is fixed by the magnets and the only
way to change this is with a bucking field. These bucking currents result in an increase in temperature that could affect the magnetization
of the permanent magnets.

In PM machines the operating
temperature must be kept below 100oC because at that temperature the magnets start to lose some of their magnetization and
at 180oC they become completely demagnetized. However, in EV applications at low speed, one needs to use a lot of current (generating
high heat) to get the required torque; similarly, at high speeds one needs a lot of current for the bucking fields to reduce the B field.
Thus, PM machines for electric mobility require a very complex cooling system. All the components in the machine are designed for maximum
specifications but operationally the machine is limited by temperature requirements of the magnets. The cost of such machines is high
due to (i) The permanent magnets, (ii) the complex cooling system and (iii) complex controller.

Unlike the PM machines,
Aura’s axial flux induction machines do not use any permanent magnets and therefore the controller can change the B fields since
B is proportionate to the voltage divided by the frequency (V/f). Thus, the Aura machine, when operated with a smart inverter, has an
advantage over a PM machine. The Aura machine has a smaller volume, equal or better efficiency, more reliable and a large cost advantage.
This advantage becomes increasingly important as performance is increased.

Mobile and Remote Power Applications

The global generator sales
market was $20.3 billion in 2019 and is estimated to reach $27.16 billion by 2027 (Fortune Business Insight). Most industries dealing
with construction and infrastructure rely on mobile generators to support modern computers, digital sensors and instruments as well as
electrical driven tools. Current automotive alternators cannot supply the existing demanded power for many such applications and thus
the common solution is the use of stand-alone gensets (often referred to a “Auxiliary Power Units” or simply “APUs”).
These APUs, however, (i) consume large amounts of fuel, (ii) are heavy and bulky and accordingly must often be towed on trailers, and
(iii) require constant maintenance. Additionally, traditional APUs are generally not considered to be environmentally friendly power solutions
based on their high fuel consumption, loud operating noise levels, and the emissions they secrete into the air. In comparison, the
AuraGen® system is small and light enough to generally be integrated directly into existing vehicles, does not require
maintenance, nor do they require any set-up or tear-down time. In addition, there is no heavy lifting required and to contact with hot
surfaces. The AuraGen® operation when integrated in a vehicle or a boat is completely seamless and transparent to the user.
In addition, Aura’s solution provides higher efficiency and the ability to provide both AC and DC voltages simultaneously.

13 Motor Intelligence. Automotive
alternator market growth trends forecast 2021-2026

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Competition

The Company is involved in
the application of its AuraGen® technology to electric motors and mobile power. Therefore, it faces substantial competition
from companies offering different technologies.

Electric Motors

There are four (4) basic approaches
for electrical machines: (i) the rotor can be electrically excited such that it creates a magnetic field with constant orientation (as
in synchronous machines) that usually uses brushes and or commutators; (ii) the shape of the rotor can induce reluctance variations in
the stator (as in switched reluctance machines); (iii) the rotor can be permanently magnetized with permanent magnets (“PM “)
as in brushless DC machines; and (iv) the rotor field can be induced from the stator due to the rotor’s structure as in induction
machines. Our axial flux technology is an induction machine.

AC induction machine
(no PM) is the most common electrical machine in use today. A changing magnetic field in the stator induces a current in the rotor. The
current in the rotor produces its own magnetic field, which then interacts with the magnetic field of the stator, causing the rotor to
turn. The name induction comes from the fact that current is induced in the rotor by the changing magnetic field of the stator. Radial
flux induction machines have been the workhorse of industry due to their robustness, attractive cost, and ease of control; however, they
are relatively, heavy and bulky. On the other hand, Aura’s axial flux (“AF”) induction machines, have all of the advantages
of the radial flux machines but with the advantage of higher energy density and higher efficiency resulting in a smaller and lighter machine
with equivalent or better performance. Unlike the PM machines, induction machines do not use any permanent magnets and therefore the
controller can change the B fields since B is proportionate to the voltage divided by the frequency (V/f).

Although our axial flux induction
technology provides significant advantages in both cost (significant less copper, steel and aluminum), size/weight and performance, most
of our competitors have far greater financial, technical, and marketing resources than we have. They have larger budgets for research,
new product development and marketing, and have long-standing customer relationships.

Key players in the market
are (i) Nidec Motor Corporation, (ii) ABB Ltd., (iii) Siemens AG, (iv) WEG Electric Corp, (v) Regal Beloit Corporation, (vi) Wolong, and
(vii) Teco Westinghouse.

Generators

Gensets AKA APU.
Portable generators meet the large market need for auxiliary power. Millions of units per year are sold in North America alone, and millions
more are sold across the world to meet market demands for 1 to 20 Kilowatts of portable power. The market for these power levels addresses
the commercial, leisure and residential markets, and is essentially divided into: (a) higher power, higher quality and higher price commercial
level units; and (b) lower power, lower quality and lower price level units. Gensets provide the strongest competition across the widest
marketplace for auxiliary power. Onan, Honda, Generac and Kohler, among others, are well established and respected brand names in the
genset market for higher reliability auxiliary power generation. There are over 40 registered genset-manufacturing companies in the United
States.

Some of the key suppliers
are Caterpillar (US), Cummins (US), Rolls-Royce Holdings (UK), Atlas Copco (Sweden), Mitsubishi Heavy Industries, Ltd. (Japan), Yanmar
(Japan), Generac (US), ABB (Switzerland), Siemens Energy (Germany), Weichai Group (China), Kohler Co. (US), Kirloskar Oil Engines Ltd.
(India), Denyo (Japan), and Sterling & Wilson (India),

High Output Alternators.
There are many High Output Alternator manufacturers. Some of the better-known ones are Delco-Remy, Bosh, Nippon Densu, Hitachi, Mitsubishi
and Prestolite. All alternators provide their rated power at very high RPM and significantly less power at lower RPM. In addition, alternators
are generally only 35% efficient at the low RPM range and increase to 60% efficiency at the high RPM range.

7

Others

Evans Electric in Australia
has introduced an axial flux machine with a complete conductive rotor. Such a machine was first introduced by Brinner more than 20 years
ago and was abandoned because the rotor lacked the required rigidity to withstand the magnetic and centrifugal forces. The Brinner machine
is cited in Aura’s issued patents.

Emil recently claims to have
developed an axial flux induction motor for EV applications.

Numerous companies are introducing
axial flux machines; however, they generally use rare earth NeFeB magnets (made in China) and are thus not induction machines but rather
permanent magnet machines. Some of the better-known companies are YASA, EVO, Magnax and Phi Power.

Most of our competitors have
far greater financial, technical, and marketing resources than we have. They have larger budgets for research, new product development
and marketing, and have long-standing customer relationships. We also compete with many larger and more established companies in the hiring
and retention of qualified personnel. Our financial condition has limited our ability to market the AuraGen®.

The AuraGen®
uses a different technology and because our product is radically different from traditionally available mobile power solutions, users
may require lengthy evaluation periods to gain confidence in the product. OEMs and large fleet users also typically require considerable
time to make changes to their planning and production.

Competitive Advantages of the AuraGen® Axial Flux
Induction technology

As a motor-Aura’s
Axial Flux (“AF”) induction motor/generator is increasingly attracting attention from high impact potential users seeking
advantages over conventional motors, particularly for Electric Vehicle applications. These advantages include (i) compact construction,
(ii) better power to weight ratio, (iii) shorter axial length, (iv) better efficiency, (v) better torque to volume and weight ratio, (vi)
very high utilization of active materials (less than 60% of the copper) and (vii) excellent ventilation and cooling. Induction machines
(i) do not use any rare earth elements and have no permanent magnets. Due to their flat shape, lower weight and compact construction,
Aura’s axial flux motors are ideal for pumps, fans, food processors, HVHC, etc. An axial flux machine is also preferred in applications
where the rotor can be integrated with the rotating part of mechanical loads.

The AuraGen®
motor’s operational range is between -40 and 340-degrees F; therefore, it is suitable to operate in a harsh environment.

As an alternator.
Aura’s induction machine provides significant advantages in power generation, particularly in mobile applications. Its smaller volume
and higher efficiency, when combined with the geometric shape means it can be integrated with existing vehicles and boats. Such integrated
solutions do not require set up time. There are no heavy weights to lift (gensets), usable cargo space is optimized and there is no need
for separate fuel/containers. Remarkably, there is no scheduled maintenance required.

The AuraGen®
alternator’s operational range is between -40- and 340-degrees F; therefore, it is suitable for operating under the hood of a vehicle
where the ambient temperature can easily be above 200 degrees F.

Earth-Forward, Green
Technology. The AuraGen® system is significantly more environmentally friendly than traditional motors and
generators. Because of its extreme efficiency and smaller size, the AuraGen® system utilizes fewer resources and materials
to manufacture (in particular less than 60% of the copper). When used in power generation, the AuraGen® uses a vehicle’s
primary automotive engine, which is already highly regulated for environmental protection. Traditional mobile power solutions, in comparison,
use small, less efficient, auxiliary engines that produce significantly higher levels of emissions per unit of power output than the automobile
engine.

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Durability; No Scheduled
Maintenance. The AuraGen® motor/generator solution does not require any scheduled maintenance. The historical
failure rate for Aura’s machines over a 20-year period is less than 0.5%. The bearings are rated for 28,000 hours.

Aura’s axial flux induction
(no PM) can be summarized as:

● Disruptive since it addresses
the entire field of electrical motors and generators by providing a solution that is smaller, lighter, more efficient, cost less to
manufacture and does not use any permanent magnets.

● Aura has demonstrated mass
production of this technology with more than 11,000 machines.

● The economic value proposition
is well defined in terms of cost, performance and size.

● The Aura solution provides
significant global reduction in the use of raw materials such as copper, steel, and aluminum.

● The higher efficiency of
Aura’s motor, when used in a manufacturing environment, can lead to a noticeable reduction in the global consumption of energy.

● When used for mobile power
generation, Aura’s technology leads to a significant reduction in global pollution by being able to reduce and, in many
situations, eliminate completely small diesel and gasoline engines used in power generation.

● When used for electric
vehicles, the smaller size, weight, and increased efficiency could lead to an increase in range and/or reduced battery weight.

● When used in remote stand-alone
diesel power generation such as cell towers, Aura’s increased efficiency, lower rotor inertia, voltages flexibility and load-following
architecture results in a significant reduction in fuel usage (and, of course, reduced pollution).

● Aura’s significantly
(65% less) lower rotor inertia and variable speed capabilities make Aura’s solution ideal for small hydro applications that are
currently being ignored because of construction cost, low head, and slow flow situations.

Targeted Market

The Company is re-examining
and identifying new key markets to focus on as the Company expands operations.

The global drive for electrification
is in search of better, more effective electric motors. The recent realization by many potential users of such motors that permanent magnet
motors are depending on NeFeB rare earth magnets from China has created a need for alternative to the PM motors. Our axial flux induction
machine is a solution that does not use any magnets and has the required performance characteristics as well as fit and form for numerous
applications.

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Electric motors

Electric motors for
industrial applications. We have completed the design of 1.5, 3.75, 10, 50, and 250 kW machines. The designs show significantly increased
efficiency as compared to equivalent other designs, and in addition they are a fraction of the size and weight, use approximately 50-60%
less copper and cost less to manufacture.

Electric motors for
high end electric cars. We now have a completed the design and fabrication of a prototype 250-kW axial flux induction (no PM)
with energy density of more than 45 kW per liter (the best other known design is approximately 40 kW/liter using rare earth permanent
magnets) and efficiency of more than 95%.

Mobile power generation

Military market.
One focused market for the Company’s VIPER (military name for our axial flux induction generator) is military applications. We are
currently designing machines for use in unmanned ground vehicles applications and for platforms that can be used for anti-drone applications.
We are also working with the USMC for our new 10 kW solution that fits on the Polaris alfa ATV.

Facilities, Manufacturing Process and Suppliers

During Fiscal 2026 and 2025,
the Company occupied approximately 18,000 square feet of space in Lake Forest, California. The Lake Forest facility is subject to a lease
agreement with a 66-month lease period effective from February 2021, through August 31, 2026. The monthly base lease rate for the Lake
Forest Facility is currently $24,239 per month with a 3% annual escalation. We expect to expand operations next year that will require
additional space. In 2026 the Company extended the lease to two more years as we look for a larger facility outside of California.

As the Company continues to
expand its operations, we will need to renew relationships and contracts with our suppliers or locate suitable new suppliers for subassemblies
and other components.

Research and Development

We believe that ongoing research
and development is important to the success of our product in order to utilize the most recent technology, develop additional products
and additional uses for existing products, stay current with changes in vehicle manufacture and design and to maintain an advantage over
potential competition. Our engineering, research and development costs for Fiscal 2026 were approximately $1.6 million compared to approximately
$1.2 million in Fiscal 2025.

Patents and Intellectual Property

Our intellectual property
portfolio consists of trademarks, proprietary know-how, trade secrets, and patents. Historically the Company obtained 78 patents in electromagnetic
and electrooptical technologies. During fiscal 2025 the Company filed 3 new patent applications covering (i) new winding patterns can
be made to increase current density for increasing the torque density and the power density and (ii) two patent applications for the development
of novel cooling systems which make better heat dissipation is used to reach the highest torque and power density. The Company is preparing
numerous additional patent applications to be filed over the next few months.

The basic philosophy followed
by Aura is to build layers of defense to protect the Company’s IP. This is achieved through the development of fundamental patents
and surrounds them with application patents. The detailed fabrication of the rotor is kept as a trade secret since this is a critical
component in Aura’s proprietary intellectual assets.

The challenges of implementing
a patent philosophy are based on cost. Patent maintenance costs are expensive, particularly international patents. In order to maximize
a limited budget, our approach is to first file a number of new US patents. This will provide a year before international patents need
to be filed.

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Government Regulation

We are subject to laws and
regulations that affect the Company’s activities, which include, but are not limited to, the areas of labor, intellectual property
and ownership and infringement, tax, import and export requirements, environmental, and health and safety. As we recommence operations,
our operations will again be subject to federal, state and local laws and regulations governing the occupational health and safety of
our employees and wage regulations. For example, we are subject to the requirements of the federal Occupational Safety and Health Act,
as amended, or OSHA, and comparable state laws that protect and regulate employee health and safety. We expect to expend resources to
maintain compliance with OSHA requirements and industry best practices.

Employees

As of the date of this filing,
the Company has a total of twelve (12) full-time employees in research and development, sales, operations and administration. Additionally,
the Company engages independent contractors, on an as-needed basis, to support various areas of the business. During Fiscal 2026 we engaged
three independent contractors to support engineering developments.

Significant Customers

In Fiscal 2026, one significant
customer, CBOL, accounted for 55% of revenues. In Fiscal 2025, one significant customer, CBOL, accounted for 55% of revenues, however
no customer is considered significant.

Raw Materials

The most important raw materials
we use in manufacturing our products are steel, copper, and aluminum. Raw materials are purchased domestically. We have no significant
long-term supply contracts. When possible, we maintain a number of sources for our raw materials, which we believe contribute to our ability
to obtain competitive pricing. The cost of some of our raw materials and shipping costs are dependent on petroleum cost. Higher material
prices, cost of petroleum, and costs of sourced products could have an adverse effect on margins.

Available Information

We file annual, quarterly
and current reports and other information with the Securities and Exchange Commission (the “SEC” or the “Commission”).
These materials can be inspected and copied at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. Copies
of these materials may also be obtained by mail at prescribed rates from the S.E.C’s Public Reference Room at the above address.
Information about the Public Reference Room can be obtained by calling the SEC at 1-800-SEC-0330. The SEC also maintains a website at
www.sec.gov that contains reports, proxy and information statements, and other information regarding issuers that file electronically
with the SEC.

On our website, www.aurasystems.com,
we provide free of charge our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and any amendments
thereto, as soon as reasonably practicable after they have been electronically filed or furnished to the SEC. Information contained on
our website is not part of this Annual Report on Form 10-K or our other filings with the SEC.

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