What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2026-08-12 compared with 2026-05-20 · 720 added, 416 removed, 167 unchanged (87% of the section changed)

1 unchanged sentence

financial statements of American Fusion, Inc.

and its subsidiary as of March 31, 2026 and for the three months ended March 31, 2026 and

2025 are included below.

and its subsidiary are listed below:

Index to Consolidated

1 unchanged sentence

Consolidated Balance

Sheets as of March 31, 2026 and December 31, 2025

Sheets as of June 30, 2026 and December 31, 2025

Consolidated Statements

of Operations for the three months ended March 31, 2026 and 2025

of Operations for the three months and six months ended June 30, 2026 and 2025

Consolidated Statements

of Stockholders’ Deficit for the three months ended March 31, 2026 and 2025

of Stockholders’ Deficit for the three months and six months ended June 30, 2026, and 2025

Consolidated Statements

of Cash Flows for the three months ended March 31, 2026 and 2025

of Cash Flows for the six months ended June 30, 2026, and 2025

Notes to Consolidated

3 unchanged sentences

CONSOLIDATED BALANCE SHEETS

June 30, 2026

December 31, 2025

and cash equivalents

current assets

Cash and cash equivalents

Total current assets

LIABILITIES AND STOCKHOLDERS' DEFICIT

AND STOCKHOLDERS’ DEFICIT

payable and accrued expenses

notes payable – related party

current liabilities

Accounts payable and accrued expenses

Notes payable-related parties

Litigation liability

Total current liabilities

Total Liabilities

Stockholders' Deficit:

Preferred Stock, Series A, par $ 0.001 ;

Stockholders’

Stock, Series A, par $ 0.001 ;

20,000,001 authorized;

Common Stock, par $ 0.001 ;

240,000,000 issuable at March 31, 2026;

2,997,301,029 and 2,939,061,314 issued at 3/31/26 and 12/31/25,

Common Stock Issuable

Additional paid-in capital

Accumulated deficit

Stock, par $ 0.001 ;

1.8 B authorized;

1,000,000 issuable at June 30, 2026;

1,641,801,029 issued

and 1,619,034,363 outstanding at June 30, 2026 and 2,939,061,314 issued and outstanding at December

stock issuable

paid-in capital

( 10,906,778 )

( 20,356,048 )

Total Stockholders' Deficit

Treasury Stock, 22,766,666 and

0 shares issued at June 30, 2026 and December 31, 2025, respectively

stockholders’ deficit

( 1,659,979 )

( 1,200,875 )

TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT

The accompanying notes are an integral part of these consolidated financial statements.

liabilities and stockholders’ deficit

The accompanying notes are an integral part of

these consolidated financial statements

AMERICAN FUSION, INC.

1 unchanged sentence

CONSOLIDATED STATEMENTS OF OPERATIONS

Three Months Ended March 31,

Operating Expenses:

Consulting Fees

Officer and director compensation

Professional Fees

Advertisement and marketing expenses

Office and other expenses

Total Operating Expenses

Operating Loss

THREE MONTHS ENDED JUNE 30,

SIX MONTHS ENDED JUNE 30,

Cost of revenue

Selling, general and administrative expenses

Loss from operations

( 1,245,180 )

2 unchanged sentences

Interest expense

Total Other Income (Expense)

Total other expense

$ ( 1,275,208 )

$ ( 1,944,958 )

$ ( 155,319 )

Weighted average shares outstanding - basic and diluted

1 unchanged sentence

2,625,061,314

Basic and diluted loss per share

2,388,774,665

2,625,061,314

Weighted average loss per share - basic and diluted

The accompanying notes are an integral part of

2 unchanged sentences

AND SUBSIDIARY

CONSOLIDATED STATEMENT OF STOCKHOLDERS’

FOR THE THREE MONTHS ENDED MARCH 31, 2025

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT

FOR THE SIX MONTHS ENDED JUNE 30, 2026

Stock, Series A

Stock Issuable

Paid-In Capital

Treasury Stock

Balance, December 31, 2025

2 unchanged sentences

$ ( 1,200,875 )

Shares issued - Note conversions

Conversion of notes payable - related party

Issuance of prefunded- warrants

Stock-based compensation

Reverse recapitalization

( 11,634,228 )

Balance, March 31, 2026

2 unchanged sentences

$ ( 1,110,070 )

Conversion of notes payable - related party

Stock-based compensation

Issuance of prefunded warrants

Security purchase agreements - units

Issuable common stock

Treasury stock acquired

( 22,766,666 )

Cancellation of common stock

( 1,683,000,000 )

( 1,683,000 )

( 1,275,208 )

Balance, June 30, 2026

1,619,034,363

$ ( 10,906,778 )

$ ( 1,659,979 )

The accompanying notes are an integral part

of these consolidated financial statements

AMERICAN FUSION, INC.

AND SUBSIDIARY

CONSOLIDATED STATEMENT OF STOCKHOLDERS’

THE THREE MONTHS ENDED MARCH 31, 2026

Preferred Stock

Additional Paid-in

Balance, December 31, 2025

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT

FOR THE SIX MONTHS ENDED JUNE 30, 2025

Stock, Series A

Stock Issuable

Paid-In Capital

December 31, 2024

2,625,061,314

1 unchanged sentence

$ ( 1,008,342 )

Conversion of notes payable-related parties

Issuance of prefunded warrants

Stock based compensation

Reverse recapitalization

March 31, 2025

2,625,061,314

1 unchanged sentence

$ ( 1,108,342 )

Balance, March 31, 2026

June 30, 2025

2,625,061,314

1 unchanged sentence

$ ( 1,163,661 )

The accompanying notes are an integral part of

these consolidated financial statements.

The accompanying notes are an integral part

of these consolidated financial statements

AMERICAN FUSION, INC.

1 unchanged sentence

CONSOLIDATED STATEMENTS OF CASH FLOWS

Three Months Ended

CASH FLOWS FROM OPERATING ACTIVITIES

FOR THE SIX MONTHS ENDED JUNE 30,

flows from operating activities:

$ ( 1,944,958 )

$ ( 155,319 )

Adjustments to reconcile net loss to net cash:

Stock based compensation

Accrued interest on notes payable-related parties

Accrued interest on litigation liability

Changes in operating assets and liabilities:

Increase (decrease) in accounts payable and

accrued expenses

Net cash used in operating activities

CASH FLOWS FROM INVESTING ACTIVITIES

Net cash used in investing activities

CASH FLOWS FROM FINANCING ACTIVITIES

Proceeds from prepaid warrants

Net cash provided by financing activities

Net change in cash

Cash at beginning of period

CASH AT END OF PERIOD

Supplemental disclosure of non-cash activities:

Conversion of note payable-related parties

The accompanying notes are an integral part of

these consolidated financial statements.

to reconcile net loss to net cash used in operating activities:

notes payable – related party issued for consulting services

interest on convertible notes payable – related party

interest on litigation liability

in operating assets and liabilities:

payable and accrued expenses

cash used in operating activities

( 1,042,712 )

flows used in investing activities:

intangible assets

cash used in investing activities

flows from financing activities:

from issuance of prefunded warrants

from issuance of security purchase agreements - units

cash provided by financing activities

increase in cash and cash equivalents

and cash equivalents, beginning of period

and cash equivalents, end of period

disclosures of cash flow information:

paid during the period for:

investing and financing activities:

notes payable – related party conversion to common stock

The accompanying

notes are an integral part of these consolidated financial statements

AMERICAN FUSION INC.

5 unchanged sentences

"Company") is a Texas corporation.

On February 27, 2026, the Company completed its reverse merger with Kepler Fusion

Technologies Inc.

("Kepler") pursuant to the Master Sales Agreement dated December 16, 2025 and the related Share Exchange

Upon closing, Kepler became a wholly-owned subsidiary of the Company, and Kepler's former shareholders shall obtain

approximately 89.7% of the common shares voting rights in the combined entity.

As of March 31, 2026, the Company's principal

operating focus, through its Kepler subsidiary, is the development of advanced fusion energy technologies.

See Note 9 for additional

details regarding the recapitalization.

On February 27, 2026, the Company completed its reverse merger with Kepler Fusion Technologies

("Kepler") pursuant to the Master Sales Agreement dated December 16, 2025 and the related Share Exchange Agreement.

closing, Kepler became a wholly owned subsidiary of the Company, and Kepler's former shareholders shall obtain approximately 89.7% of

the common voting rights in the combined entity.

As of June 30, 2026, the Company's principal operating focus is the development of advanced

fusion energy technologies.

The reverse merger was accounted for as a reverse recapitalization as further explained in Note 9.

Redomestication and Name Change

In February 2026, the Company completed a

statutory conversion and redomestication from the State of Delaware to the State of Texas.

In February 2026, the Company completed a statutory

conversion and redomestication from the State of Delaware to the State of Texas.

The redomestication became effective on February 10,

11 unchanged sentences

Basis of Presentation and Principles of Consolidation

The unaudited consolidated interim financial

statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”)

The unaudited consolidated interim financial statements

of the Company have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”)

for interim financial information and the instructions to Form 10-Q and Rule 8-03 of Regulation S-X.

4 unchanged sentences

The financial statements reflect

the operations and financial position of the Company and its consolidated subsidiary for the three months ended March 31, 2026.

ASC 805-40, Kepler Fusion Technologies Inc.

the operations and financial position of the Company and its consolidated subsidiary for the three-month and six-month periods ended June

Under ASC 805-40, Kepler Fusion Technologies Inc.

is treated as the accounting acquirer;

consequently, the historical financial statements of

the combined entity reflect Kepler's historical results for pre-acquisition periods, with AMFN's identifiable assets and liabilities added

at carrying value as of February 27, 2026.

consequently, the historical financial

statements of the combined entity reflect Kepler’s historical results for pre-acquisition periods, with AMFN's identifiable assets

and liabilities added at carrying value as of February 27, 2026.

Certain subsidiaries were inactive during the period and had no assets,

liabilities, revenues, expenses, or operations.

Accordingly, consolidation of these entities would have no effect on the accompanying

consolidated financial statements.

All intercompany transactions and balances have been eliminated in consolidation.

2 unchanged sentences

have been prepared assuming that the Company will continue as a going concern.

As of March 31, 2026, the Company has an accumulated deficit

As of June 30, 2026, the Company has an accumulated deficit

of approximately $ 10.9 million and has incurred recurring losses from operations.

3 unchanged sentences

from the outcome of this uncertainty.

Management believes that the completion of the Kepler business merger and planned capital-raising

Management believes that after the completion of the Kepler business merger the planned capital-raising

activities will provide the resources necessary to fund ongoing operations;

2 unchanged sentences

Use of Estimates

The preparation of financial statements in

conformity with U.S.

GAAP 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.

The preparation of financial statements in conformity

GAAP 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.

Actual results could differ from those estimates.

Reclassifications

Certain prior-period amounts have been reclassified

to conform to the current-period presentation.

These reclassifications had no effect on previously reported net income, total assets,

or stockholders’ equity.

AMERICAN FUSION INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Cash and Cash Equivalents

1 unchanged sentence

with an original maturity of three months or less when purchased to be cash equivalents.

Accounts Receivable

Accounts receivable are stated at amounts due

from customers, net of an allowance for doubtful accounts, and the Company generally does not require collateral.

As a general policy,

the Company determines an allowance for doubtful accounts by considering a number of factors, including the length of time trade accounts

receivable are past due, the Company’s previous loss history, the customer’s current ability to pay its obligation to the

Company, and the condition of the general economy and industry as a whole.

The Company writes off accounts receivable when they become

uncollectible, and payments subsequently received on such receivables are credited to the allowance for doubtful accounts.

The Company recorded an allowance for doubtful

accounts of $ 0 at both June 30, 2026 and December 31, 2025.

Intangibles and Impairment of Long-Lived Assets

During the six months ended June 30, 2026, certain

patent related filing costs totaling $33,472 as well as certain website development costs totaling $15,000 have been capitalized on the

Company’s balance sheet in accordance with ASC Topic 350, Intangibles, Goodwill and Other.

Upon receipt or acquisition of a patent,

a determination of useful life and amortization period will be made.

Capitalized website development costs are amortized effective July

1, 2026 over three years.

Upon launch and usage of the website, a determination of useful life and amortization will be made.

In accordance

with FASB ASC Topic 360, Property, Plant and Equipment, long-lived assets are reviewed for impairment whenever events or changes

in circumstances indicate that the carrying amount of an asset may not be recoverable.

An impairment loss is recognized on long-lived

assets when indicators of impairment are present and the undiscounted future cash flows estimated to be generated by those assets are

less than the carrying amount of the assets.

In such cases, the carrying value of these assets are adjusted to their estimated fair values

and assets held for sale are adjusted to their estimated fair values less selling expenses.

Reverse Recapitalization

On February 27,

2026, Renewal Fuels, Inc.

(RNWF, subsequently renamed American Fusion Inc., “AMFN” or the “Company”) consummated

a share-exchange transaction with Brent Nelson, the sole shareholder of Kepler Fusion Technologies Inc.

(“Kepler”), pursuant

to which the Company acquired 100% of the issued and outstanding equity interests of Kepler in exchange for newly issued common stock

of the Company.

the consummation of the transaction, the holder of 1000 shares of Kepler common stock was to receive 240 million shares of American

common stock at a par value $0.001 per share after giving effect to the Conversion ratio of 240,000 (the

“Conversion Ratio”).

Concurrently,

an entity controlled by the Company’s CEO sold to an entity controlled by Brent Nelson the one (1) share of Special 2020 Series

A Preferred Stock of the Company (the “Control Share”) for $1,000 cash.

The transaction

has been accounted for as a reverse recapitalization in accordance with U.S.

On February 27, 2026, Renewal Fuels, Inc.

subsequently renamed American Fusion Inc., “AMFN” or the “Company”) consummated a share-exchange transaction with

Brent Nelson, the sole shareholder of Kepler Fusion Technologies Inc.

(“Kepler”), pursuant to which the Company acquired 100%

of the issued and outstanding equity interests of Kepler in exchange for newly issued common stock of the Company.

Upon the consummation of the transaction, the

holder of the 1000 shares of Kepler common stock was contemplated to receive 240 million shares of American Fusion, Inc.

at a par value $0.001 per share after giving effect to the Conversion ratio of 240,000 (the “Conversion Ratio”).

were issued in April 2026.

Concurrently, an entity controlled by the Company’s

CEO sold to an entity controlled by Brent Nelson the one (1) share of Special 2020 Series A Preferred Stock of the Company (the “Control

Share”) for $1,000 cash.

The transaction has been accounted for as a reverse

recapitalization in accordance with U.S.

Under this method of accounting, American Fusion, Inc.

is treated as the “acquired” company and Kepler is treated as the accounting acquirer for financial reporting purposes.

reverse recapitalization accounting treatment was primarily determined based on the fact that Nelson (an individual shareholder) who controlled

Kepler before the transaction continued to control American Fusion, Inc.

post-transaction and hence Kepler has not undergone a change

in control and is the accounting acquirer in a reverse recapitalization transaction.

Accordingly, for

accounting purposes, the financial statements of AMFN.

represent a continuation of the financial statements of Kepler with the merger

being treated as the equivalent of Kepler issuing shares for the net assets of American Fusion, Inc., accompanied by a recapitalization.

The net assets of American Fusion, Inc.

were recognized as of the closing at historical cost, with no goodwill or other intangible assets

Operations prior to the merger are presented as those of Kepler and the accumulated deficit of Kepler has been carried forward

after closing.

is treated as the “acquired”

company and Kepler is treated as the accounting acquirer for financial reporting purposes.

The reverse recapitalization accounting treatment

was primarily determined based on the fact that Nelson (an individual shareholder) who controlled Kepler before the transaction continued

to control American Fusion, Inc.

post-transaction and hence Kepler has not undergone a change in control and is the accounting acquirer

in a reverse recapitalization transaction.

Accordingly, for accounting purposes, the financial

statements of AMFN.

represent a continuation of the financial statements of Kepler with the merger being treated as the equivalent of

Kepler issuing shares for the net assets of American Fusion, Inc., accompanied by a recapitalization.

The net assets of American Fusion,

were recognized as of the closing at historical cost, with no goodwill or other intangible assets recorded.

Operations prior to the

merger are presented as those of Kepler and the accumulated deficit of Kepler has been carried forward after closing.

Fair Value Measurements

The disclosure requirements within

Accounting Standards Codification (ASC) Topic 820-10, Fair Value Measurement, require disclosure of estimated fair values of certain financial

For financial instruments recognized at fair value in the Company’s statements of operations, the disclosure requirements

of ASC Topic 820-10 also apply.

The disclosure requirements within Accounting

Standards Codification (ASC) Topic 820-10, Fair Value Measurement, require disclosure of estimated fair values of certain financial instruments.

For financial instruments recognized at fair value in the Company’s statements of operations, the disclosure requirements of ASC

Topic 820-10 also apply.

The methods and assumptions are set forth below:

and cash equivalents are carried at cost, which approximates fair value.

carrying amounts of receivables approximate fair value due to their short-term maturities.

carrying amounts of payables approximate fair value due to their short-term maturities.

Asset and liabilities measured

and reported at fair value are classified and disclosed in one of the following categories based on inputs:

Level 1 — Quoted prices

in active markets for identical assets and liabilities that the reporting entity has the ability to access at the measurement date.

Level 2 — Inputs other

than quoted prices included within Level 1 that are observable for the asset and liability or can be corroborated with observable market

data for substantially the entire contractual term of the asset or liability.

Level 3 — Pricing inputs

include significant unobservable inputs used in determining the fair value of investments.

The types of investments, which would generally

be included in this category include equity securities issued by private entities.

In certain cases, the inputs used

to measure fair value may fall into different levels of the fair value hierarchy.

In such cases, the determination of which category within

the fair value hierarchy is appropriate for any given investment is based on the lowest level of input that is significant to the fair

value measurement.

The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety

requires judgment and considers factors specific to the investment.

were no Level 3 liabilities at March 31, 2026 and December 31 and 2025.

● Cash and cash equivalents

are carried at cost, which approximates fair value.

● The carrying amounts

of receivables approximate fair value due to their short-term maturities.

● The carrying amounts

of payables approximate fair value due to their short-term maturities.

AMERICAN FUSION INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Asset and liabilities measured and reported at

fair value are classified and disclosed in one of the following categories based on inputs:

Level 1 — Quoted prices in active markets

for identical assets and liabilities that the reporting entity has the ability to access at the measurement date.

Level 2 — Inputs other than quoted

prices included within Level 1 that are observable for the asset and liability or can be corroborated with observable market data for

substantially the entire contractual term of the asset or liability.

Level 3 — Pricing inputs include significant

unobservable inputs used in determining the fair value of investments.

The types of investments, which would generally be included in

this category include equity securities issued by private entities.

In certain cases, the inputs used to measure fair

value may fall into different levels of the fair value hierarchy.

In such cases, the determination of which category within the fair value

hierarchy is appropriate for any given investment is based on the lowest level of input that is significant to the fair value measurement.

The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment

and considers factors specific to the investment.

were no Level 3 assets or liabilities at June 30, 2026 and December 31, 2025.

Lease Commitment

The Company determines if an arrangement is a

lease at inception.

This determination generally depends on whether the arrangement conveys to the Company the right to control the use

of an explicitly or implicitly identified fixed asset for a period of time in exchange for consideration.

Control of an underlying asset

is conveyed to the Company if the Company obtains the rights to direct the use of and to obtain substantially all of the economic benefits

from using the underlying asset.

Lease expense for variable lease components are recognized when the obligation is probable.

lease right of use (“ROU”) assets and lease liabilities are recognized at commencement date based on the present value of

lease payments over the lease term.

Operating lease payments are recognized as lease expense on a straight-line basis over the lease term.

ASC 842 requires a lessee to discount its unpaid lease payments using the interest rate implicit in the lease or, if that rate cannot

be readily determined, its incremental borrowing rate.

As an implicit interest rate is not readily determinable in the Company’s

lease, the incremental borrowing rate is used based on the information available at commencement date in determining the present value

of lease payments.

Variable lease payments not dependent on a rate

or index associated with the Company’s leases are recognized when the event, activity, or circumstance in the lease agreement on

which those payments are assessed as probable.

Variable lease payments are presented as operating expenses in the Company’s statement

of operations in the same line as expense arising from fixed lease payments.

The Company entered into various operating leases at June

30, 2026, effective beginning in July 2026.

Revenue Recognition

Revenues are recognized in accordance with Accounting

Standards Codification (“ASC”) 606, Revenue from Contracts with Customers when performance obligations are satisfied through

the transfer of promised goods to the Company’s customers.

Control transfers upon shipment of product or when the title has been

passed to the customers.

This includes the transfer of legal title, physical possession, the risks and rewards of ownership, and customer

Revenue is recorded net of sales taxes collected from customers on behalf of taxing authorities, allowance for estimated

returns, chargebacks, and markdowns based upon management’s estimates and the Company’s historical experience.

The Company’s

liability for sales return refunds is recognized within other current liabilities, and an asset for the value of inventory that is expected

to be returned is recognized within other current assets on the balance sheets.

The Company generally allows a 30-day right of return

to its customers.

As of both June 30, 2026 and December 31, 2025, the sales returns allowance was $ 0 .

The Company determines the amount

of revenue to be recognized through the application of the following steps:

· identification

of the contract, or contracts, with a customer;

· identification

of the performance obligations in the contract;

· determination

of the transaction price;

of the transaction price to the performance obligations in the contract;

· recognition

of revenue when or as the Company satisfies the performance obligations.

AMERICAN FUSION INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

The timing of revenue recognition,

billings and cash collections results in billed accounts receivable, unbilled receivables, and deferred revenue (contract liabilities)

on the accompanying balance sheet.

On occasion, billing occurs subsequent to revenue recognition, resulting in unbilled receivables.

were no unbilled receivables or deferred revenue recorded as of June 30, 2026 and December 31, 2025.

Share-based Compensation

We account for share-based

awards granted to employees, directors and third parties by recording compensation expense based on estimated fair values.

the fair value of share-based payment awards on the date of grant.

The value of the portion of the award that is ultimately expected to

vest is recognized as expense over the requisite service periods in our consolidated statements of operations.

Share-based awards are

attributed to expense using the straight-line method over the vesting period.

as permitted under ASC 718, Compensation—Stock

Compensation .

The assumptions used in calculating the fair value of share-based payment awards represent our best estimates.

Our estimates

of the fair values of share-based awards granted and the resulting amounts of share-based compensation recognized may be impacted by certain

We account for share-based awards granted to employees,

directors and third parties by recording compensation expense based on estimated fair values.

We estimate the fair value of share-based

payment awards on the date of grant.

The value of the portion of the award that is ultimately expected to vest is recognized as expense

over the requisite service periods in our consolidated statements of operations.

Share-based awards are attributed to expense using the

straight-line method over the vesting period.

as permitted under ASC 718, Compensation—Stock Compensation .

The assumptions

used in calculating the fair value of share-based payment awards represent our best estimates.

Our estimates of the fair values of share-based

awards granted and the resulting amounts of share-based compensation recognized may be impacted by certain variables.

Research and Development Costs

Research and development costs are expensed as

Total research and development costs amounted to $ 131,342 and $ 131,342 for the three- and six-month periods ended June

There were no research and development costs in the six months ended June 30, 2025.

Total research and development costs are

included in selling, general and administrative expenses on the accompanying statements of operations.

Contingencies

The Company follows ASC 450, Contingencies,

to account for loss contingencies.

Liabilities are recorded when it is probable that a liability has been incurred and the amount can

be reasonably estimated.

(Loss) Per Share

Basic earnings (loss) per share is computed

by dividing net income (loss) by the weighted average number of common shares outstanding.

Diluted earnings (loss) per share includes

the dilutive effect of potential common shares.

For periods with a net loss, diluted loss per share equals basic loss per share.

The Company accounts for income taxes under

ASC 740, Income Taxes.

Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences

between the financial statement carrying amounts and their respective tax bases.

A valuation allowance is established when it is more

likely than not that deferred tax assets will not be realized.

The Company experienced a change in control on February 27, 2026 in connection

with the Kepler reverse acquisition;

The Company follows ASC 450, Contingencies, to

account for loss contingencies.

Liabilities are recorded when it is probable that a liability has been incurred and the amount can be

reasonably estimated.

Treasury Stock

The Company accounts for treasury stock under the cost method as defined

in ASC 505-30.

Treasury stock is recorded at the total cost paid to repurchase shares, debited to the treasury stock account, and credited

Treasury stock is presented as a contra-equity account in the stockholders’ equity section of the balance sheet.

of treasury stock is recorded at the reissuance price, with any excess over cost credited to additional paid-in capital from treasury

stock, and any deficiency first charged to additional paid-in capital from treasury stock and then to retained earnings.

No gain or loss

is recognized in net income;

all adjustments are made directly to equity accounts.

Earnings (Loss) Per Share

Net earnings or loss per share is computed by

dividing net income or loss by the weighted-average number of common shares outstanding during the period, excluding shares subject to

redemption or forfeiture.

The Company presents basic and diluted net earnings or loss per share.

Diluted net earnings or loss per share

reflect the actual weighted average of common shares issued and outstanding during the period, adjusted for potentially dilutive securities

Potentially dilutive securities are excluded from the computation of the diluted net loss per share if their inclusion is

anti-dilutive.

All potentially dilutive securities are anti-dilutive as of June 30, 2026 and 2025 and, therefore, diluted net loss

per share is the same as basic net loss per share.

Convertible notes payable – related party and warrants, with underlying shares

totaling 2,452,769,529 at June 30, 2026 have not been included in the net loss per share calculation.

Convertible notes payable - related

party with underlying shares totaling 2,060,739,897 at June 30, 2025, have not been included in the net loss per share calculation.

number of underlying shares related to convertible notes payable may vary based upon the actual date of conversion.

In addition, all treasury

shares and later to be determined shares in conjunction with deferred stock compensation agreements have also been excluded from the calculation.

The Company accounts for income taxes under ASC

740, Income Taxes.

Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between

the financial statement carrying amounts and their respective tax bases.

A valuation allowance is established when it is more likely than

not that deferred tax assets will not be realized.

The Company experienced a change in control on February 27, 2026 in connection with

the Kepler reverse acquisition;

accordingly, the utilization of net operating loss carryforwards of the legal acquirer may be limited

1 unchanged sentence

A Section 382 study is expected to be completed in a future period.

AMERICAN FUSION INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

NOTE 3 – INCOME TAXES

As of March 31, 2026 and December 31, 2025,

the Company had estimated net operating loss carryforwards of approximately $ 20.8 million and $ 20.4 million, respectively.

uncertainty of realizing any tax benefits, the Company has recorded a full valuation allowance against its deferred tax assets.

The Company's

change in control on February 27, 2026 may trigger IRC Section 382 limitations on future utilization of pre-change NOLs.

Schedule of deferred tax asset

Net operating loss carryforward

Valuation allowance

( 20,825,433 )

( 20,356,372 )

Net deferred tax asset

As of June 30, 2026 and December 31, 2025, the

Company had estimated net operating loss carryforwards of approximately $ 22.2 million and $ 20.4 million, respectively.

Due to the uncertainty

of realizing any tax benefits, the Company has recorded a full valuation allowance against its deferred tax assets.

The Company's change

in control on February 27, 2026 may trigger IRC Section 382 limitations on future utilization of pre-change NOLs.

NOTE 4 – STOCKHOLDERS' DEFICIT

Preferred Stock

The Company has authorized 20,000,001 shares

of preferred stock, par value $ 0.001 per share.

As of March 31, 2026, one ( 1 ) share of Series A Preferred Stock (the "Special 2020

Series A Preferred Control Share") was issued and outstanding, held by an entity controlled by Brent Nelson, following its transfer

at closing on February 27, 2026.

The Control Share carries 60% voting power in the Company.

The Company has authorized 20,000,001

shares of common stock, par value $ 0.001 per share.

As of March 31, 2026 and December 31, 2025, 2,997,301,029 and 2,939,061,314 shares

of common stock were issued and outstanding, respectively.

During the three months ended March 31, 2026,

the Company issued 42,500,000

shares of common stock pursuant to conversion notices received from holders of outstanding convertible notes.

shares of preferred stock, par value $ 0.001

As of June 30, 2026, one ( 1 )

share of Series A Preferred Stock (the "Special 2020 Series A Preferred Control Share") was issued and outstanding, held by an

entity controlled by Brent Nelson, following its transfer at closing of the Kepler transaction on February 27, 2026.

The Control Share

carries 60% voting power in the Company.

Effective May 1, 2026, the Company filed a Certificate

of Amendment with the Texas Secretary of State reducing its authorized common stock, par value $ 0.001

per share from 3,000,000,000 shares to 1,800,000,000

As of June 30, 2026 1,641,801,029 shares

were issued and 1,619,034,363 were outstanding.

As of December 31, 2025, 2,939,061,314

shares of common stock were issued and outstanding, respectively.

During the six months ended June 30, 2026, 20,000,000

shares were returned by Pinnacle Consulting Services, Inc.

and 2,766,666

shares were returned by a third-party shareholder to the Company at no cost.

These shares are recorded as Treasury Stock on the Company’s

balance sheet at June 30, 2026.

During the six months ended June 30, 2026, the

Company issued 125,000,000 shares of common stock pursuant to conversion notices received from holders of outstanding convertible notes.

In January 2026, the Company entered into agreements

1 unchanged sentence

Compensation expense totaling $ 239,055 is included in selling, general and administrative expense in the Company’s statement

of operations for the period ended March 31, 2026.

of operations for the six-month period ended June 30, 2026.

In May 2026, the Company entered into an agreement with a third-party service

provider in exchange for compensation of 1,000,000 shares of common stock with a fair value of $ 0.0788 per share.

Compensation expense

totaling $ 78,800 is included in selling, general and administrative expense in the Company’s statement of operations for the three-

and six-month periods ended June 30, 2026.

Cancellation of Legacy Share Issuances

In March, 2026, the Company obtained an

amended default judgment in the Superior Court of Washington, King County, rescinding certain legacy asset purchase agreements and

declaring void ab initio the prior issuance of an aggregate 1,683,000,000

shares of the Company’s common stock.

Pursuant to the order, the Company’s transfer agent was authorized and directed to

cancel such shares and correct the Company’s stock ledger accordingly.

Common Stock Issuable

As of March 31, 2026, the Company has recorded

common stock issuable of $ 240,000 representing 240,000,000 shares of common stock required to be issued under Section 3.3 of the Master

Sales Agreement in connection with the Kepler reverse recapitalization that closed on February 27, 2026.

These shares are issuable but have

not been physically issued as of the balance sheet date.

Upon issuance, common stock issuable will be reclassified to common stock.

The Company had recorded common stock issuable

of $ 240,000 representing 240,000,000 shares of common stock required to be issued under Section 3.3 of the Master Sales Agreement in connection

with the Kepler reverse recapitalization that closed on February 27, 2026.

The shares were issued in April 2026.

This issuance represents

the fulfillment of a pre-existing contractual obligation arising from the acquisition transaction and does not constitute a new compensatory

or financing issuance.

Pursuant to the Master Sales Agreement, RH2 Equity

Partners, LP is entitled to receive 1,000,000 shares of post-reverse-split common stock, vesting quarterly over 36 months, in consideration

of extended advisory services to be provided to the combined entity.

See Notes 7 and 9.

AMERICAN FUSION INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Prepaid Warrants

Between January 1, 2026, and May 1, 2026,

the Company entered into a Master Prepaid Common Stock Purchase Warrant Agreement (the “Agreement”) with Pinnacle Consulting

Between January 1, 2026, and May 1, 2026, the

Company entered into a Master Prepaid Common Stock Purchase Warrant Agreement (the “Agreement”) with Pinnacle Consulting

Services, Inc.

establishing a prepaid warrant financing facility of up to $ 3,000,000 (the “Facility”).

The warrants issued

under the Facility are exercisable for shares of the Company’s common stock at a fixed exercise price of $ 0.05 per share.

price does not reset, ratchet, or otherwise adjust based on the prevailing market price of the Company’s common stock, and the warrants

do not contain variable rate or floating conversion features.

Other than a nominal exercise price of $ 0.0001 upon exercise, the full purchase

price for each tranche is prepaid by the Investor at the time of funding.

If the Company, while any warrant is outstanding,

(i) pays a stock dividend on the common stock, (ii) subdivides its outstanding common stock into a greater number of shares (including

by forward stock split), (iii) combines its outstanding common stock into a smaller number of shares (including by reverse stock split),

or (iv) issues any shares in a reclassification or recapitalization of the common stock, then the number of warrant shares issuable on

exercise of each warrant and the then-applicable nominal remaining exercise price shall be proportionally adjusted.

(“Pinnacle”) establishing a prepaid warrant financing facility of up to $ 3,000,000 (the “Facility”).

The warrants issued under the Facility are exercisable for shares of the Company’s common stock at a fixed exercise price of $ 0.05

The exercise price does not reset, ratchet, or otherwise adjust based on the prevailing market price of the Company’s

common stock, and the warrants do not contain variable rate or floating conversion features.

Other than a nominal exercise price of $ 0.0001

upon exercise, the full purchase price for each tranche is prepaid by the Investor at the time of funding.

If the Company, while any warrant

is outstanding, (i) pays a stock dividend on the common stock, (ii) subdivides its outstanding common stock into a greater number of

shares (including by forward stock split), (iii) combines its outstanding common stock into a smaller number of shares (including by

reverse stock split), or (iv) issues any shares in a reclassification or recapitalization of the common stock, then the number of warrant

shares issuable on exercise of each warrant and the then-applicable nominal remaining exercise price shall be proportionally adjusted.

If, at any time while any warrant is outstanding,

2 unchanged sentences

share, (a “Dilutive Issuance”), then the exercise price shall be reduced, to equal the lower effective price per share.

During the three months ended March 31, 2026, the Company issued

prepaid warrants to Pinnacle Consulting Services Inc.

in eleven tranches aggregating $ 513,000 in cash proceeds.

The warrants are classified

as equity and reported as a component of additional paid-in capital in the Company’s statement of stockholders’ deficit.

As of the date of this report, an aggregate

of approximately $863,000 has been funded through multiple tranches under the Facility.

The remaining balance of up to $2,207,000 is available

for future funding, subject to the terms and conditions of the Agreement.

the six months ended June 30, 2026, the Company issued prepaid warrants to Pinnacle Consulting Services Inc.

aggregating $ 943,000 in

cash proceeds.

The warrants are classified as equity and reported as a component of additional paid-in capital in the Company’s

statement of stockholders’ deficit.

Securities Purchase Agreements

In May 2026, the Company entered into Securities

Purchase Agreements with third party investors for the sale of equity units (“Units”).

Each unit consists of one share of

restricted common stock, $ 0.001 par value, and one warrant to purchase one share of common stock at an exercise price of $0.50 per share.

The Company sold 4,500,000 Units at a per unit price of $0.05 for a total of $ 225,000 .

Shares were issued as of June 30, 2026

for 4,000,000 Units.

The remaining 500,000 units were recorded as an accrued liability in the Company’s balance sheet at June 30,

2026, totaling $ 25,000 .

Stock Compensation Agreements

During the six months ended June 30, 2026, the

Company entered into certain consulting services and independent director advisory agreements.

As full and complete consideration for

the consulting and advisory services to be rendered, the Company shall issue shares of the Company’s common stock having an aggregate

fair market value of $240,000 each for an aggregate of $1,440,000.

The number of shares to be issued shall be determined by dividing $1,440,000

by the closing price of the Company’s common stock on the first trading day following the completion of any restructuring event

(“Initial Valuation Date”) as defined in the agreements, or, if no restructuring event occurs, the closing price of the Company’s

common stock on the effective dates of the agreements.

On the one-year anniversary of the date on which the Initial Valuation Price is

determined (the “Valuation Date”), the Company shall determine the lowest closing price of the Company’s common stock

during the ten (10) trading days immediately preceding the Valuation Date (the “Anniversary Price”).

If the Anniversary price is less than the

Initial Valuation Price, the Company shall issue to consultant or director, such additional number of shares as are necessary so

that the aggregate fair market value of all shares issued calculated using the Anniversary Price, equals the contractual

compensation amount.

This adjustment shall operate as a hard minimum value backstop and shall apply automatically without the need

for further action by the consultant or director.

Vesting of the to-be determined shares and compensation is over the

twelve-month term of each of the agreements.

Compensation expense totaling $537,205 has been recorded in selling, general and

administrative expenses for the six months ended June 30, 2026.

During the three months ended June 30, 2026, the Company recorded

$178,192 of consultant and director compensation expense relating to services rendered during the three months ended March 31, 2026.

Company evaluated the effect of this amount on its previously issued condensed consolidated financial statements for the three months

ended March 31, 2026 and concluded that the effect was not material.

The amount has no effect on cash flows, on loss per share, or on

the condensed consolidated financial statements for the six months ended June 30, 2026.

In May 2026, the Company also entered into two

contingent consulting services contracts as full and complete consideration for the consulting and advisory services to be rendered, the

Company shall issue shares of the Company’s common stock having an aggregate fair market value of $240,000 each for an aggregate

The number of shares to be issued shall be determined by dividing $480,000 by the closing price of the Company’s common

stock on the first trading day following the completion of any restructuring event (“Initial Valuation Date”) as defined in

the agreements, or, if no restructuring event occurs, the closing price of the Company’s common stock on the effective dates of

the agreements.

On the one-year anniversary of the date on which the Initial Valuation Price is determined (the “Valuation Date”),

the Company shall determine the lowest closing price of the Company’s common stock during the ten (10) trading days immediately

preceding the Valuation Date (the “Anniversary Price”).

If the Anniversary price is less than the Initial

Valuation Price, the Company shall issue to consultant or director, such additional number of shares as are necessary so that the aggregate

fair market value of all shares issued calculated using the Anniversary Price, equals the contractual compensation amount.

This adjustment

shall operate as a hard minimum value backstop and shall apply automatically without the need for further action by the consultant or

AMERICAN FUSION INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Vesting on one

of these contracts is contingent upon two vesting conditions as defined.

The entirety of the stock-based rights shall vest when both

a restructuring event has occurred and the consultant shall have (i) remained continuously engaged under this agreement through the date

on which the restructuring event condition is satisfied, or (ii) completed the initial twelve (12) month term of service prior to the

restructuring event.

If a minimum of six months of service has been performed, and this agreement terminated prior to the restructuring

event, a pro-rata amount of shares shall be considered earned by the consultant.

If either condition is not satisfied, then the stock-based

rights shall be forfeited in their entirety without consideration, and the Company shall have no obligation to issue any shares.

Compensation expense totaling $ 26,658 has been recorded in selling, general and administrative

expenses for the six months ended June 30, 2026.

Vesting on the other contract is contingent upon two vesting conditions as defined.

The entirety of the stock-based rights shall vest when both a restructuring event has occurred and the consultant shall have (i) remained

continuously engaged under this agreement through the date on which the restructuring event condition is satisfied.

If either condition

is not satisfied, then the stock-based rights shall be forfeited in their entirety without consideration, and the Company shall have

no obligation to issue any shares.

No compensation expense has been recorded as of June 30, 2026.

In the event the trading price of the Company’s

common stock increases following the effective date, no reduction, clawback, or forfeiture shall apply.

All shares issued pursuant to

the agreements shall include piggyback registration rights in the Company’s next registration statement on Form S-1 or Form 1-A,

subject to customary underwriter limitations, if any.

Shares Issued in Reverse Recapitalization

In connection with the closing of the Kepler

reverse recapitalization on February 27, 2026, the Company is obligated to issue an additional of common stock to Kepler's former

shareholders pursuant to the Share Exchange Agreement.

These shares will represent approximately 89.7% of the post-merger

outstanding common shares, subject to a restructuring event, and constitute the consideration deemed to have been transferred to the

former owners of the legal acquirer (AMFN) under ASC 805-40.

In connection with the closing of the Kepler reverse

recapitalization on February 27, 2026, the Company is obligated to issue additional common stock to Kepler's former shareholders pursuant

to the Share Exchange Agreement.

These shares will represent approximately 89.7% of the post-merger outstanding common shares, subject

to a restructuring event, and constitute the consideration deemed to have been transferred to the former owners of the legal acquirer

(AMFN) under ASC 805-40.

See Note 9 for additional information.

NOTE 5 – LITIGATION LIABILITY

On December 12, 2024, the Court of Alaska

entered a judgment against the Company.

On December 12, 2024, the Court of Alaska entered

a judgment against the Company.

The total judgment recognized in the year ended December 31, 2024 was $ 618,994 .

The judgment accrues

interest at an annual rate of 8.5% until paid.

During the three months ended March 31, 2026,

interest expense of $ 11,004 was recognized on the outstanding judgment balance, consistent with the amount recognized in the accompanying

consolidated statement of operations.

The total litigation payable balance as of March 31, 2026 is $ 682,381 , consisting of the $ 671,377

balance at December 31, 2025 plus Q1 2026 accrued interest of $ 11,004 .

The judgment accrues interest

at an annual rate of 8.5% until paid.

Interest expense totaled $ 14,959 and $ 26,179 during

the three months ended June 30, 2026 and 2025, respectively.

Interest expense totaled $ 25,964 and $ 26,179 during the six months ended

June 30, 2026 and 2025, respectively.

The total litigation payable balance as of June 30, 2026, is $ 697,341 , consisting of the $ 671,377

balance at December 31, 2025 plus 2026 accrued interest of $ 25,964 .

The Company is actively pursuing legal remedies

1 unchanged sentence

The full amount of the judgment, together with accrued interest, has been recognized as a litigation payable in the accompanying consolidated

balance sheet, as the obligation constitutes a determinable legal liability recorded in accordance with ASC 450 and ASC 855.

NOTE 6 – NOTES PAYABLE – RELATED PARTIES

As of March 31, 2026 and December 31, 2025,

notes payable to related parties consisted of the following:

balance sheet, as the obligation constitutes a determinable legal liability recorded in accordance with ASC 450.

NOTE 6 – CONVERTIBLE NOTES PAYABLE – RELATED PARTY

As of June 30, 2026 and December 31, 2025, convertible

notes payable-related party consisted of the following:

of notes payable related parties

June 30, 2026

December 31, 2025

Pinnacle Consulting Services – May 2023 Note

3 unchanged sentences

CMB Communications – January 2025 Note

Total notes payable – related parties

The notes bear interest at rates ranging

from 8 % to 15 % per annum.

All notes were in default as of March 31, 2026.

Upon the occurrence of an event of default,

the lenders shall have the option to convert all or any portion of the unpaid principal, accrued interest, and any other fees or

charges into shares of the Company’s common stock at a fixed price of $ 0.0002

per share, subject to the limitation that such conversion shall not result in the lender beneficially owning more than 9.99 %

of the total outstanding common stock of the Company at the time of conversion.

The notes bear interest at stated rates ranging from 8 %

All notes had matured and were in default as of June 30, 2026.

Interest expense on convertible notes -

related party totaled $ 15,068

for the three months ended June 30, 2026 and 2025, respectively.

Interest expense on convertible notes - related party totaled

for the six months ended June 30, 2026 and 2025, respectively.

Interest expense is recorded as an addition to the principal

During the six months ended June 30, 2026,

Pinnacle Consulting Services, Inc.

(“Pinnacle”) converted $ 25,000

of principal into 125,000,000

shares of common stock.

AMERICAN FUSION INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

NOTE 7 – RELATED PARTY TRANSACTIONS

On March 1, 2026, the Company entered into

a consulting agreement with Brent Nelson, CEO of Kepler Fusion Technologies, Inc., and a wholly owned subsidiary of the Company.

1, 2026, the Board of Directors appointed Brent Nelson as Chairman of the Board of Directors of the Company.

On March 1, 2026, the Company entered into a consulting

agreement with Brent Nelson, CEO of Kepler Fusion Technologies, Inc., a wholly owned subsidiary of the Company.

On March 1, 2026, the

Board of Directors appointed Brent Nelson as Executive Chairman of the Board of Directors of the Company.

The agreement includes monthly

compensation of $ 15,000 per month, of which $ 15,000 was paid during the three months ended March 31, 2026.

The Company may, in its sole

and absolute discretion, award the consultant additional compensation or bonuses from time to time in recognition of services rendered,

milestones achieved, transactions completed, or other extraordinary contributions.

The term of this agreement shall be for six months

and automatically renew for successive six-month periods unless either party provides written notice of non-renewal at least thirty days

prior to the expiration of the then-current term.

Either party may terminate the agreement for cause as defined.

In addition, Brent Nelson, through Earth Sciences Fund I LLC (an

entity owned by him), holds the Special 2020 Series A Preferred Share, which carries super-voting rights sufficient to control stockholder

matters, as transferred on February 27, 2026.

This share does not represent common stock ownership but provides majority voting power.

Compensation earned by the Company’s CEO prior to 2026 has

been accrued and recorded as a liability pursuant to promissory notes issued to an affiliated consulting entity controlled by the CEO.

Interest expense on the notes totaled $ 7,675 and $ 2,479 for the three months ended March 31,2026 and 2025, respectively, and has been

recorded as increase to notes payable-related parties principal.

Total principal outstanding totaled $ 208,875 and $ 201,200 at March 31,

2026 and December 31, 2025, respectively.

On March 1, 2026, the Company entered into a consulting agreement

with its CEO The agreement includes monthly compensation of $ 15,000 per month, of which $ 15,000 was paid during the three months ended

March 31, 2026.

compensation of $ 15,000 per month, of which $ 45,000 and $ 60,000 , respectively, was paid during the three months and six months, ended

June 30, 2026.

The Company may, in its sole and absolute discretion, award the consultant additional compensation or bonuses from time

4 unchanged sentences

for cause as defined.

As part of the reverse recapitalization (Note 9), an entity controlled

by the CEO sold the one share of AMFN Special 2020 Series A Preferred Stock (the “Control Share”) for $ 1,000 to an entity

owned by Brent Nelson.

Pursuant to the Master Sales Agreement, RH2

Equity Partners, LP, an entity controlled by the CEO and the principal of Pinnacle, is entitled to receive 1,000,000 shares of post-reverse-split

common stock, vesting quarterly over 36 months, in consideration of extended advisory services to be provided to the combined entity.

In January 2025, the Company entered into an advisory services

agreement with Pinnacle Services Consulting, Inc.

(“Pinnacle”).

The agreement includes annual compensation of $ 50,000 and

has been recorded as a liability pursuant to a convertible promissory note with a maturity date of December 31, 2025 .

Interest shall accrue

on the unpaid principal balance at the rate of eight percent (8%) per annum, calculated on the basis of a 360-day year.

If the Company

fails to pay principal or accrued interest when due, the unpaid balance shall accrue interest at a default rate of fifteen percent (15%)

per annum from the date of default until paid in full.

The note is currently in default.

Upon the occurrence of an event of default, as

defined in the note, Pinnacle shall have the option to convert all or any portion of the unpaid principal, accrued interest, and any other

fees or charges at a fixed price of $0.0002 per share.

Such conversion shall not result in Pinnacle beneficially owning more than 9.99%

of the total outstanding common stock of the Company.

In March 2026, Pinnacle converted $ 8,500 of principal into 42,500,000 shares of

common stock.

Interest expense on all Pinnacle notes outstanding totaled $ 18,488

and $ 2,479 for the three months ended March 31,2026 and 2025, respectively, and has been recorded as an

increase to notes payable-related parties.

Total principal outstanding totaled $ 282,311 and $ 272,323 at March 31, 2026 and December 31,

2025, respectively.

During the three months ended March 31, 2026, the Company issued

prepaid warrants to Pinnacle Consulting Services Inc.

in eleven tranches aggregating $ 513,000 in cash proceeds.

The warrants are classified

as equity and reported as a component of additional paid-in capital in the Company’s statement of stockholders’ deficit.

Notes 4 and 10.

During the three months ended March 31,

2026, the Company entered into four officer consulting and independent director advisory agreements.

As full and complete

consideration for the advisory services to be rendered, the Company shall issue shares of the Company’s common stock having an

aggregate fair market value of $ 240,000

each following the completion of a restructuring event.

NOTE 8– COMMITMENTS AND CONTINGENCIES

Legal Matters

In the normal course of business, the Company

may be subject to various legal proceedings and claims.

Other than the litigation payable described in Note 5, management is not aware

of any pending or threatened litigation that would have a material adverse effect on the Company's financial position or results of operations.

Contractual Commitments

Pursuant to the Master Sales Agreement, RH2

Equity Partners, LP is entitled to receive 1,000,000 shares of post-reverse-split common stock, vesting quarterly over 36 months, in consideration

of extended advisory services to be provided to the combined entity.

See Notes 7 and 9.

During the three months ended March 31, 2026,

the Company entered into certain consulting services and independent director advisory agreements.

As full and complete consideration

for the consulting and advisory services to be rendered, the Company shall issue shares of the Company’s common stock having an

aggregate fair market value of $ 240,000

each for an aggregate of $1,680,000.

The number of shares to be issued shall be determined by dividing $1,680,000 by the closing price

of the Company’s common stock on the first trading day following the completion of any restructuring event ( “Initial Valuation

Date”) as defined in the agreements, or, if no restructuring event occurs, the closing price of the Company’s common stock

on the effective dates of the agreements.

On the one-year anniversary of the date on which the Initial Valuation Price is determined

(the “Valuation Date”), the Company shall determine the lowest closing price of the Company’s common stock during the

ten (10) trading days immediately preceding the Valuation Date (the “Anniversary Price”).

If the Anniversary price is less than the Initial Valuation Price,

the Company shall issue to consultant or director, such additional number of shares as are necessary so that the aggregate fair market

value of all shares issued calculated using the Anniversary Price, equals the contractual compensation amount.

This adjustment shall operate

as a hard minimum value backstop and shall apply automatically without the need for further action by the consultant or director.

In the event the trading price of the Company’s common stock

increases following the effective date, no reduction, clawback, or forfeiture shall apply.

All shares issued pursuant to the agreements shall include piggyback

registration rights in the Company’s next registration statement on Form S-1 or Form 1-A, subject to customary underwriter limitations,

Risks and Uncertainties

The Company's operations are subject to significant

risks and uncertainties, including financial, operational, regulatory, and technological risks.

Through its Kepler subsidiary, the Company

is in an early stage of development with limited operating history and may require substantial additional capital to fund its operations

and the commercialization of its fusion energy technology.

In addition, Brent Nelson, through Earth Sciences

Fund I LLC (an entity owned by him), holds the Special 2020 Series A Preferred Share, which carries super-voting rights sufficient to

control stockholder matters, as transferred on February 27, 2026.

This share does not represent common stock ownership but provides majority

voting power.

An immediate family member of Mr.

Nelson has been paid $ 15,000 during the three month and and six-month periods ended June 30, 2026 for marketing- related

Compensation earned by the Company’s

CEO prior to 2026 has been accrued and recorded as a liability pursuant to promissory notes issued CMB Communications, LLC

(“CMB”) to an affiliated consulting entity controlled by the CEO.

Compensation expense under the notes totaled $ 50,000

for the three and six months ended June 30, 2025.

Interest expense on the notes totaled $ 4,679

for the three months ended June 30, 2026 and 2025, respectively, and has been recorded as increase to convertible notes

payable-related party principal.

Interest expense on the notes totaled $ 9,222

for the six months ended June 30, 2026 and 2025, respectively, and has been recorded as increase to convertible notes

payable-related party principal.

Total principal outstanding totaled $ 213,692

and $ 201,200 at June 30, 2026

and December 31, 2025, respectively.

On March 1, 2026, the Company entered into a consulting

agreement with its CEO.

The agreement includes monthly compensation of $ 15,000 per month, of which $ 45,000 and $ 60,000 was paid during

the three months and six months, respectively, ended June 30, 2026.

The Company may, in its sole and absolute discretion, award the consultant

additional compensation or bonuses from time to time in recognition of services rendered, milestones achieved, transactions completed,

or other extraordinary contributions.

The term of this agreement shall be for six months and automatically renew for successive six-month

periods unless either party provides written notice of non-renewal at least thirty days prior to the expiration of the then-current term.

Either party may terminate the agreement for cause as defined.

As part of the reverse recapitalization (Note

9), an entity controlled by the CEO sold the one share of AMFN Special 2020 Series A Preferred Stock (the “Control Share”)

for $ 1,000 to an entity owned by Brent Nelson.

In conjunction with the terms of the Master

Sales Agreement, the Company entered into a separate consulting agreement with RH2 Equity Partners, LP (“RH2”).

an entity controlled by the Company’s CEO and the principal of Pinnacle.

The terms of the agreement provide (i) a one-time

cash fee of twenty thousand dollars ($20,000) upon execution , (ii) to allow CMB and Pinnacle to retain certain outstanding notes in

the aggregate principal amount of approximately $500,000 subject to the Settlement and Exchange Agreements being executed

contemporaneously with the Master Sales Agreement, and (iii) to issue to RH2 one million ( 1,000,000 )

shares of Company common stock, issued post-reverse split and vesting quarterly over thirty-six (36) months, with a minimum

quarterly notional value of thirty thousand dollars ($30,000), subject to true-up share issuances, or the Company shall have the

option, at its sole discretion, to pay thirty thousand dollars ($30,000) in lieu of that quarterly’s vesting by RH2.

Under the Settlement and Exchange Agreements

described above, the Company agreed to issue (i) 450,000 authorized, validly issued, fully paid and non-assessable shares of the

Company’s common stock to CMB Communications LLC in exchange for the conversion of $4,500 of indebtedness at a fixed

conversion price of $0.01 per share, and (ii) 550,000 authorized, validly issued, fully paid and non-assessable shares of the

Company’s common stock to Pinnacle Consulting Services, Inc.

in exchange for the conversion of $5,500 of indebtedness at a

fixed conversion price of $0.01 per share.

The aggregate issuance of 1,000,000 common shares (“Settlement Shares”)

is fixed and shall not be adjusted, increased, or decreased as a result of any reverse stock split, recapitalization, or similar

corporate action.

Within five (5) business days following the effectiveness of a reverse stock split, each applicable holder is

required to deliver to the Company’s transfer agent a completed notice of conversion irrevocably electing to convert the

applicable indebtedness into shares of Company common stock.

Failure to timely deliver such notice constitutes a breach of the

applicable Settlement and Exchange Agreement.

Upon issuance of the applicable Settlement Shares, only the portion of the

indebtedness converted under the applicable agreement shall be deemed fully satisfied, extinguished, cancelled, released and

All remaining conversion shares associated with the broader debt conversion transaction are issuable by the Company, at

its direction, to Earth Sciences Fund I, LLC, CMB Communications LLC, Pinnacle Consulting Services, Inc., and/or such other persons

or entities as the Company or Earth Sciences Fund I, LLC may designate in writing pursuant to the transaction.

During the six months ended June 30, 2026, the

Company issued prepaid warrants to Pinnacle Consulting Services Inc.

aggregating $ 943,000

in cash proceeds.

The warrants are classified as equity and reported as a component of additional paid-in capital in the Company’s

statement of stockholders’ deficit.

During the six months ended June 30, 2026, 20,000,000 shares were returned by Pinnacle Consulting

Services, Inc.

to the Company at no cost.

These shares are recorded as Treasury Stock on the Company’s balance sheet at June 30,

In 2025, the Company entered into an advisory agreement with Pinnacle, whereby compensation totaling $ 50,000 earned by Pinnacle has been

accrued and recorded as a liability pursuant to a convertible promissory note issued in 2025.

Interest expense on the notes totaled $ 2,103

and $ 1,006 for the three months ended June 30, 2026 and 2025, respectively, and has been recorded as increase to convertible notes payable-related

party principal.

Interest expense on the notes totaled $ 4,129 and $ 2,006 for the six months ended June 30, 2026 and 2025, respectively,

and has been recorded as increase to convertible notes payable-related party principal.

Total principal outstanding totaled $ 58,170 and

$ 54,000 at June 30, 2026 and December 31, 2025, respectively.

Beginning in April 2026, the Company initiated

consulting services payments to several of its officers ranging from $10,000- $12,000 per month for a total of $102,000 for the three-

and six-month periods ended June 30, 2026.

During the six months ended June 30, 2026, the Company entered into five officer consulting

and independent director advisory agreements.

As full and complete consideration for the advisory services to be rendered, the Company

shall issue shares of the Company’s common stock having an aggregate fair market value of $ 240,000 each following the completion

of a restructuring event and/or service period.

Beginning in June 2026, the Company initiated

monthly payments of $ 2,000 for each of its two independent directors.

AMERICAN FUSION INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

NOTE 8- WARRANTS

In May 2026, the Company entered in Securities

Purchase Agreements with third party investors for the sale of equity units (“Units”).

Each unit consists of one share of

restricted common stock, $ 0.001 par value, and one warrant to purchase one share of common stock at an exercise price of $ 0.50 per share.

The Company sold 4,500,000 Units at a per unit price of $ 0.05 for a total of $ 225,000 .

The warrants are exercisable for three years, permit

cash exercise, and permit a limited cashless exercise only when a registration statement is unavailable following effectiveness.

The warrant contains customary proportional anti-dilution

adjustments for stock splits, stock dividends, combinations, and reorganizations, together with a 4.99% beneficial ownership blocker.

The warrants qualify for equity accounting as

they do not fall within the scope of ASC Topic 480, Distinguishing Liabilities from Equity Both the common stock and the warrant meet

the requirements of freestanding equity instruments within the scope of ASC Topic 505, Equity.

The warrants were measured at their relative

fair value at the time of issuance and classified as equity.

The Company valued the warrant using the Black-Scholes valuation model.

The following table summarizes the assumptions used in the valuation model to determine the fair value of the warrant:

of warrants assumptions

Fair Value of Common Share

Exercise Price

Risk Free Rate

Expected Life (Yrs.)

NOTE 9 – REVERSE RECAPITALIZATION

Overview of Transaction

On December 16, 2025, the Company entered

into a Master Sales Agreement (the "MSA") among Manufacturing 360, LLC ("Seller"), Earth Sciences Fund I LLC ("ESF"

On December 16, 2025, the Company entered into

a Master Sales Agreement (the “MSA”) among Manufacturing 360, LLC (“Seller”), Earth Sciences Fund I LLC (“ESF”

or “Buyer”), RH2 Equity Partners, LP ("Consultant"), and the Company, and a Share Exchange Agreement (the “SEA”)

4 unchanged sentences

Closing of the Transaction

The transfer of the Special 2020 Series A

Preferred Control Share from Manufacturing 360, LLC to Earth Sciences Fund I LLC occurred on February 27, 2026, at which point all closing

conditions under the MSA and SEA were satisfied.

The transfer of the Special 2020 Series A Preferred

Control Share from Manufacturing 360, LLC to Earth Sciences Fund I LLC occurred on February 27, 2026, at which point all closing conditions

under the MSA and SEA were satisfied.

Accordingly, the acquisition date under ASC 805 is February 27, 2026.

Accounting Treatment — Reverse Recapitalization

The transaction has been accounted for as a

reverse recapitalization in accordance with ASC 805-40.

Although AMFN is the legal acquirer, Kepler has been identified as the

accounting acquirer for financial reporting purposes.

The transaction has been accounted for as a reverse

recapitalization in accordance with ASC 805-40.

Although AMFN is the legal acquirer, Kepler has been identified as the accounting acquirer

for financial reporting purposes.

The following factors support this determination:

(1) Kepler's former

shareholders shall hold approximately 89.7% of the common shares voting rights in the combined entity;

(2) Kepler's designees will

control the board of directors;

(3) Kepler's management comprises the senior management team of the combined entity;

was a non-operating public shell with minimal assets at the acquisition date.

Key Terms of the Transaction

(1) Kepler's former shareholders shall hold approximately

89.7% of the common voting rights in the combined entity;

(2) Kepler's designees will control the board of directors;

(3) Kepler's management

comprises the senior management team of the combined entity;

and (4) AMFN was a non-operating public shell with minimal assets at the

acquisition date.

Key Terms of Transaction

The MSA provides for:

(a) the sale of one

share of RNWF Special 2020 Series A Preferred Stock (the "Control Share") from Manufacturing 360, LLC to ESF for $1,000,

which carries 60% voting power;

(a) the sale of one share

of RNWF Special 2020 Series A Preferred Stock (the “Control Share”) from Manufacturing 360, LLC to ESF for $1,000, which carries

60% voting power;

(b) the simultaneous share exchange with Kepler;

and (c) a consulting engagement with RH2 Equity

Partners, LP.

The Share Exchange Agreement contemplates the issuance of 240,000,000 shares of RNWF common stock recorded as common

stock issuable as of March 31, 2026 (see Note 4), and the issuance of additional shares to Kepler's former shareholders.

Partners, LP will receive 1,000,000 shares of post-reverse-split common stock vesting quarterly over 36 months for extended advisory

and (c) a consulting engagement with RH2 Equity Partners, LP.

Exchange Agreement contemplated the issuance of 240,000,000 shares of RNWF common stock recorded as common stock issuable as of March

31, 2026 (see Note 4), and the issuance of additional shares to Kepler's former shareholders.

RH2 Equity Partners, LP will receive 1,000,000

shares of post-reverse-split common stock vesting quarterly over 36 months for extended advisory services.

AMERICAN FUSION INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

NOTE 10– COMMITMENTS AND CONTINGENCIES

Legal Matters

In the normal course of business, the Company

may be subject to various legal proceedings and claims.

Other than the litigation payable described in Note 5, management is not aware

of any pending or threatened litigation that would have a material adverse effect on the Company's financial position or results of operations.

Lease Commitments

In June 2026, the Company entered into three operating

leases for its factory and office location which commence in July and September 2026.

The leases provide for a base rent of $6,758 per

month through August 2026 and $21,775 through February, 2030.

Risks and Uncertainties

The Company's operations are subject to significant

risks and uncertainties, including financial, operational, regulatory, and technological risks.

The Company is in an early stage of development

with limited operating history and may require substantial additional capital to fund its operations and the commercialization of its

fusion energy technology.

NOTE 11 – SUBSEQUENT EVENTS

The Company has evaluated events and transactions

occurring subsequent to March 31, 2026 and through the date these consolidated financial statements were issued for potential recognition

occurring subsequent to June 30, 2026 and through the date these consolidated financial statements were issued for potential recognition

or disclosure in the financial statements.

1 unchanged sentence

in the accompanying financial statements, other than as may be disclosed herein.

Cancellation of Legacy Share Issuances

Subsequent to March 31, 2026, the Company

obtained an amended default judgment in the Superior Court of Washington, King County, rescinding certain legacy asset purchase agreements

and declaring void ab initio the prior issuance of an aggregate 1,683,000,000 shares of the Company’s common stock.

the order, the Company’s transfer agent was authorized and directed to cancel such shares and correct the Company’s stock

ledger accordingly.

Management has evaluated this event as a subsequent event occurring after the balance sheet date and has presented

it herein for disclosure purposes.

Reduction in Authorized Common Stock

Effective May 1, 2026, the Company filed

a Certificate of Amendment with the Texas Secretary of State reducing its authorized common stock from 3,000,000,000 shares to 1,800,000,000

The amendment did not modify the Company’s authorized preferred stock, which remains at 20,000,001 shares.

This amendment

affects the Company’s authorized capital structure only and does not, by itself, impact the number of shares issued and outstanding

as of March 31, 2026.

Issuance of Exchange Shares Pursuant

to Share Exchange Agreement

Subsequent to March 31, 2026, and pursuant

to the terms of the Share Exchange Agreement dated December 16, 2025, in connection with the Company’s previously disclosed acquisition

of Kepler Fusion Technologies Inc., the Company issued 240,000,000 shares of its common stock to Brent Nelson, as seller under the Share

Exchange Agreement, in satisfaction of the Company’s contractual obligation to deliver the exchange consideration contemplated by

the transaction.

The issuance was effected following the availability of sufficient authorized but unissued common stock following the

cancellation of certain legacy shares previously ordered returned to treasury.

This issuance represents the fulfillment of a pre-existing

contractual obligation arising from the acquisition transaction and does not constitute a new compensatory or financing issuance.

Prepaid Warrants

As of May 15, 2026, the Company issued prepaid

warrants to Pinnacle Consulting Services Inc.

for an additional $ 350,000 in cash proceeds and for an aggregate total of $ 863,000 .

On July 21, 2026, the Company also entered into

a consulting services contract.

As full and complete consideration for the consulting and advisory services to be rendered, the Company

shall issue shares of the Company’s common stock having a fair market value of $ 240,000 .

The number of shares to be issued shall

be determined by dividing $240,000 by the closing price of the Company’s common stock on the first trading day following the completion

of any restructuring event (“Initial Valuation Date”) as defined in the agreements, or, if no restructuring event occurs,

the closing price of the Company’s common stock on the effective dates of the agreements.

On the one-year anniversary of the date

on which the Initial Valuation Price is determined (the “Valuation Date”), the Company shall determine the lowest closing

price of the Company’s common stock during the ten (10) trading days immediately preceding the Valuation Date (the “Anniversary

If the Anniversary price is less than the Initial

Valuation Price, the Company shall issue to consultant or director, such additional number of shares as are necessary so that the aggregate

fair market value of all shares issued calculated using the Anniversary Price, equals the contractual compensation amount.

This adjustment

shall operate as a hard minimum value backstop and shall apply automatically without the need for further action by the consultant or

Vesting on these contracts is contingent upon

two vesting conditions as defined.

The entirety of the stock-based rights shall vest when both a restructuring event has occurred and

the consultant shall have (i) remained continuously engaged under this agreement through the date on which the restructuring event condition

is satisfied, or (ii) completed the initial twelve (12) month term of service prior to the restructuring event.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements