American Fusion, Inc. 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited condensed consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q and with the audited financial statements and related notes included in our Registration Statement on Form 10 filed with the Securities and Exchange Commission on March 12, 2026. Overview We are a development-stage advanced energy company focused on the development and commercialization of the Texatron™, a compact pulsed toroidal fusion reactor designed to provide clean, scalable baseload electricity. We operate under a Power-as-a-Service business model, intending to own and operate Texatron™ units and sell electricity under long-term contracts. The Company completed its reverse recapitalization with Kepler Fusion Technologies Inc. on February 27, 2026. As a result of the transaction, Kepler Fusion became our wholly owned subsidiary, and we have fully integrated its assets, technology, and operations. While the Company generated limited revenue during the quarter, we remain in the early stages of commercialization. Our activities during the six months ended June 30, 2026 continued to focus on research and development, prototype testing (including advancement of the Version 9 prototype in Midland, Texas), intellectual property expansion, and preparation for commercial deployment. Recent Development On July 17, 2026, subsequent to the end of the fiscal quarter, the Company received Certificate of Registration No. R54726 from the Texas Department of State Health Services (“DSHS”), authorizing the Company to receive, possess, acquire, transfer and use registered industrial radiation machines for research and development activities at its authorized testing location in Lubbock, Texas, subject to the terms and conditions of the registration and applicable Texas radiation control regulations. The registration designates Dr. John E. Brandenburg as the Company’s Radiation Safety Officer, remains effective through February 28, 2034, and covers twelve registered Texatron™ Fusion Engine™ research model classes ranging from 500 kW through 1 GW. The Company believes receipt of the registration represents a significant operational milestone supporting the continued engineering, prototype testing, technical validation and research activities associated with its Texatron™ Fusion Engine™ development program. The registration authorizes research and development activities only and does not constitute certification of the Company’s technology or commercial performance. Following receipt of the registration, the Company commenced preparations for research testing activities at its authorized testing location. Results of Operations Three Months Ended June 30, 2026 Compared to Three Months Ended June 30, 2025 The following table sets forth the unaudited results of our operations for the three months ended June 30: 2026 2025 Revenue $ 58,000 $ — Cost of revenue 50,000 — Gross margin 8,000 — Operating expenses 1,253,180 — Loss from operations (1,245,180 ) — Other expense (30,028 ) (55,319 ) Net loss $ (1,275,208 ) $ (55,319 ) 17 Our sales totaled $58,000 for the three months ended June 30,2026 and $0 for the three months ended June 30, 2025. The increase is primarily related to a sale to a new customer. The cost related to this sale totaled $50,000, resulting in a gross margin of $8,000. Our cost of sales consists of the cost of materials and distribution expenses. The following table sets forth the operating expenses for the three months ended June 30: 2026 2025 Change Consulting fees $ 543,232 $ — $ 543,232 Professional fees 217,268 — 217,268 Corporate communications and marketing 226,089 — 226,089 Research and development 131,342 — 131,342 Other operating expenses 135,249 — 135,249 $ 1,253,180 $ — $ 1,253,180 The following table sets forth the stock-based compensation expense included in the above operating expenses for the three months ended June 30: 2026 2025 Change Consulting fees $ 369,233 $ — $ 369,233 Professional fees 99,096 — 99,096 Corporate communications and marketing 78,800 — 78,800 Research and development 95,342 — 95,342 $ 642,471 — $ 642,471 Consulting fees totaling $543,232, consist of advisory services agreements entered into for key management positions and which are primarily stock compensation based. Professional fees totaling $217,268 are comprised primarily of legal and accounting fees reflecting costs associated with the reverse recapitalization and additional public company filings. Corporate communications and marketing costs reflect increased activity related to investor relations, product awareness and trade shows. The increase in research and development costs relates to acceleration of engineering efforts towards development of the Company’s prototypes. Included in other operating expenses totaling $135,249, are public company expenses totaling $47,488, travel and entertainment expenses totaling $53,525 and costs related to various outside service providers. 18 Six Months Ended June 30, 2026 Compared to Six Months Ended June 30, 2025 The following table sets forth the unaudited results of our operations for the six months ended June 30: 2026 2025 Revenue $ 58,000 $ — Cost of revenue 50,000 — Gross margin 8,000 — Operating expenses 1,885,763 100,000 Loss from operations (1,877,763 ) (100,000 ) Other expense (67,195 ) (55,319 ) Net loss $ (1,944,958 ) $ (155,319 ) Our sales totaled $58,000 for the six months ended June 30, 2026 and $0 for the six months ended June 30, 2025. The increase is primarily related to a sale to a new customer. The cost related to this sale totaled $50,000, resulting in a gross margin of $8,000. Our cost of sales consists of the cost of materials and distribution expenses. The following table sets forth the operating expenses for the six months ended June 30: 2026 2025 Change Consulting fees $ 573,233 $ 100,000 $ 473,233 Professional fees 423,938 — 423,938 Corporate communications and marketing 598,748 — 598,748 Research and development 131,342 — 131,342 Other operating expenses 158,502 — 158,502 $ 1,885,763 $ 100,000 $ 1,785,763 The following table sets forth the stock-based compensation expense included in the above operating expenses for the six months ended June 30: 2026 2025 Change Consulting fees $ 369,233 $ — $ 369,233 Professional fees 170,150 — 170,150 Corporate communications and marketing 246,800 — 246,800 Research and development 95,342 — 95,342 $ 881,526 $ — $ 881,526 Consulting fees totaling $573,233 consist of advisory services agreements entered into for key management positions and which are primarily stock compensation based. Professional fees totaling $423,938 are comprised primarily of legal and accounting fees reflecting costs associated with the reverse recapitalization and additional public Company filings. Professional fees in the 2026 period include $170,150 related to stock-based compensation agreements with legal counsel. Corporate communications and marketing costs reflect increased activity related to investor relations, product awareness and trade shows. Corporate communications and marketing costs in the 2026 period include $246,800 related to stock-based compensation agreements with various third-party providers. The increase in research and development costs relates to acceleration of engineering efforts towards development of the Company’s prototype. Included in other operating expenses totaling $158,502 are public company expenses totaling $51,844, travel and entertainment expenses totaling $63,786 and costs related to various outside service providers. 19 Liquidity and Capital Resources During the six months ended June 30, 2026 our cash and cash equivalents increased by $76,816 reflecting cash used in operating activities of $1,042,712 and cash used in investing activities of $48,472, offset by cash provided from financing activities of $1,168,000. At June 30, 2026, the Company had a working capital deficit of $1,708,451 and cash on hand of $79,341. During the six months ended June 30, 2025 there was no change in our cash and cash equivalents due to minimal operational and financing activity. Operating Activities Cash flows used in operating activities totaled $1,042,712 for the six months ended June 30, 2026 as compared to cash flows used of $0 or the six months ended June 30, 2025. Cash flows used in operating activities primarily reflect the net loss of $1,944,958 partially offset by stock-based compensation of $881,526. Investing Activities Cash flows used in investing activities of $48,472 reflect costs associated with the filing of new patents and website development. There were no investing activities in the 2025 period. Financing Activities Cash flows provided by financing activities increased as a result of prepaid warrant funding totaling $943,000 and the sale of equity units totaling $225,000. 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. There were no financing activities in the 2025 period. Historically, we have funded our operations through equity issuances and related-party loans. We continue to incur significant losses and negative cash flows from operations. We expect to require substantial additional capital to fund our research and development activities, prototype testing, intellectual property filings, and preparation for commercial deployment. Management is actively pursuing financing opportunities, including the previously announced $50 million capital raise. 20 Going Concern The Company’s consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As of June 30, 2026, the Company has an accumulated deficit of approximately $10.9 million and has incurred recurring losses from operations. These factors raise substantial doubt about the Company's ability to continue as a going concern. The accompanying consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. Management believes that the completion of the Kepler business merger and planned capital-raising activities will provide the resources necessary to fund ongoing operations; however, no assurance can be given that these plans will be successful. Critical Accounting Policies and Estimates There have been no material changes to our critical accounting policies and estimates from those disclosed in our Registration Statement on Form 10. Forward-Looking Statements The discussion in this Item 2 contains forward-looking statements. See “Cautionary Note Regarding Forward-Looking Statements” at the beginning of this Quarterly Report for important information regarding such statements.